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 September 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 November 5, 1998, there
were 26,704,790 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 Nine Months Ended
September 30 September 30
-------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $77,319 $67,087 $224,024 $192,687
Securities:
Taxable 28,006 26,617 86,676 81,221
Tax-exempt 795 443 1,852 1,348
------- ------- -------- --------
Total Securities 28,801 27,060 88,528 82,569
Federal funds sold 1,800 3,496 5,680 8,727
------- ------- -------- --------
Total Interest Income 107,920 97,643 318,232 283,983
INTEREST EXPENSE
Deposits 35,062 33,422 104,498 97,011
Federal funds purchased and securities
sold under repurchase agreements 2,478 2,009 8,052 6,468
Guaranteed preferred beneficial interest in the
Corporation's junior subordinated deferrable
interest debentures 2,118 2,119 6,356 5,533
Long-term notes payable and other borrowings 592 391 1,376 1,095
------- ------- -------- --------
Total Interest Expense 40,250 37,941 120,282 110,107
------- ------- -------- --------
Net Interest Income 67,670 59,702 197,950 173,876
Provision for possible loan losses 2,555 2,303 7,734 6,869
------- ------- -------- --------
Net Interest Income After Provision
For Possible Loan Losses 65,115 57,399 190,216 167,007
NON-INTEREST INCOME
Trust fees 11,759 11,473 35,420 32,427
Service charges on deposit accounts 14,218 12,156 39,791 35,219
Other service charges, collection and
exchange charges, commissions and fees 4,088 3,041 11,621 8,341
Net gain on securities transactions 67 6 211 22
Other 5,877 4,185 17,432 13,905
------- ------- -------- --------
Total Non-Interest Income 36,009 30,861 104,475 89,914
NON-INTEREST EXPENSE
Salaries and wages 27,645 25,236 82,609 72,217
Pension and other employee benefits 5,345 4,715 16,405 14,857
Net occupancy of banking premises 6,540 5,753 18,760 16,818
Furniture and equipment 4,868 4,013 13,956 11,725
Intangible amortization 3,299 3,062 10,007 8,891
Merger related charges 12,244
Other 19,701 16,479 57,298 48,976
------- ------- -------- --------
Total Non-Interest Expense 67,398 59,258 211,279 173,484
------- ------- -------- --------
Income Before Income Taxes 33,726 29,002 83,412 83,437
Income Taxes 11,728 10,107 30,545 29,417
------- ------- -------- --------
Net Income $21,998 $18,895 $ 52,867 $ 54,020
======= ======= ======== ========
Net income per common share:
Basic $ .83 $ .72 $ 1.99 $ 2.04
Diluted .80 .69 1.94 1.97
Dividends per common share (CFR) .30 .25 .85 .71
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)
September 30 December 31 September 30
1998 1997 1997
---------- ----------- ----------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 476,625 $ 637,613 $ 747,175
Securities held to maturity 119,366 255,428 241,373
Securities available for sale 1,773,393 1,514,050 1,447,039
Securities trading 1,673 1,940 2,003
Federal funds sold 166,397 190,000 190,055
Loans, net of unearned discount of $3,717 at
September 30, 1998; $3,194 at December 31, 1997
and $3,491 at September 30, 1997 3,536,480 3,116,895 3,008,597
Less: Allowance for possible loan losses (51,993) (48,073) (47,734)
---------- ---------- ----------
Net Loans 3,484,487 3,068,822 2,960,863
Banking premises and equipment 136,589 128,710 126,712
Accrued interest and other assets 250,455 249,010 204,967
---------- ---------- ----------
Total Assets $6,408,985 $6,045,573 $5,920,187
========== ========== ==========
Liabilities
Demand Deposits:
Commercial and individual $1,418,911 $1,353,242 $1,193,540
Correspondent banks 161,533 140,443 353,432
Public funds 44,330 54,880 42,215
---------- ---------- ----------
Total demand deposits 1,624,774 1,548,565 1,589,187
Time Deposits:
Savings and Interest-on-Checking 900,976 855,783 799,401
Money market deposit accounts 1,445,571 1,255,237 1,284,375
Time accounts 1,297,655 1,216,145 1,226,370
Public funds 196,744 293,360 216,549
---------- ---------- ----------
Total time deposits 3,840,946 3,620,525 3,526,695
---------- ---------- ----------
Total deposits 5,465,720 5,169,090 5,115,882
Federal funds purchased and securities
sold under repurchase agreements 227,538 200,774 166,662
Accrued interest and other liabilities 111,452 114,377 90,670
Guaranteed preferred beneficial interest in the
Corporation's junior subordinated deferrable
interest debentures 98,444 98,403 98,390
---------- ---------- ----------
Total Liabilities 5,903,154 5,582,644 5,471,604
Shareholders' Equity
Common stock, par value per share: $.01; $5; $5 267 133,775 133,738
Shares authorized:90,000,000;60,000,000;60,000,000
Shares issued: 26,678,621;
26,470,073; and 26,360,808
Surplus 182,224 53,647 52,151
Retained earnings 307,625 278,994 269,278
Unrealized gain on securities available
for sale, net of tax 16,575 8,917 9,797
Treasury Stock (17,474; 284,887; 386,866) (860) (12,404) (16,381)
---------- ---------- ----------
Total Shareholders' Equity 505,831 462,929 448,583
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $6,408,985 $6,045,573 $5,920,187
========== ========== ==========
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
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 nine months
ended September 30, 1998 52,867 52,867
Unrealized gain on
securities AFS, net of tax
and reclassification adjustment 7,658 7,658
--------
Total comprehensive income 60,525
--------
Proceeds from employee stock
purchase plan and options 95 (979) 1,231 347
Tax benefit related to
exercise of stock options 1,139 1,139
Purchase of treasury stock (2,784) (2,784)
Issuance of restricted stock 1 1,889 126 2,016
Restricted stock plan deferred
compensation, net (913) (913)
Cash dividend (21,554) (21,554)
ESOP shares committed to be released 2,820 658 3,478
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 September 30, 1998 $ 267 $182,224 $307,625 $16,575 $ (860) $505,831
========= ======== ======== ======= ======== ========
Disclosure of reclassification amount:
Unrealized gain on securities AFS for nine month period ended 9/30/98 $ 7,795
Less: reclassification adjustment for gain included in income 137
-------
Net unrealized gain on securities AFS, net of tax $ 7,658
=======
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
Nine Months Ended
September 30
------------------
1998 1997
------- -------
<S> <C> <C>
Operating Activities
Net income $ 52,867 $ 54,020
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 7,734 6,869
Provision for deferred taxes (3,796) (4,321)
Accretion of discounts on loans (471) (962)
Accretion of securities' discounts (2,111) (10,035)
Amortization of securities' premiums 4,166 2,600
Net (increase)decrease in trading securities 267 (1,216)
Net gain on securities transactions (211) (22)
Net gain on sale of assets (751) (393)
Depreciation and amortization 22,477 19,646
Decrease in interest receivable 519 987
(Decrease) increase in interest payable (6,609) 2,756
Net change in other assets and liabilities 31,644 (24,089)
--------- --------
Net cash provided by operating activities 105,725 45,840
Investing Activities
Proceeds from maturities of securities held to maturity 29,132 30,328
Purchases of investment securities held to maturity (9,650) (7,654)
Proceeds from sales of securities available for sale 681,300 210,344
Proceeds from maturities of securities available for sale 955,853 382,176
Purchases of securities available for sale (1,685,879) (536,957)
Net increase in loans (302,504) (234,201)
Proceeds from sales of equipment 21 40
Net increase in bank premises and equipment (13,792) (12,305)
Proceeds from sales of repossessed properties 2,160 1,864
Net cash and cash equivalents (paid) received from acquisitions (8,899) 14,277
---------- ---------
Net cash used by investing activities (352,258) (152,088)
Financing Activities
Net increase in demand deposits,
IOC accounts, and savings accounts 152,835 50,147
Net decrease in certificates of deposits (78,407) (6,307)
Net increase (decrease) in short-term borrowings 11,335 (66,027)
Proceeds from issuance of guaranteed preferred beneficial
interest in the Corporation's junior subordinated
deferrable interest debentures 98,352
Proceeds from employee stock purchase
plan and options 1,426 1,851
Purchase of treasury stock (2,784) (17,424)
Dividends paid (22,463) (16,693)
----------- --------
Net cash provided (used) by financing activities 61,942 43,899
----------- --------
Decrease in cash and cash equivalents (184,591) (62,349)
Cash and cash equivalents at beginning of year 827,613 999,579
----------- --------
Cash and cash equivalents at the end of the period $ 643,022 $937,230
=========== ========
Supplemental information:
Interest Paid $ 127 $ 113
Loans originated to faciliate the sale
of repossessed properties 85 279
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.
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------
(in thousands) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of the period $48,073 $42,821
Provision for possible loan losses 7,734 6,869
Loan loss reserve of acquired institutions 1,250 2,105
Net charge-offs:
Losses charged to the allowance (9,690) (6,965)
Recoveries 4,626 2,904
------- -------
Net (charge-offs) (5,064) (4,061)
------- -------
Balance at the end of period $51,993 $47,734
======= =======
</TABLE>
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 September 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 September 30, 1998
and 1997 was $70,000 and $14,000, respectively. The total allowance for
possible loan losses includes activity related to allowances calculated in
accordance with SFAS No. 114 and activity related to other loan loss allowances
determined in accordance with SFAS No. 5.
<PAGE>
The following is a summary of loans considered to be impaired:
<TABLE>
<CAPTION>
September 30
-------------------
(in thousands) 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with no valuation reserve $2,642 $1,348
Impaired loans with a valuation reserve 2,798 3,053
------ ------
Total recorded investment in impaired loans $5,440 $4,401
====== ======
Average recorded investment in impaired loans $6,577 $5,551
Valuation reserve 1,646 1,833
</TABLE>
Earnings Per Common Share
In accordance with SFAS 128, the reconciliation of earnings per share
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------ ------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerators for both basic and diluted
earnings per share, net income $21,998,000 $18,895,000 $52,867,000 $54,020,000
=========== =========== =========== ===========
Denominators:
Denominators for basic earnings per share,
average outstanding common shares 26,654,524 26,391,690 26,532,414 26,544,187
Dilutive effect of stock options 710,508 896,801 769,620 831,320
----------- ----------- ----------- -----------
Denominator for diluted earnings per share 27,365,032 27,288,491 27,302,034 27,375,507
=========== =========== =========== ===========
Earnings per share:
Basic $ .83 $ .72 $ 1.99 $ 2.04
Diluted .80 .69 1.94 1.97
</TABLE>
Capital
The table below reflects various measures of regulatory capital at
September 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 third quarter of 1997.
<TABLE>
<CAPTION>
September 30, 1998 September 30, 1997
------------------- -------------------
Capital Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-Based
Tier 1 Capital $ 493,553 12.26% $ 461,179 13.34%
Tier 1 Capital Minimum requirement 160,989 4.00 138,314 4.00
Total Capital $ 543,884 13.51% $ 504,458 14.59%
Total Capital Minimum requirement 321,978 8.00 276,628 8.00
Risk-adjusted assets, net of goodwill $4,024,731 $3,457,847
Leverage ratio 7.96% 8.20%
Average equity as a percentage
of average assets 7.65 7.87
</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 September 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
<PAGE>
capital ratio of 10.0 percent or greater, a Tier 1 risk-based capital ratio of
6.0 percent or greater, and a leverage ratio of 5.0 percent or greater, and the
institution is not subject to an order, written agreement, capital directive or
prompt corrective action directive to meet and maintain a specific level for
any capital measure.
The Corporation is subject to the regulatory capital requirements
administered by the Federal Reserve Bank. Regulators can initiate certain
mandatory actions, if the Corporation fails to meet the minimum requirements,
that could have a direct material effect on the Corporation's financial
statements. The Corporation and its subsidiary banks currently exceed all
minimum capital requirements.
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 third quarter of 1998 was $11,728,000. This
amount consisted of current tax expense of $13,400,000 and deferred tax benefit
of $1,672,000. Year-to-date tax expense is $30,545,000, consisting of current
tax expense of $34,341,000 and deferred tax benefit of $3,796,000. Net
deferred tax assets were $7,774,000 with no valuation allowance. The deferred
tax assets were supported by taxes paid in prior years. The tax expense for
the third quarter of 1997 was $10,107,000. Income tax payments for the first
nine months of 1998 and 1997 were $30,421,000 and $26,916,000, respectively.
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. 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.
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.
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.
Pending Acquisition
On October 9, 1998, the Corporation entered into a definitive agreement to
acquire Keller State Bank, including its three banking offices located in
Tarrant County, which have deposits of approximately $65 million and loans of
$38 million. The Corporation agreed to pay approximately $18.65 million. The
acquisition is expected to be completed by early 1999 following shareholder and
regulatory approval. This transaction will be accounted for as a purchase with
total cash consideration being funded through internal sources.
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.
<PAGE>
Comprehensive income was $29,756,000 for the third quarter of 1998
compared to $21,261,000 for the third quarter of 1997. For the third quarter
of 1998 and 1997, comprehensive income was composed of net income of
$21,998,000 and $18,895,000, respectively, and unrealized gain on securities
available-for-sale of $7,758,000 and $2,366,000, respectively, net of tax and
reclassification adjustment.
Comprehensive income was $60,525,000 (including merger related charge) for
the first nine months of 1998 compared to $55,703,000 for the first nine months
of 1997. (See Statement of Changes in Shareholder's Equity on page 4) For the
first nine months of 1998 and 1997, comprehensive income was composed of net
income of $52,867,000 and $54,020,000, respectively, and unrealized gain on
securities available-for-sale of $7,658,000 and $1,683,000, respectively, net
of tax and reclassification adjustment.
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 $22.0 million or $.80
per diluted common share for the quarter ended September 30, 1998 compared to
$18.9 million or $.69 per diluted common share for the third quarter of 1997.
After-tax operating earnings resulted in $21.0 million or $.77 per diluted
common share for the second quarter of 1998 which exclude the merger related
charge of $12.2 million before tax associated with the merger of Overton.
Return on average assets and average equity increased to 1.38 percent and 17.76
percent for the third quarter of 1998.
Reported net income for the nine months ending September 30, 1998 was
$52.9 million or $1.94 per diluted common share. After-tax operating earnings
for the nine months ended September 30, 1998 were $62.4 million or $2.28 per
diluted common share compared to $54.0 million or $1.97 per diluted common
share for the same period of 1997. Operating earnings exclude the after-tax
impact of the merger related charge. Operating return on average assets and
average equity for the nine months ended September 30, 1998 increased to 1.32
percent and 17.29 percent compared to 1.29 percent and 16.39 percent for 1997.
<TABLE>
<CAPTION>
Summary of Operations
-------------------------------------------------
Three Months Ended
Nine Months Ended ---------------------------
September 30 1998 1997
----------------- ------------------ -------
1998 1997 Sept 30 June 30 Sept 30
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Taxable-equivalent net
interest income $199,802 $175,321 $68,430 $66,869 $60,204
Taxable-equivalent adjustment 1,852 1,445 760 647 502
------- ------- ------- ------- -------
Net interest income 197,950 173,876 67,670 66,222 59,702
Provision for possible loan losses 7,734 6,869 2,555 2,600 2,303
Non-Interest income:
Net gain on securities
transactions 211 22 67 71 6
Other 104,264 89,892 35,942 34,933 30,855
------- ------- ------- ------- -------
Total non-interest income 104,475 89,914 36,009 35,004 30,861
Non-Interest expense:
Intangible amortization 10,007 8,891 3,299 3,360 3,062
Merger related charges 12,244 12,244
Other 189,028 164,593 64,099 63,424 56,196
------- ------- ------- ------- -------
Total non-interest expense 211,279 173,484 67,398 79,028 59,258
------- ------- ------- ------- -------
Income before income taxes 83,412 83,437 33,726 19,598 29,002
Income Taxes 30,545 29,417 11,728 8,142 10,107
-------- -------- ------- ------- -------
Net Income $ 52,867 $ 54,020 $21,998 $11,456 $18,895
======== ======== ======= ======= =======
Net income per diluted common share:$ 1.94 $ 1.97 $ .80 $ .42 $ .69
Return on Average Assets 1.12% 1.29% 1.38% .73% 1.31%
Return on Average Equity 14.65 16.39 17.76 9.51 16.68
</TABLE>
<PAGE>
Net Interest Income
Net interest margin was 5.01 percent for the third quarter of 1998
compared to 4.96 percent and 4.88 percent for the second quarter of 1998 and
third quarter of 1997, respectively. The net interest spread of 4.07 percent
increased 1 basis point from the second quarter of 1998 and 9 basis points from
the third quarter of 1997. The increases in net interest margin and spread
from the second quarter of 1998 and the third 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, restructuring of the
investment portfolio.
<TABLE>
<CAPTION>
Change in Net Interest Income (Taxable Equivalent)
-------------------------------------------------------------------
Third Quarter Third Quarter Year-to-Date
1998 1998 1998
vs. vs. vs.
Third Quarter Second Quarter Year-to-Date
1997 1998 1997
-------------------------------------------------------------------
Amount Amount Amount
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Due to volume $ 9,106 $ 1,343 $27,178
Due to interest rate
spread (880) 218 (2,697)
------- ------- -------
$ 8,226 $ 1,561 $24,481
======= ======= =======
</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
Nine Months Ended ------------------------------
September 30 1998 1997
------------------ -------------------- -------
Non-Interest Income 1998 1997 Sept 30 June 30 Sept 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust fees $ 35,420 $32,427 $11,759 $11,625 $11,473
Service charges on deposit accounts 39,791 35,219 14,218 13,118 12,156
Other service charges, collection
and exchange charges, commissions
and fees 11,621 8,341 4,088 3,948 3,041
Net gain on securities transactions 211 22 67 71 6
Other 17,432 13,905 5,877 6,242 4,185
-------- ------- ------- ------- -------
Total $104,475 $89,914 $36,009 $35,004 $30,861
======== ======= ======= ======= =======
</TABLE>
For the third quarter 1998...
Total non-interest income was up $1.0 million, an increase of 11.5 percent
annualized, compared to the second quarter of 1998 and up $5.1 million, an
increase of 16.7 percent compared to the third quarter of 1997.
Trust fee income increased $134,000 or 4.6 percent annualized compared to
last quarter and increased $286,000 or 2.5 percent from the third quarter of
1997. Trust fees have increased even though general market conditions have
been volatile throughout 1998. The market value of trust assets at the end of
the third quarter of 1998 was $11.1 billion compared to $11.9 billion at the
end of the second quarter and $10.5 billion a year ago.
Service charges on deposit accounts for the second quarter of 1998
increased $1.1 million or 33.5 percent annualized from the second quarter of
this year and $2.1 million or 17.0 percent from the third quarter of 1997.
Most of these increases occurred as the result of some fee increases and broad
based deposit growth that generated increases in overdraft charges, cash
management fees on commercial and individual deposits, as well as increases in
ATM income. Other service charges were up $140,000 or 14.2 percent annualized
for the third
<PAGE>
quarter of 1998 compared to the second quarter of 1998 and $1 million or 34.4
percent from the same quarter a year ago. The cash accelerator product
(accounts receivable factoring), as well as mutual fund and origination fees,
continued to lead the way in growth in this category of non-interest income.
Other non-interest income decreased $365,000 from the second quarter of
this year and increased $1.7 million or 40.4 percent compared to the third
quarter of 1997. The third quarter of 1998 was down in comparison to the
second quarter due to a non-recurring recovery of $936,000 on a loan that was
carried at a discount which was recognized in the second quarter. In comparing
to the third quarter a year ago the $1.7 million increase is due primarily to
gains on the disposition of foreclosed assets, Visa check card income, and
marketing gains on the sale of student and mortgage loans offset by a decrease
in mineral interest income.
For the nine months ended September 30, 1998...
Non-interest income was up $14.6 million or 16.2 percent compared to the
same period last year. Trust income increased $3.0 million or 9.2 percent from
the same period a year ago. Trust fee income has increased even though general
market conditions have been volatile throughout 1998. The market value of
trust assets have increased to $11.1 billion at the third quarter compared to
$10.5 billion a year ago. The growth in market assets was supported by growth
in the number of accounts as well. Service charges on deposits increased $4.6
million or 13.0 percent compared to the same period one year ago. Some fee
increases and 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 $3.3 million or 39.3 percent
from the same period last year. Primary contributors to this growth were the
cash accelerator product (accounts receivable factoring), mutual fund fees and
origination fees. Other income was up $3.5 million or 25.4 percent relative to
the same period last year. Main contributors were gains on the disposition of
foreclosed assets, Visa check card income, marketing gains on the sale of
student and mortgage loans, as well as, mineral interest income.
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
Nine Months Ended ------------------------------
September 30 1998 1997
------------------ ------------------- -------
Non-Interest Expense 1998 1997 Sept 30 June 30 Sept 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and wages $ 82,609 $ 72,217 $27,645 $27,757 $25,236
Pension and other employee benefits 16,405 14,857 5,345 5,462 4,715
Net occupancy of banking premises 18,760 16,818 6,540 6,112 5,753
Furniture and equipment 13,956 11,725 4,868 4,647 4,013
Intangible amortization 10,007 8,891 3,299 3,360 3,062
Merger related charge 12,244 12,244
Other 57,298 48,976 19,701 19,446 16,479
-------- -------- ------- ------- -------
Total $211,279 $173,484 $67,398 $79,028 $59,258
======== ======== ======= ======= =======
</TABLE>
For the third quarter 1998...
Excluding the merger-related charge of $12.2 million during the second
quarter of 1998 which was associated with the merger of Overton, non-interest
expense increased $614,000 or 3.7 percent annually compared to last quarter and
increased $8.1 million or 13.7 percent compared to the third quarter of 1997.
Salaries and wages decreased $112,000 with the second quarter of 1998 and
were up $2.4 million or 9.5 percent from the third quarter of 1997 as a result
of higher staffing levels (acquisition) and merit increases. Personnel
expenses decreased from last quarter due primarily to the attrition of some
employees after the second quarter closing of the Overton merger.
Net occupancy of banking premises expense increased $428,000 or 28 percent
annualized from the second quarter of 1998 and increased $787,000 or 13.7
percent from the third
<PAGE>
quarter of 1997. This increase is primarily attributable to higher property
taxes and increased utilities expense due to an exceptionally hot summer.
Furniture and equipment expense increased $221,000 or 19 percent annualized
compared to the second quarter of 1998 and increased $855,000 or 21.3 percent
from the same quarter last year mostly due to higher rental equipment, service
contracts and amortized software. Intangible amortization decreased $61,000 or
1.8 percent from the second quarter of 1998 and increased $237,000 or 7.7
percent compared to the third quarter of 1997 due to the Harrisburg
acquisition.
Other non-interest expenses increased $255,000 or 1.3 percent and $3.2
million or 19.6 percent from the second quarter of 1998 and third quarter of
1997, respectively, mainly due to other professional expenses, Visa check card
expenses, guard services and outside computer services.
For the nine months ended September 30, 1998...
Excluding the merger-related charge, total non-interest expense was up
$25.6 million or 14.7 percent compared to the same period one year ago.
Salaries and wages were up $10.4 million or 14.4 percent compared to the same
period one year ago primarily because of higher staffing levels (acquisition)
and merit increases. Pension and other benefits also increased, up $1.5
million or 10.4 percent from the same period last year. Net occupancy of
banking premises was up $1.9 million or 11.5 percent compared to a year ago.
This increase is attributable to higher property taxes, lease and depreciation
expense on buildings, as well as, other professional expenses. Furniture and
equipment expense increased $2.2 million or 19.0 percent due to higher
depreciation expense, rental equipment, amortized software and service
contracts. Intangible amortization increased $1.1 million or 12.6 percent from
the same period a year ago due to acquisitions.
Also included in 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 27 percent related
to investment banking fees.
Other non-interest expenses increased $8.3 million or 17 percent,
primarily due to growth in the number of banking locations (guard service),
other professional expenses and other technology initiatives designed to
enhance and support growth.
Income Taxes
The Corporation's effective tax rate for the third quarter of 1998 and the
second and third quarters of 1997 approximated the statutory rate of 35
percent. The effective rate for the second quarter of 1998 is impacted by the
merger-related charge of Overton and approximates 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>
Nine Months Ended
--------------------------------------------------------------
September 1998 September 1997
- -----------------------------------------------------------------------------------------
Reported Intangible "Cash" Reported Intangible "Cash"
earnings Amortization earnings earnings Amortization earnings
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before income
taxes $83,412 $10,007 $93,419 $83,437 $8,891 $92,328
Income taxes 30,545 2,452 32,997 29,417 2,361 31,778
------- ------- ------- ------- ------ -------
Net income $52,867 $ 7,555 $60,422 $54,020 $6,530 $60,550
======= ======= ======= ======= ====== =======
Net income per diluted
common share $ 1.94 $ .27 $ 2.21 $ 1.97 $ .24 $ 2.21
Return on assets 1.12% 1.28%* 1.29% 1.44%*
Return on equity 14.65 16.75 ** 16.39 18.37**
* Calculated as A(annualized)/B
** Calculated as A(annualized)/C Sept 1998 Sept 1997
----------------------------- ---------- ----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 60,422 $ 60,550
(B) Total average assets 6,304,220 5,603,144
(C) Average shareholders' equity 482,386 440,790
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------
September 1998 June 1998
- -----------------------------------------------------------------------------------------
Reported Intangible "Cash" Reported Intangible "Cash"
earnings Amortization earnings earnings Amortization earnings
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before income
taxes $33,726 $ 3,299 $37,025 $19,598 $3,360 $22,958
Income taxes 11,728 796 12,524 8,142 812 8,954
------- ------- ------- ------- ------ -------
Net income $21,998 $ 2,503 $24,501 $11,456 $2,548 $14,004
======= ======= ======= ======= ====== =======
Net income per diluted
common share $ .80 $ .10 $ .90 $ .42 $ .09 $ .51
Return on assets 1.38% 1.54%* .73% .89%*
Return on equity 17.76 19.78 ** 9.51 11.62**
* Calculated as A(annualized)/B
** Calculated as A(annualized)/C Sept 1998 June 1998
----------------------------- ---------- -----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 24,501 $ 14,004
(B) Total average assets 6,309,916 6,318,904
(C) Average shareholders' equity 491,447 483,334
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
September 1997
- --------------------------------------------------------------
Reported Intangible "Cash"
earnings Amortization earnings
- --------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes $29,002 $3,062 $32,064
Income taxes 10,107 795 10,902
------- ------ -------
Net income $18,895 $2,267 $21,162
======= ====== =======
Net income per diluted
common share $ .69 $ .09 $ .78
Return on assets 1.31% 1.47%*
Return on equity 16.68 18.68 **
* Calculated as A(annualized)/B
** Calculated as A(annualized)/C Sept 97
----------------------------- ----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 21,162
(B) Total average assets 5,709,965
(C) Average shareholders' equity 449,422
</TABLE>
<PAGE>
Excluding the merger related charge, the Corporation's cash earnings for
the nine months ending September 30, 1998 were $69.9 million or $2.56 per
diluted common share compared with $2.21 per diluted common share for the same
period last year. For the third quarter of 1998 cash earnings were $24.5
million or $.90 per diluted common share compared with $.78 per diluted common
share for the third quarter of 1997. Cash earnings return on assets and return
on equity for the third quarter were 1.54 percent and 19.78 percent,
respectively.
Balance Sheet
Average assets of $6.3 billion were flat from the second quarter of 1998
and up $600 million or 10.5 percent from the third quarter of 1997
respectively, primarily because of the Harrisburg acquisition. Total deposits
averaged $5.4 billion for the current quarter, flat from the previous quarter
and up 10.2 percent when compared to the third quarter of 1997. Average loans
for the third quarter of 1998 were $3.5 billion. This represents an increase
in average loans of 9.5 percent on an annualized basis from the second quarter
of 1998 and 17.0 percent from the third quarter of last year.
Loans
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
Loan Portfolio Percentage
Period-End Balances September 30 of Total December 31 September 30
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $1,123,345 31.8% $ 989,355 $ 954,334
Consumer 653,110 18.5 645,988 624,180
Real estate 1,656,202 46.8 1,370,680 1,358,357
Other 107,540 3.0 114,066 75,217
Unearned discount (3,717) (.1) (3,194) (3,491)
---------- ------ ---------- ----------
Total Loans $3,536,480 100.0% $3,116,895 $3,008,597
========== ====== ========== ==========
</TABLE>
At September 30, 1998 period-end loans totaled $3.5 billion up 10.3
percent annualized from the previous quarter and up 17.5 percent from the same
period last year. Approximately 76 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 September 30, 1998, were $1.7 billion or 46.8 percent
of period-end loans compared to 45.1 percent a year ago. Residential permanent
mortgage loans at September 30, 1998, were $638 million compared to $560
million at June 30, 1998, and $508 million at September 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 September 30, 1998, real estate loans 90 days past due (excluding non-
accrual and restructured loans) were $4,024,000, compared with $2,649,000 at
June 30, 1998, and $2,427,000 at September 30, 1997.
<TABLE>
<CAPTION>
1998 1997
------------------------ --------
Real Estate Loans Percentage
Period-End Balances Sept 30 of Total Sept 30
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Construction $ 276,584 16.7% $ 178,734
Land 56,700 3.4 60,010
Permanent mortgages:
Commercial 334,719 20.2 256,110
Residential 637,930 38.5 508,481
Other 350,269 21.2 355,022
---------- ------ ----------
$1,656,202 100.0% $1,358,357
========== ====== ==========
Non-accrual and restructured $ 7,435 .4% $ 7,021
</TABLE>
<PAGE>
Mexico
The Corporation's cross border outstandings to Mexico, excluding
$18,723,000 in loans secured by assets held in the United States, totaled
$50,344,000 at September 30, 1998, or 1.4 percent of total loans, down from
$51,378,000 at June 30, 1998 and up compared to $22,343,000 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 91 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 September
30, 1998, none of the Mexican related loans were on non-performing status.
<TABLE>
<CAPTION>
MEXICAN LOANS
-----------------------
Percentage of
September 30, 1998 Amount Total Loans
- ----------------------------------------------------------------------
<S> <C> <C>
Loans to financial institutions $39,029 1.1%
Loans to private firms or individuals 11,315 .3
------- ----
$50,344 1.4%
======= ====
</TABLE>
Non-Performing Assets
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
--------------------------
Real
September 30, 1998 Estate Other Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual and restructured loans $ 7,435 $5,694 $13,129
Foreclosed assets 3,868 511 4,379
------- ------ -------
Total $11,303 $6,205 $17,508
======= ====== =======
As a percentage of total
non-performing assets 64.6% 35.4% 100.0%
</TABLE>
Non-performing assets totaled $17,508,000 at September 30, 1998 up 8.1
percent from $16,195,000 at September 30, 1997 and down 11.2 percent from
$19,710,000 at June 30, 1998. Non-performing assets as a percent of total
loans and foreclosed assets decreased to .49 percent at September 30, 1998 from
.54 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 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 $274,000 or $.01 per common share for
the third quarter of 1998, compared to approximately $245,000 or $.01 per
common share for the third quarter of 1997 and $297,000 or $.01 per common
share for the second quarter of 1998. For the nine months ended September 30,
1998, the after-tax impact (assuming a 35 percent marginal tax rate) was
approximately $846,000 or $.03 per common share, compared with approximately
$689,000 or $.03 per common share for the comparable period last year. Total
loans 90 days past due (excluding non-accrual and restructured loans) were
$7,875,000 at September 30, 1998, compared to $10,502,000 at September 30,
1997, and $7,012,000 at June 30, 1998.
Allowance for Possible Loan Losses
The allowance for possible loan losses was $51,993,000 or 1.47 percent of
period-end loans at September 30, 1998, compared to $47,734,000 or 1.59 percent
at September 30, 1997 and $51,115,000 or 1.48 percent at June 30, 1998. The
allowance for possible loan losses as a percent of non-accrual and restructured
loans was 396.0 percent at September 30, 1998,
<PAGE>
compared to 394.8 percent at September 30, 1997 and 352.3 percent at the end of
the second quarter of 1998.
The Corporation recorded a $2,555,000 provision for possible loan losses
during the third quarter of 1998. This compares to $2,303,000 provision for
possible loan losses during the third quarter of 1997 and $2,600,000 for the
second quarter of 1998. Net charge-offs in the third quarter of 1998 totaled
$1,677,000, compared to net charge-offs of $1,366,000 and $1,183,000 for the
third quarter of 1997 and for the second quarter of 1998, respectively.
<TABLE>
<CAPTION>
NET CHARGE-OFFS (RECOVERIES)
----------------------------
1998 1997
------------------ -------
Third Second Third
Quarter Quarter Quarter
- -------------------------------------------------------------------
<S> <C> <C> <C>
Real estate $ (587) $ (303) $ 27
Commercial and industrial 1,145 (100) 80
Consumer 1,150 1,600 1,250
Other, including foreign (31) (14) 9
------- ------- -------
$ 1,677 $ 1,183 $ 1,366
======= ======= =======
Provision for possible loan losses $ 2,555 $ 2,600 $ 2,303
Allowance for possible loan losses 51,993 51,115 47,734
</TABLE>
Capital and Liquidity
At September 30, 1998, shareholders' equity was $505,831,000 compared to
$448,583,000 at September 30, 1997 and $483,326,000 at June 30, 1998. The
Corporation had an unrealized gain on securities available for sale, net of
deferred taxes, of $16.6 million as of September 30, 1998 compared to a $9.8
million unrealized gain as of September 30, 1997, reflecting a change of $6.8
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 paid a cash dividend of $.30 per common share for the
third and second quarters of 1998 compared to $.25 per common share in the
second quarter of 1997. Excluding the merger related charge this equates to a
dividend payout ratio of 36.3 percent, 38.4 percent and 33.6 percent for the
third and second quarters of 1998 and the third 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 September 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 costs to remediate its Year 2000 issues will be approximately $3.5
million over the three year period beginning in 1997, funded out of its
earnings with approximately $2.7 million spent through the third quarter of
1998. These costs are being expensed as incurred and were approximately
$624,000 and $646,000 for the third and second quarters, respectively.
Additionally, the corporation is spending about 30% of its annual technology
budget to facilitate the attainment of
<PAGE>
compliance. The cost of compliance and completion dates is based upon
management's best estimates, which were derived utilizing assumptions of future
events including the continued availability of certain resources. Management
expects all mission critical systems to be installed and certified by the
fourth quarter of 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 that other entities not affiliated with the Corporation are
unsuccessful in properly addressing the issue. In an effort to minimize this
possibility, active communication has been on-going between the Corporation and
its external service providers and intermediaries. The Corporation plans to
complete external testing with these service providers by the end of the first
quarter of 1999.
The Corporation is actively assessing the risk of Year 2000 business
disruption for its core processes, where appropriate contingency plans are
being developed. Management expects to complete these plans by year-end 1998;
however, year 2000 risks will be continually evaluated and these plans will be
updated as appropriate throughout 1999. Additionally, a risk reduction program
was initiated in 1997 that addresses potential Year 2000 exposure in the loan
portfolio. The Corporation has hosted public awareness sessions for customers
and suppliers in our marketplace during 1997 and 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*)
September 30, 1998 September 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 $ 265,309 $ 11,135 5.61% $ 301,232 $ 12,363 5.49%
U.S. Government agencies
and corporations 1,513,702 73,463 6.47 1,372,906 68,203 6.62
States and political subdivisions 55,494 3,189 7.66 38,968 2,293 7.84
Other 39,022 1,808 6.18 10,003 442 5.89
--------- -------- --------- --------
Total securities 1,873,527 89,595 6.38 1,723,109 83,301 6.45
Federal funds sold 134,266 5,680 5.58 217,085 8,727 5.30
Loans, net of unearned discount 3,381,845 224,809 8.89 2,866,252 193,400 9.02
--------- -------- ---------- --------
Total Earning Assets and
Average Rate Earned 5,389,638 320,084 7.93 4,806,446 285,428 7.93
Cash and due from banks 573,928 517,007
Allowance for possible loan losses (50,689) (43,800)
Banking premises and equipment 135,056 123,785
Accrued interest and other assets 256,287 199,706
--------- ----------
Total Assets $6,304,220 $5,603,144
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $1,359,647 $1,116,964
Correspondent banks 202,131 190,658
Public funds 39,309 44,014
--------- ---------
Total demand deposits 1,601,087 1,351,636
Time deposits:
Savings and Interest-on-Checking 900,561 8,892 1.32 813,418 7,834 1.29
Money market deposit accounts 1,347,021 40,088 3.98 1,166,493 35,597 4.08
Time accounts 1,287,614 48,451 5.03 1,201,140 44,541 4.96
Public funds 246,475 7,067 3.83 266,792 9,039 4.53
--------- -------- --------- --------
Total time deposits 3,781,671 104,498 3.69 3,447,843 97,011 3.76
--------- ---------
Total Deposits 5,382,758 4,799,479
Federal funds purchased and securities
sold under resale agreements 227,427 8,052 4.67 188,110 6,468 4.53
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures 98,422 6,356 8.61 85,494 5,533 8.63
Other borrowings 32,850 1,376 5.60 26,169 1,095 5.59
--------- -------- ---------- --------
Total Interest-Bearing Funds
and Average Rate Paid 4,140,370 120,282 3.88 3,747,616 110,107 3.92
--------- -------- ---- ---------- -------- ----
Accrued interest and other liabilities 80,377 63,102
--------- ----------
Total Liabilities 5,821,834 5,162,354
SHAREHOLDERS' EQUITY 482,386 440,790
--------- ----------
Total Liabilities and
Shareholders' Equity $6,304,220 $5,603,144
========== ==========
Net interest income $199,802 $175,321
======== ========
Net interest spread 4.05% 4.01%
===== =====
Net interest income to total average earning assets 4.95% 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*)
September 30, 1998 June 30, 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 $ 205,209 $ 2,867 5.54% $ 256,937 $ 3,620 5.65%
U.S. Government agencies
and corporations 1,515,663 24,286 6.41 1,523,283 24,766 6.50
States and political subdivisions 72,949 1,367 7.49 48,762 1,034 8.48
Other 51,667 753 5.83 48,000 783 6.53
---------- ------- ---------- -------
Total securities 1,845,488 29,273 6.34 1,876,982 30,203 6.44
Federal funds sold 123,572 1,800 5.70 136,194 1,863 5.41
Loans, net of unearned discount 3,470,656 77,607 8.87 3,389,805 74,821 8.85
---------- ------- ---------- -------
Total Earning Assets and
Average Rate Earned 5,439,716 108,680 7.94 5,402,981 106,887 7.93
Cash and due from banks 536,988 573,970
Allowance for possible loan losses (52,273) (50,307)
Banking premises and equipment 135,322 134,842
Accrued interest and other assets 250,163 257,418
---------- ----------
Total Assets $6,309,916 $6,318,904
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $1,383,898 $1,369,084
Correspondent banks 190,975 195,762
Public funds 38,856 38,059
---------- ----------
Total demand deposits 1,613,729 1,602,905
Time deposits:
Savings and Interest-on-Checking 891,341 2,942 1.31 916,899 2,921 1.28
Money market deposit accounts 1,406,293 14,088 3.97 1,337,586 13,259 3.98
Time accounts 1,299,045 16,138 4.93 1,291,537 16,278 5.06
Public funds 191,118 1,894 3.93 224,173 2,194 3.93
---------- ------- ---------- -------
Total time deposits 3,787,797 35,062 3.67 3,770,195 34,652 3.69
---------- ------- ---------- -------
Total Deposits 5,401,526 5,373,100
Federal funds purchased and securities
sold under resale agreements 204,480 2,478 4.74 243,033 2,827 4.60
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures 98,436 2,118 8.61 98,422 2,119 8.61
Other borrowings 37,969 592 6.17 33,929 420 4.96
---------- ------- ---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 4,128,682 40,250 3.87 4,145,579 40,018 3.87
---------- ------- ----- ---------- ------- ----
Accrued interest and other liabilities 76,058 87,086
---------- ----------
Total Liabilities 5,818,469 5,835,570
SHAREHOLDERS' EQUITY 491,447 483,334
---------- ----------
Total Liabilities and
Shareholders' Equity $6,309,916 $6,318,904
========== ==========
Net interest income $68,430 $66,869
======= =======
Net interest spread 4.07% 4.06%
==== ====
Net interest income to total average earning assets 5.01% 4.96%
==== ====
*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, 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 $ 335,210 $ 4,649 5.62% $ 300,841 $ 4,233 5.58%
U.S. Government agencies
and corporations 1,502,010 24,410 6.50 1,378,048 22,484 6.53
States and political subdivisions 44,459 789 7.10 43,350 797 7.35
Other 17,017 271 6.38 15,216 244 6.42
---------- ------ ---------- -------
Total securities 1,898,696 30,119 6.36 1,737,455 27,758 6.38
Federal funds sold 143,248 2,017 5.63 261,363 3,696 5.53
Loans, net of unearned discount 3,283,016 72,381 8.94 3,069,060 69,169 8.94
---------- ------ ---------- -------
Total Earning Assets and
Average Rate Earned 5,324,960 104,517 7.93 5,067,878 100,623 7.89
Cash and due from banks 611,648 560,318
Allowance for possible loan losses (49,457) (47,916)
Banking premises and equipment 135,002 127,135
Accrued interest and other assets 268,581 219,881
---------- ----------
Total Assets $6,290,734 $5,927,296
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $1,325,315 $1,223,542
Correspondent banks 219,975 196,901
Public funds 41,036 44,684
---------- ----------
Total demand deposits 1,586,326 1,465,127
Time deposits:
Savings and Interest-on-Checking 893,466 2,750 1.25 832,452 2,528 1.21
Money market deposit accounts 1,295,973 12,742 3.99 1,282,661 13,219 4.09
Time accounts 1,271,962 16,034 5.11 1,217,492 15,325 4.99
Public funds 325,613 3,258 4.06 275,659 3,056 4.40
---------- ------ ---------- -------
Total time Deposits 3,787,014 34,784 3.73 3,608,264 34,128 3.75
---------- ------ ---------- -------
Total Deposits 5,373,340 5,073,391
Federal funds purchased and securities
sold under repurchase agreements 235,104 2,746 4.67 193,495 2,272 4.59
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures 98,409 2,119 8.61 98,395 2,119 8.61
Other borrowings 26,527 365 5.58 24,679 339 5.44
---------- ------ ---------- ------
Total Interest-Bearing Funds
and Average Rate Paid 4,147,054 40,014 3.91 3,924,833 38,858 3.93
---------- ------ ---- ---------- ------- ----
Accrued interest and other liabilities 86,073 78,060
---------- ----------
Total Liabilities 5,819,453 5,468,020
SHAREHOLDERS' EQUITY 471,281 459,276
---------- ----------
Total Liabilities and
Shareholders' Equity $6,290,734 $5,927,296
========== ==========
Net interest income $64,503 $ 61,765
======= ========
Net interest spread 4.02% 3.96%
===== =====
Net interest income to total average earning assets 4.89% 4.85%
===== =====
* 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
----------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
---------- ------- -----
<S> <C> <C> <C>
ASSETS
Securities:
U.S. Treasury $ 303,537 $ 4,235 5.53%
U.S. Government agencies
and corporations 1,342,132 22,154 6.60
States and political subdivisions 38,496 751 7.80
Other 10,620 161 6.07
---------- -------
Total securities 1,694,785 27,301 6.44
Federal funds sold 246,977 3,496 5.54
Loans, net of unearned discount 2,967,085 67,348 9.01
---------- -------
Total Earning Assets and
Average Rate Earned 4,908,847 98,145 7.94
Cash and due from banks 513,907
Allowance for possible loan losses (47,084)
Banking premises and equipment 127,143
Accrued interest and other assets 207,152
----------
Total Assets $5,709,965
==========
LIABILITIES
Demand deposits:
Commercial and individual $1,168,771
Correspondent banks 185,650
Public funds 43,340
----------
Total demand deposits 1,397,761
Time deposits:
Savings and Interest-on-Checking 810,411 2,565 1.26
Money market deposit accounts 1,241,342 12,798 4.09
Time accounts 1,222,661 15,374 4.99
Public funds 227,393 2,685 4.68
---------- -------
Total time deposits 3,501,807 33,422 3.79
---------- -------
Total Deposits 4,899,568
Federal funds purchased and securities
sold under resale agreements 171,058 2,009 4.60
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures 98,381 2,119 8.61
Other borrowings 27,203 391 5.70
---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 3,798,449 37,941 3.96
---------- ------- -----
Accrued interest and other liabilities 64,333
----------
Total Liabilities 5,260,543
SHAREHOLDERS' EQUITY 449,422
----------
Total Liabilities and
Shareholders' Equity $5,709,965
==========
Net interest income $60,204
=======
Net interest spread 3.98%
====
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 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 September 30, 1998, a Current Report on Form
8-K, dated August 6, 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: November 12, 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 9-30-98
(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)
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
Basic Earnings per Share 1998 1997 1998 1997
- -------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $21,998 $18,895 $52,867 $54,020
======= ======= ======= =======
Weighted average number of common
shares outstanding 26,655 26,391 26,532 26,544
======= ======= ======= =======
Basic earnings per common share $ .83 $ .72 $ 1.99 $ 2.04
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
Diluted Earnings per Share 1998 1997 1998 1997
- -------------------------------- ------- ------- ------- -------
Net income $21,998 $18,895 $52,867 $54,020
======= ======= ======= =======
Weighted average number of
common shares outstanding 26,655 26,391 26,532 26,544
Addition from assumed exercise of
stock options 710 897 770 832
------- ------- ------- -------
Weighted average number of common
shares outstanding, including
dilutive effect of stock options 27,365 27,288 27,302 27,376
======= ======= ======= =======
Diluted earnings per common share $ .80 $ .69 $ 1.94 $ 1.97
</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 SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 476,625
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 166,637
<TRADING-ASSETS> 1,673
<INVESTMENTS-HELD-FOR-SALE> 1,773,393
<INVESTMENTS-CARRYING> 119,366
<INVESTMENTS-MARKET> 122,552
<LOANS> 3,536,480
<ALLOWANCE> 51,993
<TOTAL-ASSETS> 6,408,985
<DEPOSITS> 5,465,720
<SHORT-TERM> 227,538
<LIABILITIES-OTHER> 111,452
<LONG-TERM> 98,444
0
0
<COMMON> 267
<OTHER-SE> 505,564
<TOTAL-LIABILITIES-AND-EQUITY> 6,408,985
<INTEREST-LOAN> 224,024
<INTEREST-INVEST> 88,528
<INTEREST-OTHER> 5,680
<INTEREST-TOTAL> 318,232
<INTEREST-DEPOSIT> 104,498
<INTEREST-EXPENSE> 120,282
<INTEREST-INCOME-NET> 197,950
<LOAN-LOSSES> 7,734
<SECURITIES-GAINS> 211
<EXPENSE-OTHER> 211,279
<INCOME-PRETAX> 83,412
<INCOME-PRE-EXTRAORDINARY> 52,867
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,867
<EPS-PRIMARY> 1.99
<EPS-DILUTED> 1.94
<YIELD-ACTUAL> 7.93
<LOANS-NON> 13,129
<LOANS-PAST> 7,875
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,810
<ALLOWANCE-OPEN> 48,073
<CHARGE-OFFS> (9,690)
<RECOVERIES> 4,627
<ALLOWANCE-CLOSE> 51,993
<ALLOWANCE-DOMESTIC> 46,416
<ALLOWANCE-FOREIGN> 314
<ALLOWANCE-UNALLOCATED> 5,263
</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 SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 747,175
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 190,055
<TRADING-ASSETS> 2,003
<INVESTMENTS-HELD-FOR-SALE> 1,447,039
<INVESTMENTS-CARRYING> 241,373
<INVESTMENTS-MARKET> 247,015
<LOANS> 3,008,597
<ALLOWANCE> 47,734
<TOTAL-ASSETS> 5,920,187
<DEPOSITS> 5,115,882
<SHORT-TERM> 166,662
<LIABILITIES-OTHER> 90,670
<LONG-TERM> 98,390
0
0
<COMMON> 133,738
<OTHER-SE> 314,845
<TOTAL-LIABILITIES-AND-EQUITY> 5,920,187
<INTEREST-LOAN> 192,687
<INTEREST-INVEST> 82,569
<INTEREST-OTHER> 8,727
<INTEREST-TOTAL> 283,983
<INTEREST-DEPOSIT> 97,011
<INTEREST-EXPENSE> 110,107
<INTEREST-INCOME-NET> 173,876
<LOAN-LOSSES> 6,869
<SECURITIES-GAINS> 22
<EXPENSE-OTHER> 173,484
<INCOME-PRETAX> 83,437
<INCOME-PRE-EXTRAORDINARY> 54,020
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,020
<EPS-PRIMARY> 2.04
<EPS-DILUTED> 1.97
<YIELD-ACTUAL> 7.93
<LOANS-NON> 12,090
<LOANS-PAST> 10,502
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,951
<ALLOWANCE-OPEN> 41,503
<CHARGE-OFFS> (6,965)
<RECOVERIES> 2,904
<ALLOWANCE-CLOSE> 47,734
<ALLOWANCE-DOMESTIC> 41,254
<ALLOWANCE-FOREIGN> 155
<ALLOWANCE-UNALLOCATED> 6,325
</TABLE>
