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, 1999 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 13 1999, there were
53,465,387 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
-------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $79,751 $74,562 $157,046 $146,705
Securities:
Taxable 26,981 29,138 56,957 58,670
Tax-exempt 1,478 677 3,039 1,057
------- ------- -------- --------
Total Securities 28,459 29,815 59,996 59,727
Time deposits 22 25
Federal funds sold 831 1,863 1,163 3,880
------- ------- -------- --------
Total Interest Income 109,063 106,240 218,230 210,312
INTEREST EXPENSE
Deposits 31,108 34,653 62,507 69,436
Federal funds purchased and securities
sold under repurchase agreements 2,731 2,827 6,738 5,574
Guaranteed preferred beneficial interest in the
Corporation's junior subordinated deferrable
interest debentures 2,119 2,119 4,238 4,238
Long-term notes payable and other borrowings 198 419 400 784
------- ------- -------- --------
Total Interest Expense 36,156 40,018 73,883 80,032
------- ------- -------- --------
Net Interest Income 72,907 66,222 144,347 130,280
Provision for possible loan losses 2,975 2,600 5,975 5,179
------- ------- -------- --------
Net Interest Income After Provision
For Possible Loan Losses 69,932 63,622 138,372 125,101
NON-INTEREST INCOME
Trust fees 11,416 11,625 22,799 23,661
Service charges on deposit accounts 14,496 13,118 28,484 25,573
Other service charges, collection and
exchange charges, commissions and fees 5,266 3,948 9,272 7,533
Net gain (loss) on securities transactions 71 (68) 144
Other 7,017 6,242 16,069 11,555
------- ------- -------- --------
Total Non-Interest Income 38,195 35,004 76,556 68,466
NON-INTEREST EXPENSE
Salaries and wages 30,554 27,757 60,267 54,964
Pension and other employee benefits 6,576 5,462 13,091 11,060
Net occupancy of banking premises 6,818 6,112 13,519 12,220
Furniture and equipment 4,984 4,647 9,559 9,088
Intangible amortization 3,554 3,360 6,891 6,708
Merger related charge 12,244 12,244
Other 18,994 19,446 38,229 37,597
------- ------- -------- --------
Total Non-Interest Expense 71,480 79,028 141,556 143,881
------- ------- -------- --------
Income Before Income Taxes 36,647 19,598 73,372 49,686
Income Taxes 12,559 8,142 24,989 18,817
------- ------- -------- --------
Net Income $24,088 $11,456 $ 48,383 $ 30,869
======= ======= ======== ========
Net income per common share:
Basic $ .45 $ .22 $ .90 $ .58
Diluted .44 .21 .88 .57
Dividends per common share .175 .15 .325 .28
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
1999 1998 1998
---------- ----------- ----------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 655,431 $ 684,941 $ 754,017
Time deposits 2,628
Securities held to maturity 95,435 111,439 129,819
Securities available for sale 1,725,002 1,979,555 1,683,040
Securities trading 682 709 587
Federal funds sold 25,125 102,900 61,400
Loans, net of unearned discount of $4,942 at
June 30, 1999; $3,357 at December 31, 1998
and $3,602 at June 30, 1998 3,973,749 3,646,603 3,447,353
Less: Allowance for possible loan losses (58,974) (53,616) (51,115)
---------- ---------- ----------
Net Loans 3,914,775 3,592,987 3,396,238
Banking premises and equipment 143,291 137,290 133,815
Accrued interest and other assets 340,069 259,784 266,476
---------- ---------- ----------
Total Assets $6,902,438 $6,869,605 $6,425,392
========== ========== ==========
Liabilities
Demand Deposits:
Commercial and individual $1,594,194 $1,585,891 $1,465,420
Correspondent banks 216,878 201,355 289,460
Public funds 42,131 56,253 42,830
---------- ---------- ----------
Total demand deposits 1,853,203 1,843,499 1,797,710
Time Deposits:
Savings and Interest-on-Checking 940,062 961,597 874,239
Money market deposit accounts 1,655,953 1,493,778 1,354,368
Time accounts 1,249,722 1,264,121 1,299,283
Public funds 194,587 282,492 215,576
---------- ---------- ----------
Total time deposits 4,040,324 4,001,988 3,743,466
---------- ---------- ----------
Total deposits 5,893,527 5,845,487 5,541,176
Federal funds purchased and securities
sold under repurchase agreements 296,875 305,564 177,842
Accrued interest and other liabilities 103,550 107,177 124,619
Guaranteed preferred beneficial interest in the
Corporation's junior subordinated deferrable
interest debentures 98,486 98,458 98,431
---------- ---------- ----------
Total Liabilities 6,392,438 6,356,686 5,942,068
Shareholders' Equity
Common stock, par value per share:$.01 536 267 266
Shares authorized:90,000,000
Shares issued: 53,558,846;
53,425,296; and 53,296,020
Surplus 184,741 183,151 179,110
Retained earnings 353,244 321,754 295,131
Accumulated other comprehensive income,
net of tax (28,507) 7,747 8,817
Treasury Stock (500 shares) (14)
---------- ---------- ----------
Total Shareholders' Equity 510,000 512,919 483,324
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $6,902,438 $6,869,605 $6,425,392
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
Accumulated
Other
Comprehensive
Common Retained Income, Treasury
Stock Surplus Earnings net of tax Stock Total
-------- -------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $133,775 $53,647 $278,994 $8,917 $(12,404) $462,929
Net income for the twelve months
ended December 31, 1998 75,645 75,645
Unrealized loss on securities
available for sale of $937,
net of tax and reclassification
adjustment for after-tax gains
included in net income of $233 (1,170) (1,170)
--------
Total comprehensive income 74,475
--------
Proceeds from employee stock
purchase plan and options 390 (2,014) 2,802 1,178
Tax benefit related to
exercise of stock options 1,771 1,771
Purchase of treasury stock (3,495) (3,495)
Issuance of restricted stock 1 1,889 126 2,016
Restricted stock plan deferred
compensation, net (514) (514)
Cash dividend (29,567) (29,567)
ESOP shares 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
Change in par value (132,974) 132,974
Pre-merger transactions of
pooled company:
Proceeds from employee stock
purchase plan and options 847 683 (539) 88 1,079
Cash dividend (909) (909)
-------- -------- -------- ------- ------- --------
Balance at December 31, 1998 $ 267 $183,151 $321,754 $ 7,747 $ ---- $512,919
Net income for the six
months ended June 30, 1999 48,383 48,383
Unrealized loss on securities
available for sale of $36,298,
net of tax and reclassification
adjustment for after-tax losses
included in net income of $44 (36,254) (36,254)
--------
Total comprehensive income 12,129
--------
Proceeds from employee stock
purchase plan and options 1 908 (358) 521 1,072
Tax benefit related to exercise
of stock options 950 950
Purchase of treasury stock (535) (535)
Restricted stock plan deferred
compensation, net 858 858
Cash dividend (17,393) (17,393)
Two-for-one stock split 268 (268)
-------- -------- -------- ------- ------- --------
Balance at June 30, 1999 $ 536 $184,741 $353,244 $(28,507) $ (14) $510,000
======== ======== ======== ======= ======= ========
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
------------------
1999 1998
------- -------
<S> <C> <C>
Operating Activities
Net income $ 48,383 $ 30,869
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 5,975 5,179
Credit for deferred taxes (3,470) (2,124)
Accretion of discounts on loans (100) (631)
Accretion of securities' discounts (1,063) (1,213)
Amortization of securities' premiums 2,825 2,732
Net decrease in trading securities 27 1,353
Net loss (gain) on securities transactions 68 (144)
Net gain on sale of assets (2,736) (33)
Depreciation and amortization 15,600 14,911
Increase in interest receivable (3,871) (3,224)
Increase in interest payable 2,810 130
Originations of mortgages held-for-sale (81,695) (85,467)
Proceeds from sales of mortgages held-for-sale 83,880 81,061
Net change in other assets and liabilities (26,966) 30,406
--------- --------
Net cash provided by operating activities 39,667 73,805
Investing Activities
Proceeds from maturities of securities held to maturity 16,071 18,822
Purchases of investment securities (99) (9,650)
Proceeds from sales of securities available for sale 265,414 260,158
Proceeds from maturities of securities available for sale 366,230 473,793
Purchases of securities available for sale (340,607) (703,783)
Net increase in loans (217,603) (206,934)
Net increase in bank premises and equipment (7,888) (6,747)
Proceeds from sales of repossessed properties 376 738
Net cash and cash equivalents paid from bank acquisitions (23,788) (8,899)
--------- ---------
Net cash provided (used) by investing activities 58,106 (182,502)
Financing Activities
Net increase in demand deposits,
IOC accounts, and savings accounts 2,368 226,663
Net decrease in certificates of deposits (180,203) (76,779)
Net decrease in short-term borrowings (8,689) (38,361)
Net proceeds from issuance of common stock 2,022 1,312
Purchase of treasury stock (535) (1,866)
Dividends paid (17,393) (14,468)
--------- --------
Net cash (used) provided by financing activities (202,430) 96,501
--------- --------
Decrease in cash and cash equivalents (104,657) (12,196)
Cash and cash equivalents at beginning of year 787,841 827,613
--------- --------
Cash and cash equivalents at the end of the period $683,184 $815,417
========= ========
Supplemental information:
Interest Paid $ 71,073 $ 79,902
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Cullen/Frost Bankers, Inc. and Subsidiaries
(tables in thousands)
Note A-Basis of Presentation
The consolidated financial statements include the accounts of Cullen/Frost
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. Certain reclassifications have been made to make
prior periods comparable. For further information, refer to the consolidated
financial statements and footnotes thereto included in Cullen/Frost's Annual
Report on Form 10-K for the year ended December 31, 1998. The balance sheet at
December 31, 1998 has been derived from our audited financial statements at
that date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
Note B-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 loan losses
inherent in the loan portfolio.
Six Months Ended
June 30
--------------------
(in thousands) 1999 1998
- -----------------------------------------------------------------------
Balance at beginning of the period $53,616 $48,073
Provision for possible loan losses 5,975 5,179
Loan loss reserve of acquired institutions 1,066 1,250
Net charge-offs:
Losses charged to the allowance (4,483) (5,847)
Recoveries 2,800 2,460
------- -------
Net (charge-offs) (1,683) (3,387)
------- -------
Balance at the end of period $58,974 $51,115
======= =======
Note C-Impaired Loans
A loan within the scope of SFAS No. 114 is considered impaired when, based
on current information and events, it is probable that Cullen/Frost will be
unable to collect all amounts due according to the contractual terms of the
loan agreement, including scheduled principal and interest payments. All
impaired loans are included in non-performing assets. At June 30, 1999, 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. No interest revenue was recognized on loans impaired as of June
30, 1999 compared to $52,000 recognized a year ago. 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) 1999 1998
- --------------------------------------------------------------------------
Impaired loans with no valuation reserve $2,471 $3,039
Impaired loans with a valuation reserve 2,837 4,137
------ ------
Total recorded investment in impaired loans $5,308 $7,176
====== ======
Average recorded investment in impaired loans $5,372 $6,358
Valuation reserve 2,208 2,273
Note D-Earnings Per Common Share
On June 22, 1999, the Corporation completed the previously announced two-
for-one stock split. As a result of the split, $268,000 was transferred from
surplus to common stock. All related share amounts have been restated to make
prior periods comparable.
The reconciliation of earnings per share follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
------------------------ ------------------------
(in thousands, except per share amounts) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerators for both basic and diluted
earnings per share, net income $48,383 $30,869 $24,088 $11,456
======= ======= ======= =======
Denominators:
Denominators for basic earnings per share,
average outstanding common shares 53,512 52,941 53,554 53,040
Dilutive effect of stock options 1,366 1,590 1,395 1,568
------- ------- ------- -------
Denominator for diluted earnings per share 54,878 54,531 54,949 54,608
======= ======= ======= =======
Earnings per share:
Basic $ .90 $ .58 $ .45 $ .22
Diluted .88 .57 .44 .21
</TABLE>
Note E-Capital
The table below reflects various measures of regulatory capital at June
30, 1999 and 1998. As a result of the acquisitions during the first half of
1999, all regulatory capital ratios are down when compared to a year ago.
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
------------------- -------------------
Capital Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-Based
Tier 1 Capital $ 503,171 11.26% $ 474,933 11.87%
Tier 1 Capital Minimum requirement 178,702 4.00 160,049 4.00
Total Capital $ 559,054 12.51% $ 524,962 13.12%
Total Capital Minimum requirement 357,404 8.00 320,098 8.00
Risk-adjusted assets, net of goodwill $4,467,555 $4,001,229
Leverage ratio 7.51% 7.64%
Average equity as a percentage
of average assets 7.78 7.57
</TABLE>
At June 30, 1999 and 1998, Cullen/Frost's subsidiary banks were considered
"well capitalized" as defined by the FDIC Improvement Act of 1991, the highest
rating, and Cullen/Frost'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. Cullen/Frost and its subsidiary banks currently exceed all
minimum capital requirements. Regulators can initiate certain mandatory
actions, if Cullen/Frost fails to meet the minimum requirements, that could
have a direct material effect on Cullen/Frost's financial statements.
Note F-Income Taxes
The tax expense for the second quarter of 1999 was $12.6 million. This
amount consisted of current tax expense of $14.7 million and deferred tax
benefit of $2.1 million. Year-to-date tax expense is $25.0 million, consisting
of current tax expense of $28.5 million and deferred tax benefit of $3.5
million. Net deferred tax assets were $31.3 million with no valuation
allowance. The deferred tax assets were supported by taxes paid in prior
years. The tax expense for the second quarter of 1998 was $8.1 million,
consisting of current tax expense of $9 million and deferred tax benefit of $.9
million. Year-to-date tax expense for 1998 was $18.8 million, consisting of
current tax expense of $20.9 million and deferred tax benefit of $2.1 million.
Income tax payments for the first six months of 1999 and 1998 were $26.8
million and $22.9 million, respectively.
Note G-Merger and Acquisitions
On May 20, 1999, the Corporation paid approximately $42.25 million to
acquire Commerce Financial Corporation and its four-location subsidiary, Bank
of Commerce, in Fort Worth, Texas. The total cash consideration was funded
through internal sources. The purchase method of accounting has been used to
record the transaction and as such, the purchase price has been allocated to
the underlying assets and liabilities based on estimated fair values at the
date of acquisition. Such estimates may be subsequently revised. The
Corporation acquired loans of approximately $76 million and deposits of
approximately $164 million. The intangible assets associated with the
acquisition amounted to approximately $ 31.6 million. This acquisition is not
expected to have a material impact on the Corporation's 1999 net income.
On May 1, 1999, Frost Insurance Agency, a subsidiary of The Frost National
Bank, acquired Professional Insurance Agents, Inc. (PIA), a mid-sized
independent insurance agency based in Victoria, Texas, with additional
locations in San Antonio, New Braunfels and Refugio. PIA offers corporate and
personal property and casualty insurance as well as group, health and life
insurance products to individuals and businesses. The purchase method of
accounting was used to record the transaction. This acquisition is not
expected to have a material impact on the Corporation's 1999 net income.
On January 15, 1999, the Corporation paid approximately $18.7 million to
acquire Keller State Bank with three locations in Tarrant County, Texas. The
total cash consideration was funded through internal sources. The purchase
method of accounting has been used to record the transaction and as such the
purchase price has been allocated to the underlying assets and liabilities
based on estimated fair values at the date of acquisition. Such estimates may
be subsequently revised. The Corporation acquired loans of approximately $38
million and deposits of approximately $62 million. The intangible assets
associated with the acquisition amounted to approximately $11.8 million. This
acquisition is not expected to have a material impact on the Corporation's 1999
net income.
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, was the Corporation's first entry into the Fort Worth
market. With the merger, the Corporation acquired twelve locations in Fort
Worth/Arlington and two in Dallas. The Corporation issued approximately 4.38
million (pre-split) common shares as part of this transaction.
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 internal sources. The purchase price
has been allocated to the underlying assets and liabilities based on estimated
fair value at the date of acquisition. The Corporation acquired loans of
approximately $125 million and deposits of approximately $222 million.
<PAGE>
Total intangible assets associated with the acquisition amounted to
approximately $34.2 million.
Investment Banking Subsidiary
On August 2, 1999 the Corporation began operations of its Section 20
investment banking subsidiary in Dallas, Texas. The new subsidiary, Frost
Securities, Inc., offers a full range of services including equity research,
institutional sales, trading and investment banking services to institutional
investors and corporate customers who need access to the capital markets.
Note H-Accounting Changes
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is required to be adopted in years
beginning after June 15, 1999. During 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133" which deferred the required adoption
date of SFAS No. 133 to fiscal years beginning after June 15, 2000. SFAS No.
133 will require the Corporation to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedge item is recognized in earnings. The effective portion of a
derivative's change in fair value will be immediately recognized in earnings.
Even though early adoption is allowed, the Corporation has no plans to adopt
this statement prior to the effective date. The impact on future results will
depend on the financial position of the Corporation and the nature and purpose
of the derivatives in use by the Corporation at that time.
Note I-Operating Segments
The Corporation has two reportable operating segments: Banking and the
Financial Management Group. Banking includes both commercial and consumer
banking services. Commercial services are provided to corporations and other
business clients and include a wide array of lending and cash management
products. Consumer banking services include direct and indirect lending,
mortgage lending and depository services. The Financial Management Group
includes fee based services within private trust, retirement services, and
financial management services including personal wealth management and
brokerage services. These business units were identified through the products
and services that are offered within each unit.
The accounting policies of the individual business units are the same as
the Corporation except for the following items. The Corporation uses a match-
funded transfer pricing process to assess operating segment performance.
Expenses for consolidated back-office operations are allocated to operating
segments based on estimated uses of those services. General overhead type
expenses such as executive administration, accounting, internal audit, and
personnel are allocated based on the direct expense level of the operating
segment. Income tax expense for the individual segments is calculated
basically at the statutory rate. Parent Company records the tax expense or
benefit necessary to reconcile to the consolidated total.
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended: Financial
Management Consolidated
(in thousands) Banking Group Non-Banks Total
===============================================================================================================
<S> <C> <C> <C> <C>
June 30, 1999
Revenues from external customers.................... $195,204 $ 29,981 $ (4,282) $220,903
-------------------------------------------------------
Net income (loss)................................... $ 45,856 $ 7,298 $ (4,771) $ 48,383
=======================================================
================================================================================================================
June 30, 1998
Revenues from external customers.................... $172,713 $ 29,745 $ (3,712) $198,746
-------------------------------------------------------
Operating earnings (loss)........................... $ 36,644 $ 7,204 $ (3,468) $ 40,380*
=======================================================
Three Months Ended: Financial
Management Consolidated
(in thousands) Banking Group Non-Banks Total
===============================================================================================================
June 30, 1999
Revenues from external customers.................... $ 97,935 $ 15,337 $ (2,171) $111,102
-------------------------------------------------------
Net income (loss)................................... $ 22,801 $ 3,857 $ (2,570) $ 24,088
=======================================================
================================================================================================================
June 30, 1998
Revenues from external customers.................... $ 87,916 $ 14,852 $ (1,542) $101,226
-------------------------------------------------------
Operating earnings (loss)........................... $ 18,761 $ 3,618 $ (1,411) $ 20,968*
=======================================================
*Excludes the after-tax impact of the $12.2 million Overton merger related charge.
</TABLE>
<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.
Certain reclassifications have been made to make prior quarters comparable.
All balance sheet figures are presented in averages unless otherwise noted.
Cullen/Frost completed acquisitions during the first and second quarters
of 1999 and one in the first quarter of 1998. 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. In addition, 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. The
acquisitions and merger are outlined in the footnotes to the financial
statements on page eight.
During the second quarter of 1999, the board of directors declared and
paid a two for one stock split. All periods presented have been restated to
give effect to the split.
Cullen/Frost Bankers, Inc. reported net income of $24.1 million or $.44
per diluted common share for the quarter ended June 30, 1999 compared to $24.3
million or $.44 per diluted common share for the first quarter of 1999.
Operating earnings were $21.0 million or $.38 per diluted common share for the
second quarter of 1998. Operating earnings exclude the after-tax impact of the
merger related charge associated with the merger of Overton. Return on average
assets and average equity increased to 1.42 percent and 18.23 percent for the
second quarter of 1999 compared to 1.33 percent and 17.40 percent,
respectively, for the second quarter of 1998 excluding the merger related
charge. Earnings for the six months ended June 30, 1999 were $48.4 million or
$.88 per diluted common share compared to $40.4 million or $.74 per diluted
common share (excluding the after tax impact of the merger related charge) for
the same period of 1998. Return on average assets and average equity for the
six months ended June 30, 1999 increased to 1.43 percent and 18.51 percent
compared to 1.29 percent and 17.05 percent for 1998(excluding the merger
related charge).
<TABLE>
<CAPTION>
Summary of Operations
-------------------------------------------------
Three Months Ended
Six Months Ended ---------------------------
June 30 1999 1998
----------------- ------------------ -------
1999 1998 June 30 March 31 June 30
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Taxable-equivalent net
interest income $146,630 $131,327 $74,023 $72,607 $66,869
Taxable-equivalent adjustment 2,283 1,047 1,116 1,167 647
-------- -------- ------- ------- -------
Net interest income 144,347 130,280 72,907 71,440 66,222
Provision for possible loan losses 5,975 5,179 2,975 3,000 2,600
Non-Interest income:
Net gain (loss) on securities
transactions (68) 144 (68) 71
Other 76,624 68,322 38,195 38,429 34,933
-------- -------- ------- ------- -------
Total non-interest income 76,556 68,466 38,195 38,361 35,004
Non-Interest expense:
Intangible amortization 6,891 6,708 3,554 3,337 3,360
Merger related charge 12,244 12,244
Other 134,665 124,929 67,926 66,739 63,424
-------- -------- ------- ------- -------
Total non-interest expense 141,556 143,881 71,480 70,076 79,028
-------- -------- ------- ------- -------
Income before income taxes 73,372 49,686 36,647 36,725 19,598
Income Taxes 24,989 18,817 12,559 12,430 8,142
-------- -------- ------- ------- -------
Net Income $ 48,383 $ 30,869 $24,088 $24,295 $11,456
======== ======== ======= ======= =======
Net income per diluted common share: $ .88 $ .57 $ .44 $ .44 $ .21
Return on Average Assets 1.43% .99% 1.42% 1.44% .73%
Return on Average Equity 18.51 13.06 18.23 18.79 9.51
</TABLE>
<PAGE>
Results of Segment Operations
The Corporation's operations are managed along two major Operating
Segments: Banking and the Financial Management Group. The following table
summarizes net income by Operating Segment for the six months and three months
ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
(in thousands) 1999 1998 1999 1998
==========================================================================================
<S> <C> <C> <C> <C>
Banking............................... $ 45,856 $ 36,644 $22,801 $18,761
Financial Management Group............ 7,298 7,204 3,857 3,618
Non-Banks............................. (4,771) (3,468) (2,570) (1,411)
---------------------- ---------------------
Consolidated operating earnings....... $ 48,383 $ 40,380* $ 24,088 $ 20,968*
Consolidated net income............... 48,383 $ 30,869 $ 24,088 $ 11,456
====================== =====================
* Excludes the after-tax impact of the $12.2 million Overton merger related charge.
</TABLE>
The increase in Banking net income for the six months and three months
ended June 30, 1999 was due primarily to higher net interest income due to loan
growth and higher non-interest income impacted by internal growth, new business
initiatives and acquisitions.
Net Interest Income
Net interest margin was 5.10 percent for the second quarter of 1999
compared to 4.98 percent and 4.96 percent for the first quarter of 1999 and
second quarter of 1998, respectively. The net interest spread of 4.29 percent
increased 10 basis points from the first quarter of 1999 and 23 basis points
from the second quarter of 1998. The increases in net interest margin and
spread from the first quarter of 1999 and the second quarter of 1998 were due
to strong loan growth resulting in an improved earning asset mix, as well as,
decreased deposit costs.
<TABLE>
<CAPTION>
Change in Net Interest Income (Taxable Equivalent)
-------------------------------------------------------------------
Second Quarter Second Quarter Year-to-Date
1999 1999 1999
vs. vs. vs.
Second Quarter First Quarter Year-to-Date
1998 1999 1998
-------------------------------------------------------------------
Amount Amount Amount
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Due to volume $ 7,972 $ 878 $17,124
Due to interest rate
spread (818) 538 (1,821)
------- ------- -------
$ 7,154 $ 1,416 $15,303
======= ======= =======
</TABLE>
<PAGE>
Non-Interest Income
Growth in non-interest income was favorably impacted by the 1999 first
quarter acquisition of Keller State Bank and the second quarter acquisitions of
Professional Insurance Agents, Inc. ("PIA") and Commerce Financial Corporation.
Also impacting 1999 was a $2 million non-recurring gain recorded in the first
quarter.
<TABLE>
<CAPTION>
Three Months Ended
Six Months Ended ------------------------------
June 30 1999 1998
------------------ -------------------- -------
Non-Interest Income 1999 1998 June 30 March 31 June 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust fees $22,799 $23,661 $11,416 $11,383 $11,625
Service charges on deposit accounts 28,484 25,573 14,496 13,988 13,118
Other service charges, collection
and exchange charges, commissions
and fees 9,272 7,533 5,266 4,006 3,948
Net gain (loss) on securities
transactions (68) 144 (68) 71
Other 16,069 11,555 7,017 9,052 6,242
------- ------- ------- ------- -------
Total $76,556 $68,466 $38,195 $38,361 $35,004
======= ======= ======= ======= =======
</TABLE>
For the second quarter 1999...
Total non-interest income was flat compared to the first quarter of 1999
and up $3.2 million, an increase of 9.1 percent compared to the second quarter
of 1998. Included in the first quarter of 1999 was a $2 million non-recurring
gain from the sale of a piece of property in connection with a branch
restructuring. Excluding this non-recurring gain, non-interest income for the
second quarter of 1999 was up 5.0 percent from the previous quarter.
Trust fees were relatively flat when compared with the previous and year
ago quarters primarily as a result of lower management fees associated with
small cap value funds, as well as trust oil and gas fees, which were offset by
growth in other areas of the Financial Management Group. The market value of
trust assets at the end of the second quarter of 1999 was $12.7 billion with
$5.6 billion in discretionary assets and $7.1 billion in non-discretionary
assets compared to $11.9 billion a year ago with $5.5 billion in discretionary
assets and $6.4 billion in non-discretionary assets.
Service charges on deposit accounts for the second quarter of 1999
increased $508 thousand or 3.6 percent from the first quarter of this year and
$1.4 million or 10.5 percent from the second quarter of 1998. Most of these
increases occurred as the result of some fee increases and broad based deposit
growth that generated increases in overdraft charges and cash management fees
on commercial and individual deposits. Other service charges were up $1.3
million for the second quarter of 1999 compared to the first quarter of 1999
and $1.3 million or 33 percent from the same quarter a year ago. Insurance
commission income and mutual fund fees led the way in growth in this category
of non-interest income.
Compared to the first quarter of 1999, other non-interest income decreased
$2.0 million. This resulted primarily from the $2 million non-recurring gain
from the sale of a piece of property in connection with a branch restructuring
in the first quarter of 1999. Other non-interest income increased $775
thousand or 12.4 percent from the second quarter of 1998. This increase is
primarily due to gains on the sale of foreclosed assets and student loans
offset by lower recoveries on loans that are carried at a discount and mineral
interest income than a year ago.
For the six months ended June 30, 1999...
Non-interest income was up $8.1 million or 11.8 percent compared to the
same period last year. Trust income decreased $862 thousand or 3.6 percent
from the same period a year ago, due to lower management fees associated with
small cap value funds, as well as trust oil and gas fees. Service charges on
deposits increased $2.9 million or 11.4 percent
<PAGE>
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 offset by lower NSF charges. Other service
charge income increased $1.7 million or 23.1 percent from the same period last
year. Primary contributors to this growth were insurance commission income and
mutual fund fees. Other income was up $4.5 million or 39.1 percent compared to
the same period last year. Main contributors were the $2 million non-recurring
gain from the sale of a piece of property in connection with a branch
restructuring, gains on the sale of foreclosed assets and student loans offset
by lower recoveries on loans that are carried at a discount and mineral
interest income than a year ago.
Non-Interest Expense
The acquisitions of Commerce Financial Corporation, Keller State Bank, and
PIA as well as the formation of Frost Securities, Inc. impacted the growth in
expenses.
<TABLE>
<CAPTION>
Three Months Ended
Six Months Ended ------------------------------
June 30 1999 1998
------------------ ------------------- -------
Non-Interest Expense 1999 1998 June 30 March 31 June 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and wages $ 60,267 $ 54,964 $30,554 $29,713 $27,757
Pension and other employee benefits 13,091 11,060 6,576 6,515 5,462
Net occupancy of banking premises 13,519 12,220 6,818 6,701 6,112
Furniture and equipment 9,559 9,088 4,984 4,575 4,647
Intangible amortization 6,891 6,708 3,554 3,337 3,360
Merger related charge 12,244 12,244
Other 38,229 37,597 18,994 19,235 19,446
-------- -------- ------- ------- -------
Total $141,556 $143,881 $71,480 $70,076 $79,028
======== ======== ======= ======= =======
</TABLE>
For the second quarter 1999...
Non-interest expense was up $1.4 million or 2 percent compared to last
quarter and increased $4.7 million or 7 percent compared to the second quarter
of 1998 excluding the merger-related charge associated with the merger of
Overton.
Salaries and wages increased $841 thousand compared with the first quarter
of 1999 and were up $2.8 million or 10.1 percent from the second quarter of
1998. These increases were related to the acquisitions, as well as new
business initiatives and merit increases. Pension and employee benefits were
flat compared to last quarter and up 20.4 percent compared to the second
quarter of 1998. The increase from a year ago reflects higher medical
insurance expense and the impact of the acquisitions on bank contributions to
the 401(k) stock plan.
Net occupancy of banking premises expense remained flat with the first
quarter of 1999 and increased $706 thousand or 11.6 percent from the second
quarter of 1998. Costs associated with closing a branch location were
primarily responsible for the increase from the year ago quarter. Lower
operating costs during the second quarter of 1999 offset the branch closing
costs when compared to the previous quarter. Furniture and equipment expense
increased $409 thousand or 8.9 percent and $337 thousand or 7.3 percent from
the first quarter of 1999 and the second quarter last year, respectively. This
increase is primarily due to higher amortized software and software maintenance
costs. Intangible amortization increased 6.5 percent and 5.8 percent from the
first quarter of 1999 and second quarter of 1998 due to the previously
mentioned acquisitions.
Also included in the second quarter of 1998 was a $12.2 million merger
related charge associated with the merger of Overton. 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 decreased $241 thousand or 1.3 percent and
$452 thousand or 2.3 percent compared to the first quarter of 1999 and second
quarter of 1998, respectively. The decrease from a year ago is related to
lower professional expenses and security costs offset by higher conversion
related acquisition costs.
<PAGE>
For the six months ended June 30, 1999...
Total non-interest expense was up $9.9 million or 7.5 percent compared to
the same period one year ago excluding the merger-related charge. Salaries and
wages were up $5.3 million or 9.6 percent compared to the same period a year
ago primarily because of the acquisitions, as well as new business initiatives
and merit increases. Pension and other benefits increased $2.0 million or 18.4
percent from the same period last year due to higher medical insurance expense
and the impact of the acquisitions on bank contributions to the 401(k) stock
plan. Net occupancy of banking premises was up $1.3 million or 10.6 percent
compared to a year ago. This increase is attributable to cost associated with
branch activity, building maintenance influenced by the acquisitions and higher
property taxes. Furniture and equipment expense increased $471 thousand or 5.2
percent due to higher amortized software and software maintenance. Intangible
amortization increased $183 thousand or 2.7 percent from the same period a year
ago due to acquisitions. Other non-interest expenses increased $632 thousand
or 1.7 percent, primarily due to appraisal expense and higher conversion
related acquisition costs.
Income Taxes
The Corporation's effective tax rate for the first and second quarters of
1999 approximates 34 percent. The effective tax rate for the second quarter of
1998 was impacted by the merger related charge associated with 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 1999 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 $73,372 $6,891 $80,263 $49,686 $6,708 $56,394
Income taxes 24,989 1,602 26,591 18,817 1,656 20,473
------- ------ ------- ------- ------ -------
Net income $48,383 $5,289 $53,672 $30,869 $5,052 $35,921
======= ====== ======= ======= ====== =======
Net income per diluted
common share $ .88 $ .10 $ .98 $ .57 $ .09 $ .66
Return on assets 1.43% 1.58%* .99% 1.15%*
Return on equity 18.51 20.53 ** 13.04 15.17**
* Calculated as A/B
** Calculated as A/C June 1999 June 1998
----------------- ---------- ----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 53,672 $ 35,921
(B) Total average assets 6,836,555 6,307,061
(C) Average shareholders' equity 527,104 476,805
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------
June 1999 March 1999
- -----------------------------------------------------------------------------------------
Reported Intangible "Cash" Reported Intangible "Cash"
Earnings Amortization Earnings Earnings Amortization Earnings
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before income
taxes $36,647 $3,554 $40,201 $36,725 $3,337 $40,062
Income taxes 12,559 816 13,375 12,430 786 13,216
------- ------ ------- ------- ------ -------
Net income $24,088 $2,738 $26,826 $24,295 $2,551 $26,846
======= ====== ======= ======= ====== =======
Net income per common
share $ .44 $ .05 $ .49 $ .44 $ .05 $ .49
Return on assets 1.42% 1.58%* 1.44% 1.59%*
Return on equity 18.23 20.30 ** 18.79 20.77**
* Calculated as A/B
** Calculated as A/C June 1999 March 1999
----------------- ---------- -----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 26,826 $ 26,846
(B) Total average assets 6,808,655 6,852,825
(C) Average shareholders' equity 529,919 524,257
</TABLE>
Three Months Ended
--------------------------------
June 1998
- --------------------------------------------------------------
Reported Intangible "Cash"
Earnings Amortization Earnings
- --------------------------------------------------------------
Income before income taxes $19,598 $3,360 $22,958
Income taxes 8,142 812 8,954
------- ------ -------
Net income $11,456 $2,548 $14,004
======= ====== =======
Net income per common share $ .21 $ .05 $ .26
Return on assets .73% .89%*
Return on equity 9.51 11.62 **
* Calculated as A/B
** Calculated as A/C
June 1998
----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 14,004
(B) Total average assets 6,318,904
(C) Average shareholders' equity 483,334
<PAGE>
Excluding the merger related charge, the Corporation's cash earnings for
the six months and second quarter ending June 30, 1998 were $45.4 million or
$.83 per diluted common share and $23.5 million or $.43 per diluted common
share, respectively. Cash earnings (excluding the merger related charge)
return on assets and return on equity for the second quarter of 1998 were 1.49
percent and 19.51 percent, respectively.
Balance Sheet
Average assets of $6.8 billion were flat when compared to the previous
quarter and up 7.8 percent from the second quarter of 1998 with approximately
half of the increase related to the acquisitions. Total deposits averaged $5.8
billion for the current quarter, flat from the previous quarter and up 8
percent when compared to the second quarter of 1998. Average loans for the
second quarter of 1999 were $3.9 billion. This represents an increase in
average loans of 13.3 percent on an annualized basis from the first quarter of
1999 and 14.6 percent from the second quarter of last year.
Loans
1999 1998
---------------------- -------------------------
Loan Portfolio Percentage
Period-End Balances June 30 of Total December 31 June 30
- ------------------------------------------------------------------------------
Commercial $1,399,122 35.2% $1,211,180 $1,105,949
Consumer 572,058 14.4 625,018 695,563
Real estate 1,909,498 48.0 1,719,404 1,553,566
Other 98,013 2.5 94,358 95,877
Unearned discount (4,942) (.1) (3,357) (3,602)
---------- ------ ---------- ----------
Total Loans $3,973,749 100.0% $3,646,603 $3,447,353
========== ====== ========== ==========
At June 30, 1999 period-end loans totaled $4 billion up 17.5 percent on an
annualized basis from the previous quarter and up 15.3 percent from the same
period last year. Approximately 65 percent of the increase in loans from a
year ago resulted from internally generated growth.
Real Estate Loans
Real estate loans at June 30, 1999, were $1.9 billion or 48 percent of
period-end loans compared to 45.1 percent a year ago. Residential permanent
mortgage loans at June 30, 1999, were $671 million compared to $652 million at
March 31, 1999, and $560 million at June 30, 1998. 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, 1999, real estate loans 90 days past due (excluding non-
accrual loans) were $2.7 million, compared with $4.1 million at March 31, 1999,
and $2.6 million at June 30, 1998.
1999 1998
------------------------ --------
Real Estate Loans Percentage
Period-End Balances June 30 of Total June 30
- -------------------------------------------------------------------------------
Construction $ 367,160 19.2% $ 259,236
Land 112,958 5.9 61,163
Permanent mortgages:
Commercial 405,431 21.2 414,468
Residential 671,105 35.2 559,548
Other 352,844 18.5 259,151
---------- ------ ----------
$1,909,498 100.0% $1,553,566
========== ====== ==========
Non-accrual and restructured $ 5,134 .3% $ 8,857
<PAGE>
Mexico
At June 30, 1999, the Corporation's cross border outstanding to Mexico,
excluding $16.5 million in loans secured by liquid U.S. assets, totaled $48.4
million or 1.2 percent of total loans down from $50.4 million at March 31, 1999
and $51.4 million at June 30, 1998. The decrease from last year represents
normal fluctuations in lines of credit used by Mexican banks to finance trade.
At June 30, 1999, $583 thousand of Mexican-related loans were on non-performing
status.
MEXICAN LOANS
-----------------------
Percentage of
June 30, 1999 Amount Total Loans
- ----------------------------------------------------------------------
Loans to financial institutions $40,379 1.0%
Loans to private firms or individuals 8,012 .2
------- ----
$48,391 1.2%
======= ====
Non-Performing Assets
NON-PERFORMING ASSETS
--------------------------
Real
June 30, 1999 Estate Other Total
- ---------------------------------------------------------------------------
Non-accrual $ 5,134 $7,862 $12,996
Foreclosed assets 2,919 287 3,206
------- ------ -------
Total $ 8,053 $8,149 $16,202
======= ====== =======
As a percentage of total
non-performing assets 49.7% 50.3% 100.0%
Non-performing assets totaled $16.2 million at June 30, 1999 down 18
percent from $19.7 million at June 30, 1998 and down 12 percent from $18.4
million at March 31, 1999. Non-performing assets as a percentage of total loans
and foreclosed assets decreased to .41 percent at June 30, 1999 from .57 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 $217 thousand for the second quarter of
1999, compared to approximately $297 thousand for the second quarter of 1998 and
$250 thousand for the first quarter of 1999. For the six months ended June 30,
1999, the after-tax impact (assuming a 35 percent marginal tax rate) was
approximately $467 thousand compared with approximately $573,000 for the
comparable period last year. Total loans 90 days past due (excluding non-
accrual loans) were $5.6 million at June 30, 1999, compared to $7.0 million at
June 30, 1998, and $7.9 million at March 31, 1999.
<PAGE>
Allowance for Possible Loan Losses
The allowance for possible loan losses was $59 million or 1.48 percent of
period-end loans at June 30, 1999, compared to $51.1 million or 1.48 percent at
June 30, 1998 and $55.9 million or 1.47 percent at March 31, 1999. The
allowance for possible loan losses as a percentage of non-accrual and
restructured loans was 454 percent at June 30, 1999, compared to 352 percent at
June 30, 1998 and 391 percent at the end of the first quarter of 1999.
The Corporation recorded a $3 million provision for possible loan losses
during the second quarter of 1999. This compares to $2.6 million provision for
possible loan losses during the second quarter of 1998 and $3 million for the
first quarter of 1999. The provision is reflective of the continued growth in
the loan portfolio. Net charge-offs in the second quarter of 1999 totaled $624
thousand, compared to net charge-offs of $1.2 million and $1.1 million for the
second quarter of 1998 and for the first quarter of 1999, respectively.
NET CHARGE-OFFS (RECOVERIES)
----------------------------
1999 1998
------------------ -------
Second First Second
Quarter Quarter Quarter
- -------------------------------------------------------------------
Real estate $ 86 $ (243) $ (303)
Commercial and industrial (289) 170 (100)
Consumer 853 1,150 1,600
Other, including foreign (26) (18) (14)
------- ------- -------
$ 624 $ 1,059 $ 1,183
======= ======= =======
Provision for possible loan losses $ 2,975 $ 3,000 $ 2,600
Allowance for possible loan losses 58,974 55,857 51,115
Capital and Liquidity
At June 30, 1999, shareholders' equity was $510 million compared to $483.3
million at June 30, 1998 and $523.8 million at March 31, 1999. The Corporation
had an unrealized loss on securities available for sale, net of deferred taxes,
of $28.5 million as of June 30, 1999 compared to a $8.8 million unrealized gain
as of June 30, 1998, reflecting a change of $37.3 million. This decrease in
the market value of securities available for sale is primarily due to an
increase 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.
During the second quarter of 1999, the board of directors declared and
paid a two for one stock split. In addition, the Corporation raised its cash
dividend 17 percent in the second quarter of 1999 to $.175 per common share
(post-split) compared to $.15 per common share in the first quarter of 1999 and
second quarter of 1998. This equates to a dividend payout ratio of 38.9 percent
and 33 percent for the second and first quarters of 1999, respectively. The
dividend payout ratio for the second quarter of 1998 (excluding the merger
related charge) was 38.1 percent.
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, 1999.
Asset liquidity is provided by cash and assets which are readily
marketable, pledgeable or which will mature in the near future. These include
cash, short-term time deposits in banks, securities available for sale,
maturities and cash flow from securities held to maturity, and Federal funds
sold and securities purchased under resale agreements. Liability liquidity is
provided by access to funding sources, principally core deposits and Federal
funds purchased. Additional sources of liability liquidity include brokered
deposits and securities sold under agreement to repurchase. The liquidity
position of the Corporation is continuously monitored and adjustments are made
to the balance between sources and uses of funds as deemed appropriate.
<PAGE>
Year 2000
The Corporation has an extensive program in place to address the
internal and external risks associated with the century date change to the Year
2000. Currently, the Corporation estimates that the dollar amount to be spent
on incremental costs will be approximately $4.7 million over the three year
period beginning in 1997, funded out of its earnings, with approximately $4.29
million spent through the second quarter of 1999. These costs are being
expensed as incurred. Additionally, the Corporation is spending about 30
percent of its annual technology budget to facilitate progress on the Year 2000
program. 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 resources.
The Corporation has systematically inventoried and assessed the importance
of application software and system hardware and software during the now
completed awareness and assessment phase of its information technology. The
Corporation has also completed the renovation of mission critical systems and
has implemented 100 percent of the renovated mission critical systems. The
Corporation has completed the renovation, testing and installation of 100
percent of technology systems in its owned facilities, including vault doors,
elevators, climate control systems, and security systems. The Corporation is
substantially complete with the non-mission critical applications. The
Corporation has commenced, and will continue into 1999, integration testing to
assure that logically related systems can interact and process information
correctly.
During 1998, the Corporation reviewed the Year 2000 preparedness of its
vendors and suppliers, and recently completed on-site due diligence visits with
key service providers. The great majority of these suppliers appear to be
making adequate progress. The Corporation will continue to monitor vendor and
supplier progress and develop contingency plans where necessary and feasible.
The Corporation is testing for key dates in the new century with critical third
party service providers, although it may be necessary to rely on proxy testing
in some cases. The majority of this work is complete. The Corporation will
make available testing documentation, known as proxy tests, to clients
utilizing certain products and services. The Corporation also relies on
entities such as the Federal Reserve System, Depository Trust Company,
Participants Trust Company, Society for Worldwide Interbank Financial
Telecommunications (SWIFT), and the Clearing House Interbank Payment Systems
(CHIPS) in its securities processing and banking businesses, as do other
financial services providers in similar businesses.
Although the Corporation is attempting to monitor and validate the efforts of
other parties, it cannot control the success of these efforts. The Corporation
is developing contingency plans where practical to provide alternatives in
situations where a third party furnishing a critical product or service
experiences significant Year 2000 issues. The Corporation is also updating
existing business continuity plans for the date change. This process is well
underway and will continue through the third quarter, 1999, as plans are
reviewed and validated.
As part of its credit analysis process, the Corporation has developed a
project plan for assessing the Year 2000 readiness of its significant credit
customers. An initial assessment of Year 2000 readiness has been completed for
the customers who have responded to the Corporation's inquiries about their
progress, which make up the majority of its credit customers and represent most
of its credit exposure. The Corporation will continue to monitor the progress
of these customers.
The Financial Management Group's (FMG) mission critical systems, such as
the trust and brokerage accounting and trading systems, are and have been,
included in the Corporation's evaluation and testing of systems. FMG is also
updating current contingency plans to include possible Year 2000 circumstances.
In addition to the systems aspect, the FMG recognizes that there could be other
types of risks and is in the process of reviewing the managed assets comprising
the investment portfolios of FMG clients. The review process includes
obtaining public information provided by companies/issuers to regulatory
bodies, such as the Securities and Exchange Commission. Other public
information that may be relied upon for evaluating a company's/issuer's Year
2000 readiness are analysts' reports and/or official statements from
companies/issuers.
Although the FMG is attempting to review and monitor the efforts of other
parties, it cannot warrant the facts, circumstances, or the outcome of such
efforts. Where the Corporation does not serve in a fiduciary capacity for a
customer's assets it cannot provide any assurances on factors outside its
control such as the quality of assets, potential
<PAGE>
economic uncertainties and other service providers. The Corporation also does
not accept responsibility for ensuring that its clients' own systems are Year
2000 compliant. In addition, the Corporation does not guarantee that there
will not be any disruptions on receipt or disbursements of income. There may
be disruptions that are beyond the control of the Corporation. An example of
this would be if an issuer/company or its paying agent does not pay income as
scheduled.
The Corporation's Year 2000 program is regularly reviewed by examiners
from various external agencies such as the Comptroller of the Currency and the
Federal Reserve Bank.
The Corporation expects to successfully complete its Year 2000 effort as
planned. However, it is subject to unique risks and uncertainties due to the
interdependencies in business and financial markets, and the numerous
activities and events outside of its control. Since the Corporation is still
conducting external testing and monitoring of third parties, it is unable to
make assumptions as to the extent of Year 2000 failures that could result, nor
quantify the potential adverse effect that such failures could have on the
Corporation's operations, liquidity, results of operations and financial
condition. Year 2000 risks will be continually evaluated and contingency plans
revised throughout 1999.
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, 1999 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
Time deposits $ 1,522 $ 25 3.29%
Securities:
U.S. Treasury 195,660 4,844 4.99 $ 295,857 $ 8,268 5.64%
U.S. Government agencies
and corporations 1,596,862 50,606 6.34 1,512,706 49,177 6.50
States and political subdivisions 140,005 5,098 7.28 45,266 1,778 7.86
Other 43,010 1,234 5.74 33,950 1,055 6.21
--------- -------- --------- --------
Total securities 1,975,537 61,782 6.26 1,887,779 60,278 6.39
Federal funds sold 47,528 1,163 4.87 139,702 3,880 5.52
Loans, net of unearned discount 3,823,480 157,543 8.31 3,336,701 147,201 8.90
--------- -------- ---------- --------
Total Earning Assets and
Average Rate Earned 5,848,067 220,513 7.59 5,364,182 211,359 7.93
Cash and due from banks 613,395 592,705
Allowance for possible loan losses (55,930) (49,884)
Banking premises and equipment 138,811 134,797
Accrued interest and other assets 292,212 265,261
--------- ----------
Total Assets $6,836,555 $6,307,061
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $1,500,961 $1,347,314
Correspondent banks 220,428 207,802
Public funds 39,098 39,540
--------- ---------
Total demand deposits 1,760,487 1,594,656
Time deposits:
Savings and Interest-on-Checking 947,250 3,308 .70 905,247 5,671 1.26
Money market deposit accounts 1,574,255 28,070 3.60 1,316,894 26,000 3.98
Time accounts 1,259,466 26,931 4.31 1,281,803 32,313 5.08
Public funds 235,636 4,198 3.59 274,613 5,452 4.00
--------- -------- --------- --------
Total time deposits 4,016,607 62,507 3.14 3,778,557 69,436 3.71
--------- ---------
Total Deposits 5,777,094 5,373,213
Federal funds purchased and securities
sold under resale agreements 316,326 6,738 4.24 239,090 5,574 4.64
Long-term notes payable 891 26 5.84
Guaranteed preferred beneficial
interests in the Corporation's
subordinated debentures,net 98,471 4,238 8.61 98,416 4,238 8.61
Other borrowings 12,895 374 5.86 30,248 784 5.23
--------- -------- ---------- --------
Total Interest-Bearing Funds
and Average Rate Paid 4,445,190 73,883 3.35 4,146,311 80,032 3.89
--------- -------- ---- ---------- -------- ----
Accrued interest and other liabilities 103,774 89,289
--------- ----------
Total Liabilities 6,309,451 5,830,256
SHAREHOLDERS' EQUITY 527,104 476,805
--------- ----------
Total Liabilities and
Shareholders' Equity $6,836,555 $6,307,061
========== ==========
Net interest income $146,630 $131,327
======== ========
Net interest spread 4.24% 4.04%
===== =====
Net interest income to total average earning assets 5.04% 4.92%
===== =====
*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, 1999 March 31, 1999
---------------------------- ------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
---------- ------- ----- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Time deposits $ 2,599 $ 21 3.26% $ 432 $ 3 3.47%
Securities:
U.S. Treasury 184,647 2,279 4.95 206,795 2,565 5.03
U.S. Government agencies
and corporations 1,500,643 23,986 6.39 1,694,151 26,620 6.29
States and political subdivisions 144,774 2,697 7.45 135,183 2,401 7.10
Other 32,002 442 5.52 54,141 792 5.86
---------- ------- ---------- -------
Total securities 1,862,066 29,404 6.32 2,090,270 32,378 6.20
Federal funds sold 66,407 831 4.95 28,439 332 4.67
Loans, net of unearned discount 3,885,535 79,923 8.25 3,760,734 77,621 8.37
---------- ------- ---------- -------
Total Earning Assets and
Average Rate Earned 5,816,607 110,179 7.59 5,879,875 110,334 7.58
Cash and due from banks 608,476 618,369
Allowance for possible loan losses (57,310) (54,534)
Banking premises and equipment 140,684 136,918
Accrued interest and other assets 300,198 272,197
---------- ----------
Total Assets $6,808,655 $6,852,825
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $1,519,140 $1,482,579
Correspondent banks 223,648 217,173
Public funds 37,146 41,071
---------- ----------
Total demand deposits 1,779,934 1,740,823
Time deposits:
Savings and Interest-on-Checking 958,665 1,652 .69 935,709 1,656 .72
Money market deposit accounts 1,606,753 14,375 3.59 1,541,395 13,695 3.60
Time accounts 1,250,747 13,174 4.22 1,268,283 13,757 4.40
Public funds 207,827 1,907 3.68 263,754 2,291 3.52
---------- ------- ---------- -------
Total time deposits 4,023,992 31,108 3.10 4,009,141 31,399 3.18
---------- ------- ---------- -------
Total Deposits 5,803,926 5,749,964
Federal funds purchased and securities
sold under resale agreements 256,954 2,731 4.20 376,357 4,007 4.26
Long-term notes payable 1,772 26 5.82
Guaranteed preferred beneficial
interests in the Corporation's
subordinated debentures, net 98,478 2,119 8.61 98,464 2,119 8.61
Other borrowings 12,590 172 5.49 13,204 202 6.21
---------- ------- ---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 4,393,786 36,156 3.30 4,497,166 37,727 3.39
---------- ------- ---- ---------- ------- ----
Accrued interest and other liabilities 105,016 90,579
---------- ----------
Total Liabilities 6,278,736 6,328,568
SHAREHOLDERS' EQUITY 529,919 524,257
---------- ----------
Total Liabilities and
Shareholders' Equity $6,808,655 $6,852,825
========== ==========
Net interest income $ 74,023 $ 72,607
======== ========
Net interest spread 4.29% 4.19%
==== ====
Net interest income to total average earning assets 5.10% 4.98%
==== ====
*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, 1998 September 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 $ 252,567 $ 3,204 5.03% $ 205,209 $ 2,867 5.54%
U.S. Government agencies
and corporations 1,687,422 26,508 6.28 1,515,663 24,286 6.41
States and political subdivisions 107,122 1,912 7.14 72,949 1,367 7.49
Other 50,937 772 6.06 51,667 753 5.83
---------- -------- ---------- --------
Total securities 2,098,048 32,396 6.17 1,845,488 29,273 6.34
Federal funds sold 106,523 1,431 5.26 123,572 1,800 5.70
Loans, net of unearned discount 3,602,690 76,980 8.48 3,470,656 77,607 8.87
---------- -------- ---------- --------
Total Earning Assets and
Average Rate Earned 5,807,261 110,807 7.59 5,439,716 108,680 7.94
Cash and due from banks 588,053 536,988
Allowance for possible loan losses (52,837) (52,273)
Banking premises and equipment 137,121 135,322
Accrued interest and other assets 257,995 250,163
---------- ----------
Total Assets $6,737,593 $6,309,916
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $1,471,437 $1,383,898
Correspondent banks 176,041 190,975
Public funds 55,965 38,856
---------- ----------
Total demand deposits 1,703,443 1,613,729
Time deposits:
Savings and Interest-on-Checking 906,111 2,066 .90 891,341 2,942 1.31
Money market deposit accounts 1,509,580 14,238 3.74 1,406,293 14,088 3.97
Time accounts 1,281,352 15,170 4.70 1,299,045 16,138 4.93
Public funds 266,688 2,310 3.44 191,118 1,894 3.93
---------- -------- ---------- --------
Total time Deposits 3,963,731 33,784 3.38 3,787,797 35,062 3.67
---------- -------- ---------- --------
Total Deposits 5,667,174 5,401,526
Federal funds purchased and securities
sold under repurchase agreements 328,794 3,554 4.23 204,480 2,478 4.74
Guaranteed preferred beneficial
interests in the Corporation's
subordinated debentures, net 98,450 2,119 8.61 98,436 2,118 8.61
Other borrowings 24,185 379 6.22 37,969 592 6.17
---------- -------- ---------- --------
Total Interest-Bearing Funds
and Average Rate Paid 4,415,160 39,836 3.58 4,128,682 40,250 3.87
---------- -------- ---- ---------- -------- ----
Accrued interest and other
liabilities 106,561 76,058
---------- ----------
Total Liabilities 6,225,164 5,818,469
SHAREHOLDERS' EQUITY 512,429 491,447
---------- ----------
Total Liabilities and
Shareholders' Equity $6,737,593 $6,309,916
========== ==========
Net interest income $ 70,971 $ 68,430
======== ========
Net interest spread 4.01% 4.07%
==== ====
Net interest income to total average earning assets 4.87% 5.01%
==== ====
* Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<PAGE>
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
----------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
ASSETS ---------- ------- -----
Securities:
U.S. Treasury $ 256,937 $ 3,620 5.65%
U.S. Government agencies
and corporations 1,523,283 24,766 6.50
States and political subdivisions 48,762 1,034 8.48
Other 48,000 783 6.53
---------- -------
Total securities 1,876,982 30,203 6.44
Federal funds sold 136,194 1,863 5.41
Loans, net of unearned discount 3,389,805 74,821 8.85
---------- -------
Total Earning Assets and
Average Rate Earned 5,402,981 106,887 7.93
Cash and due from banks 573,970
Allowance for possible loan losses (50,307)
Banking premises and equipment 134,842
Accrued interest and other assets 257,418
----------
Total Assets $6,318,904
==========
LIABILITIES
Demand deposits:
Commercial and individual $1,369,084
Correspondent banks 195,762
Public funds 38,059
----------
Total demand deposits 1,602,905
Time deposits:
Savings and Interest-on-Checking 916,899 2,921 1.28
Money market deposit accounts 1,337,586 13,259 3.98
Time accounts 1,291,537 16,279 5.06
Public funds 224,173 2,194 3.93
---------- -------
Total time deposits 3,770,195 34,653 3.69
---------- -------
Total Deposits 5,373,100
Federal funds purchased and securities
sold under resale agreements 243,033 2,827 4.60
Guaranteed preferred beneficial
interests in the Corporation's
subordinated debentures, net 98,422 2,119 8.61
Other borrowings 33,929 419 4.96
---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 4,145,579 40,018 3.87
---------- ------- ----
Accrued interest and other liabilities 87,086
----------
Total Liabilities 5,835,570
SHAREHOLDERS' EQUITY 483,334
----------
Total Liabilities and
Shareholders' Equity $6,318,904
==========
Net interest income $ 66,869
========
Net interest spread 4.06%
====
Net interest income to total average earning assets 4.96%
====
*Taxable-equivalent basis assuming a 35% tax rate.
<PAGE>
Item 3.
Quantitative and Qualitative Disclosures About Market Risks
There has been no material change in the market risks faced by the Company
since December 31, 1998. For information regarding the Company's market risk,
refer to the Company's Annual Report on Form 10-K for the year ended December
31, 1998.
<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 26,
1999. The following matters were submitted to a vote of the Corporation's
shareholders.
1. Election of Directors:
Election of two director nominees into Class II with terms expiring in
2001 and election of six director nominees into Class III with terms expiring
in 2002 was approved with no nominee receiving less than 22.6 million votes.
Nominee Total Votes For Total Votes Withheld
- ------- --------------- --------------------
Class II:
Cass O. Edwards 22,767,601 363,512
T. C. Frost 22,770,593 360,520
Class III:
R. Denny Alexander 22,682,090 449,023
Bob W. Coleman 22,738,110 393,003
Eugene H. Dawson, Sr. 22,681,056 450,057
Ruben M. Escobedo 22,772,045 359,068
Joe R. Fulton 22,770,733 360,380
Ida Clement Steen 22,773,400 357,713
2. Amend 1992 Stock Plan
Total Votes For 18,571,844
Total Votes Withheld 1,559,569
3. Selection of Independent Auditors
Total Votes For 23,106,340
Total Votes Withheld 24,773
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Statement regarding Financial Data Schedule (EDGAR Version)
(b) Reports on Form 8-K
None
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cullen/Frost Bankers, Inc.
(Registrant)
Date: August 16, 1999 By:/S/Phillip D. Green
-----------------------
Phillip D. Green
Senior Executive Vice President
and Chief Financial Officer
(Duly Authorized Officer and
Principal Accounting Officer)
<PAGE>
Cullen/Frost Bankers, Inc.
Form 10-Q
Exhibit Index
Exhibit Description
- ------- -----------
27 Statement re: Financial Data Schedule 6-30-99 (EDGAR VERSION)
<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, 1999 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 655,431
<INT-BEARING-DEPOSITS> 2,628
<FED-FUNDS-SOLD> 25,125
<TRADING-ASSETS> 682
<INVESTMENTS-HELD-FOR-SALE> 1,725,002
<INVESTMENTS-CARRYING> 95,435
<INVESTMENTS-MARKET> 97,226
<LOANS> 3,973,749
<ALLOWANCE> 58,974
<TOTAL-ASSETS> 6,902,438
<DEPOSITS> 5,893,527
<SHORT-TERM> 296,875
<LIABILITIES-OTHER> 103,550
<LONG-TERM> 98,486
0
0
<COMMON> 536
<OTHER-SE> 509,464
<TOTAL-LIABILITIES-AND-EQUITY> 6,902,438
<INTEREST-LOAN> 157,046
<INTEREST-INVEST> 59,996
<INTEREST-OTHER> 1,188
<INTEREST-TOTAL> 218,230
<INTEREST-DEPOSIT> 62,507
<INTEREST-EXPENSE> 73,883
<INTEREST-INCOME-NET> 144,347
<LOAN-LOSSES> 5,975
<SECURITIES-GAINS> (68)
<EXPENSE-OTHER> 141,556
<INCOME-PRETAX> 73,372
<INCOME-PRE-EXTRAORDINARY> 73,372
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,383
<EPS-BASIC> .90
<EPS-DILUTED> .88
<YIELD-ACTUAL> 7.59
<LOANS-NON> 12,996
<LOANS-PAST> 5,569
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,041
<ALLOWANCE-OPEN> 53,616
<CHARGE-OFFS> (4,483)
<RECOVERIES> 2,800
<ALLOWANCE-CLOSE> 58,974
<ALLOWANCE-DOMESTIC> 45,894
<ALLOWANCE-FOREIGN> 213
<ALLOWANCE-UNALLOCATED> 12,867
</TABLE>
