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, 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 November 5, 1999, there
were 53,090,787 shares of Common Stock, $.01 par value, outstanding.
<PAGE>
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<CAPTION>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
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
-------------------- --------------------
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $84,057 $77,319 $241,103 $224,024
Securities:
Taxable 25,316 28,006 82,273 86,676
Tax-exempt 1,644 795 4,683 1,852
------- ------- -------- --------
Total Securities 26,960 28,801 86,956 88,528
Time deposits 45 70
Federal funds sold 1,404 1,800 2,567 5,680
------- ------- -------- --------
Total Interest Income 112,466 107,920 330,696 318,232
INTEREST EXPENSE
Deposits 32,345 35,062 94,852 104,498
Federal funds purchased and securities
sold under repurchase agreements 2,635 2,478 9,373 8,052
Guaranteed preferred beneficial interest in the
Corporation's junior subordinated deferrable
interest debentures 2,118 2,118 6,356 6,356
Long-term notes payable and other borrowings 199 592 599 1,376
------- ------- -------- --------
Total Interest Expense 37,297 40,250 111,180 120,282
------- ------- -------- --------
Net Interest Income 75,169 67,670 219,516 197,950
Provision for possible loan losses 2,976 2,555 8,951 7,734
------- ------- -------- --------
Net Interest Income After Provision
For Possible Loan Losses 72,193 65,115 210,565 190,216
NON-INTEREST INCOME
Trust fees 11,787 11,759 34,586 35,420
Service charges on deposit accounts 15,179 14,218 43,663 39,791
Other service charges, collection and
exchange charges, commissions and fees 7,183 4,088 16,455 11,621
Net gain (loss) on securities transactions 67 (68) 211
Other 5,514 5,877 21,583 17,432
------- ------- -------- --------
Total Non-Interest Income 39,663 36,009 116,219 104,475
NON-INTEREST EXPENSE
Salaries and wages 32,580 27,645 92,847 82,609
Pension and other employee benefits 6,300 5,345 19,391 16,405
Net occupancy of banking premises 6,776 6,540 20,295 18,760
Furniture and equipment 5,087 4,868 14,646 13,956
Intangible amortization 4,058 3,299 10,949 10,007
Merger related charges 12,244
Other 19,754 19,701 57,983 57,298
------- ------- -------- --------
Total Non-Interest Expense 74,555 67,398 216,111 211,279
------- ------- -------- --------
Income Before Income Taxes 37,301 33,726 110,673 83,412
Income Taxes 12,928 11,728 37,917 30,545
------- ------- -------- --------
Net Income $24,373 $21,998 $ 72,756 $ 52,867
======= ======= ======== ========
Net income per common share:
Basic $ .46 $ .41 $ 1.36 $ 1.00
Diluted .45 .40 1.33 .97
Dividends per common share .175 .15 .50 .425
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Consolidated Balance Sheets
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands, except per share amounts)
September 30 December 31 September 30
1999 1998 1998
------------ ----------- ------------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 645,308 $ 684,941 $ 476,625
Time deposits 4,048
Securities held to maturity 89,457 111,439 119,366
Securities available for sale 1,567,171 1,979,555 1,773,393
Securities trading 1,025 709 1,673
Federal funds sold 3,125 102,900 166,397
Loans, net of unearned discount of $9,949 at
September 30, 1999 $3,357 at December 31, 1998
and $3,717 at September 30, 1998 4,062,833 3,646,603 3,536,480
Less: Allowance for possible loan losses (59,319) (53,616) (51,993)
---------- ---------- ----------
Net Loans 4,003,514 3,592,987 3,484,487
Banking premises and equipment 143,962 137,290 136,589
Accrued interest and other assets 312,110 259,784 250,455
---------- ---------- ----------
Total Assets $6,769,720 $6,869,605 $6,408,985
========== ========== ==========
Liabilities
Demand Deposits:
Commercial and individual $1,529,397 $1,585,891 $1,418,911
Correspondent banks 188,460 201,355 161,533
Public funds 31,288 56,253 44,330
---------- ---------- ----------
Total demand deposits 1,749,145 1,843,499 1,624,774
Time Deposits:
Savings and Interest-on-Checking 924,401 961,597 900,976
Money market deposit accounts 1,706,240 1,493,778 1,445,571
Time accounts 1,245,094 1,264,121 1,297,655
Public funds 195,791 282,492 196,744
---------- ---------- ----------
Total time deposits 4,071,526 4,001,988 3,840,946
---------- ---------- ----------
Total deposits 5,820,671 5,845,487 5,465,720
Federal funds purchased and securities
sold under repurchase agreements 258,283 305,564 227,538
Accrued interest and other liabilities 74,821 107,177 111,452
Guaranteed preferred beneficial interest in the
Corporation's junior subordinated deferrable
interest debentures 98,499 98,458 98,444
---------- ---------- ----------
Total Liabilities 6,252,274 6,356,686 5,903,154
Shareholders' Equity
Common stock, par value per share: $.01 536 267 267
Shares authorized:90,000,000
Shares issued: 53,561,616; 53,425,296; 53,374,716
Surplus 184,807 183,151 182,224
Retained earnings 368,114 321,754 307,625
Accumulated other comprehensive income, net of tax (25,766) 7,747 16,575
Treasury Stock (404,899; 0 ; 17,474 shares) (10,245) (860)
---------- ---------- ----------
Total Shareholders' Equity 517,446 512,919 505,831
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $6,769,720 $6,869,605 $6,408,985
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
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<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 30, 1998 $ 267 $183,151 $321,754 $ 7,747 $------- $512,919
Net income for the nine
months ended September 30, 1999 72,756 72,756
Unrealized loss on securities
available for sale of $33,557,
net of tax and reclassification
adjustment for after-tax losses
included in net income of $44 (33,513) (33,513)
--------
Total comprehensive income 39,243
--------
Proceeds from employee stock
purchase plan and options 1 906 (479) 1,278 1,706
Tax benefit related to exercise
of stock options 1,018 1,018
Purchase of treasury stock (11,523) (11,523)
Restricted stock plan deferred
compensation, net 815 815
Cash dividend (26,732) (26,732)
Two-for-one stock split 268 (268)
-------- -------- -------- -------- -------- --------
Balance at September 30, 1999 $ 536 $184,807 $368,114 $(25,766) $(10,245) $517,446
======== ======== ======== ======== ========= ========
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
Nine Months Ended
September 30
-------------------
1999 1998
-------- --------
<S> <C> <C>
Operating Activities
Net income $ 72,756 $ 52,867
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 8,951 7,734
Provision for deferred taxes (5,346) (3,796)
Accretion of discounts on loans (3,564) (471)
Accretion of securities' discounts (1,507) (2,111)
Amortization of securities' premiums 3,933 4,166
Net (increase)decrease in trading securities (316) 267
Net loss (gain) on securities transactions 68 (211)
Net gain on sale of assets (2,898) (751)
Depreciation and amortization 23,946 22,477
Decrease in interest receivable 65 519
Increase (decrease) in interest payable 237 (6,609)
Originations of mortgages held-for-sale (113,251) (129,275)
Proceeds from sales of mortgages held-for-sale 118,175 127,905
Net change in other assets and liabilities (34,229) 31,644
---------- --------
Net cash provided by operating activities 67,020 104,355
Investing Activities
Proceeds from maturities of securities held to maturity 22,030 29,132
Purchases of investment securities held to maturity (99) (9,650)
Proceeds from sales of securities available for sale 265,414 681,300
Proceeds from maturities of securities available for sale 878,194 955,853
Purchases of securities available for sale (691,168)(1,685,879)
Net increase in loans (308,963) (301,134)
Net increase in bank premises and equipment (12,833) (13,771)
Proceeds from sales of repossessed properties 2,336 2,160
Net cash and cash equivalents paid for acquisitions (23,788) (8,899)
--------- ---------
Net cash provided (used) by investing activities 131,123 (350,888)
Financing Activities
Net (decrease) increase in demand deposits,
IOC accounts, and savings accounts (65,860) 152,835
Net decrease in certificates of deposits (184,831) (78,407)
Net (decrease) increase in short-term borrowings (47,281) 11,335
Net proceeds from issuance of common stock 2,724 1,426
Purchase of treasury stock (11,523) (2,784)
Dividends paid (26,732) (22,463)
--------- --------
Net cash (used) provided by financing activities (333,503) 61,942
--------- --------
Decrease in cash and cash equivalents (135,360) (184,591)
Cash and cash equivalents at beginning of year 787,841 827,613
--------- --------
Cash and cash equivalents at the end of the period $652,481 $643,022
========= ========
Supplemental information:
Interest Paid $110,943 $126,891
Loans originated to facilitate the sale
of repossessed properties 278 85
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Cullen/Frost Bankers, Inc. and Subsidiaries
Note A - Basis of Presentation
The consolidated financial statements include the accounts of Cullen/Frost
Bankers, Inc. ("Cullen/Frost" or "Company") 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.
Nine Months Ended
September 30
--------------------
(in thousands) 1999 1998
- -----------------------------------------------------------------------
Balance at beginning of the period $53,616 $48,073
Provision for possible loan losses 8,951 7,734
Loan loss reserve of acquired institutions 1,066 1,250
Net charge-offs:
Losses charged to the allowance (8,014) (9,690)
Recoveries 3,700 4,626
------- -------
Net charge-offs (4,314) (5,064)
------- -------
Balance at the end of period $59,319 $51,993
======= =======
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 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. All
impaired loans are included in non-performing assets. At September 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 has been recognized on impaired loans during
the first nine months of 1999 compared to $70,000 recognized during the first
nine months 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:
September 30
-------------------
(in thousands) 1999 1998
- --------------------------------------------------------------------------
Impaired loans with no valuation reserve $1,753 $2,642
Impaired loans with a valuation reserve 5,232 2,798
------ ------
Total recorded investment in impaired loans $6,985 $5,440
====== ======
Average recorded investment in impaired loans $5,633 $6,577
Valuation reserve 2,952 1,646
Note D - Earnings Per Common Share
On June 22, 1999, Cullen/Frost 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>
Nine Months Ended Three Months Ended
September 30 September 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 $72,756 $52,867 $24,373 $21,998
======= ======= ======= =======
Denominators:
Denominators for basic earnings per share,
average outstanding common shares 53,481 53,065 53,422 53,309
Dilutive effect of stock options 1,355 1,539 1,326 1,421
------- ------- ------- -------
Denominator for diluted earnings per share 54,836 54,604 54,748 54,730
======= ======= ======= =======
Earnings per share:
Basic $ 1.36 $ 1.00 $ .46 $ .41
Diluted 1.33 .97 .45 .40
</TABLE>
Note E - Capital
The table below reflects various measures of regulatory capital at
September 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>
September 30, 1999 September 30, 1998
------------------- -------------------
(in thousands) Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-Based Capital
Tier 1 Capital $ 510,899 11.20% $ 493,553 12.26%
Tier 1 Capital Minimum requirement 182,440 4.00 160,989 4.00
Total Capital $ 567,940 12.45% $ 543,884 13.51%
Total Capital Minimum requirement 364,881 8.00 321,978 8.00
Risk-adjusted assets, net of goodwill $4,561,012 $4,024,731
Leverage ratio 7.59% 7.96%
Average equity as a percentage
of average assets 7.57 7.65
</TABLE>
<PAGE>
At September 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 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 the
Corporation fails to meet the minimum requirements, that could have a direct
material effect on the Corporation's financial statements.
Note F - Income Taxes
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- -----------------------
(in thousands) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current Tax Expense $14,805 $13,400 $43,264 $34,341
Deferred Tax Benefit (1,877) (1,672) (5,347) (3,796)
------- ------- ------- -------
Income Taxes $12,928 $11,728 $37,917 $30,545
======= ======= ======= =======
Income Tax Payments $44,242 $30,421
</TABLE>
Net deferred tax assets were $31.5 million with no valuation allowance. The
deferred tax assets were supported by taxes paid in prior years.
Note G - Merger and Acquisitions
On May 20, 1999, Cullen/Frost 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 Company
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 Cullen/Frost'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 Cullen/Frost's 1999 net income.
On January 15, 1999, Cullen/Frost 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 Company 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 Cullen/Frost's 1999
net income.
On May 29, 1998, Cullen/Frost 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 Company's first entry
<PAGE>
into the Fort Worth market. With the merger, the Company acquired twelve
locations in Fort Worth/Arlington and two in Dallas. Cullen/Frost issued
approximately 4.38 million (pre-split) common shares as part of this
transaction.
On January 2, 1998, Cullen/Frost 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 Company acquired loans of
approximately $125 million and deposits of approximately $222 million. Total
intangible assets associated with the acquisition amounted to approximately
$34.2 million.
Investment Banking Subsidiary
On August 2, 1999 Cullen/Frost 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
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 "Accounting for
Derivative Instruments and Hedging Activities" will require the recognition of
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 ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. Even though early adoption is allowed,
Cullen/Frost 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
Company and the nature and purpose of the derivatives in use by the Company at
that time.
<PAGE>
Note I - Operating Segments
Cullen/Frost 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
Cullen/Frost 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.
<TABLE>
<CAPTION>
Nine Months Ended: Financial
Management Consolidated
(in thousands) Banking Group Non-Banks Total
============================================================================================================
<S> <C> <C> <C> <C>
September 30, 1999
Revenues from external customers.................... $296,481 $ 45,455 $ (6,201) $335,735
------------------------------------------------------
Net income (loss)................................... $ 69,529 $ 11,202 $ (7,975) $ 72,756
======================================================
============================================================================================================
September 30, 1998
Revenues from external customers.................... $263,770 $ 44,513 $ (5,858) $302,425
------------------------------------------------------
Operating Earnings (loss)........................... $ 56,736 $ 11,075 $ (5,433) $ 62,378*
======================================================
Three Months Ended: Financial
Management Consolidated
(in thousands) Banking Group Non-Banks Total
============================================================================================================
September 30, 1999
Revenues from external customers.................... $101,276 $ 15,475 $ (1,919) $114,832
------------------------------------------------------
Net income (loss)................................... $ 23,673 $ 3,904 $ (3,204) $ 24,373
======================================================
============================================================================================================
September 30, 1998
Revenues from external customers.................... $ 91,058 $ 14,768 $ (2,147) $103,679
------------------------------------------------------
Net income (loss)................................... $ 20,459 $ 3,871 $ (2,332) $ 21,998
======================================================
*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)
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 Bankers, Inc. ("Cullen/Frost" or "Company") 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 Cullen/Frost 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 reported net income of $24.4 million or $.45 per diluted
common share for the quarter ended September 30, 1999 compared to $24.1 million
or $.44 per diluted common share for the second quarter of 1999 and net income
of $22.0 million or $.40 per diluted common share for the third quarter of 1998.
Return on average assets was 1.41 percent, 1.42 percent and 1.38 percent for the
third and second quarter of 1999 and third quarter of 1998, respectively.
Return on average equity was 18.68 percent, 18.23 percent and 17.76 percent for
the third and second quarter of 1999 and third quarter of 1998, respectively.
Reported net income for the nine months ending September 30, 1999 was
$72.8 million or $1.33 per diluted common share. Operating earnings for the
nine months ended September 30, 1998 were $62.4 million or $1.14 per diluted
common share. 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 for the nine months ended September 30, 1999 increased to
1.42 percent and 18.57 percent compared to 1.32 percent and 17.29 percent for
1998 (excluding the merger related charge).
<TABLE>
<CAPTION>
Summary of Operations
------------------------------------------------
Three Months Ended
Nine Months Ended ---------------------------
September 30 1999 1998
------------------ ------------------ -------
(in thousands) 1999 1998 Sept 30 June 30 Sept 30
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Taxable-equivalent net
interest income $222,870 $199,802 $76,240 $74,023 $68,430
Taxable-equivalent adjustment 3,354 1,852 1,071 1,116 760
-------- -------- ------- ------- -------
Net interest income 219,516 197,950 75,169 72,907 67,670
Provision for possible loan losses 8,951 7,734 2,976 2,975 2,555
Non-Interest income:
Net (loss) gain on securities
transactions (68) 211 67
Other 116,287 104,264 39,663 38,195 35,942
-------- -------- ------- ------- -------
Total non-interest income 116,219 104,475 39,663 38,195 36,009
Non-Interest expense:
Intangible amortization 10,949 10,007 4,058 3,554 3,299
Merger related charge 12,244
Other 205,162 189,028 70,497 67,926 64,099
-------- -------- ------- ------- -------
Total non-interest expense 216,111 211,279 74,555 71,480 67,398
-------- -------- ------- ------- -------
Income before income taxes 110,673 83,412 37,301 36,647 33,726
Income Taxes 37,917 30,545 12,928 12,559 11,728
-------- -------- ------- ------- -------
Net Income $ 72,756 $ 52,867 $24,373 $24,088 $21,998
======== ======== ======= ======= =======
Net income per diluted common share:$ 1.33 $ .97 $ .45 $ .44 $ .40
Return on Average Assets 1.42% 1.12% 1.41% 1.42% 1.38%
Return on Average Equity 18.57 14.65 18.68 18.23 17.76
</TABLE>
<PAGE>
Results of Segment Operations
Cullen/Frost'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 nine months and three months ended
September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
(in thousands) 1999 1998 1999 1998
============================================================================================
<S> <C> <C> <C> <C>
Banking............................... $ 69,529 $ 56,736 $ 23,673 $ 20,459
Financial Management Group............ 11,202 11,075 3,904 3,871
Non-Banks............................. (7,975) (5,433) (3,204) (2,332)
----------------------- ------------------------
Consolidated operating earnings....... $ 72,756 $ 62,378* $ 24,373 $ 21,998
Consolidated net income............... 72,756 $ 52,867 $ 24,373 $ 21,998
======================= ========================
* Excludes the after-tax impact of the $12.2 million Overton merger related charge.
</TABLE>
The increase in Banking net income for the nine months and three months
ended September 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 5.21 percent for the third quarter of 1999
compared to 5.10 percent and 5.01 percent for the second quarter of 1999 and
third quarter of 1998, respectively. The net interest spread of 4.40 percent
increased 11 basis points from the second quarter of 1999 and 33 basis points
from the third quarter of 1998. The increase in net interest margin and spread
from the second quarter of 1999 was impacted primarily by a higher rate
environment. The increase from the third quarter of 1998 was due to strong
loan growth resulting in an improved earning asset mix, as well as decreased
deposit costs from the third quarter a year ago.
<TABLE>
<CAPTION>
Change in Net Interest Income (Taxable Equivalent)
-------------------------------------------------------------------
Third Quarter Third Quarter Year-to-Date
1999 1999 1999
vs. vs. vs.
Third Quarter Second Quarter Year-to-Date
1998 1999 1998
-------------------------------------------------------------------
(in thousands) Amount Amount Amount
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Due to volume $ 7,062 $ 181 $24,017
Due to interest rate
spread 748 2,036 (949)
------- ------- -------
$ 7,810 $ 2,217 $23,068
======= ======= =======
</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 from the sale of a
piece of property in connection with a branch restructuring recorded in the
first quarter.
<TABLE>
<CAPTION>
Three Months Ended
Nine Months Ended ------------------------------
September 30 1999 1998
------------------ ------------------- -------
(in thousands) 1999 1998 Sept 30 June 30 Sept 30
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust fees $ 34,586 $ 35,420 $11,787 $11,416 $11,759
Service charges on deposit accounts 43,663 39,791 15,179 14,496 14,218
Other service charges, collection
and exchange charges, commissions
and fees 16,455 11,621 7,183 5,266 4,088
Net (loss) gain on securities transactions (68) 211 67
Other 21,583 17,432 5,514 7,017 5,877
-------- -------- ------- ------- -------
Total $116,219 $104,475 $39,663 $38,195 $36,009
======== ======== ======= ======= =======
</TABLE>
For the third quarter 1999...
Total non-interest income increased by $1.5 million or 3.8 percent when
compared to the second quarter of 1999 and up $3.7 million, an increase of 10.1
percent compared to the third quarter of 1998.
Trust fees increased by $371 thousand or 3.2 percent when compared with
the second quarter of 1999 mostly due to higher investment and estate fee
income. Trust fees were flat when compared with the third quarter a year ago
mainly due to increases in investment fees offset by decreases in management
fees associated with small cap value funds. The market value of trust assets
at the end of the third quarter of 1999 was $12.2 billion, down by $500 million
when compared to the second quarter of 1999, and up by $1.1 billion when
compared to the third quarter of last year. Discretionary assets increased 5.0
percent and non-discretionary assets increased 14.1 percent from a year ago.
Service charges on deposit accounts for the third quarter of 1999
increased $683 thousand or 4.7 percent from the second quarter of this year and
$961 thousand or 6.8 percent from the third quarter of 1998. This increase
occurred as the result of broad based deposit growth that generated increases
in overdraft charges and cash management fees on commercial and individual
deposits offset somewhat by lower NSF charges.
Other service charges were up $1.9 million or 36.4 percent for the third
quarter of 1999 compared to the second quarter of 1999 and $3.1 million or 75.7
percent from the same quarter a year ago. Insurance commission revenues (new
revenues to the Corporation) resulting from the acquisition of PIA in the
second quarter of 1999 had the largest favorable impact on other service
charges.
Other non-interest income decreased $1.5 million or 21.4 percent from the
second quarter this year and decreased $363 thousand or 6.2 percent from the
third quarter of 1998. A gain on the sale of a foreclosed asset, as well as the
sale of an Overton student loan portfolio, occurring in the second quarter of
1999 resulted in the decline in other income between this quarter and last
quarter.
For the nine months ended September 30, 1999...
Non-interest income was up $11.7 million or 11.2 percent compared to the
same period last year. Trust income decreased $834 thousand or 2.4 percent
from the same period a year ago, due to lower management fees associated with
small cap value funds, as well as lower trust, oil and gas fees. Service
charges on deposits increased $3.9 million or 9.7 percent when 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 which were partially offset by lower NSF charges.
Other service
<PAGE>
charge income increased $4.8 million or 41.6 percent from the same period last
year. Primary contributors to this growth were insurance commission revenue
from the acquisition of PIA in the second quarter of 1999, and mutual fund
fees. Other income was up $4.2 million or 23.8 percent compared to the same
period last year, partly due to the $2 million non-recurring gain from the sale
of a piece of property in connection with a branch restructuring, and increases
in gain on sale of student loans and check card income.
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
Nine Months Ended ------------------------------
September 30 1999 1998
------------------ ------------------ -------
(in thousands) 1999 1998 Sept 30 June 30 Sept 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and wages $ 92,847 $ 82,609 $32,580 $30,554 $27,645
Pension and other employee benefits 19,391 16,405 6,300 6,576 5,345
Net occupancy of banking premises 20,295 18,760 6,776 6,818 6,540
Furniture and equipment 14,646 13,956 5,087 4,984 4,868
Intangible amortization 10,949 10,007 4,058 3,554 3,299
Merger related charge 12,244
Other 57,983 57,298 19,754 18,994 19,701
-------- -------- ------- ------- -------
Total $216,111 $211,279 $74,555 $71,480 $67,398
======== ======== ======= ======= =======
</TABLE>
For the third quarter 1999...
Non-interest expense increased $3.1 million or 4.3 percent compared to
last quarter and increased $7.2 million or 10.6 percent compared to the third
quarter of 1998.
Personnel costs increased $1.8 million or 4.7 percent compared with the
second quarter of 1999 and were up $5.9 million or 17.9 percent from the third
quarter of 1998 as a result of the acquisitions, as well as new business
initiatives and market increases.
Net occupancy of banking premises expenses were relatively flat when
compared to the second quarter of 1999 and the third quarter of 1998.
Furniture and equipment expense increased $103 thousand or 2.1 percent and
increased $219 thousand or 4.5 percent from the second quarter of 1999 and the
same quarter last year, respectively. The increase from the second quarter of
1999 is related to higher service contracts and the increase from a year ago is
due to higher amortized software and software maintenance costs. Intangible
amortization increased $504 thousand or 14.2 percent from the second quarter of
1999 and increased $759 thousand or 23.0 percent compared to the third quarter
of 1998 due to the previously mentioned acquisitions.
Other non-interest expenses increased $760 thousand or 4.0 percent from
the second quarter of 1999 and remained flat with the third quarter of 1998.
The increase from the second quarter of 1999 is due to higher telephone, visa
check card, outside computer services and professional and temporary agency
expenses.
For the nine months ended September 30, 1999...
Total non-interest expense was up $17.1 million or 8.6 percent compared to
the nine months ended September 30, 1998, excluding the merger-related charge.
Personnel costs were up $13.2 million or 13.4 percent compared to the same
period one year ago primarily because of the acquisitions, as well as new
business initiatives and market increases. Net occupancy of banking premises
was up $1.5 million or 8.2 percent compared to a year ago. This increase is
attributable to costs associated with branch activity and building maintenance
influenced by the acquisitions, and higher property taxes. Furniture and
equipment expense increased $690 thousand or 4.9 percent due to higher
amortized software. Intangible amortization increased $942 thousand or 9.4
percent from the same period a year ago due to acquisitions. Other non-
interest expenses increased $685 thousand or 1.2 percent, primarily due to
appraisal and higher conversion related costs.
<PAGE>
Income Taxes
Cullen/Frost's effective tax rate for the third quarters of 1999 and 1998
approximated the statutory rate of 35 percent. The effective rate for the
second quarter of 1999 approximated 34 percent.
Cash Earnings
Cullen/Frost 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)(All tables in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------------------------------------
September 1999 September 1998
- ------------------------------------------------------------------------------------------
Reported Intangible "Cash" Reported Intangible "Cash"
Earnings Amortization Earnings Earnings Amortization Earnings
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before income
taxes $110,673 $10,949 $121,622 $ 83,412 $10,007 $93,419
Income taxes 37,917 2,527 40,444 30,545 2,452 32,997
------- ------- -------- ------- ------- -------
Net income $ 72,756 $ 8,422 $ 81,178 $ 52,867 $ 7,555 $60,422
======== ======= ======== ======= ======= =======
Net income per diluted
common share $ 1.33 $ .15 $ 1.48 $ .97 $ .14 $ 1.11
Return on assets 1.42% 1.59%* 1.12% 1.28%*
Return on equity 18.57 20.72** 14.65 16.75**
* Calculated as A(annualized)/B
** Calculated as A(annualized)/C Sept 1999 Sept 1998
----------------------------- ---------- -----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 81,178 $ 60,422
(B) Total average assets 6,837,896 6,304,220
(C) Average shareholders' equity 523,905 482,386
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------
September 1999 June 1999
- ------------------------------------------------------------------------------------------
Reported Intangible "Cash" Reported Intangible "Cash"
Earnings Amortization Earnings Earnings Amortization Earnings
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before income
taxes $ 37,301 $ 4,058 $ 41,359 $ 36,647 $ 3,554 $40,201
Income taxes 12,928 925 13,853 12,559 816 13,375
-------- -------- -------- -------- -------- -------
Net income $ 24,373 $ 3,133 $ 27,506 $ 24,088 $ 2,738 $26,826
======== ======== ======== ======== ======== =======
Net income per diluted
common share $ .45 $ .05 $ .50 $ .44 $ .05 $ .49
Return on assets 1.41% 1.60%* 1.42% 1.58%*
Return on equity 18.68 21.08** 18.23 20.30**
* Calculated as A(annualized)/B
** Calculated as A(annualized)/C Sept 1999 June 1999
----------------------------- ---------- ----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 27,506 $ 26,826
(B) Total average assets 6,840,168 6,808,655
(C) Average shareholders' equity 517,614 529,919
</TABLE>
Three Months Ended
----------------------------------
September 1998
- ----------------------------------------------------------------
Reported Intangible "Cash"
Earnings Amortization Earnings
- ----------------------------------------------------------------
Income before income taxes $33,726 $3,299 $37,025
Income taxes 11,728 796 12,524
------- ------ ---------
Net income $21,998 $2,503 $24,501
======= ====== =========
Net income per diluted
common share $ .40 $ .05 $ .45
Return on assets 1.38% 1.54%*
Return on equity 17.76 19.78**
* Calculated as A(annualized)/B
** Calculated as A(annualized)/C Sept 1998
----------------------------- ----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 24,501
(B) Total average assets 6,309,916
(C) Average shareholders' equity 491,447
<PAGE>
Excluding the merger related charge, cash earnings for the nine months
ending September 30, 1998 were $69.9 million or $1.28 per diluted common share.
Cash earnings (excluding the merger related charge) return on assets and return
on equity for the nine months ending September 30, 1998 were 1.48 percent and
19.38 percent, respectively.
Balance Sheet
Average assets of $6.8 billion were up $32 million from the second quarter
of 1999 and up $530 million or 8.4 percent from the third quarter of 1998 with
approximately one third of the increase related to the acquisitions. Total
deposits averaged $5.9 billion for the current quarter, up 79 million or 5.6
percent on an annualized basis from the previous quarter and up 481 million or
8.9 percent when compared to the third quarter of 1998. Average loans for the
third quarter of 1999 were $4.0 billion, up $100 million or 10.4 percent on an
annualized basis from the second quarter of 1999 and an increase of $515
million or 14.8 percent from the third quarter of last year.
Total Loan Portfolio
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------
Period-End Balances Percentage
(dollars in thousands) September 30 of Total December 31 September 30
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $1,472,759 36.3% $ 1,211,180 $ 1,123,345
Consumer 563,158 13.9 625,018 653,110
Real estate 1,971,780 48.5 1,719,404 1,656,202
Other 65,085 1.6 94,358 107,540
Unearned discount (9,949) (.3) (3,357) (3,717)
---------- ------ ---------- ----------
Total Loans $4,062,833 100.0% $3,646,603 $3,536,480
========== ====== ========== ==========
</TABLE>
At September 30, 1999 period-end loans totaled $4.1 billion up 9.0 percent
on an annualized basis from the previous quarter and up 14.9 percent from the
same period last year. Approximately 80 percent of the increase in loans from
a year ago resulted from internally generated growth. Consumer loans are down
9.9 percent from the year ended December 31, 1998 due to run-off in the
indirect loan portfolio.
Real Estate Loans
Real estate loans at September 30, 1999, were $2.0 billion or 48.5 percent
of period-end loans compared to 46.8 percent a year ago. Residential permanent
mortgage loans at September 30, 1999, were $684 million compared to $671
million at June 30, 1999, and $638 million at September 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 September 30, 1999, real estate loans 90 days past due (excluding non-
accrual loans) were $1.2 million compared with $2.7 million at June 30, 1999,
and $4.0 million at September 30, 1998.
<PAGE>
<TABLE>
<CAPTION>
1999 1998
------------------------ --------
Period-End Balances Percentage
(dollars in thousands) Sept 30 of Total Sept 30
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Construction $ 366,288 18.6% $ 276,584
Land 119,377 6.0 56,700
Permanent mortgages:
Commercial 420,253 21.3 334,719
Residential 683,506 34.7 637,930
Other 382,356 19.4 350,269
---------- ----- ----------
$1,971,780 100.0% $1,656,202
========== ====== ==========
Non-accrual loans $ 3,781 .2% $ 7,435
</TABLE>
Mexico
At September 30, 1999, cross-border outstandings to Mexico excluding $13.8
million in loans secured by liquid U. S. assets, totaled $13.3 million or .3
percent of total loans down from $48.4 million at June 30, 1999 and $50.3
million at September 30, 1998. The decrease from the second quarter of 1999
and the third quarter of last year represents normal fluctuations in the usage
of lines of credit extended to Mexican banks to support trade. At September
30, 1999, $342 thousand of the Mexican-related loans were on non-performing
status.
MEXICAN LOANS
-----------------------
September 30, 1999
Percentage of
(dollars in thousands) Amount Total Loans
- ----------------------------------------------------------------------
Loans to financial institutions $ 9,294 .2%
Loans to private firms or individuals 4,011 .1
------- ---
$13,305 .3%
======= ====
Non-Performing Assets
NON-PERFORMING ASSETS
--------------------------
September 30, 1999
Real
(dollars in thousands) Estate Other Total
- ---------------------------------------------------------------------------
Non-accrual $3,781 $10,267 $14,048
Foreclosed assets 1,581 2,198 3,779
------ ------- -------
Total $5,362 $12,465 $17,827
====== ======= =======
As a percentage of total
non-performing assets 30.1% 69.9% 100.0%
Non-performing assets totaled $17.8 million at September 30, 1999 up 1.8
percent from $17.5 million at September 30, 1998 and up 10.0 percent from $16.2
million at June 30, 1999. Non-performing assets as a percentage of total loans
and foreclosed assets decreased to .44 percent at September 30, 1999 from .49
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.
<PAGE>
The after-tax impact (assuming a 35 percent marginal tax rate) of lost
interest from non-performing assets was $262 thousand for the third quarter of
1999, compared to approximately $274 thousand for the third quarter of 1998 and
$217 thousand for the second quarter of 1999. For the nine months ended
September 30, 1999, the after-tax impact (assuming a 35 percent marginal tax
rate) was approximately $729 thousand compared with approximately $846 thousand
for the comparable period last year. Total loans 90 days past due (excluding
non-accrual loans) were $8.2 million at September 30, 1999, compared to $7.9
million at September 30, 1998, and $5.6 million at June 30, 1999.
Allowance for Possible Loan Losses
The allowance for possible loan losses was $59.3 million or 1.46 percent
of period-end loans at September 30, 1999, compared to $52.0 million or 1.47
percent at September 30, 1998 and $59.0 million or 1.48 percent at June 30,
1999. The allowance for possible loan losses as a percent of non-accrual loans
was 422 percent at September 30, 1999, compared to 396 percent at September 30,
1998 and 454 percent at the end of the second quarter of 1999.
Cullen/Frost recorded a $3.0 million provision for possible loan losses
during the third quarter of 1999. This compares to $2.6 million provision for
possible loan losses during the third quarter of 1998 and $3.0 million for the
second quarter of 1999. Net charge-offs in the third quarter of 1999 totaled
$2.6 million compared to net charge-offs of $1.7 million and $624 thousand for
the third quarter of 1998 and for the second quarter of 1999, respectively.
Year-to-date net charge-offs were $4.3 million or .15 percent of average loans
compared to $5.1 million or .20 percent of average loans for the same period in
1998.
<TABLE>
<CAPTION>
NET CHARGE-OFFS (RECOVERIES)
----------------------------
1999 1998
------------------ -------
Third Second Third
(in thousands) Quarter Quarter Quarter
- -------------------------------------------------------------------
<S> <C> <C> <C>
Real estate $ ( 73) $ 86 $ (587)
Commercial and industrial 1,027 (289) 1,145
Consumer 1,683 853 1,150
Other, including foreign ( 6) (26) (31)
------- ------- -------
$ 2,631 $ 624 $ 1,677
======= ======= =======
Provision for possible loan losses $ 2,976 $ 2,975 $ 2,555
Allowance for possible loan losses 59,319 58,974 51,993
</TABLE>
Capital and Liquidity
At September 30, 1999, shareholders' equity was $517 million compared to
$506 million at September 30, 1998 and $510 million at June 30, 1999.
Cullen/Frost had an unrealized loss on securities available for sale, net of
deferred taxes, of $25.8 million as of September 30, 1999 compared to a $16.6
million unrealized gain as of September 30, 1998, reflecting a change of $42.4
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 Company's regulatory capital
ratios.
During the second quarter of 1999 Cullen/Frost announced that its Board of
Directors had authorized it to repurchase up to $100 million of its common
stock from time to time. As of September 30, 1999, 430,200 shares have been
repurchased under this program with a total cost of $10.9 million. The Company
paid a cash dividend of $.175 per common share (post-split) for the third and
second quarters of 1999 compared to $.15 per common share for
<PAGE>
the third quarter a year ago. This equates to a dividend payout ratio of 33.7
percent and 38.9 percent for the third and second quarters of 1999,
respectively. The dividend payout ratio for the third quarter of 1998 was 36.3
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 September 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 Cullen/Frost is continuously monitored and adjustments are made to
the balance between sources and uses of funds as deemed appropriate.
Year 2000
Cullen/Frost Bankers, Inc. 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 $5.1 million over the three-
year period beginning in 1997, funded out of its earnings, with approximately
$4.7 million spent through the third quarter of 1999. 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.
Cullen/Frost 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. Cullen/Frost is
substantially complete with the non-mission critical applications. The
Corporation has commenced, and will continue through the remainder of 1999,
integration testing to assure that logically related systems can interact and
process information correctly.
During 1998 and 1999, Cullen/Frost 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. This work was substantially completed in the third quarter of
1999. Cullen/Frost will make available testing documentation, known as proxy
tests, to clients utilizing certain products and services. Cullen/Frost 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 Cullen/Frost is attempting to monitor and validate the efforts of
other parties, it cannot control the success of these efforts. The Corporation
has developed contingency plans where practical to provide alternatives in
situations where a third party furnishing a critical product or service
experiences significant Year 2000 issues. Cullen/Frost has updated existing
business continuity plans for the date change.
As part of its credit analysis process, the Corporation 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 Cullen/Frost's inquiries about their
progress, which make up the majority of its credit customers and represent most
of its credit exposure. Cullen/Frost will continue to monitor the progress of
these customers.
<PAGE>
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 Cullen/Frost'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 Cullen/Frost 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 economic uncertainties and
other service providers. Cullen/Frost 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 Cullen/Frost. An example of this would be if an issuer/company
or its paying agent does not pay income as scheduled.
Cullen/Frost'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.
Cullen/Frost has substantially completed 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. The Corporation 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, if appropriate, throughout the remainder of 1999.
Financial Modernization Legislation
On November 12, 1999, the President signed the Gramm-Leach-Bliley
Financial Modernization Act of 1999 into law. The Modernization Act will: i)
allow bank holding companies meeting management, capital and CRA standards to
engage in a substantially broader range of nonbanking activities than currently
is permissible, including insurance underwriting and making merchant banking
investments in commercial and financial companies; ii) allow insurers and
other financial services companies to acquire banks; iii) remove various
restrictions that currently apply to bank holding company ownership of
securities firms and mutual fund advisory companies; and iv) establish the
overall regulatory structure applicable to bank holding companies that also
engage in insurance and securities operations.
This part of the Modernization Act will become effective on March 11,
2000. Currently, Cullen/Frost meets the requirements for the broader range of
activities that will be permitted by the Modernization Act.
The Modernization Act also modifies current law related to financial
privacy and community reinvestment. The new financial privacy provisions will
generally prohibit financial institutions, including the Corporation, from
disclosing nonpublic personal financial information to third parties unless
customers have the opportunity to "opt out" of the disclosure.
Forward-Looking Statements
Cullen/Frost 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.
Cullen/Frost cautions the reader that these forward-looking statements are
subject to numerous assumptions, risks and uncertainties, including economic
<PAGE>
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, 1999 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
Time deposits $ 2,190 $ 70 4.26%
Securities:
U.S. Treasury 188,304 7,085 5.03 $ 265,309 $ 11,135 5.61%
U.S. Government agencies
and corporations 1,522,158 73,131 6.41 1,513,702 73,463 6.47
States and political subdivisions 142,211 7,772 7.29 55,494 3,189 7.66
Other 39,855 1,690 5.65 39,022 1,808 6.18
--------- -------- ---------- --------
Total securities 1,892,528 89,678 6.32 1,873,527 89,595 6.38
Federal funds sold 67,557 2,567 5.01 134,266 5,680 5.58
Loans, net of unearned discount 3,878,003 241,735 8.33 3,381,845 224,809 8.89
--------- -------- ---------- --------
Total Earning Assets and
Average Rate Earned 5,840,278 334,050 7.64 5,389,638 320,084 7.93
Cash and due from banks 611,717 573,928
Allowance for possible loan losses (57,039) (50,689)
Banking premises and equipment 140,591 135,056
Accrued interest and other assets 302,349 256,287
--------- ----------
Total Assets $6,837,896 $6,304,220
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $1,518,546 $1,359,647
Correspondent banks 220,974 202,131
Public funds 38,393 39,309
--------- ----------
Total demand deposits 1,777,913 1,601,087
Time deposits:
Savings and Interest-on-Checking 946,068 4,933 .70 900,561 8,892 1.32
Money market deposit accounts 1,613,803 43,778 3.63 1,347,021 40,088 3.98
Time accounts 1,254,943 40,170 4.28 1,287,614 48,451 5.03
Public funds 219,871 5,971 3.63 246,475 7,067 3.83
--------- -------- ---------- --------
Total time deposits 4,034,685 94,852 3.14 3,781,671 104,498 3.69
--------- ----------
Total Deposits 5,812,598 5,382,758
Federal funds purchased and securities
sold under resale agreements 290,186 9,373 4.26 227,427 8,052 4.67
Long-term notes payable 1,502 65 5.76
Guaranteed preferred beneficial
interests in the Corporation's
subordinated debentures, net 98,478 6,356 8.61 98,422 6,356 8.61
Other borrowings 11,884 534 6.01 32,850 1,376 5.60
--------- -------- ---------- --------
Total Interest-Bearing Funds
and Average Rate Paid 4,436,735 111,180 3.34 4,140,370 120,282 3.88
--------- -------- ---- ---------- -------- ----
Accrued interest and other liabilities 99,343 80,377
--------- ----------
Total Liabilities 6,313,991 5,821,834
SHAREHOLDERS' EQUITY 523,905 482,386
--------- ----------
Total Liabilities and
Shareholders' Equity $6,837,896 $6,304,220
========== ==========
Net interest income $222,870 $199,802
======== ========
Net interest spread 4.30% 4.05%
==== ====
Net interest income to total average earning assets 5.10% 4.95%
==== ====
*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, 1999 June 30, 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 $ 3,506 $ 45 5.10% $ 2,599 $ 21 3.26%
Securities:
U.S. Treasury 173,832 2,241 5.12 184,647 2,279 4.95
U.S. Government agencies
and corporations 1,375,186 22,524 6.55 1,500,643 23,986 6.39
States and political subdivisions 146,552 2,675 7.30 144,774 2,697 7.45
Other 33,647 456 5.42 32,002 442 5.52
---------- ------- ---------- -------
Total securities 1,729,217 27,896 6.45 1,862,066 29,404 6.32
Federal funds sold 106,962 1,404 5.14 66,407 831 4.95
Loans, net of unearned discount 3,985,270 84,191 8.38 3,885,535 79,923 8.25
---------- ------- ---------- -------
Total Earning Assets and
Average Rate Earned 5,824,955 113,536 7.75 5,816,607 110,179 7.59
Cash and due from banks 608,414 608,476
Allowance for possible loan losses (59,221) (57,310)
Banking premises and equipment 144,092 140,684
Accrued interest and other assets 321,928 300,198
---------- ----------
Total Assets $6,840,168 $6,808,655
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $1,553,142 $1,519,140
Correspondent banks 222,049 223,648
Public funds 37,006 37,146
---------- ----------
Total demand deposits 1,812,197 1,779,934
Time deposits:
Savings and Interest-on-Checking 943,741 1,626 .68 958,665 1,652 .69
Money market deposit accounts 1,691,611 15,708 3.68 1,606,753 14,375 3.59
Time accounts 1,246,044 13,238 4.22 1,250,747 13,174 4.22
Public funds 188,856 1,772 3.72 207,827 1,907 3.68
---------- ------- ---------- -------
Total time deposits 4,070,252 32,344 3.15 4,023,992 31,108 3.10
---------- ------- ---------- -------
Total Deposits 5,882,449 5,803,926
Federal funds purchased and securities
sold under resale agreements 238,757 2,635 4.32 256,954 2,731 4.20
Long-term notes payable 2,702 39 5.71 1,772 26 5.82
Guaranteed preferred beneficial
interests in the Corporation's
subordinated debentures, net 98,492 2,119 8.61 98,478 2,119 8.61
Other borrowings 9,896 159 6.40 12,590 172 5.49
---------- ------- ---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 4,420,099 37,296 3.35 4,393,786 36,156 3.30
---------- ------- ---- ---------- ------- ----
Accrued interest and other liabilities 90,258 105,016
---------- ----------
Total Liabilities 6,322,554 6,278,736
SHAREHOLDERS' EQUITY 517,614 529,919
---------- ----------
Total Liabilities and
Shareholders' Equity $6,840,168 $6,808,655
========== ==========
Net interest income $76,240 $74,023
======= =======
Net interest spread 4.40% 4.29%
==== ====
Net interest income to total average earning assets 5.21% 5.10%
==== ====
*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, 1999 December 31, 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 $ 432 $ 3 3.47%
Securities:
U.S. Treasury 206,795 2,565 5.03 $ 252,567 $ 3,204 5.03%
U.S. Government agencies
and corporations 1,694,151 26,620 6.29 1,687,422 26,508 6.28
States and political subdivisions 135,183 2,401 7.10 107,122 1,912 7.14
Other 54,141 792 5.86 50,937 772 6.06
---------- ------- ---------- -------
Total securities 2,090,270 32,378 6.20 2,098,048 32,396 6.17
Federal funds sold 28,439 332 4.67 106,523 1,431 5.26
Loans, net of unearned discount 3,760,734 77,621 8.37 3,602,690 76,980 8.48
---------- ------- ---------- -------
Total Earning Assets and
Average Rate Earned 5,879,875 110,334 7.58 5,807,261 110,807 7.59
Cash and due from banks 618,369 588,053
Allowance for possible loan losses (54,534) (52,837)
Banking premises and equipment 136,918 137,121
Accrued interest and other assets 272,197 257,995
---------- ----------
Total Assets $6,852,825 $6,737,593
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $1,482,579 $1,471,437
Correspondent banks 217,173 176,041
Public funds 41,071 55,965
---------- ----------
Total demand deposits 1,740,823 1,703,443
Time deposits:
Savings and Interest-on-Checking 935,709 1,656 .72 906,111 2,066 .90
Money market deposit accounts 1,541,395 13,695 3.60 1,509,580 14,238 3.74
Time accounts 1,268,283 13,757 4.40 1,281,352 15,170 4.70
Public funds 263,754 2,291 3.52 266,688 2,310 3.44
---------- ------- ---------- -------
Total time Deposits 4,009,141 31,399 3.18 3,963,731 33,784 3.38
---------- ------- ---------- -------
Total Deposits 5,749,964 5,667,174
Federal funds purchased and securities
sold under repurchase agreements 376,357 4,007 4.26 328,794 3,554 4.23
Long-term notes payable
Guaranteed preferred beneficial
interests in the Corporation's
subordinated debentures, net 98,464 2,119 8.61 98,450 2,119 8.61
Other borrowings 13,204 202 6.21 24,185 379 6.22
---------- ------- ---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 4,497,166 37,727 3.39 4,415,160 39,836 3.58
---------- ------- ---- ---------- ------- ----
Accrued interest and other liabilities 90,579 106,561
---------- ----------
Total Liabilities 6,328,568 6,225,164
SHAREHOLDERS' EQUITY 524,257 512,429
---------- ----------
Total Liabilities and
Shareholders' Equity $6,852,825 $6,737,593
========== ==========
Net interest income $72,607 $70,971
======= =======
Net interest spread 4.19% 4.01%
==== ====
Net interest income to total average earning assets 4.98% 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
----------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
---------- ------- -----
<S> <C> <C> <C>
ASSETS
Securities:
U.S. Treasury $ 205,209 $ 2,867 5.54%
U.S. Government agencies
and corporations 1,515,663 24,286 6.41
States and political subdivisions 72,949 1,367 7.49
Other 51,667 753 5.83
---------- -------
Total securities 1,845,488 29,273 6.34
Federal funds sold 123,572 1,800 5.70
Loans, net of unearned discount 3,470,656 77,607 8.87
---------- -------
Total Earning Assets and
Average Rate Earned 5,439,716 108,680 7.94
Cash and due from banks 536,988
Allowance for possible loan losses (52,273)
Banking premises and equipment 135,322
Accrued interest and other assets 250,163
----------
Total Assets $6,309,916
==========
LIABILITIES
Demand deposits:
Commercial and individual $1,383,898
Correspondent banks 190,975
Public funds 38,856
----------
Total demand deposits 1,613,729
Time deposits:
Savings and Interest-on-Checking 891,341 2,942 1.31
Money market deposit accounts 1,406,293 14,088 3.97
Time accounts 1,299,045 16,138 4.93
Public funds 191,118 1,894 3.93
---------- -------
Total time deposits 3,787,797 35,062 3.67
---------- -------
Total Deposits 5,401,526
Federal funds purchased and securities
sold under resale agreements 204,480 2,478 4.74
Long-term notes payable
Guaranteed preferred beneficial
interests in the Corporation's
subordinated debentures, net 98,436 2,118 8.61
Other borrowings 37,969 592 6.17
---------- -------
Total Interest-Bearing Funds
and Average Rate Paid 4,128,682 40,250 3.87
---------- ------- ----
Accrued interest and other liabilities 76,058
----------
Total Liabilities 5,818,469
SHAREHOLDERS' EQUITY 491,447
----------
Total Liabilities and
Shareholders' Equity $6,309,916
==========
Net interest income $68,430
=======
Net interest spread 4.07%
====
Net interest income to total average earning assets 5.01%
====
*Taxable-equivalent basis assuming a 35% tax rate.
</TABLE>
<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 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: November 15, 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. Bankers, Inc.
Form 10-Q
Exhibit Index
Exhibit Description
- ------- -----------
27 Statement re: Financial Data Schedule 9-30-99 (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 SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 645,308
<INT-BEARING-DEPOSITS> 4,048
<FED-FUNDS-SOLD> 3,125
<TRADING-ASSETS> 1,025
<INVESTMENTS-HELD-FOR-SALE> 1,567,171
<INVESTMENTS-CARRYING> 89,457
<INVESTMENTS-MARKET> 90,886
<LOANS> 4,062,833
<ALLOWANCE> 59,319
<TOTAL-ASSETS> 6,769,720
<DEPOSITS> 5,820,671
<SHORT-TERM> 258,283
<LIABILITIES-OTHER> 74,821
<LONG-TERM> 98,499
0
0
<COMMON> 536
<OTHER-SE> 516,910
<TOTAL-LIABILITIES-AND-EQUITY> 6,769,720
<INTEREST-LOAN> 241,103
<INTEREST-INVEST> 86,956
<INTEREST-OTHER> 2,637
<INTEREST-TOTAL> 330,696
<INTEREST-DEPOSIT> 94,852
<INTEREST-EXPENSE> 111,180
<INTEREST-INCOME-NET> 219,516
<LOAN-LOSSES> 8,951
<SECURITIES-GAINS> (68)
<EXPENSE-OTHER> 216,111
<INCOME-PRETAX> 110,673
<INCOME-PRE-EXTRAORDINARY> 110,673
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,756
<EPS-BASIC> 1.36
<EPS-DILUTED> 1.33
<YIELD-ACTUAL> 7.64
<LOANS-NON> 14,048
<LOANS-PAST> 8,154
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,038
<ALLOWANCE-OPEN> 53,616
<CHARGE-OFFS> (8,014)
<RECOVERIES> 3,700
<ALLOWANCE-CLOSE> 59,319
<ALLOWANCE-DOMESTIC> 46,180
<ALLOWANCE-FOREIGN> 213
<ALLOWANCE-UNALLOCATED> 12,926
</TABLE>
