Securities and Exchange Commission Washington, D.C. 20549 Form 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended June 30, 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 August 8, 1996, there were 22,450,060 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 Six Months Ended June 30 June 30 -------------------- ------------------- 1996 1995 1996 1995 ------- ------- ------- ------- <S> <C> <C> <C> <C> INTEREST INCOME Loans, including fees $45,265 $37,671 $ 87,851 $70,746 Securities: Taxable 25,310 24,526 50,954 48,862 Tax-exempt 81 90 163 174 ------- ------- ------- ------- Total Securities 25,391 24,616 51,117 49,036 Time Deposits 3 10 Federal funds sold and securities purchased under resale agreements 1,472 1,628 3,413 3,121 ------- ------- ------- ------- Total Interest Income 72,131 63,915 142,391 122,903 INTEREST EXPENSE Deposits 25,808 22,623 51,063 41,008 Federal funds purchased and securities sold under repurchase agreements 1,728 3,834 3,833 8,225 Long-term notes payable and other borrowings 221 107 453 107 ------- ------- ------- ------- Total Interest Expense 27,757 26,564 55,349 49,340 ------- ------- ------- ------- Net Interest Income 44,374 37,351 87,042 73,563 Provision for possible loan losses 1,325 2,772 3,200 3,272 ------- ------- ------- ------- Net Interest Income After Provision For Possible Loan Losses 43,049 34,579 83,842 70,291 NON-INTEREST INCOME Trust fees 8,384 8,070 16,716 16,121 Service charges on deposit accounts 9,656 7,484 18,441 14,538 Other service charges, collection and exchange charges, commissions and fees 2,154 2,840 4,782 5,196 Net gain (loss) on securities transactions (903) (998) 93 Other 5,350 4,349 8,426 7,212 ------- ------- ------- ------- Total Non-Interest Income 24,641 22,743 47,367 43,160 NON-INTEREST EXPENSE Salaries and wages 18,350 14,395 34,987 27,932 Pension and other employee benefits 4,498 2,371 7,956 5,177 Net occupancy of banking premises 4,665 4,323 9,526 8,906 Furniture and equipment 2,811 2,550 5,692 5,110 Provision for real estate losses 500 Intangible amortization 2,903 1,952 5,518 3,828 Other 13,368 14,341 26,061 28,249 ------- ------- ------- ------- Total Non-Interest Expense 46,595 39,932 89,740 79,702 ------- ------- ------- ------- Income Before Income Taxes 21,095 17,390 41,469 33,749 Income Taxes 7,577 6,167 14,876 11,887 ------- ------- ------- ------- Net Income $13,518 $11,223 $26,593 $21,862 ======= ======= ======= ======= Net Income per common share: Primary $ .59 $ .50 $ 1.16 $ .97 Dividends per share .21 .11 .39 .22 See notes to consolidated financial statements. </TABLE>
<TABLE> <CAPTION> Consolidated Balance Sheets Cullen/Frost Bankers, Inc. and Subsidiaries (dollars in thousands) June 30 December 31 June 30 1996 1995 1995 ---------- ---------- ---------- <S> <C> <C> <C> Assets Cash and due from banks $ 481,666 $ 533,333 $ 378,131 Time deposits 16 64 20 Securities held to maturity 191,714 210,731 1,003,663 Securities available for sale 1,366,676 1,325,836 569,357 Federal funds sold and securities purchased under resale agreements 157,175 100,550 111,425 Loans, net of unearned discount of $1,803 at June 30, 1996; $1,337 at December 31, 1995 and $2,401 at June 30, 1995 2,107,584 1,816,762 1,742,644 Less: Allowance for possible loan losses (35,035) (31,577) (28,886) ---------- ---------- ---------- Net Loans 2,072,549 1,785,185 1,713,758 Banking premises and equipment 101,076 89,493 91,891 Accrued interest and other assets 178,995 155,019 136,497 ---------- ---------- ---------- Total Assets $4,549,867 $4,200,211 $4,004,742 ========== ========== ========== Liabilities Demand Deposits: Commercial and individual $ 898,874 $ 792,879 $ 720,789 Correspondent banks 168,248 127,549 95,390 Public funds 91,979 71,581 43,619 ---------- ---------- ---------- Total demand deposits 1,159,101 992,009 859,798 Time Deposits: Savings and Interest-on-Checking 712,541 718,582 712,972 Money market deposit accounts 789,253 711,865 590,752 Time accounts 1,066,455 998,738 998,850 Public funds 232,951 224,539 90,646 ---------- ---------- ---------- Total time deposits 2,801,200 2,653,724 2,393,220 ---------- ---------- ---------- Total deposits 3,960,301 3,645,733 3,253,018 Federal funds purchased and securities sold under repurchase agreements 114,387 111,395 348,922 Accrued interest and other liabilities 127,329 101,619 81,142 ---------- ---------- ---------- Total Liabilities 4,202,017 3,858,747 3,683,082 Shareholders' Equity Common stock, par value $5 per share 112,197 55,997 55,744 Shares authorized: 30,000,000 Shares outstanding: 22,439,398; 22,398,900; and 22,297,608 Surplus 62,804 118,418 116,711 Retained earnings 176,499 158,563 143,060 Unrealized gain (loss) on securities available for sale (3,650) 8,486 6,145 ---------- ---------- ---------- Total Shareholders' Equity 347,850 341,464 321,660 ---------- ---------- ---------- Total Liabilities and Shareholders' Equity $4,549,867 $4,200,211 $4,004,742 ========== ========== ========== 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 six months ended June 30, 1996 26,593 26,593 Exercise of employee stock options and related tax benefit 102 484 (252) 334 Restricted stock plan deferred compensation expense 232 232 Adjustment to unrealized gain (loss) on securities available for sale, net of tax (12,136) (12,136) Cash dividend (8,637) (8,637) Two for one stock split 56,098 (56,098) -------- -------- -------- ------- -------- Balance at June 30, 1996 $112,197 $ 62,804 $176,499 $(3,650) $347,850 ======== ======== ======== ======= ======== See notes to consolidated financial statements. </TABLE>
<TABLE> <CAPTION> Consolidated Statements of Cash Flows Cullen/Frost Bankers, Inc. and Subsidiaries (dollars in thousands) Six Months Ended June 30 ------------------ 1996 1995 ------- ------- <S> <C> <C> Operating Activities Net income $ 26,593 $ 21,862 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible loan losses 3,200 3,272 Provision for real estate losses 500 (Credit) provision for deferred taxes (2,206) 23 Accretion of discounts on loans (1,079) (946) Accretion of securities' discounts (8,242) (8,240) Amortization of securities' premiums 1,504 1,047 Net (gain) loss on securities transactions 998 (93) Net gain on sale of assets (1,264) (2,334) Depreciation and amortization 11,195 8,961 Increase in interest receivable (3,565) (1,889) Increase in interest payable 401 1,886 Net change in other assets and liabilities 34,922 34,659 --------- -------- Net cash provided by operating activities 62,457 58,708 Investing Activities Proceeds from maturities of securities held to maturity 18,867 47,619 Purchases of securities held to maturity (833) Proceeds from sales of securities available for sale 54,406 28,309 Proceeds from maturities of securities available for sale 352,843 292,471 Purchases of securities available for sale (384,862) (289,466) Net increase in loans (83,922) (137,441) Net increase in bank premises and equipment (6,129) (2,255) Proceeds from sales of repossessed properties 607 938 Net cash and cash equivalents received (paid) from bank acquisitions/exchange 19,198 (22,010) --------- --------- Net cash used by investing activities (28,992) (82,668) Financing Activities Net increase (decrease) in demand deposits, IOC accounts, and savings accounts 119,072 (60,975) Net increase (decrease) in certificates of deposits (142,159) 75,820 Net increase (decrease) in short-term borrowings 2,992 (30,038) Proceeds from employee stock purchase plan and options 177 275 Dividends paid (8,637) (4,900) --------- -------- Net cash used by financing activities (28,555) (19,818) --------- -------- Increase (decrease) in cash and cash equivalents 4,910 (43,778) Cash and cash equivalents at beginning of year 633,947 533,354 --------- -------- Cash and cash equivalents at the end of the period $638,857 $489,576 ========= ======== Supplemental information: Interest paid $ 54,948 $ 47,454 Loans originated to facilitate the sale of repossessed properties 612 351 See notes to consolidated financial statements. </TABLE>
Notes to Consolidated Financial Statements Cullen/Frost Bankers, Inc. and Subsidiaries (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> Six Months Ended June 30 -------------------- (in thousands) 1996 1995 - ----------------------------------------------------------------------- <S> <C> <C> Balance at beginning of the period $31,577 $25,741 Provision for possible loan losses 3,200 3,272 Net charge-offs: Losses charged to the allowance (4,297) (2,522) Recoveries 4,555 2,395 ------- ------- Net (charge-offs) recoveries 258 (127) ------- ------- Balance at the end of period $35,035 $28,886 ======= ======= </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 June 30, 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 second quarter of 1996 or 1995. 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: <TABLE> <CAPTION> June 30 ----------------------- (in thousands) 1996 1995 - -------------------------------------------------------------------------- <S> <C> <C> Impaired loans with no valuation reserve $5,124 $5,712 Impaired loans with a valuation reserve 2,657 2,428 ------ ------ Total recorded investment in impaired loans $7,781 $8,140 ====== ====== Average recorded investment in impaired loans $8,625 $8,825 Valuation reserve 612 512 </TABLE> Earnings Per Common Share On June 21, 1996, the Corporation completed the previously announced two- for-one stock split. As a result of the split, $56,098,000 was transferred from surplus to common stock. All related "share" amounts have been restated to make prior periods comparable. The weighted average number of shares used to compute per common share earnings, including common stock equivalents where applicable, were: <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30 June 30 ----------------------- ----------------------- 1996 1995 1996 1995 ----------------------- ----------------------- <S> <C> <C> <C> <C> Primary 22,859,954 22,624,008 22,844,729 22,574,170 Fully Diluted 22,906,104 22,654,138 22,906,370 22,651,034 </TABLE> Income Taxes The tax expense for the second quarter of 1996 was $7,577,000. This amount consisted of current tax expense of $9,472,000 and deferred tax benefit of $1,895,000. Year-to-date tax expense is $14,876,000, consisting of current tax expense of $17,082,000 and deferred tax benefit of $2,206,000. Net deferred tax assets were $15,576,000 with no valuation allowance. The deferred tax assets were supported by taxes paid in prior years and the future reversal of existing taxable temporary differences. The tax expense for the second quarter of 1995 was $6,167,000. Income tax payments for the first six months of 1996 and 1995 were $13,603,000 and $10,174,000, respectively. 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 second 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 acquired 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 acquired 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) Results of Operations Cullen/Frost Bankers, Inc. reported net income of $13,518,000 or $.59 per common share for the quarter ended June 30, 1996 compared to $11,223,000 or $.50 per common share for the second quarter of 1995 and net income of $13,075,000 or $.57 per common share for the first quarter of 1996. Net income for the six months ended June 30, 1996 was $26,593,000 or $1.16 per common share compared to $21,862,000 or $.97 per common share for the same period 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. During the second quarter of 1996, the board of directors declared and paid a two for one stock split. Previous quarters have been restated to give effect to the split. 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 Six Months Ended ---------------------------- June 30 1996 1995 ------------------ ------------------ ------- 1996 1995 June 30 March 31 June 30 - -------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Taxable-equivalent net interest income $87,538 $73,931 $44,624 $42,914 $37,540 Taxable-equivalent adjustment 496 368 250 246 189 ------- ------- ------- ------- ------- Net interest income 87,042 73,563 44,374 42,668 37,351 Provision for possible loan losses 3,200 3,272 1,325 1,875 2,772 Non-Interest income: Net gain (loss) on securities transactions (998) 93 (903) (95) Other 48,365 43,067 25,544 22,821 22,743 ------- ------- ------- ------- ------- Total non-interest income 47,367 43,160 24,641 22,726 22,743 Non-Interest expense: Provision for real estate losses 500 Other 89,740 79,202 46,595 43,145 39,932 ------- ------- ------- ------- ------- Total non-interest expense 89,740 79,702 46,595 43,145 39,932 ------- ------- ------- ------- ------- Income before income taxes 41,469 33,749 21,095 20,374 17,390 Income Taxes 14,876 11,887 7,577 7,299 6,167 ------- ------- ------- ------- ------- Net Income $26,593 $21,862 $13,518 $13,075 $11,223 ======= ======= ======= ======= ======= Net Income per common share $ 1.16 $ .97 $ .59 $ .57 $ .50 Return on Average Assets 1.20% 1.16% 1.21% 1.20% 1.16% Return on Average Equity 15.21 14.07 15.41 15.01 14.06 </TABLE>
Net Interest Income Net interest margin, which represents the average net effective yield on earning assets calculated as net interest income on a taxable-equivalent basis expressed as a percentage of average total earning assets, was 4.74 percent for the second quarter of 1996 compared to 4.67 percent and 4.52 percent for the first quarter of 1996 and second quarter of 1995, respectively. The increase in net interest income and net interest margin from the first quarter of 1996 is reflective of the favorable impact of the acquisitions, higher loan volumes and higher interest recoveries. These items, the reinvestment of proceeds from the sale of securities, and lower deposit costs were responsible for the increase from the second quarter last year. Net interest spread of 3.97 percent increased four basis points from the first quarter of 1996 and 25 basis points from the second quarter of 1995. The net interest spread increased primarily because the Corporation was able to maintain its earnings on funds with higher loan volumes and the favorable impact of the acquisitions, while deposit costs decreased. <TABLE> <CAPTION> Change in Net Interest Income ---------------------------------------------------------------- Second Quarter Second Quarter Year-to-Date 1996 1996 1996 vs. vs. vs. Second Quarter First Quarter Year-to-Date 1995 1996 1995 ---------------------------------------------------------------- Percentage of Percentage of Percentage of Amount Total Change Amount Total Change Amount Total Change - -------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Due to volume $5,916 83.51% $1,724 99.19% $11,920 87.60% Due to interest rate spread 1,168 16.49 (14) .81 1,687 12.40 ------- ------- ------- ------- ------- ------- $7,084 100.00% $1,710 100.00% $13,607 100.00% ======= ======= ====== ======= ======= ======= </TABLE> Non-Interest Income <TABLE> <CAPTION> Six Months Ended Three Months Ended June 30 ------------------------------ ------------------ 1996 1995 -------------------- ------- Non-Interest Income 1996 1995 June 30 March 31 June 30 - ------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Trust fees $16,716 $16,121 $ 8,384 $ 8,332 $ 8,070 Service charges on deposit accounts 18,441 14,538 9,656 8,785 7,484 Other service charges, collection and exchange charges, commissions and fees 4,782 5,196 2,154 2,628 2,840 Net gain (loss) on securities transactions (998) 93 (903) (95) Other 8,426 7,212 5,350 3,076 4,349 ------- ------- -------- ------- ------- Total $47,367 $43,160 $24,641 $22,726 $22,743 ======= ======= ======== ======= ======= </TABLE> For the second quarter 1996... Total non-interest income was up $1.9 million, an increase of over eight percent, compared to the first quarter of 1996 and second quarter of 1995. Trust fee income remained constant compared to last quarter and increased 3.9 percent from the second quarter of 1995. The increase can be attributed to higher investment, personal, and employee benefit trust fees, which offset the impact of lower trust revenue resulting from the second quarter of 1995 sale of the Corporation's municipal bond administration business.
Service charges on deposit accounts increased 9.9 percent from the first quarter of this year and 29.0 percent from the second quarter of 1995. The majority of the increase from the first quarter is due to higher volumes and, to a lesser extent, the impact of the Park National Bank acquisition for a full quarter. Most of the increase from the second quarter last year results from increased volumes processed for correspondent banks and the impact of acquisitions. Service charges from acquisitions represented approximately 25 percent of the increase from the first quarter and approximately 40 percent of the increase compared to the same quarter one year ago. Other service charges were down 18.0 percent and 24.2 percent compared to the first quarter of 1996 and the second quarter of 1995, respectively. The decrease from both quarters is primarily due to lower income from bankcard discounts as a result of the Corporation's outsourcing of its bankcard processing operations, which was completed in May 1996. The Corporation restructured a portion of its available for sale investment portfolio resulting in losses of $903,000. This portfolio restructuring of replacing lower-yielding securities with higher-yielding securities should have a favorable impact on net interest income in the future. Other non-interest income increased $2.3 million or 73.9 percent from the first quarter of this year and increased $1.0 million or 23.0 percent compared to the second quarter of 1995. The increase from the first quarter is mostly due to gains on the disposition of certain loans and foreclosed assets of approximately $2.7 million, and a gain recognized from the outsourcing of the Corporation's bankcard processing operations. Most of the increase from the second quarter of 1995 is due to gains on the disposition of certain loans. For the six months ended June 30, 1996... Non-interest income rose $4.2 million or 9.7 percent compared to the same period last year. Trust income increased $595,000 due to higher investment, employee benefit trust, and personal trust fees which offset lower corporate trust income. Service charges on deposit accounts increased $3.9 million compared to the same period one year ago. The increase is mainly due to higher volumes, primarily processing for correspondent banks, and acquisitions, which account for almost half of the increase. Other service charges and fees decreased $414,000 mostly due to lower income from bankcard discounts as a result of the Corporation's outsourcing of its bankcard processing operations which was completed in May 1996. Other income is up $1.2 million compared to the same period last year primarily as a result of gains on the disposition of certain loans and acquisitions. Non-Interest Expense <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------------------------ June 30 1996 1995 ------------------ -------------------- ------- Non-Interest Expense 1996 1995 June 30 March 31 June 30 - ------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Salaries and wages $34,987 $27,932 $18,350 $16,637 $14,395 Pension and other employee benefits 7,956 5,177 4,498 3,458 2,371 Net occupancy of banking premises 9,526 8,906 4,665 4,861 4,323 Furniture and equipment 5,692 5,110 2,811 2,881 2,550 Intangible amortization 5,518 3,828 2,903 2,615 1,952 Other 26,061 28,249 13,368 12,693 14,341 ------- ------- ------- ------- ------- 89,740 79,202 46,595 43,145 39,932 Provision for real estate losses 500 ------- ------- ------- ------- ------- Total $89,740 $79,702 $46,595 $43,145 $39,932 ======= ======= ======= ======= ======= </TABLE> For the second quarter 1996.. Non-interest expense was up $3.5 million or 8.0 percent compared to last quarter and increased $6.7 million or 16.7 percent compared to the second quarter of 1995. Operating expenses related to the acquisitions were the primary reason for the increase from both periods, with a $1.6 million early retirement charge recorded in the second quarter of 1996 also contributing to the increase. Salaries and wages increased 10.3 percent from the first quarter of 1996 and 27.5 percent from the second quarter of 1995 primarily as a result of the acquisitions. The early retirement charge was responsible for approximately
one-half of the increase from the previous quarter. Pension and employee benefits increased 30.1 percent compared to last quarter and 89.7 percent compared to the second quarter of 1995 mostly because of acquisitions and the early retirement charge. Also contributing to the increase from the second quarter of 1995 is a refund on workers' compensation insurance received in the second quarter of 1995 and higher payroll tax and medical insurance expense. Net occupancy of banking premises expense decreased 4.0 percent from the first quarter of 1996 and increased 7.9 percent from the second quarter of 1995. The increase from the second quarter of 1995 primarily results from higher lease, building maintenance, and property tax expenses related to the acquisitions. Furniture and equipment expense was down slightly compared to the first quarter of 1996 and increased 10.2 percent from the same quarter last year mostly due to higher depreciation expense associated with the acquisitions and higher service contracts expense. Amortization of intangibles increased 11.0 percent from the first quarter of 1996 and 48.7 percent from the second quarter of 1995 due to the acquisitions. Other non-interest expenses increased 5.3 percent from the first quarter mainly due to sundry losses and other professional expenses. Other non- interest expenses were down 6.8 percent compared to the second quarter of 1995, primarily due to decreases in FDIC insurance, franchise taxes, and federal reserve service charges. For the six months ended June 30, 1996 Total non-interest expense was up $10.0 million or 12.6 percent compared to the same period one year ago. Salaries and wages were up $7.1 million or 25.3 percent compared to the same period one year ago primarily because of the acquisitions. Pension and other benefits increased $2.8 million from the same period last year due to higher retirement plan expense, payroll tax, and medical insurance expense related to the acquisitions and the impact of the early retirement charge. In addition, the second quarter of 1995 includes a refund on workers' compensation insurance, adding to the increase from the same period one year ago. Net occupancy of banking premises increased $620,000, or 7.0 percent, primarily due to higher lease, building maintenance, and property tax expense related to the acquisitions. Furniture and equipment expense increased $582,000, or 11.4 percent, mostly due to higher depreciation expense associated with the acquisitions. Intangible amortization increased $1.7 million or 44.1 percent from the same period one year ago due to acquisitions. Other non-interest expenses decreased $2.2 million or 7.7 percent, primarily due to decreases in FDIC insurance, franchise taxes, and federal reserve service charges. The efficiency ratio measures what percentage of bank revenue is absorbed by non-interest expense. The Corporation's year-to-date efficiency ratio was 66.0 percent compared to 67.7 percent in 1995. Income Taxes The Corporation's effective tax rate for the first and second quarters of 1996 and 1995 approximated the statutory rate of 35 percent. Balance Sheet Average assets of $4,509,455,000 increased 3.2 percent and 15.8 percent from the first quarter of 1996 and the second quarter of 1995, respectively, principally because of the acquisitions. Total deposits averaged $3,910,444,000 for the current quarter, up 3.6 percent from the previous quarter and up 21.9 percent when compared to the second quarter of 1995. Loans <TABLE> <CAPTION> 1996 1995 --------------------- ----------------------- Loan Portfolio Percentage Period-End Balances June 30 of Total December 31 June 30 - ------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Commercial $ 602,430 28.6% $ 508,990 $ 495,087 Consumer 439,958 20.9 402,169 362,574 Real estate 995,798 47.2 837,905 823,212 Other 71,201 3.4 69,035 64,172 Unearned discount (1,803) (.1) (1,337) (2,401) ---------- ------ ---------- ---------- Total Loans $2,107,584 100.0% $1,816,762 $1,742,644 ========== ====== ========== ========== </TABLE>
Average loans for the second quarter of 1996 were $2,057,029,000. This represents an increase in average loans of 6.2 percent from the first quarter of 1996 and an increase in average loans of 23.0 percent from the second quarter of last year. At June 30, 1996, period-end loans totaled $2,107,584,000 up 4.1 percent from the previous quarter and up 20.9 percent from the same period last year. Approximately, 58 percent of the increase in loans from a year ago resulted from acquisitions. Real Estate Loans Real estate loans at June 30, 1996, were $995,798,000 or 47.2 percent of period-end loans, the same percentage level of a year ago. Residential permanent mortgage loans at June 30, 1996, were $403,489,000 compared to $395,616,000 at March 31, 1996, and $326,213,000 at June 30, 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 June 30, 1996, real estate loans 90 days past due (excluding non- accrual and restructured loans) were $3,461,000, compared with $3,999,000 at March 31, 1996, and $5,179,000 at June 30, 1995. <TABLE> <CAPTION> 1996 1995 --------------------- -------- Real Estate Loans Percentage Period-End Balances June 30 of Total June 30 - ------------------------------------------------------------------------------- <S> <C> <C> <C> Construction $ 57,922 5.8% $ 53,336 Land 48,274 4.8 39,939 Permanent mortgages: Commercial 209,523 21.1 201,048 Residential 403,489 40.5 326,213 Other 276,590 27.8 202,676 -------- ------ -------- $995,798 100.0% $823,212 ======== ====== ======== Non-accrual and restructured $ 10,772 1.1% $ 12,951 </TABLE> Mexico The Corporation's cross border outstandings to Mexico, excluding $18,649,000 in loans secured by assets held in the United States, totaled $25,345,000 at June 30, 1996, or 1.2 percent of total loans down from $31,462,000 at March 31, 1996 and flat compared to $25,232,000 last year. 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 88 percent are related to companies exporting from Mexico. As of June 30, 1996, none of the Mexican related loans were on non-performing status. <TABLE> <CAPTION> MEXICAN LOANS -------------------------- Percentage of June 30, 1996 Amount Total Loans - -------------------------------------------------------------------------- <S> <C> <C> Loans to financial institutions $25,344 1.2% Loans to private firms or individuals 1 ------- ---- $25,345 1.2% ======= ==== </TABLE>
Non-Performing Assets <TABLE> <CAPTION> NON-PERFORMING ASSETS -------------------------- Real June 30, 1996 Estate Other Total - --------------------------------------------------------------------------- <S> <C> <C> <C> Non-accrual and restructured loans $10,772 $2,818 $13,590 Foreclosed assets 1,174 213 1,387 ------- ------ ------- Total $11,946 $3,031 $14,977 ======= ====== ======= As a percentage of total non-performing assets 79.8% 20.2% 100.0% </TABLE> Non-performing assets totaled $14,977,000 at June 30, 1996 down 15.7 percent and 10.8 percent, respectively, from $17,768,000 at June 30, 1995 and $16,798,000 at March 31, 1996. Non-performing assets as a percentage of total loans and foreclosed assets decreased to .71 percent at June 30, 1996 from 1.02 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 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 $231,000 or $.01 per common share for the second quarter of 1996, compared to approximately $287,000 or $.01 per common share for the second quarter of 1995 and $239,000 or $.01 per common share for the first quarter of 1996. For the six months ended June 30, 1996, the after-tax impact (assuming a 35 percent marginal tax rate) was approximately $470,000 or $.02 per common share, compared with approximately $584,000 or $.03 per common share for the comparable period last year. Total loans 90 days past due (excluding non-accrual and restructured loans) were $5,693,000 at June 30, 1996, compared to $6,440,000 at June 30, 1995, and $6,761,000 at March 31, 1996. Allowance for Possible Loan Losses The allowance for possible loan losses was $35,035,000 or 1.66 percent of period-end loans at June 30, 1996, compared to $28,886,000 or 1.66 percent at June 30, 1995 and $33,229,000 or 1.64 percent at March 31, 1996. The allowance for possible loan losses as a percentage of non-accrual and restructured loans was 257.8 percent at June 30, 1996, compared to 204.4 percent at June 30, 1995 and 224.8 percent at the end of the first quarter of 1996. The Corporation recorded a $1,325,000 provision for possible loan losses during the second quarter of 1996. This compares to $2,772,000 provision for possible loan losses during the second quarter of 1995 and $1,875,000 for the first quarter of 1996. The provision is reflective of the continued growth in the loan portfolio. Net recoveries in the second quarter of 1996 totaled $481,000, compared to a net charge-off of $771,000 for the second quarter of 1995 and $223,000 for the first quarter of 1996.
<TABLE> <CAPTION> NET CHARGE-OFFS (RECOVERIES) --------------------------- 1996 1995 ----------------- ------- Second First Second Quarter Quarter Quarter - ------------------------------------------------------------------- <S> <C> <C> <C> Real Estate $(1,306) $ (7) $ (227) Commercial and industrial 401 (487) (129) Consumer 424 716 1,127 Other, including foreign 1 ------- ------- ------ $ (481) $ 223 $ 771 ======= ======= ======= Provision for possible loan losses $ 1,325 $ 1,875 $ 2,772 Allowance for possible loan losses 35,035 33,229 28,886 </TABLE> Capital and Liquidity At June 30, 1996, shareholders' equity was $347,850,000 compared to $321,660,000 at June 30, 1995 and $347,174,000 at March 31, 1996. The Corporation had an unrealized loss on securities available for sale, net of deferred taxes, of $3.7 million as of June 30, 1996 compared to a $6.1 million unrealized gain as of June 30, 1995, reflecting a change of $9.8 million. The unrealized loss is primarily due to the increase in market interest rates in 1996. 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. During the second quarter of 1996, the board of directors declared and paid a two for one stock split. In addition, the Corporation raised its cash dividend 20 percent in the second quarter of 1996 to $.21 per common share (post-split) compared to $.175 per common share in the first quarter of 1996 and 91 percent when compared to the $.11 per common share for the second quarter a year ago. This equates to a dividend payout ratio of 34.9 percent, 30.0 percent and 21.8 percent for the second and first quarters of 1996 and the second quarter 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 June 30, 1996 and 1995. As a result of the acquisitions, all the regulatory capital ratios are down when compared to the second quarter of 1995. <TABLE> <CAPTION> June 30, 1996 June 30, 1995 ------------------- ------------------- Capital Amount Ratio Amount Ratio - ------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Risk-Based Tier 1 Capital $ 277,135 11.35% $ 260,589 12.79% Tier 1 Capital Minimum requirement 97,671 4.00 81,518 4.00 Total Capital $ 307,713 12.60% $ 286,105 14.04% Total Capital Minimum requirement 195,342 8.00 163,037 8.00 Risk-adjusted assets, net of goodwill $2,441,773 $2,037,960 Leverage ratio 6.24% 6.80% Average equity as a percentage of average assets 7.83 8.21 </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 June 30, 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 June 30, 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.
<TABLE> <CAPTION> Consolidated Average Balance Sheets and Interest Income Analysis-Year-to-Date Cullen/Frost Bankers, Inc. and Subsidiaries (dollars in thousands - taxable-equivalent basis*) June 30, 1996 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 $ 24 $ 1 3.50% $ 18 2.34% Securities: U.S. Treasury 294,463 7,728 5.28 225,884 $ 6,735 6.01 U.S. Government agencies and corporations 1,299,447 43,021 6.62 1,312,433 41,710 6.36 States and political subdivisions 5,488 259 9.45 6,107 278 9.10 Other 6,910 197 5.70 12,471 407 6.52 --------- ------- --------- ------ Total securities 1,606,308 51,205 6.38 1,556,895 49,130 6.32 Federal funds sold and securities purchased under resale agreements 130,470 3,413 5.17 108,035 3,121 5.75 Loans, net of unearned discount 1,996,660 88,268 8.89 1,600,150 71,020 8.95 --------- ------- ---------- ------- Total Earning Assets and Average Rate Earned 3,733,462 142,887 7.68 3,265,098 123,271 7.59 Cash and due from banks 470,039 351,487 Allowance for possible loan losses (33,729) (26,531) Banking premises and equipment 98,819 89,901 Accrued interest and other assets 175,408 136,109 --------- ---------- Total Assets $4,443,999 $3,816,064 ========== ========== LIABILITIES Demand deposits: Commercial and individual $ 808,264 $ 680,222 Correspondent banks 180,440 119,851 Public funds 42,459 34,296 --------- --------- Total demand deposits 1,031,163 834,369 Time deposits: Savings and Interest-on-Checking 738,049 5,127 1.40 730,580 7,023 1.94 Money market deposit accounts 777,361 14,872 3.85 562,068 10,465 3.75 Time accounts 1,044,809 25,549 4.92 913,472 21,827 4.82 Public funds 250,725 5,515 4.42 83,580 1,693 4.08 --------- ------- --------- ------- Total Time deposits 2,810,944 51,063 3.65 2,289,700 41,008 3.61 --------- --------- Total Deposits 3,842,107 3,124,069 Federal funds purchased and securities sold under resale agreements 155,250 3,833 4.88 313,058 8,225 5.23 Other borrowings 17,554 453 5.19 3,975 107 5.44 --------- ------- ---------- ------- Total Interest-Bearing Funds and Average Rate Paid 2,983,748 55,349 3.73 2,606,733 49,340 3.81 --------- ------- ---- ---------- ------- ---- Accrued interest and other liabilities 77,522 61,700 --------- ---------- Total Liabilities 4,092,433 3,502,802 SHAREHOLDERS' EQUITY 351,566 313,262 --------- ---------- Total Liabilities and Shareholders' Equity $4,443,999 $3,816,064 ========== ========== Net interest income $87,538 $73,931 ======= ======= Net interest spread 3.95% 3.78% ===== ===== Net interest income to total average earning assets 4.70% 4.55% ===== ===== *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*) June 30, 1996 March 31, 1996 ----------------------------------------------------- Interest Interest Average Income/ Yield/ Average Income/ Yield/ Balance Expense Cost Balance Expense Cost -------- ------- ----- -------- ------- ----- <S> <C> <C> <C> <C> <C> <C> ASSETS Time deposits $ 21 $ 1 3.50% $ 27 3.50% Securities: U.S. Treasury 301,233 3,899 5.21 287,694 $ 3,829 5.35 U.S. Government agencies and corporations 1,287,518 21,316 6.62 1,311,374 21,705 6.62 States and political subdivisions 5,480 129 9.45 5,497 130 9.45 Other 6,235 91 5.86 7,585 106 5.57 --------- ------- --------- ------- Total securities 1,600,466 25,435 6.36 1,612,150 25,770 6.40 Federal funds sold and securities purchased under resale agreements 122,940 1,472 4.73 138,001 1,941 5.57 Loans, net of unearned discount 2,057,029 45,473 8.89 1,936,289 42,795 8.89 --------- ------- --------- ------- Total Earning Assets and Average Rate Earned 3,780,456 72,381 7.68 3,686,467 70,506 7.67 Cash and due from banks 486,828 453,391 Allowance for possible loan losses (35,067) (32,390) Banking premises and equipment 99,984 97,654 Accrued interest and other assets 177,254 165,830 --------- --------- Total Assets $4,509,455 $4,370,952 ========== ========== LIABILITIES Demand deposits: Commercial and individual $ 839,300 $ 777,229 Correspondent banks 193,535 167,345 Public funds 40,138 44,780 ---------- ---------- Total demand deposits 1,072,973 989,354 Time deposits: Savings and Interest-on-Checking 732,882 2,499 1.37 743,216 2,628 1.42 Money market deposit accounts 796,624 7,787 3.93 758,097 7,085 3.76 Time accounts 1,055,894 12,696 4.84 1,033,725 12,853 5.00 Public funds 252,071 2,826 4.51 249,378 2,689 4.34 ---------- ------- ---------- ------- Total time deposits 2,837,471 25,808 3.66 2,784,416 25,255 3.65 ---------- ------- ---------- ------- Total Deposits 3,910,444 3,773,770 Federal funds purchased and securities sold under resale agreements 150,965 1,728 4.53 159,535 2,105 5.22 Other borrowings 16,936 221 5.25 18,173 232 5.14 ---------- ------- ---------- ------- Total Interest-Bearing Funds and Average Rate Paid 3,005,372 27,757 3.71 2,962,124 27,592 3.74 ---------- ------- ----- ---------- ------- ---- Accrued interest and other liabilities 78,243 69,209 ---------- ---------- Total Liabilities 4,156,588 4,020,687 SHAREHOLDERS' EQUITY 352,867 350,265 ---------- ---------- Total Liabilities and Shareholders' Equity $4,509,455 $4,370,952 ========== ========== Net interest income $44,624 $42,914 ======= ======= Net interest spread 3.97% 3.93% ==== ==== Net interest income to total average earning assets 4.74% 4.67% ==== ==== *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*) December 31, 1995 September 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 $ 20 $ 2 3.51% $ 15 3.52% Securities: U.S. Treasury 248,598 3,559 5.68 255,079 $ 3,848 5.99 U.S. Government agencies and corporations 1,287,154 21,054 6.54 1,301,094 21,001 6.46 States and political subdivisions 5,603 131 9.40 5,647 134 9.49 Other 5,971 89 6.01 6,447 97 6.03 --------- ------ ---------- ------- Total securities 1,547,326 24,833 6.41 1,568,267 25,080 6.39 Federal funds sold and securities purchased under resale agreements 137,784 1,951 5.54 114,483 1,660 5.67 Loans, net of unearned discount 1,779,371 40,238 8.97 1,747,810 39,939 9.07 --------- ------ --------- ------ Total Earning Assets and Average Rate Earned 3,464,501 67,024 7.69 3,430,575 66,679 7.73 Cash and due from banks 430,154 392,513 Allowance for possible loan losses (31,040) (29,708) Banking premises and equipment 90,738 92,132 Accrued interest and other assets 154,668 146,414 --------- --------- Total Assets $4,109,021 $4,031,926 ========= ========= LIABILITIES Demand deposits: Commercial and individual $ 719,105 $ 705,914 Correspondent banks 151,021 134,085 Public funds 41,139 37,277 --------- --------- Total demand deposits 911,265 877,276 Time deposits: Savings and Interest-on-Checking 700,966 2,729 1.54 720,160 2,908 1.60 Money market deposit accounts 703,450 6,971 3.93 638,351 6,238 3.88 Time accounts 1,024,321 13,136 5.09 1,006,887 13,061 5.15 Public funds 221,741 2,489 4.45 113,599 1,269 4.43 --------- ------ --------- ------- Total Time Deposits 2,650,478 25,325 3.79 2,478,997 23,476 3.76 --------- ------ --------- ------- Total Deposits 3,561,743 3,356,273 Federal funds purchased and securities sold under repurchase agreements 123,052 1,565 4.98 258,409 3,506 5.31 Other borrowings 20,010 330 6.55 21,818 296 5.38 --------- ------ --------- ------ Total Interest-Bearing Funds and Average Rate Paid 2,793,540 27,220 3.86 2,759,224 27,278 3.92 --------- ------ ---- --------- ------- ---- Accrued interest and other liabilities 66,463 66,878 --------- --------- Total Liabilities 3,771,268 3,703,378 SHAREHOLDERS' EQUITY 337,753 328,548 --------- --------- Total Liabilities and Shareholders' Equity $4,109,021 $4,031,926 ========= ========= Net interest income $39,804 $ 39,401 ======= ======== Net interest spread 3.83% 3.81% ===== ===== Net interest income to total average earning assets 4.58% 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*) June 30, 1995 --------------------------- Interest Average Income/ Yield/ Balance Expense Cost -------- ------- ----- <S> <C> <C> <C> ASSETS Time deposits $ 21 3.81% Securities: U.S. Treasury 227,406 $ 3,489 6.15 U.S. Government agencies and corporations 1,307,456 20,917 6.40 States and political subdivisions 6,551 144 8.77 Other 7,238 115 6.37 --------- ------- Total securities 1,548,651 24,665 6.37 Federal funds sold and securities purchased under resale agreements 111,611 1,628 5.77 Loans, net of unearned discount 1,671,840 37,811 9.07 --------- ------- Total Earning Assets and Average Rate Earned 3,332,123 64,104 7.71 Cash and due from banks 359,029 Allowance for possible loan losses (27,176) Banking premises and equipment 91,634 Accrued interest and other assets 137,257 --------- Total Assets $3,892,867 ========== LIABILITIES Demand deposits: Commercial and individual $ 685,220 Correspondent banks 121,666 Public funds 32,193 ---------- Total demand deposits 839,079 Time deposits: Savings and Interest-on-Checking 727,039 3,562 1.97 Money market deposit accounts 564,081 5,408 3.85 Time accounts 992,628 12,737 5.15 Public funds 84,904 916 4.33 ---------- ------- Total time deposits 2,368,652 22,623 3.83 ---------- ------- Total Deposits 3,207,731 Federal funds purchased and securities sold under resale agreements 290,927 3,834 5.21 Other borrowings 7,906 107 5.44 ---------- ------- Total Interest-Bearing Funds and Average Rate Paid 2,667,485 26,564 3.99 ---------- ------- ---- Accrued interest and other liabilities 66,070 ---------- Total Liabilities 3,572,634 SHAREHOLDERS' EQUITY 320,233 ---------- Total Liabilities and Shareholders' Equity $3,892,867 ========== Net interest income $37,540 ======= Net interest spread 3.72% ==== Net interest income to total average earning assets 4.52% ==== *Taxable-equivalent basis assuming a 35% tax rate. </TABLE>
Part II: Other Information Item 2. Changes in Securities On July 25, 1989, the Board of Directors of Cullen/Frost Bankers, Inc., a Texas corporation (the "Company"), declared a dividend of one preferred share purchase right (a "Right") for each share of common stock, par value $5.00 per share ("Common Stock"), of the Company held of record at the close of business on August 1, 1989 (the "Record Date"), or issued thereafter and prior to the Separation Time (as defined in the Original Rights Agreement described below). The Rights were issued pursuant to a Rights Agreement, dated as of July 25, 1989, between the Company and The Bank of New York, as rights agent (the "Original Rights Agreement"). On July 30, 1996, the Company amended and restated the Original Rights Agreement in its entirety (the "Restated Rights Agreement") and appointed The Frost National Bank to replace The Bank of New York, as Rights Agent. In the Restated Rights Agreement, among other things, the threshold at which a shareholder becomes an "Acquiring Person" (as defined in the Restated Rights Agreement), thereby entitling other holders of Rights to acquire the Company's Common Stock at half price, was changed from 15 percent to ten percent, and the exercise price for the Rights was raised from $27.27 to $100, the effect of which entitles the holders of Rights, other than an Acquiring Person, to acquire a greater number of shares of Common Stock at half price when the Rights are triggered. Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of the Corporation was held on May 29, 1996. The following matters were submitted to a vote of the Corporation's shareholders. 1. Election of Directors: Election of all eighteen director nominees into three classes with terms expiring in 1997, 1998, and 1999, respectively, was approved with no nominee receiving less than 9.7 million votes. Nominee Total Votes For Total Votes Withheld - ------- --------------- -------------------- Class I: Isaac Arnold, Jr. 9,825,324 87,336 Harry H. Cullen 9,741,715 170,445 Roy H. Cullen 9,741,380 170,780 James L. Hayne 9,826,200 85,960 Robert S. McClane 9,826,562 85,598 Mary Beth Williamson 9,832,140 80,020 Class II: Royce S. Caldwell 9,827,595 84,565 Ruben R. Cardenas 9,827,295 84,865 Henry E. Catto 9,826,165 85,995 Richard W. Evans, Jr. 9,825,964 86,196 James W. Gorman, Jr. 9,741,270 170,890 Richard M. Kleberg III 9,837,200 74,960 Class III: Eugene H. Dawson, Sr. 9,727,570 184,590 Ruben M. Escobedo 9,827,115 85,045 W.N. Finnegan, III 9,836,300 75,860 T.C. Frost 9,728,894 183,266 Ida Clement Steen 9,827,055 85,105 Curtis Vaughan, Jr. 9,825,870 86,290 2. Selection of Independent Auditors Total Votes For 9,886,994 Total Votes Against 10,841 Total Abstentions 14,325
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4 Amended and Restated Shareholder Protection Rights Agreement, dated as of July 30, 1996, which includes Form of Rights Certificate and of Election to Exercise, included as Exhibit A to the Rights Agreement. (1996 Form 8-A12G/A)(1) 11 Statement regarding Computation of Earnings per Share (b) Reports on Form 8-K None ____________________________ (1) Incorporated herein by reference to the designated Exhibits to Cullen/Frost's Report on Form 8-A12G/A filed August 2, 1996.
Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Cullen/Frost Bankers, Inc. (Registrant) Date: August 13, 1996 By:/s/Phillip D. Green ----------------------- Phillip D. Green Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Accounting Officer)