Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 2000 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 April 21, 2000, there were
52,347,873 shares of Common Stock, $.01 par value, outstanding.
<PAGE>
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)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------
2000 1999
------- -------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $91,268 $77,295
Securities:
Taxable 24,813 29,976
Tax-exempt 1,805 1,561
------- -------
Total Securities 26,618 31,537
Time deposits 145 3
Federal funds sold and securities purchased under
repurchase agreements 728 332
------- -------
Total Interest Income 118,759 109,167
INTEREST EXPENSE
Deposits 35,057 31,399
Federal funds purchased and securities
sold under repurchase agreements 3,538 4,007
Guaranteed preferred beneficial interest in the
Corporation's junior subordinated deferrable
interest debentures 2,119 2,119
Long-term notes payable and other borrowings 493 202
------- -------
Total Interest Expense 41,207 37,727
------- -------
Net Interest Income 77,552 71,440
Provision for possible loan losses 2,682 3,000
------- -------
Net Interest Income After Provision
For Possible Loan Losses 74,870 68,440
NON-INTEREST INCOME
Trust fees 11,686 11,383
Service charges on deposit accounts 14,399 13,988
Other service charges, collection and
exchange charges, commissions and fees 6,056 3,194
Net loss on securities transactions (8) (68)
Other 7,484 9,052
------- -------
Total Non-Interest Income 39,617 37,549
NON-INTEREST EXPENSE
Salaries and wages 33,229 29,104
Pension and other employee benefits 8,050 6,515
Net occupancy of banking premises 6,766 6,701
Furniture and equipment 5,066 4,575
Intangible amortization 3,956 3,337
Other 19,006 19,032
------- -------
Total Non-Interest Expense 76,073 69,264
------- -------
Income Before Income Taxes 38,414 36,725
Income Taxes 13,258 12,430
------- -------
Net Income $25,156 $24,295
======= =======
Net income per common share:
Basic $ .48 $ .45
Diluted .47 .44
Dividends per common share .175 .150
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Balance Sheets
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31 December 31 March 31
2000 1999 1999
---------- ----------- ----------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 605,408 $ 760,612 $ 644,566
Time deposits 6,156 6,546 823
Securities held to maturity 81,938 85,045 103,693
Securities available for sale 1,538,191 1,544,865 1,770,647
Securities trading 212 1 472
Federal funds sold and securities purchased
under resale agreements 114,175 34,950 37,250
Loans, net of unearned discount of $6,619 at
March 31, 2000; $6,217 at December 31, 1999
and $3,762 at March 31, 1999 4,281,531 4,166,728 3,806,889
Less: Allowance for possible loan losses (58,465) (58,345) (55,857)
---------- ---------- ----------
Net Loans 4,223,066 4,108,383 3,751,032
Banking premises and equipment 145,067 142,984 135,817
Accrued interest and other assets 305,151 313,294 270,149
---------- ---------- ----------
Total Assets $7,019,364 $6,996,680 $6,714,449
========== ========== ==========
Liabilities
Demand Deposits:
Commercial and individual $1,642,287 $1,601,977 $1,533,116
Correspondent banks 209,211 212,942 219,961
Public funds 30,246 48,341 38,540
---------- ---------- ----------
Total demand deposits 1,881,744 1,863,260 1,791,617
Time Deposits:
Savings and Interest-on-Checking 984,383 984,438 944,326
Money market deposit accounts 1,677,766 1,635,524 1,566,829
Time accounts 1,239,701 1,234,894 1,253,648
Public funds 225,465 235,716 226,029
---------- ---------- ----------
Total time deposits 4,127,315 4,090,572 3,990,832
---------- ---------- ----------
Total deposits 6,009,059 5,953,832 5,782,449
Federal funds purchased and securities
sold under repurchase agreements 277,155 333,459 208,507
Accrued interest and other liabilities 123,510 101,565 101,215
Guaranteed preferred beneficial interest in the
Corporation's junior subordinated deferrable
interest debentures 98,527 98,513 98,472
---------- ---------- ----------
Total Liabilities 6,508,251 6,487,369 6,190,643
Shareholders' Equity
Common stock, par value $.01 per share 536 536 268
Shares authorized:90,000,000
Shares issued: 53,561,616; 53,561,616;
and 53,537,592
Surplus 185,595 185,437 184,846
Retained earnings 398,023 382,168 338,424
Accumulated other comprehensive (loss)income,
net of tax (42,568) (39,110) 667
Treasury Stock (1,220,983; 738,463; 16,104 shares) (30,473) (19,720) (399)
---------- ---------- ----------
Total Shareholders' Equity 511,113 509,311 523,806
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $7,019,364 $6,996,680 $6,714,449
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
[CAPTION]
<TABLE>
Accumulated
Other
Comprehensive
Common Retained Income/(Loss) Treasury
Stock Surplus Earnings net of tax Stock Total
------ -------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $267 $183,151 $321,754 $ 7,747 $512,919
Net income for the twelve months
ended December 31, 1999 97,642 97,642
Unrealized loss on securities
available for sale of $46,913,
net of tax and reclassification
adjustment for after-tax losses
included in net income of $56 (46,857) (46,857)
--------
Total comprehensive income 50,785
--------
Proceeds from employee stock
purchase plan and options 1 856 (1,816) $3,315 2,356
Tax benefit related to exercise
of stock options 1,698 1,698
Purchase of treasury stock (24,318) (24,318)
Issuance of restricted stock (23) 1,283 1,260
Restricted stock plan deferred
compensation, net 624 624
Cash dividend (36,013) (36,013)
Two-for-one-stock-split 268 (268)
---- -------- -------- -------- -------- --------
Balance at December 31, 1999 $536 $185,437 $382,168 $(39,110) $(19,720) $509,311
Net income for the three
months ended March 31, 2000 25,156 25,156
Unrealized loss on securities
available for sale of $3,463,
net of tax and reclassification
adjustment for after-tax losses
included in net income of $5 (3,458) (3,458)
--------
Total comprehensive income 21,698
--------
Proceeds from employee stock
purchase plan and options 22 (476) 809 355
Tax benefit related to exercise
of stock options 136 136
Purchase of treasury stock (11,617) (11,617)
Issuance of restricted stock (5) 55 50
Restricted stock plan deferred
compensation, net 407 407
Cash dividend (9,227) (9,227)
---- -------- -------- -------- -------- --------
Balance at March 31, 2000 $536 $185,595 $398,023 $(42,568) $(30,473) $511,113
==== ======== ======== ======== ======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Statements of Cash Flows
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------
2000 1999
--------- ---------
<S> <C> <C>
Operating Activities
Net income $ 25,156 $ 24,295
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 2,682 3,000
Provision for deferred taxes (1,292) (1,291)
Accretion of discounts on loans (357) (800)
Accretion of securities' discounts (618) (563)
Amortization of securities' premiums 545 1,604
Net (increase)decrease in trading securities (211) 237
Net loss on securities transactions 8 68
Net gain on sale of assets (106) (1,985)
Depreciation and amortization 8,495 7,592
Increase in interest receivable (161) (4,184)
(Decrease)increase in interest payable (974) 1,870
Originations of mortgages held-for-sale (38,668) (37,876)
Proceeds from sales of loans held-for-sale 34,818 40,704
Net change in other assets and liabilities 30,230 52,459
--------- ---------
Net cash provided by operating activities 59,547 85,130
Investing Activities
Proceeds from maturities of securities held to maturity 3,223 7,768
Purchases of investment securities held to maturity (100) (99)
Proceeds from sales of securities available for sale 94,934 193,702
Proceeds from maturities of securities available for sale 57,788 239,683
Purchases of securities available for sale (151,319) (218,015)
Net increase in loans (113,111) (127,035)
Proceeds from sales of premises and equipment 11 2,408
Purchases of premises and equipment (6,624) (2,802)
Proceeds from sales of repossessed properties 662 376
Net cash and cash equivalents received from acquisitions 4,501
--------- ---------
Net cash (used)provided by investing activities (114,536) 100,487
Financing Activities
Net increase(decrease) in demand deposits,
IOC accounts, and savings accounts 50,420 (68,822)
Net increase(decrease) in certificates of deposits 4,807 (56,199)
Net decrease in short-term borrowings (56,304) (159,041)
Net proceeds from issuance of common stock 541 1,751
Purchase of treasury stock (11,617) (488)
Dividends paid (9,227) (8,020)
--------- ---------
Net cash used by financing activities (21,380) (290,819)
--------- ---------
Decrease in cash and cash equivalents (76,369) (105,202)
Cash and cash equivalents at beginning of year 802,108 787,841
--------- ---------
Cash and cash equivalents at the end of the period $ 725,739 $ 682,639
========= =========
Supplemental information:
Interest Paid $ 9,679 $ 35,857
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
Bankers, Inc. ("Cullen/Frost" or the "Corporation") and its wholly owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation. The consolidated financial statements have not
been audited by independent accountants, but in the opinion of management,
reflect all adjustments necessary for a fair presentation of the financial
position and results of operations. All such adjustments were of a normal and
recurring nature. For further information, refer to the consolidated financial
statements and footnotes thereto included in Cullen/Frost's Annual Report on
Form 10-K for the year ended December 31, 1999. The balance sheet at December
31, 1999 has been derived from the audited financial statements at that date
but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
During the second quarter of 1999, the board of directors declared and
distributed a two-for-one stock split. Previous quarters have been restated to
give effect to the split. Additionally, certain reclassifications have been
made to make prior periods comparable.
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 based on estimated
probable losses in the loan portfolio.
Three Months Ended
March 31
-------------------
(in thousands) 2000 1999
- ----------------------------------------------------------------------
Balance at beginning of the period $58,345 $53,616
Provision for possible loan losses 2,682 3,000
Loan loss reserve of acquired institutions 300
Net charge-offs:
Losses charged to the allowance (3,314) (2,020)
Recoveries 752 961
------- -------
Net (charge-offs) (2,562) (1,059)
------- -------
Balance at the end of period $58,465 $55,857
======= =======
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 March 31, 2000, 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 impaired loans as of March
31, 2000 compared to $58 thousand at March 31, 1999. The total allowance for
possible loan losses includes activity
<PAGE>
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.
The following is a summary of loans considered to be impaired:
March 31
-------------------
(in thousands) 2000 1999
- --------------------------------------------------------------------------
Impaired loans with no valuation reserve $3,216 $1,904
Impaired loans with a valuation reserve 5,939 3,832
------ ------
Total recorded investment in impaired loans $9,155 $5,736
====== ======
Average recorded investment in impaired loans $8,788 $5,220
Valuation reserve 3,099 2,199
Note D - Common Stock and Earnings Per Common Share
The reconciliation of earnings per share follows:
Three Months Ended
March 31
--------------------
(in thousands, except per share amounts) 2000 1999
- -------------------------------------------------------------------
Numerators for both basic and diluted
earnings per share, net income $25,156 $24,295
======= =======
Denominators:
Denominators for basic earnings per share,
average outstanding common shares 52,682 53,468
Dilutive effect of stock options 1,084 1,332
------- -------
Denominator for diluted earnings per share 53,766 54,800
======= =======
Earnings per share:
Basic $ .48 $ .45
Diluted .47 .44
<PAGE>
Note E - Capital
The table below reflects various measures of regulatory capital at March
31, 2000 and 1999.
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
------------------- -------------------
Capital Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-Based
Tier 1 Capital $ 527,833 10.83% $ 521,208 12.18%
Tier 1 Capital minimum requirement 194,866 4.00 171,098 4.00
Total Capital $ 586,298 12.03% $ 574,707 13.44%
Total Capital minimum requirement 389,732 8.00 342,197 8.00
Risk-adjusted assets, net of goodwill $4,871,647 $4,277,459
Leverage ratio 7.74% 7.72%
Average equity as a percentage
of average assets 7.42 7.65
</TABLE>
At March 31, 2000 and 1999, 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
Tier 1 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 capital level for any capital
measure. Cullen/Frost and its subsidiary banks currently exceed all minimum
capital requirements. Management is not aware of any conditions or events that
would have changed the Corporation's capital rating since March 31, 2000.
Cullen/Frost is subject to the regulatory capital requirements
administered by the Federal Reserve Bank. Regulators can initiate certain
mandatory actions, if the Corporation fails to meet the minimum requirements,
that could have a direct material effect on the Corporation's financial
statements.
Note F - Income Taxes
Three Months Ended
March 31
--------------------
(in thousands) 2000 1999
- -------------------------------------------------------------------
Current tax expense $14,550 $13,721
Deferred tax benefit (1,292) (1,291)
------- -------
Income taxes $13,258 $12,430
======= =======
Income tax payments $ -- $ 932
Net deferred tax assets were $42.9 million with no valuation allowance. The
deferred tax assets were supported by taxes paid in prior years.
<PAGE>
Note G - Merger and Acquisitions
On April 1, 2000, Frost Insurance Agency, a subsidiary of the The Frost
National Bank acquired Wayland Hancock Insurance Agency, Inc. ("Wayland
Hancock"), a Houston-based independent insurance agency. Wayland Hancock
offers a full range of life and health insurance, as well as retirement and
financial planning, to individuals and businesses. Wayland Hancock is Frost
Insurance Agency's second acquisition, following the 1999 acquisition of
Victoria-based Professional Insurance Agents, Inc. The purchase method of
accounting was used to record both transactions.
On February 17, 2000, Cullen/Frost announced that United States National
Bank of Galveston will merge its charter into Frost National Bank. The
Galveston-based bank has been a member bank of Cullen/Frost since 1982. The
merger will be effective in the second quarter of 2000.
Note H - Subsequent Events
Pending Acquisitions
On April 13, 2000, Cullen/Frost announced that Frost Insurance Agency, had
signed a letter of intent to acquire Nieman Hanks Puryear Partners and Nieman
Hanks Puryear Benefits ("Nieman Hanks"), an Austin based independent insurance
agency. Nieman Hanks offers property and casualty insurance, professional and
umbrella liability, homeowners and auto insurance, group health, life and
disability policies and 401(k) retirement plans and executive planning. This
transaction is subject to regulatory approval and is expected to close in the
third quarter of 2000. Nieman Hanks is the third acquisition made by Frost
Insurance Agency, following the additions of PIA and Wayland Hancock mentioned
above. The purchase method of accounting will be used to record the
transaction.
<PAGE>
Note I - 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 hedged 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
for the Corporation of January 1, 2001. 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 Cullen/Frost at that time.
Note J - 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, insurance
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.
<TABLE>
<CAPTION>
Financial
Management Consolidated
(in thousands) Banking Group Non-Banks Total
=============================================================================================================
<S> <C> <C> <C> <C>
March 31, 2000
Revenues from (expenses to) external customers $101,502 $16,339 $ (672) $117,169
-------------------------------------------------------
Net income (loss) $ 24,328 $ 3,931 $(3,103) $ 25,156
=======================================================
=============================================================================================================
March 31, 1999
Revenues from (expenses to) external customers $ 96,456 $14,644 $(2,111) $108,989
-------------------------------------------------------
Net income (loss) $ 23,055 $ 3,441 $(2,201) $ 24,295
=======================================================
</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. All
balance sheet amounts are presented in averages unless otherwise noted.
Certain reclassifications have been made to make prior periods comparable.
Taxable-equivalent adjustments assume a 35 percent federal income tax rate.
Dollar amounts in tables are stated in thousands, except for per share amounts.
Cullen/Frost reported net income of $25.2 million or $.47 per diluted
common share for the quarter ended March 31, 2000 compared to $24.9 million or
$.46 per diluted common share and $24.3 million or $.44 per diluted common
share for the fourth and first quarters of 1999, respectively. Return on
average equity and average assets were 19.76 percent and 1.47 percent,
respectively, for the first quarter of 2000 compared to return on average
equity and average assets of 18.79 percent and 1.44 percent, respectively, for
the first quarter of 1999.
<TABLE>
<CAPTION>
Summary of Operations
-------------------------------------
Three Months Ended
-------------------------------------
2000 1999
----------- -----------------------
March 31 December 31 March 31
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable-equivalent net interest income $78,712 $78,610 $72,607
Taxable-equivalent adjustment 1,160 1,148 1,167
------- ------- -------
Net interest income 77,552 77,462 71,440
Provision for possible loan losses 2,682 3,476 3,000
Non-Interest income:
Net loss on securities transactions (8) (18) (68)
Other 39,625 39,079 37,617
------- ------- -------
Total non-interest income 39,617 39,061 37,549
Non-Interest expense:
Intangible amortization 3,956 4,051 3,337
Other 72,117 71,048 65,927
------- ------- -------
Total non-interest expense 76,073 75,099 69,264
------- ------- -------
Income before income taxes 38,414 37,948 36,725
Income Taxes 13,258 13,062 12,430
------- ------- -------
Net Income $25,156 $24,886 $24,295
======= ======= =======
Net income per diluted common share: $ .47 $ .46 $ .44
Return on Average Assets 1.47% 1.42% 1.44%
Return on Average Equity 19.76 19.01 18.79
</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 quarters ending March 31, 2000 and 1999:
Three Months Ended
March 31
--------------------
2000 1999
=========================================================
Banking $24,328 $23,055
Financial Management Group 3,931 3,441
Non-Banks (3,103) (2,201)
------- -------
Consolidated net income $25,156 $24,295
======= =======
The increase in Banking net income from the first quarter of 1999 is
primarily the result of higher net interest income due to loan growth and a
favorable rate environment. The Financial Management Group had an increase in
net income mainly due to increases in the equity market. The increase in the
operating loss for Non-Banks is due to incentive compensation and the impact
of Frost Securities, which began operations in August of 1999.
Net Interest Income
Net interest margin was 5.36 percent for the first quarter of 2000
compared to 5.29 percent and 4.98 percent for the fourth and first quarters of
1999, respectively. The increases in net interest margin from the fourth and
the first quarters of 1999 were primarily due to strong loan growth resulting
in an improved earning asset mix. The net interest spread of 4.47 percent
remained constant with the fourth quarter of 1999 and increased 28 basis points
from the first quarter of 1999.
Change in Taxable Equivalent
Net Interest Income
------------------------------------
First Quarter First Quarter
2000 2000
vs. vs.
First Quarter Fourth Quarter
1999 1999
------------------------------------
Amount Amount
- ----------------------------------------------------------------
Due to volume $3,399 $978
Due to interest rate spread 2,706 (876)
------ ----
$6,105 $102
====== ====
<PAGE>
Non-Interest Income
Growth in non-interest income continues to be favorably impacted by the
acquisition of PIA and Commerce Financial in the second quarter of 1999 and by
the start-up of Frost Securities, Inc. in August of 1999.
Three Months Ended
--------------------------------
2000 1999
-------- ---------------------
Non-Interest Income March 31 December 31 March 31
- ----------------------------------------------------------------------------
Trust fees $11,686 $11,825 $11,383
Service charges on deposit accounts 14,399 15,124 13,988
Other service charges, collection
and exchange charges, commissions
and fees 6,056 5,243 3,194
Net loss on securities transactions (8) (18) (68)
Other 7,484 6,887 9,052
------- ------- -------
Total $39,617 $39,061 $37,549
======= ======= =======
Total non-interest income was up $556 thousand or 1.4 percent from the
fourth quarter of 1999 and up $2.1 million or 5.5 percent from the first
quarter of 1999. Included in the first quarter of 1999 was a $2 million gain
from the sale of property in connection with a branch restructuring.
Trust fee income was flat when compared to last quarter and up from the
first quarter of 1999 by $303 thousand or 2.7 percent. The market value of
trust assets at the end of the first quarter of 2000 was $13.1 billion up $292
million when compared to the fourth quarter of 1999. Discretionary assets
increased by 3.2 percent and non-discretionary assets increased 11.1 percent
from a year ago. Trust income has remained relatively flat due to market
conditions and decreases in management fees associated with some small cap
value funds, partially offset by increases in investment and tax fees.
Service charges on deposit accounts for the first quarter of 2000
decreased $725 thousand or 4.8 percent from fourth quarter 1999 mainly due to
a decrease in overdraft income. When compared to the first quarter of
1999 service charges increased by $411 thousand or 2.9 percent. The increase
from the first quarter of last year can be attributed to increases in the
number of accounts generating overdraft and NSF charges. Other service charges
and fees increased $813 thousand or 15.5 percent when compared to the fourth
quarter of 1999 and increased by $2.9 million when compared to the first
quarter of last year. The increase from the fourth quarter of 1999 is
primarily due to revenues from Frost Securities and higher mutual fund fees.
The increase from last year is mainly due to insurance commissions from the
acquisition of PIA in the second quarter of 1999 and increased revenues from
Frost Securities.
Other non-interest income increased by $597 thousand or 8.7 percent from
the fourth quarter of 1999 and decreased by $1.6 million or 17.3 percent from
the first quarter of 1999. The increase from the fourth quarter of 1999 was
mainly caused by increases in various sundry income components. The decrease
from the first quarter of 1999 is mainly due to a $2 million gain recognized in
the first quarter of 1999 from the sale of property in connection with a branch
restructuring.
<PAGE>
Non-Interest Expense
The acquisitions of PIA and Commerce Financial in the second quarter of
1999 as well as costs related to Frost Securities have impacted the growth in
expenses.
Three Months Ended
-------------------------------
2000 1999
-------- ---------------------
Non-Interest Expense March 31 December 31 March 31
- -----------------------------------------------------------------------------
Salaries and wages $33,229 $32,270 $29,104
Pension and other employee benefits 8,050 6,705 6,515
Net occupancy of banking premises 6,766 6,854 6,701
Furniture and equipment 5,066 5,312 4,575
Intangible amortization 3,956 4,051 3,337
Other 19,006 19,907 19,032
------- ------- -------
Total $76,073 $75,099 $69,264
======= ======= =======
Total non-interest expense was up $974 thousand or 1.3 percent from the
fourth quarter of 1999 and up $6.8 million or 9.8 percent from the first
quarter of 1999. The increase from the first quarter of 1999 resulted
primarily from the acquisitions and new business initiatives.
Salary and wages increased $959 thousand or 3 percent from the fourth
quarter of 1999 and $4.1 million or 14.2 percent from the first quarter of
1999. This increase was a result of the acquisitions, new business initiatives
and merit increases. Pension and other employee benefits increased $1.3
million or 20.1 percent from the fourth quarter of 1999 and $1.5 million or
23.6 percent from the first quarter of 1999 as a result of acquisitions in
1999, new business initiatives and higher medical costs. Net occupancy of
banking premises expenses were relatively flat from both the fourth and first
quarters of 1999.
Furniture and equipment expenses decreased by $246 thousand or 4.6 percent
from the fourth quarter of 1999 mainly due to decreases in software maintenance
expenses and service contracts. Furniture and equipment expenses increased
from the first quarter of 1999 by $491 thousand or 10.7 percent due to
increases in repairs and service contracts on equipment, and higher software
maintenance and amortization. Intangible amortization remained relatively flat
from the fourth quarter of 1999 and increased by $619 thousand from the first
quarter of 1999 due to acquisitions completed in 1999.
Other non-interest expenses decreased $901 thousand or 4.5 percent from
the fourth quarter of 1999 mainly due to decreases in advertising, stationery
and printing, and sub-advisor management fees. Other non-interest expenses
remained flat when compared to the first quarter of 1999.
Income Taxes
The Corporation's effective tax rate for the first quarter of 2000
approximated 35 percent compared with an effective tax rate that approximated
34 percent for the fourth and first quarters of 1999.
Cash Earnings
Historically, excluding the merger with Overton Bancshares, Inc., on May
29, 1998, Cullen/Frost has paid cash and used the purchase method of accounting
for its acquisitions which has resulted in the creation of intangible assets.
These intangible assets are deducted from capital in the determination of
regulatory capital. Thus, "cash" or "tangible" earnings represent 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>
Three Months Ended
--------------------------------------------------------------------
March 2000 December 1999
- -------------------------------------------------------------------------------------------
Reported Intangible "Cash" Reported Intangible "Cash"
Earnings Amortization Earnings Earnings Amortization Earnings
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before income
taxes $38,414 $3,956 $42,370 $37,948 $4,051 $41,999
Income taxes 13,258 874 14,132 13,062 907 13,969
------- ------ ------- ------- ------ -------
Net income $25,156 $3,082 $28,238 $24,886 $3,144 $28,030
======= ====== ======= ======= ====== =======
Net income per diluted
common share $ .47 $ .06 $ .53 $ .46 $ .05 $ .51
Return on assets 1.47% 1.65%* 1.42% 1.60%*
Return on equity 19.76 22.18** 19.01 21.41**
* Calculated as A(annualized)/B
** Calculated as A(annualized)/C March 2000 December 1999
----------------- ---------- -------------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 28,238 $ 28,030
(B) Total average assets 6,899,514 6,958,565
(C) Average shareholders' equity 512,064 519,402
</TABLE>
Three Months Ended
--------------------------------
March 1999
- --------------------------------------------------------------
Reported Intangible "Cash"
Earnings Amortization Earnings
- --------------------------------------------------------------
Income before income taxes $36,725 $3,337 $40,062
Income taxes 12,430 786 13,216
------- ------ -------
Net income $24,295 $2,551 $26,846
======= ====== =======
Net income per diluted
common share $ .44 $ .05 $ .49
Return on assets 1.44% 1.59%*
Return on equity 18.79 20.77**
* Calculated as A(annualized)/B
** Calculated as A(annualized)/C March 1999
----------------------------- ----------
(A) Net income before intangible amortization (including
goodwill and core deposit intangibles, net of tax) $ 26,846
(B) Total average assets 6,852,825
(C) Average shareholders' equity 524,257
<PAGE>
Balance Sheet
Average assets of $6.9 billion were down $59 million or 3.4 percent on an
annualized basis from the fourth quarter of 1999 and up $47 million or 2.7
percent from the first quarter of 1999. Total deposits averaged $5.9 billion
for the current quarter, down $67 million or 4.5 percent on an annualized basis
from the previous quarter and up $140 million or 9.7 percent when compared to
the first quarter of 1999. Average loans for the first quarter of 2000 were
$4.2 billion. This represents an increase in average loans of 10.7 percent on
an annualized basis from the fourth quarter of 1999 and 12.0 percent from the
first quarter of last year.
Loans
<TABLE>
<CAPTION>
2000 1999
------------------------- -------------------------
Loan Portfolio Percentage
Period-End Balances March 31 of Total December 31 March 31
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial:
Energy $ 132,197 3.1% $ 129,394 $ 69,913
Other 1,504,472 35.1 1,458,956 1,180,703
Consumer 521,243 12.2 541,026 606,573
Real estate 2,053,833 48.0 1,980,048 1,845,657
Other 76,405 1.8 63,521 107,805
Unearned discount (6,619) (.2) (6,217) (3,762)
---------- ------ ---------- ----------
Total Loans $4,281,531 100.0% $4,166,728 $3,806,889
========== ====== ========== ==========
</TABLE>
At March 31, 2000 period-end loans totaled $4.3 billion up 11.0 percent
annualized from the previous quarter and up 12.5 percent from the same period
last year. Most of the increase in loans is attributable to real estate up $74
million and commercial and industrial up $48 million from the fourth quarter of
1999. This increase is partially offset by a $20 million decrease in consumer
loans related to the continued run-off in indirect lending from the fourth
quarter of 1999. Approximately 84 percent of the increase in loans from a year
ago resulted from internally generated growth.
Real Estate Loans
Real estate loans at March 31, 2000, were $2.1 billion or 48.0 percent of
period-end loans compared to 48.5 percent a year ago. Residential permanent
mortgage loans at March 31, 2000, were $695 million compared to $685 million at
December 31, 1999, and $652 million at March 31, 1999. 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 March 31, 2000, real estate loans 90 days past due (excluding non-
accrual loans) were $2.0 million, compared with $1.8 million at December 31,
1999, and $4.1 million at March 31, 1999.
<TABLE>
<CAPTION>
2000 1999
------------------------ ---------
Real Estate Loans Percentage
Period-End Balances March 31 of Total March 31
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Construction $ 387,385 18.9% $ 329,379
Land 138,880 6.8 109,694
Permanent mortgages:
Commercial 439,238 21.4 390,594
Residential 695,375 33.8 652,222
Other 392,955 19.1 363,768
---------- ----- ----------
$2,053,833 100.0% $1,845,657
========== ===== ==========
Non-accrual $ 7,017 .3% $ 6,164
</TABLE>
<PAGE>
Mexico
Cullen/Frost's cross border outstandings to Mexico, excluding $20.0
million in loans secured by assets held in the United States, totaled $17.4
million at March 31, 2000, or .4 percent of total loans, up from $2.4 million
at December 31, 1999 and down compared to $50.4 million last year. The
increase from the fourth quarter represents normal fluctuations in lines of
credit used by Mexican banks to finance trade. As of March 31, 2000, $294
thousand of the Mexican-related loans were on non-performing status compared to
none a year ago.
MEXICAN LOANS
------------------------
Percentage of
March 31, 2000 Amount Total Loans
- -----------------------------------------------------------------------
Loans to financial institutions $17,397 .4%
Loans to private firms or individuals 7
------- ----
$17,404 .4%
======= ====
Non-Performing Assets
NON-PERFORMING ASSETS
--------------------------
Real
March 31, 2000 Estate Other Total
--------------------------------------------------------------------------
Non-accrual $4,512 $10,067 $14,579
Foreclosed assets 2,511 862 3,373
------ ------- -------
Total $7,023 $10,929 $17,952
====== ======= =======
As a percentage of total
non-performing assets 39.1% 60.9% 100.0%
Non-performing assets totaled $18.0 million at March 31, 2000 down 4.7
percent from $18.8 million at December 31, 1999 and down 2.5 percent from $18.4
million at March 31, 1999. Non-performing assets as a percentage of total
loans and foreclosed assets decreased to .42 percent at March 31, 2000 from .48
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 approximately $272 thousand for the
first quarter of 2000, compared to approximately $327 thousand for the fourth
quarter of 1999 and approximately $250 thousand for the first quarter of 1999.
Total loans 90 days past due (excluding non-accrual loans) were $6.3 million at
March 31, 2000, compared to $6.9 million at December 31, 1999 and $7.9 million
at March 31, 1999.
Allowance for Possible Loan Losses
The allowance for possible loan losses was $58.5 million or 1.37 percent
of period-end loans at March 31, 2000, compared to $58.3 million or 1.40
percent for the fourth quarter of 1999 and $55.9 million or 1.47 percent at
March 31, 1999. The allowance for possible loan losses as a percentage of non-
accrual loans was 401.2 percent at March 31, 2000, compared to 392.8 percent
and 391.4 percent at the end of the fourth and first quarters of 1999,
respectively.
<PAGE>
The Corporation recorded a $2.7 million provision for possible loan losses
during the first quarter of 2000, compared to $3.5 million and $3.0 million
recorded during the fourth and first quarters of 1999. Net charge-offs in the
first quarter of 2000 totaled $2.6 million, compared to net charge-offs of $4.5
million and $1.1 million for the fourth and first quarters of 1999,
respectively.
NET CHARGE-OFFS (RECOVERIES)
-------------------------------
2000 1999
------- ------------------
First Fourth First
Quarter Quarter Quarter
- ---------------------------------------------------------------------------
Real Estate $ 59 $ 5 $ (243)
Commercial and industrial 1,075 2,641 170
Consumer 1,430 1,814 1,150
Other, including foreign (2) (10) (18)
------- ------- -------
$ 2,562 $ 4,450 $ 1,059
======= ======= =======
Provision for possible loan losses $ 2,682 $ 3,476 $ 3,000
Allowance for possible loan losses 58,465 58,345 55,857
Capital and Liquidity
At March 31, 2000, shareholders' equity was $511.1 million compared to
$509.3 million at December 31, 1999 and $523.8 million at March 31, 1999.
Activity during the first quarter of 2000 included $9.2 million of dividends
paid and $11.3 million paid for the repurchase of shares of Cullen/Frost,
offset by earnings growth. In addition, Cullen/Frost had an unrealized loss on
securities available for sale, net of deferred taxes, of $42.6 million as of
March 31, 2000 compared to an unrealized loss of $39.1 million as of December
31, 1999, which had the effect of reducing capital by $3.5 million. 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 eight for a discussion of the Corporation's
regulatory capital ratios.
Cullen/Frost paid a cash dividend of $.175 per common share for the first
quarter of 2000 and fourth quarter of 1999 compared to $.15 per common share in
the first quarter of 1999. This equates to a dividend payout ratio of 36.7
percent, 37.3 percent and 33.0 percent for the first quarter of 2000 and the
fourth and first quarters of 1999, respectively.
Funding sources available at the holding company level include a $7.5
million short-term line of credit. There were no borrowings outstanding from
this source at March 31, 2000 or 1999.
Asset liquidity is provided by cash and assets which are readily
marketable or pledgeable or which will mature in the near future. Liquid
assets 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 which include
core depositors and correspondent banks in Cullen/Frost's natural trade area
which maintain accounts with and sell Federal funds to subsidiary banks of the
Corporation, as well as Federal funds purchased and securities sold under
repurchase agreements from upstream banks. 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.
<PAGE>
Year 2000
Cullen/Frost Bankers, Inc. conducted and completed an extensive program to
address the internal and external risks associated with the century date change
to the Year 2000, which resulted with no significant disruptions. The
Corporation spent approximately $5.2 million on incremental costs over the
three-year period beginning in 1997, funded out of its earnings and expensed as
incurred. Additionally, the Corporation spent about 30 percent of its annual
technology budget to facilitate progress on the Year 2000 program.
Cullen/Frost is currently not aware of any ongoing operational
implications related to the Year 2000 date change. 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.
Financial Modernization Legislation
On November 12, 1999, the Gramm-Leach-Bliley Act of 1999 ("Modernization
Act") was signed into law. The Modernization Act: (i) allows bank holding
companies meeting management, capital and CRA standards, and receiving the
prior approval of the Federal Reserve, to engage in a substantially broader
range of financial activities and activities incidental to financial activities
than was previously permissible, including insurance underwriting and making
merchant banking investments in commercial and financial companies; (ii) allows
insurers and other financial services companies to acquire banks; (iii) removes
various restrictions that previously applied to bank holding company ownership
of securities firms and mutual fund advisory companies; and (iv) established
the overall regulatory structure applicable to bank holding companies that also
engage in insurance and securities operations. Bank holding companies approved
for the broader range of activities are called "financial holding companies".
This part of the Modernization Act became effective on March 11, 2000.
Cullen/Frost was designated a financial holding company under the Modernization
Act effective March 15, 2000.
The Modernization Act also modified laws related to financial privacy and
community reinvestment. The new financial privacy provisions 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, 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>
Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter
Cullen/Frost Bankers, Inc. and Subsidiaries
(dollars in thousands - taxable-equivalent basis*)
<TABLE>
<CAPTION>
March 31, 2000 December 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 $ 6,883 $ 145 5.48% $ 5,810 $ 94 5.40%
Securities:
U.S. Treasury 131,598 1,864 5.70 142,335 1,891 5.27
U.S. Government agencies
and corporations 1,316,395 22,368 6.80 1,349,023 22,361 6.63
States and political subdivisions
Tax-exempt 148,024 2,810 7.59 149,009 2,775 7.45
Taxable 3,466 58 6.66 3,510 58 6.58
Other 34,346 523 6.09 35,683 513 5.75
---------- -------- ---------- --------
Total securities 1,633,829 27,623 6.77 1,679,560 27,598 6.57
Federal funds sold and securities
purchased under resale agreements 50,256 728 5.73 122,332 1,678 5.37
Loans, net of unearned discount 4,211,488 91,423 8.73 4,101,779 88,663 8.58
---------- -------- ---------- --------
Total Earning Assets and
Average Rate Earned 5,902,456 119,919 8.16 5,909,481 118,033 7.94
Cash and due from banks 601,030 644,251
Allowance for possible loan losses (58,598) (58,795)
Banking premises and equipment 143,625 144,013
Accrued interest and other assets 311,001 319,615
---------- ----------
Total Assets $6,899,514 $6,958,565
========== ==========
LIABILITIES
Demand deposits:
Commercial and individual $1,567,238 $1,576,527
Correspondent banks 223,528 223,178
Public funds 31,882 35,118
---------- ----------
Total demand deposits 1,822,648 1,834,823
Time deposits:
Savings and Interest-on-Checking 977,059 1,615 .66 955,664 1,624 .67
Money market deposit accounts 1,632,184 16,814 4.14 1,705,498 16,700 3.88
Time accounts 1,224,239 14,200 4.66 1,236,682 13,645 4.38
Public funds 233,349 2,428 4.19 223,733 1,998 3.54
---------- -------- ---------- --------
Total time deposits 4,066,831 35,057 3.47 4,121,577 33,967 3.27
---------- -------- ---------- --------
Total Deposits 5,889,479 5,956,400
Federal funds purchased and securities
sold under resale agreements 286,449 3,538 4.89 271,477 3,128 4.51
Long-term notes payable 2,635 39 5.92 2,657 38 5.76
Guaranteed preferred beneficial
interests in the Corporation's
subordinated debentures 98,524 2,119 8.60 98,506 2,119 8.60
Other borrowings 26,591 454 6.87 13,083 171 5.19
---------- -------- ---------- --------
Total Interest-Bearing Funds
and Average Rate Paid 4,481,030 41,207 3.69 4,507,300 39,423 3.47
---------- -------- ---- ---------- -------- ----
Accrued interest and other liabilities 83,772 97,040
---------- ----------
Total Liabilities 6,387,450 6,439,163
SHAREHOLDERS' EQUITY 512,064 519,402
---------- ----------
Total Liabilities and
Shareholders' Equity $6,899,514 $6,958,565
========== ==========
Net interest income $ 78,712 $ 78,610
======== ========
Net interest spread 4.47% 4.47%
==== ====
Net interest income to total average earning assets 5.36% 5.29%
==== ====
*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*)
<TABLE>
<CAPTION>
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
Tax-exempt 143,012 2,617 7.32 141,183 2,639 7.48
Taxable 3,540 58 6 55 3,591 58 6.43
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 and securities
purchased under resale agreements 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 Corporation's
subordinated debentures 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>
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
----------------------------
Interest
Average Income/ Yield/
Balance Expense Cost
ASSETS ---------- -------- ------
Time deposits $ 432 $ 3 3.47%
Securities:
U.S. Treasury 206,795 2,565 5.03
U.S. Government agencies
and corporations 1,694,151 26,620 6.29
States and political subdivisions
Tax-exempt 131,479 2,352 7.16
Taxable 3,704 49 5.28
Other 54,141 792 5.86
---------- --------
Total securities 2,090,270 32,378 6.20
Federal funds sold and securities
purchased under resale agreements 28,439 332 4.67
Loans, net of unearned discount 3,760,734 77,621 8.37
---------- --------
Total Earning Assets and
Average Rate Earned 5,879,875 110,334 7.58
Cash and due from banks 618,369
Allowance for possible loan losses (54,534)
Banking premises and equipment 136,918
Accrued interest and other assets 272,197
----------
Total Assets $6,852,825
==========
LIABILITIES
Demand deposits:
Commercial and individual $1,482,579
Correspondent banks 217,173
Public funds 41,071
----------
Total demand deposits 1,740,823
Time deposits:
Savings and Interest-on-Checking 935,709 1,656 .72
Money market deposit accounts 1,541,395 13,695 3.60
Time accounts 1,268,283 13,757 4.40
Public funds 263,754 2,291 3.52
---------- --------
Total time Deposits 4,009,141 31,399 3.18
---------- --------
Total Deposits 5,749,964
Federal funds purchased and securities
sold under repurchase agreements 376,357 4,007 4.26
Long-term notes payable
Guaranteed preferred beneficial
interests in Corporation's
subordinated debentures 98,464 2,119 8.61
Other borrowings 13,204 202 6.21
---------- --------
Total Interest-Bearing Funds
and Average Rate Paid 4,497,166 37,727 3.39
---------- -------- ----
Accrued interest and other liabilities 90,579
----------
Total Liabilities 6,328,568
SHAREHOLDERS' EQUITY 524,257
----------
Total Liabilities and
Shareholders' Equity $6,852,825
==========
Net interest income $ 72,607
========
Net interest spread 4.19%
====
Net interest income to total average earning assets 4.98%
====
* 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, 1999. 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, 1999.
<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: April 25, 2000 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 3-31-00 (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 MARCH 31, 2000 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-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 605,408
<INT-BEARING-DEPOSITS> 6,156
<FED-FUNDS-SOLD> 114,175
<TRADING-ASSETS> 212
<INVESTMENTS-HELD-FOR-SALE> 1,538,191
<INVESTMENTS-CARRYING> 81,938
<INVESTMENTS-MARKET> 82,628
<LOANS> 4,281,531
<ALLOWANCE> 58,465
<TOTAL-ASSETS> 7,019,364
<DEPOSITS> 6,009,059
<SHORT-TERM> 277,155
<LIABILITIES-OTHER> 123,510
<LONG-TERM> 98,527
0
0
<COMMON> 536
<OTHER-SE> 510,577
<TOTAL-LIABILITIES-AND-EQUITY> 7,019,364
<INTEREST-LOAN> 91,268
<INTEREST-INVEST> 26,618
<INTEREST-OTHER> 873
<INTEREST-TOTAL> 118,759
<INTEREST-DEPOSIT> 35,057
<INTEREST-EXPENSE> 41,207
<INTEREST-INCOME-NET> 77,552
<LOAN-LOSSES> 2,682
<SECURITIES-GAINS> (8)
<EXPENSE-OTHER> 76,073
<INCOME-PRETAX> 38,414
<INCOME-PRE-EXTRAORDINARY> 38,414
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,156
<EPS-BASIC> .48
<EPS-DILUTED> .47
<YIELD-ACTUAL> 8.16
<LOANS-NON> 14,579
<LOANS-PAST> 6,322
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,386
<ALLOWANCE-OPEN> 58,345
<CHARGE-OFFS> (3,314)
<RECOVERIES> 752
<ALLOWANCE-CLOSE> 58,465
<ALLOWANCE-DOMESTIC> 54,191
<ALLOWANCE-FOREIGN> 120
<ALLOWANCE-UNALLOCATED> 4,154
</TABLE>
