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, 1996 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 May 2, 1996 there were 11,214,315 shares of Common Stock, $5 par value, outstanding.
<TABLE> <CAPTION> Part I. Financial Information Item 1. Financial Statements (Unaudited) Consolidated Statements of Income Cullen/Frost Bankers, Inc. and Subsidiaries (in thousands, except per share amounts) Three Months Ended March 31 --------------------- 1996 1995 ------- ------- <S> <C> <C> INTEREST INCOME Loans, including fees $42,586 $33,075 Securities: Taxable 25,644 24,336 Tax-exempt 82 84 ------- ------- Total Securities 25,726 24,420 Time Deposits 7 Federal funds sold and securities purchased under resale agreements 1,941 1,493 ------- ------- Total Interest Income 70,260 58,988 INTEREST EXPENSE Deposits 25,255 18,385 Federal funds purchased and securities sold under repurchase agreements 2,105 4,391 Long-term notes payable and other borrowings 232 ------- ------- Total Interest Expense 27,592 22,776 ------- ------- Net Interest Income 42,668 36,212 Provision for possible loan losses 1,875 500 ------- ------- Net Interest Income After Provision For Possible Loan Losses 40,793 35,712 NON-INTEREST INCOME Trust department 8,332 8,051 Service charges on deposit accounts 8,785 7,054 Other service charges, collection and exchange charges, commissions and fees 2,628 2,356 Net gain (loss) on securities transactions (95) 93 Other 3,076 2,863 ------- ------- Total Non-Interest Income 22,726 20,417 NON-INTEREST EXPENSE Salaries and wages 16,637 13,537 Pension and other employee benefits 3,458 2,806 Net occupancy of banking premises 4,861 4,583 Furniture and equipment 2,881 2,560 Provision for real estate losses 500 Restructuring costs 400 Other 15,308 15,384 ------- ------- Total Non-Interest Expense 43,145 39,770 ------- ------- Income Before Income Taxes 20,374 16,359 Income Taxes 7,299 5,720 ------- ------- Net Income $13,075 $10,639 ======= ======= Net Income per common share $ 1.15 $ .94 Dividends per share .35 .22 See notes to consolidated financial statements. </TABLE>
<TABLE> <CAPTION> Consolidated Balance Sheets Cullen/Frost Bankers, Inc. and Subsidiaries (dollars in thousands) March 31 December 31 March 31 1996 1995 1995 ---------- ---------- ---------- <S> <C> <C> <C> Assets Cash and due from banks $ 419,953 $ 533,333 $ 325,334 Time deposits 18 64 21 Securities held to maturity 201,748 210,731 1,030,071 Securities available for sale 1,433,347 1,325,836 529,366 Federal funds sold and securities purchased under resale agreements 172,589 100,550 98,300 Loans, net of unearned discount of $1,753 at March 31, 1996 $1,337 at December 31, 1995 and $ 2,780 at March 31, 1995 2,023,910 1,816,762 1,547,898 Less: Allowance for possible loan losses (33,229) (31,577) (26,885) ---------- ---------- ---------- Net Loans 1,990,681 1,785,185 1,521,013 Banking premises and equipment 99,899 89,493 86,844 Accrued interest and other assets 164,729 155,019 133,480 ---------- ---------- ---------- Total Assets $4,482,964 $4,200,211 $3,724,429 ========== ========== ========== Liabilities Demand Deposits: Commercial and individual $ 816,018 $ 792,879 $ 665,901 Correspondent banks 158,646 127,549 70,468 Public funds 40,796 71,581 32,504 ---------- ---------- ---------- Total demand deposits 1,015,460 992,009 768,873 Time Deposits: Savings and Interest-on-Checking 755,872 718,582 722,352 Money market deposit accounts 782,645 711,865 549,418 Time accounts 1,047,607 998,738 886,239 Public funds 277,587 224,539 76,261 ---------- ---------- ---------- Total time deposits 2,863,711 2,653,724 2,234,270 ---------- ---------- ---------- Total deposits 3,879,171 3,645,733 3,003,143 Federal funds purchased and securities sold under repurchase agreements 152,344 111,395 344,743 Accrued interest and other liabilities 104,275 101,619 66,604 ---------- ---------- ---------- Total Liabilities 4,135,790 3,858,747 3,414,490 Shareholders' Equity Common stock, par value $5 per share 56,071 55,997 55,685 Shares authorized: 30,000,000 Shares outstanding: 11,214,116; 11,199,450; and 11,136,987 Surplus 118,769 118,418 116,518 Retained earnings 167,648 158,563 134,258 Unrealized gain on securities available for sale 4,686 8,486 3,478 ---------- ---------- ---------- Total Shareholders' Equity 347,174 341,464 309,939 ---------- ---------- ---------- Total Liabilities and Shareholders' Equity $4,482,964 $4,200,211 $3,724,429 ========== ========== ========== See notes to consolidated financial statements. </TABLE>
<TABLE> <CAPTION> Consolidated Statements of Changes in Shareholders' Equity Cullen/Frost Bankers, Inc. and Subsidiaries (dollars in thousands) Unrealized Gain (Loss) on Securities Common Retained Available Stock Surplus Earnings for Sale Total ------- -------- -------- --------- -------- <S> <C> <C> <C> <C> <C> Balance at January 1, 1995 $55,615 $116,362 $126,038 $(2,578) $295,437 Net income for the year ended December 31, 1995 46,279 46,279 Exercise of employee stock options and related tax benefit 250 978 (34) 1,194 Issuance of restricted stock 132 1,078 1,210 Restricted stock plan deferred compensation expense, net (997) (997) Adjustment to unrealized gain (loss) on securities available for sale, net of tax 11,064 11,064 Cash dividend (12,723) (12,723) ------- -------- ------- -------- ------- Balance at December 31, 1995 55,997 118,418 158,563 8,486 341,464 Net income for the three months ended March 31, 1996 13,075 13,075 Exercise of employee stock options and related tax benefit 74 351 (181) 244 Restricted stock plan deferred compensation expense 116 116 Adjustment to unrealized gain (loss) on securities available for sale, net of tax (3,800) (3,800) Cash dividend (3,925) (3,925) ------- -------- -------- ------- -------- Balance at March 31, 1996 $56,071 $118,769 $167,648 $ 4,686 $347,174 ======= ======== ======== ======= ======== See notes to consolidated financial statements. </TABLE>
<TABLE> <CAPTION> Consolidated Statements of Cash Flows Cullen/Frost Bankers, Inc. and Subsidiaries (dollars in thousands) Three Months Ended March 31 -------------------- 1996 1995 --------- -------- <S> <C> <C> Operating Activities Net income $ 13,075 $ 10,639 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible loan losses 1,875 500 Provision for real estate losses 500 (Provision) credit for deferred taxes (311) 227 Accretion of discounts on loans (239) (571) Accretion of securities' discounts (4,188) (4,004) Amortization of securities' premiums 675 516 Net (gain) loss on securities transactions 95 (93) Net gain on sale of assets (175) (250) Depreciation and amortization 5,489 4,513 Increase in interest receivable (2,996) (997) Increase in interest payable 332 268 Net change in other assets and liabilities 21,623 8,258 --------- -------- Net cash provided by operating activities 35,255 19,506 Investing Activities Proceeds from maturities of securities held to maturity 8,936 21,608 Purchases of securities held to maturity (833) Proceeds from sales of securities available for sale 34,766 10,610 Proceeds from maturities of securities available for sale 125,760 129,513 Purchases of securities available for sale (194,376) (113,390) Net increase in loans (1,980) (63,039) Net increase in bank premises and equipment (2,288) (1,215) Proceeds from sales of repossessed properties 392 161 Net cash and cash equivalents received from acquisitions 19,198 --------- -------- Net cash used by investing activities (9,592) (16,585) Financing Activities Net increase (decrease) in demand deposits, IOC accounts, and savings accounts 56,790 (128,538) Net increase (decrease) in certificates of deposits (161,007) 43,719 Net increase (decrease) in short-term borrowings 40,949 (25,492) Proceeds from employee stock purchase plan and options 143 140 Dividends paid (3,925) (2,449) --------- -------- Net cash used by financing activities (67,050) (112,620) --------- -------- Decrease in cash and cash equivalents (41,387) (109,699) Cash and cash equivalents at beginning of year 633,947 533,354 --------- -------- Cash and cash equivalents at the end of the period $592,560 $423,655 ========= ======== Supplemental information: Interest paid $ 27,027 $ 22,508 Loans originated to facilitate the sale of repossessed properties 35 351 See notes to consolidated financial statements. </TABLE>
Notes to Consolidated Financial Statements Cullen/Frost Bankers, Inc. and Subsidiaries (dollars in tables in thousands) Basis of Presentation The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have not been audited by independent accountants, but in the opinion of management, reflect all adjustments necessary for a fair presentation of the financial position and results of operations. All such adjustments were of a normal and recurring nature. For further information, refer to the consolidated financial statements and footnotes thereto included in the Corporation's annual report on Form 10-K for the year ended December 31, 1995. The balance sheet at December 31, 1995, 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. Allowance for Possible Loan Losses An analysis of the transactions in the allowance for possible loan losses is presented below. The amount charged to operating expense is based on management's assessment of the adequacy of the allowance to absorb future possible loan losses. <TABLE> <CAPTION> Three Months Ended March 31 ------------------- (in thousands) 1996 1995 - ---------------------------------------------------------------------- <S> <C> <C> Balance at beginning of the period $31,577 $25,741 Provision for possible loan losses 1,875 500 Net charge-offs: Losses charged to the allowance (1,483) (813) Recoveries 1,260 1,457 ------- ------- Net (charge-offs)recoveries (223) 644 ------- ------- Balance at the end of period $33,229 $26,885 ======= ======= </TABLE> 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. At March 31, 1996, 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 for the first quarter of 1996 or 1995. The total allowance for possible loans 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: <TABLE> <CAPTION> Three Months Ended March 31 ----------------------- (in thousands) 1996 1995 - -------------------------------------------------------------------------- <S> <C> <C> Impaired loans with no valuation reserve $4,841 $5,451 Impaired loans with a valuation reserve 3,988 2,435 ------ ------ Total recorded investment in impaired loans $8,829 $7,886 ====== ====== Average recorded investment in impaired loans $9,149 $8,696 Valuation reserve 662 512 </TABLE> Earnings Per Common Share The weighted average numbers of shares used to compute per common share earnings, including common stock equivalents where applicable, were: <TABLE> <CAPTION> Three Months Ended March 31 ----------------------- 1996 1995 ----------------------- <S> <C> <C> Primary 11,414,410 11,275,918 </TABLE> Income Taxes The tax expense for the first quarter of 1996 was $7,299,000. This amount consisted of current tax expense of $7,610,000 and deferred tax benefit of $311,000. Net deferred tax assets were $7,844,000 with no valuation allowance. The tax expense for the first quarter of 1995 was $5,720,000. This amount consisted of current tax expense of $5,493,000 and deferred tax expense of $227,000. Net deferred tax assets were $15,732,000 with no valuation allowance. The deferred tax assets were supported by taxes paid in prior years, the future reversal of existing taxable temporary differences and future income. No income tax payments were made during the first three months of 1996 or 1995. Acquisitions On January 5, 1996, the Corporation paid approximately $17.7 million to acquire S.B.T. Bancshares, Inc., including its subsidiary, State Bank and Trust Company in San Marcos, Texas. The Corporation acquired loans of approximately $51 million and deposits of approximately $112 million. On February 15, 1996, the Corporation paid approximately $33.5 million to acquire Park National Bank in Houston, Texas. The Corporation acquired loans of approximately $157 million and deposits of approximately $225 million. The acquisitions did not have a material impact on the first quarter net income and are not expected to have a material impact on the Corporation's 1996 net income. On April 4, 1995, the Corporation paid approximately $9.2 million to acquire Valley Bancshares, Inc., including its subsidiary, Valley National Bank in McAllen, Texas. The Corporation acquired loans of approximately $28 million and deposits of approximately $49 million. On May 19, 1995, the Corporation paid approximately $24.2 million to acquire National Commerce Bank in Houston, Texas. The Corporation acquired loans of approximately $95 million and deposits of approximately $101 million. On July 21, 1995, the Corporation acquired the two San Antonio branches of Comerica Bank Texas. The Corporation acquired loans of approximately $2 million and deposits of approximately $34 million.
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 except per share amounts) Results of Operations Cullen/Frost Bankers, Inc. reported net income of $13,075,000 or $1.15 per common share for the quarter ended March 31, 1996. This compares with $12,464,000 or $1.09 per common share and $10,639,000 or $.94 per common share for the fourth and first quarters of 1995, respectively. Return on average assets and average equity increased to 1.20 percent and 15.01 percent, respectively, for the first quarter of 1996. This compares to 1.15 percent and 14.09 percent, respectively, for the first quarter of 1995. The results of operations are included in the material that follows. The Corporation completed two acquisitions during the first quarter of 1996 and three for the entire year of 1995. These acquisitions, which are outlined in the footnotes to the financial statements on page seven, were accounted for as purchase transactions, and as such, their related results of operations are included in the financial information that follows from the date of acquisition. Certain reclassifications have been made to make prior quarters comparable. All balance sheet figures are presented in averages unless otherwise noted. <TABLE> <CAPTION> Summary of Operations -------------------------------------- Three Months Ended -------------------------------------- 1996 1995 ----------- ------------------------ March 31 December 31 March 31 - ------------------------------------------------------------------------------- <S> <C> <C> <C> Taxable-equivalent net interest income $42,914 $39,804 $36,390 Taxable-equivalent adjustment 246 250 178 ------- ------- ------- Net interest income 42,668 39,554 36,212 Provision for possible loan losses 1,875 1,500 500 Non-Interest income: Net gain (loss) on securities transactions (95) (1,489) 93 Other 22,821 25,007 20,324 ------- ------- ------- Total non-interest income 22,726 23,518 20,417 Non-Interest expense: Restructuring costs 400 Provision for real estate losses 10 500 Other 43,145 42,428 38,870 ------- ------- ------- Total non-interest expenses 43,145 42,438 39,770 ------- ------- ------- Income before income taxes 20,374 19,134 16,359 Income Taxes 7,299 6,670 5,720 ------- ------- ------- Net Income $13,075 $12,464 $10,639 ======= ======= ======= Net Income per common share $ 1.15 $ 1.09 $ .94 Return on Average Assets 1.20% 1.20% 1.15% Return on Average Equity 15.01 14.64 14.09 </TABLE>
Net Interest Income Net interest margin was 4.67 percent for the first quarter of 1996 compared to 4.58 percent for the fourth and first quarters of 1995. The increase in net interest income and net interest margin from the fourth and first quarters of 1995 is reflective of the favorable impact of the acquisitions, higher loan volumes, reinvestment of proceeds from the sale of securities and lower deposit costs. Net interest spread of 3.93 percent increased ten basis points from the fourth quarter of 1995. Net interest spread was 3.85 percent for the first quarter of 1995. The net interest spread increased from the previous quarter primarily because of the decrease in deposit costs. <TABLE> <CAPTION> Change in Net Interest Income -------------------------------------- First Quarter First Quarter 1996 1996 vs. vs. First Quarter Fourth Quarter 1995 1995 -------------------------------------- Percentage of Percentage of Amount Total Change Amount Total Change - ---------------------------------------------------------------------------- <S> <C> <C> <C> <C> Due to volume $ 6,142 94.14% $ 2,886 92.80% Due to interest rate spread 382 5.86 224 7.20 ------- ------- ------- ------- $ 6,524 100.00% $ 3,110 100.00% ======= ======= ======= ======= </TABLE> Non-Interest Income <TABLE> <CAPTION> Three Months Ended -------------------------------- 1996 1995 -------- --------------------- Non-Interest Income March 31 December 31 March 31 - ---------------------------------------------------------------------------- <S> <C> <C> <C> Trust department $ 8,332 $ 7,921 $ 8,051 Service charges on deposit accounts 8,785 8,296 7,054 Other service charges, collection and exchange charges, commissions and fees 2,628 2,959 2,356 Net gain (loss) on securities transactions (95) (1,489) 93 Other 3,076 5,831 2,863 -------- ------- ------- Total $22,726 $23,518 $20,417 ======== ======= ======= </TABLE> Total non-interest income was down $792,000 or 3.4 percent compared to the fourth quarter of 1995 and was up $2.3 million or 11.3 percent from the first quarter of 1995. The fourth quarter includes part of the gain on the transfer of the Corporation's municipal bond administration business to The Bank of New York, while the increase from the first quarter of 1995 is mostly due to higher service charges, primarily as a result of the acquisitions and increased volumes processed for correspondent banks. Trust income increased 5.2 percent and 3.5 percent from the fourth and first quarters of 1995, respectively. Higher investment, employee benefit trust and personal trust fees helped offset the impact of lower trust revenue resulting from the second quarter of 1995 sale of the Corporation's municipal bond administration business and were primarily responsible for the increase from both quarters. Service charges on deposit accounts were up 5.9 percent compared to the previous quarter and up 24.5 percent from the same quarter one year ago primarily as a result of the acquisitions and increased volumes processed for correspondent banks. Other service charges were down 11.2 percent compared to the fourth quarter of 1995 and increased 11.5 percent from the first quarter of 1995. The decrease from the fourth quarter is mostly due to lower income from bankcard discounts as a result of the Corporation beginning to outsource its bankcard processing in January. The increase from the first quarter last year is primarily due to fees from the sale of mutual funds and loan prepayment fees, which helped offset lower bankcard discount income.
The first quarter included a net loss on security transactions of $95,000, compared to a net loss of $1.5 million in the fourth quarter of 1995 and a net gain of $93,000 in the first quarter of 1995. In December 1995, the Corporation sold $79,075,000 in securities available for sale which resulted from a portfolio restructuring of replacing lower-yielding securities with higher-yielding securities which should have a favorable impact on net interest income in the future. Other non-interest income was 47.2 percent lower than the fourth quarter of 1995 primarily because the fourth quarter was favorably impacted by the recognition of part of the gain on the transfer of the Corporation's municipal bond administration business. Compared to the same quarter a year ago, other non-interest income was up 7.4 percent primarily due to the gain on disposition of certain loans. Non-Interest Expense <TABLE> <CAPTION> Three Months Ended ------------------------------- 1996 1995 -------- --------------------- Non-Interest Expense March 31 December 31 March 31 - ----------------------------------------------------------------------------- <S> <C> <C> <C> Salaries and wages $16,637 $15,151 $13,537 Pension and other employee benefits 3,458 3,119 2,806 Net occupancy of banking premises 4,861 4,554 4,583 Furniture and equipment 2,881 3,369 2,560 Restructuring costs 400 Other 15,308 16,235 15,384 ------- ------- ------- 43,145 42,428 39,270 Provision for real estate losses 10 500 ------- ------- ------- Total $43,145 $42,438 $39,770 ======= ======= ======= </TABLE> Non-interest expense increased 1.7 percent from the fourth quarter and $3.4 million or 8.5 percent from the same quarter last year. Operating expenses related to the acquisitions were the primary reason for the increase. Salaries and wages were up 9.8 percent from the fourth quarter of 1995 and were up 22.9 percent from the first quarter of 1995 primarily as a result of the acquisitions. Pension and employee benefits were up 10.9 percent from the fourth quarter and 23.2 percent from the first quarter of 1995 because of higher payroll taxes and medical insurance costs related to the acquisitions. In addition, retirement plan expense also contributed to the increase from the first quarter of 1995. Net occupancy of banking premises expense increased 6.7 percent and 6.1 percent from the fourth and first quarters of 1995, respectively. Most of the increase from both periods is due to an occupancy charge of $175,000 in the first quarter of 1996 related to a loss on a sublease of excess space. Furniture and equipment expense decreased 14.5 percent from the fourth quarter, primarily due to lower service contracts expense, and was up 12.5 percent compared to the same quarter last year due to higher depreciation and services contract expense associated with the acquisitions. Other non-interest expense was down 5.7 percent compared to last quarter and flat compared to the same quarter last year. The decrease from last quarter is due to lower bankcard interchange expenses as a result of the Corporation beginning to outsource its bankcard processing during the first quarter of 1996 and lower FDIC insurance premiums. Income Taxes The Corporation's effective tax rate for the first quarter of 1996 and the fourth and first quarters of 1995 approximated the statutory rate of 35 percent. Balance Sheet Average assets of $4,370,952,000 for the first quarter of 1996 were up 6.4 percent compared with the fourth quarter of 1995 and reflected an increase of 16.8 percent from the first quarter of 1995 because of the acquisitions. Total deposits averaged $3,773,770,000 for the current quarter, up 6.0 percent when compared to the previous quarter and up 24.2 percent from the first quarter of 1995.
Loans <TABLE> <CAPTION> 1996 1995 ----------------------- ------------------------ Loan Portfolio Percentage Period-End Balances March 31 of Total December 31 March 31 - ------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Commercial $ 534,233 26.4% $ 508,990 $ 433,436 Consumer 430,080 21.3 402,169 346,840 Real estate 982,065 48.5 837,905 713,759 Other 79,285 3.9 69,035 56,643 Unearned discount (1,753) (.1) (1,337) (2,780) ---------- ------ ---------- ---------- Total Loans $2,023,910 100.0% $1,816,762 $1,547,898 ========== ====== ========== ========== </TABLE> Average loans for the first quarter of 1996 were $1,936,289,000. This represents an increase in average loans of 8.8 percent and 26.7 percent from the fourth and first quarters of 1995, respectively. At March 31, 1996, period-end loans totaled $2,023,910,000 up 11.4 percent from the previous quarter and up 30.8 percent from the same period last year. Most of the increase from the fourth quarter is attributable to the acquisitions in the first quarter of 1996. Approximately 70 percent of the increase in loans from a year ago resulted from acquisitions. Real Estate Loans Real estate loans at March 31, 1996, were $982,065,000 or 48.5 percent of loans, compared to 46.1 percent a year ago. Residential permanent mortgage loans at March 31, 1996, were $395,616,000 compared to $339,576,000 at December 31, 1995, and $281,052,000 at March 31, 1995. Real estate loans classified as "other" are essentially amortizing commercial and industrial loans with maturities of less than five years secured by real property. At March 31, 1996, real estate loans 90 days past due (excluding non- accrual and restructured loans) were $3,999,000, compared with $3,022,000 at December 31, 1995, and $1,137,000 at March 31, 1995. <TABLE> <CAPTION> 1996 1995 ---------------------- -------- Real Estate Loans Percentage Period-End Balances March 31 of Total March 31 - ------------------------------------------------------------------------------- <S> <C> <C> <C> Construction $ 71,173 7.2% $ 39,613 Land 50,838 5.2 34,654 Permanent mortgages: Commercial 207,498 21.1 194,474 Residential 395,616 40.3 281,052 Other 256,940 26.2 163,966 -------- ------ -------- $982,065 100.0% $713,759 ======== ====== ======== Non-accrual and restructured $ 10,956 1.1% $ 13,107 </TABLE> Mexico The Corporation's cross border outstandings to Mexico, excluding $12,723,000 in loans secured by assets held in the United States, totaled $31,462,000 at March 31, 1996, or 1.6 percent of total loans up from $25,314,000 last year. This growth reflects expansion in trade-related debt in connection with increased commerce with Mexico. All of the Corporation's Mexican loans are either secured by liquid U.S. assets or are unsecured loans to major financial institutions to finance international trade transactions. Of the trade-related credits, approximately 93 percent are related to companies exporting from Mexico. As of March 31, 1996, none of the Mexican related loans were on non-performing status.
<TABLE> <CAPTION> MEXICAN LOANS ---------------------------------------- March 31, 1996 Amount Percentage of Total Loans - ---------------------------------------------------------------------------------------- <S> <C> <C> Loans to financial institutions $31,460 1.6% Loans to private firms or individuals 2 ------- ---- $31,462 1.6% ======= ==== </TABLE> Non-Performing Assets <TABLE> <CAPTION> NON-PERFORMING ASSETS -------------------------- Real March 31, 1996 Estate Other Total - --------------------------------------------------------------------------- <S> <C> <C> <C> Non-accrual and restructured loans $10,956 $3,826 $14,782 Foreclosed assets 1,672 344 2,016 ------- ------ ------- $12,628 $4,170 $16,798 ======== ====== ======= As a percentage of total non-performing assets 75.2% 24.8% 100.0% </TABLE> Non-performing assets totaled $16,798,000 at March 31, 1996, compared with $16,155,000 at December 31, 1995, and $16,888,000 at March 31, 1995. Non- performing assets as a percentage of total loans and foreclosed assets decreased to .8 percent at March 31, 1996 from 1.1 percent one year ago. The first quarter acquisitions added approximately $797,000 to non-performing assets. 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 acquisition 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 $239,000 or $.02 per common share for the first quarter of 1996, flat compared to the fourth quarter of 1995 and down from $296,000 or $.03 per common share for the first quarter of 1995. Total loans 90 days past due (excluding non-accrual and restructured loans) were $6,761,000 at March 31, 1996, compared to $5,188,000 at December 31, 1995, and $3,266,000 at March 31, 1995. Allowance for Possible Loan Losses The allowance for possible loan losses was $33,229,000 or 1.64 percent of period-end loans at March 31, 1996, compared to $31,577,000 or 1.74 percent for the fourth quarter of 1995 and $26,885,000 or 1.74 percent at March 31, 1995. The allowance for possible loan losses as a percentage of non-accrual and restructured loans was 224.8 percent at March 31, 1996, compared to 215.6 percent and 185.6 percent at the end of the fourth and first quarters of 1995, respectively. The Corporation recorded a $1,875,000 provision for possible loan losses during the first quarter of 1996, compared to a $500,000 provision for possible loan losses recorded a year ago. The provision is reflective of the growth in the loan portfolio. Net charge-offs in the first quarter totaled $223,000, compared to $523,000 for the fourth quarter of 1995 and net recoveries of $644,000 for the first quarter of 1995.
<TABLE> <CAPTION> NET CHARGE-OFFS (RECOVERIES) ------------------------------- 1996 1995 ---------- ------------------ First Fourth First Quarter Quarter Quarter - --------------------------------------------------------------------------- <S> <C> <C> <C> Real Estate $ (7) $ (15) $ (671) Commercial and industrial (487) 98 (347) Consumer 716 440 412 Other, including foreign 1 (38) ------- ------- ------- $ 223 $ 523 $ (644) ======= ======= ======= Provision for possible loan losses $ 1,875 $ 1,500 $ 500 Allowance for possible loan losses 33,229 31,577 26,885 </TABLE> Capital and Liquidity At March 31, 1996, shareholders' equity was $347,174,000 compared to $341,464,000 at December 31, 1995, and $309,939,000 at March 31, 1995. The Corporation paid a cash dividend of $.35 per common share in the first quarter of 1996 and fourth quarter of 1995 compared to $.22 per common share for the first quarter of 1995. This equates to dividend payout ratios of 30.0 percent, 31.4 percent and 23.0 percent for the first quarter of 1996 and the fourth and first quarters of 1995, respectively. The Federal Reserve Board (the "Board") utilizes capital guidelines designed to measure Tier 1 and Total Capital and take into consideration the risk inherent in both on-balance sheet and off-balance sheet items. The following table summarizes Tier 1 and Total Capital information for the Corporation at March 31, 1996, and 1995. As a result of the acquisitions, all the regulatory capital ratios are down when compared to the first quarter of 1995. <TABLE> <CAPTION> March 31, 1996 March 31, 1995 ------------------- ------------------- Capital Amount Ratio Amount Ratio - ------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Risk-Based Tier 1 Capital $ 266,275 11.30% $ 266,687 14.56% Tier 1 Capital Minimum requirement 94,260 4.00 73,262 4.00 Total Capital $ 295,778 12.55% $ 289,630 15.81% Total Capital Minimum requirement 188,520 8.00 148,523 8.00 Risk-adjusted assets, net of goodwill $2,356,503 $1,831,542 Leverage ratio 6.21% 7.20% Average equity as a percentage of average assets 8.01 8.18 </TABLE> The FDIC Improvement Act of 1991 ("FDICIA") established five capital tiers for depository institutions and final rules relating to these tiers were adopted by the federal banking agencies. At March 31, 1996, the Corporation's subsidiary banks were considered "well capitalized" as defined by FDICIA, the highest rating, and the Corporation's capital ratios were in excess of "well capitalized" levels. A financial institution is deemed to be well capitalized if the institution has a total risk-based capital ratio of 10.0 percent or greater, a Tier 1 risk-based capital ratio of 6.0 percent or greater, and a leverage ratio of 5.0 percent or greater, and the institution is not subject to an order, written agreement, capital directive or prompt corrective action directive to meet and maintain a specific level for any capital measure. Funding sources available at the holding company level include a $7,500,000 short-term line of credit. There were no borrowings outstanding from this source at March 31, 1996. Asset liquidity is provided by cash and assets which are readily marketable or which will mature in the near future. These include cash, time deposits in banks, securities available for sale, maturities and cash flow from securities held to maturity, and Federal funds sold and securities purchased under resale agreements. Liability liquidity is provided by access to funding sources, principally core deposits and Federal funds purchased. Additional sources of liability liquidity include brokered deposits and securities sold under agreement to repurchase. The liquidity position of the Corporation is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate.
Recent Announcement On April 30, 1996, the Corporation announced an increase in its quarterly cash dividend to $.42 per common share and a two-for-one stock split both payable to shareholders of record as of June 3, 1996. In addition, a stock repurchase program in which up to 250,000 pre-split shares of its outstanding common stock may be repurchased over a two-year period was also announced.
<TABLE> <CAPTION> Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter Cullen/Frost Bankers, Inc. and Subsidiaries (dollars in thousands - taxable-equivalent basis*) March 31, 1996 December 31, 1995 ----------------------------------------------------- Interest Interest Average Income/ Yield/ Average Income/ Yield/ Balance Expense Cost Balance Expense Cost -------- ------- ----- ---------- ------- ----- <S> <C> <C> <C> <C> <C> <C> ASSETS Time deposits $ 27 $ 3.50% $ 20 $ 2 3.51% Securities: U.S. Treasury 287,694 3,829 5.35 248,598 3,559 5.68 U.S. Government agencies and corporations 1,311,374 21,705 6.62 1,287,154 21,054 6.54 States and political subdivisions 5,497 130 9.45 5,603 131 9.40 Other 7,585 106 5.57 5,971 89 6.01 ---------- ------- ---------- ------- Total securities 1,612,150 25,770 6.40 1,547,326 24,833 6.41 Federal funds sold and securities purchased under resale agreements 138,001 1,941 5.57 137,784 1,951 5.54 Loans, net of unearned discount 1,936,289 42,795 8.89 1,779,371 40,238 8.97 ---------- ------- ---------- ------- Total Earning Assets and Average Rate Earned 3,686,467 70,506 7.67 3,464,501 67,024 7.69 Cash and due from banks 453,391 430,154 Allowance for possible loan losses (32,390) (31,040) Banking premises and equipment 97,654 90,738 Accrued interest and other assets 165,830 154,668 ---------- ---------- Total Assets $4,370,952 $4,109,021 ========== ========== LIABILITIES Demand deposits: Commercial and individual $ 777,229 $ 719,105 Correspondent banks 167,345 151,021 Public funds 44,780 41,139 ---------- ---------- Total demand deposits 989,354 911,265 Time deposits: Savings and Interest-on-Checking 743,216 2,628 1.42 700,966 2,729 1.54 Money market deposit accounts 758,097 7,085 3.76 703,450 6,971 3.93 Time accounts 1,033,725 12,853 5.00 1,024,321 13,136 5.09 Public funds 249,378 2,689 4.34 221,741 2,489 4.45 ---------- ------- ---------- ------- Total time deposits 2,784,416 25,255 3.65 2,650,478 25,325 3.79 ---------- ------- ---------- ------- Total Deposits 3,773,770 3,561,743 Federal funds purchased and securities sold under repurchase agreements 159,535 2,105 5.22 123,052 1,565 4.98 Other borrowings 18,173 232 5.14 20,010 330 6.55 ---------- ------- ---------- ------- Total Interest-Bearing Funds and Average Rate Paid 2,962,124 27,592 3.74 2,793,540 27,220 3.86 ---------- ------- ----- ---------- ------- ----- Accrued interest and other liabilities 69,209 66,463 ---------- ---------- Total Liabilities 4,020,687 3,771,268 SHAREHOLDERS' EQUITY 350,265 337,753 ---------- ---------- Total Liabilities and Shareholders' Equity $4,370,952 $4,109,021 ========== ========== Net interest income $42,914 $39,804 ======= ======= Net interest spread 3.93% 3.83% ==== ==== Net interest income to total average earning assets 4.67% 4.58% ==== ==== *Taxable-equivalent basis assuming a 35% tax rate. </TABLE>
<TABLE> <CAPTION> Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter Cullen/Frost Bankers, Inc. and Subsidiaries (dollars in thousands - taxable-equivalent basis*) September 30, 1995 June 30, 1995 ----------------------------------------------------- Interest Interest Average Income/ Yield/ Average Income/ Yield/ Balance Expense Cost Balance Expense Cost -------- ------- ----- -------- ------- ----- <S> <C> <C> <C> <C> <C> <C> ASSETS Time deposits $ 15 $ 3.52% $ 21 $ 3.81% Securities: U.S. Treasury 255,079 3,848 5.99 227,406 3,489 6.15 U.S. Government agencies and corporations 1,301,094 21,001 6.46 1,307,456 20,917 6.40 States and political subdivisions 5,647 134 9.49 6,551 144 8.77 Other 6,447 97 6.03 7,238 115 6.37 --------- ------- --------- ------- Total securities 1,568,267 25,080 6.39 1,548,651 24,665 6.37 Federal funds sold and securities purchased under resale agreements 114,483 1,660 5.67 111,611 1,628 5.77 Loans, net of unearned discount 1,747,810 39,939 9.07 1,671,840 37,811 9.07 --------- ------- --------- ------- Total Earning Assets and Average Rate Earned 3,430,575 66,679 7.73 3,332,123 64,104 7.71 Cash and due from banks 392,513 359,029 Allowance for possible loan losses (29,708) (27,176) Banking premises and equipment 92,132 91,634 Accrued interest and other assets 146,414 137,257 --------- --------- Total Assets $4,031,926 $3,892,867 ========== ========== LIABILITIES Demand deposits: Commercial and individual $ 705,914 $ 685,220 Correspondent banks 134,085 121,666 Public funds 37,277 32,193 ---------- ---------- Total demand deposits 877,276 839,079 Time deposits: Savings and Interest-on-Checking 720,160 2,908 1.60 727,039 3,562 1.97 Money market deposit accounts 638,351 6,238 3.88 564,081 5,408 3.85 Time accounts 1,006,887 13,061 5.15 992,628 12,737 5.15 Public funds 113,599 1 269 4.43 84,904 916 4.33 ---------- ------- ---------- ------- Total time deposits 2,478,997 23,476 3.76 2,368,652 22,623 3.83 ---------- ------- ---------- ------- Total Deposits 3,356,273 3,207,731 Federal funds purchased and securities sold under repurchase agreements 258,409 3,506 5.31 290,927 3,834 5.21 Other borrowings 21,818 296 5.38 7,906 107 5.44 Total Interest-Bearing Funds and Average Rate Paid 2,759,224 27,278 3.92 2,667,485 26,564 3.99 ---------- ------- ----- ---------- ------- ----- Accrued interest and other liabilities 66,878 66,070 ---------- ---------- Total Liabilities 3,703,378 3,572,634 SHAREHOLDERS' EQUITY 328,548 320,233 ---------- ---------- Total Liabilities and Shareholders' Equity $4,031,926 $3,892,867 ========== ========== Net interest income $39,401 $37,540 ======= ======= Net interest spread 3.81% 3.72% ==== ==== Net interest income to total average earning assets 4.58% 4.52% ==== ==== *Taxable-equivalent basis assuming a 35% tax rate. </TABLE>
<TABLE> <CAPTION> Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter Cullen/Frost Bankers, Inc. and Subsidiaries (dollars in thousands - taxable-equivalent basis*) March 31, 1995 -------------------------- Interest Average Income/ Yield/ Balance Expense Cost -------- ------- ----- <S> <C> <C> <C> ASSETS Time deposits $ 15 $ 3.77% Securities: U.S. Treasury 224,345 3,246 5.87 U.S. Government agencies and corporations 1,317,465 20,793 6.31 States and political subdivisions 5,659 134 9.48 Other 17,763 292 6.65 ---------- ------- Total securities 1,565,232 24,465 6.26 Federal funds sold and securities purchased under resale agreements 104,418 1,493 5.72 Loans, net of unearned discount 1,527,663 33,208 8.82 ---------- ------- Total Earning Assets and Average Rate Earned 3,197,328 59,166 7.47 Cash and due from banks 343,861 Allowance for possible loan losses (25,880) Banking premises and equipment 88,149 Accrued interest and other assets 139,338 ---------- Total Assets $3,742,796 ========== LIABILITIES Demand deposits: Commercial and individual $ 675,170 Correspondent banks 118,016 Public funds 36,423 ---------- Total demand deposits 829,609 Time deposits: Savings and Interest-on-Checking 734,161 3,461 1.91 Money market deposit accounts 560,032 5,057 3.66 Time accounts 833,435 9,090 4.42 Public funds 82,242 777 3.83 ---------- ------- Total time deposits 2,209,870 18,385 3.37 ---------- ------- Total Deposits 3,039,479 Federal funds purchased and securities sold under repurchase agreements 335,436 4,391 5.24 ---------- ------- Total Interest-Bearing Funds and Average Rate Paid 2,545,306 22,776 3.62 ---------- ------- ----- Accrued interest and other liabilities 61,667 ---------- Total Liabilities 3,436,582 SHAREHOLDERS' EQUITY 306,214 ---------- Total Liabilities and Shareholders' Equity $3,742,796 ========== Net interest income $36,390 ======= Net interest spread 3.85% ==== Net interest income to total average earning assets 4.58% ==== *Taxable-equivalent basis assuming a 35% tax rate. </TABLE>
Part II: Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11 Statement regarding Computation of Earnings per Share (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: May 7, 1996 By:/s/Phillip D. Green ----------------------- Phillip D. Green Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Accounting Officer)