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.
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>
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>
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>
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>
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
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
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.
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.
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>
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>
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 ====== ====
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.
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.
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
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>
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.
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.
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.
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>
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>
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.
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.
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
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)
Cullen/Frost Bankers, Inc. Form 10-Q Exhibit Index Exhibit Description - ------- ----------- 27 Statement re: Financial Data Schedule 3-31-00 (EDGAR VERSION)