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, 1997 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 5, 1997, there were 22,293,479 shares of Common Stock, $5 par value, outstanding.
Part I. Financial Information Item 1. Financial Statements (Unaudited) <TABLE> <CAPTION> Consolidated Statements of Income Cullen/Frost Bankers, Inc. and Subsidiaries (dollars in thousands, except per share amounts) Three Months Ended Six Months Ended June 30 June 30 -------------------- ------------------- 1997 1996 1997 1996 ------- ------- ------- ------- <S> <C> <C> <C> <C> INTEREST INCOME Loans, including fees $54,368 $45,268 $104,417 $ 87,861 Securities: Taxable 24,400 25,310 48,194 50,954 Tax-exempt 68 81 165 163 ------- ------- -------- -------- Total Securities 24,468 25,391 48,359 51,117 Federal funds sold 2,806 1,472 5,208 3,413 ------- ------- -------- -------- Total Interest Income 81,642 72,131 157,984 142,391 INTEREST EXPENSE Deposits 28,498 25,808 55,185 51,063 Federal funds purchased and securities sold under repurchase agreements 1,327 1,728 2,725 3,833 Long-term notes payable and other borrowings 2,462 221 4,053 453 ------- ------- -------- -------- Total Interest Expense 32,287 27,757 61,963 55,349 ------- ------- -------- -------- Net Interest Income 49,355 44,374 96,021 87,042 Provision for possible loan losses 2,275 1,325 3,900 3,200 ------- ------- -------- -------- Net Interest Income After Provision For Possible Loan Losses 47,080 43,049 92,121 83,842 NON-INTEREST INCOME Trust fees 9,716 8,384 19,359 16,716 Service charges on deposit accounts 10,911 9,656 21,201 18,441 Other service charges, collection and exchange charges, commissions and fees 2,627 2,154 4,756 4,782 Net gain (loss) on securities transactions 20 (903) 20 (998) Other 4,467 5,350 7,841 8,426 ------- ------- -------- -------- Total Non-Interest Income 27,741 24,641 53,177 47,367 NON-INTEREST EXPENSE Salaries and wages 20,200 18,350 39,434 34,987 Pension and other employee benefits 4,332 4,498 8,725 7,956 Net occupancy of banking premises 4,680 4,665 9,438 9,526 Furniture and equipment 3,060 2,811 5,926 5,692 Intangible amortization 3,119 2,903 5,829 5,518 Other 14,985 13,368 28,016 26,061 ------- ------- -------- -------- Total Non-Interest Expense 50,376 46,595 97,368 89,740 ------- ------- -------- -------- Income Before Income Taxes 24,445 21,095 47,930 41,469 Income Taxes 8,814 7,577 17,236 14,876 ------- ------- -------- -------- Net Income $15,631 $13,518 $ 30,694 $ 26,593 ======= ======= ======== ======== Net Income per common share: Primary $ .68 $ .59 $ 1.33 $ 1.16 Fully Diluted .67 .59 1.32 1.16 Dividends per share .25 .21 .46 .39 See notes to consolidated financial statements. </TABLE>
<TABLE> <CAPTION> Consolidated Balance Sheets Cullen/Frost Bankers, Inc. and Subsidiaries (dollars in thousands, except per share amounts) June 30 December 31 June 30 1997 1996 1996 ---------- ----------- ---------- <S> <C> <C> <C> Assets Cash and due from banks $ 454,648 $ 872,028 $ 481,666 Time deposits 16 Securities held to maturity 163,016 177,139 191,714 Securities available for sale 1,351,757 1,299,285 1,366,676 Federal funds sold 153,823 52,850 157,175 Loans, net of unearned discount of $3,108 at June 30, 1997; $1,154 at December 31, 1996 and $1,803 at June 30, 1996 2,513,053 2,253,468 2,108,902 Less: Allowance for possible loan losses (41,080) (37,626) (36,353) ---------- ---------- ---------- Net Loans 2,471,973 2,215,842 2,072,549 Banking premises and equipment 107,709 101,625 101,076 Accrued interest and other assets 221,446 169,615 178,995 ---------- ---------- ---------- Total Assets $4,924,372 $4,888,384 $4,549,867 ========== ========== ========== Liabilities Demand Deposits: Commercial and individual $ 986,826 $ 941,991 $ 898,874 Correspondent banks 147,626 337,996 168,248 Public funds 41,508 51,228 91,979 ---------- ---------- ---------- Total demand deposits 1,175,960 1,331,215 1,159,101 Time Deposits: Savings and Interest-on-Checking 737,603 726,700 712,541 Money market deposit accounts 981,597 876,382 789,253 Time accounts 1,093,277 1,026,547 1,066,455 Public funds 258,222 281,750 232,951 ---------- ---------- ---------- Total time deposits 3,070,699 2,911,379 2,801,200 ---------- ---------- ---------- Total deposits 4,246,659 4,242,594 3,960,301 Federal funds purchased and securities sold under repurchase agreements 81,047 174,107 114,387 Accrued interest and other liabilities 101,817 92,740 127,329 Guaranteed Preferred Beneficial Interest in Corporation's Junior Subordinated Deferrable Interest Debentures 98,376 ---------- ---------- ---------- Total Liabilities 4,527,899 4,509,441 4,202,017 Shareholders' Equity Common stock, par value $5 per share 112,599 112,410 112,197 Shares authorized: 60,000,000 Shares issued: 22,519,879; 22,482,113; and 22,439,398 Surplus 64,224 63,480 62,804 Retained earnings 215,426 195,451 176,499 Unrealized gain (loss) on securities available for sale, net of tax 7,538 7,602 (3,650) Treasury stock at cost (84,000 shares) (3,314) ---------- ---------- ---------- Total Shareholders' Equity 396,473 378,943 347,850 ---------- ---------- ---------- Total Liabilities and Shareholders' Equity $4,924,372 $4,888,384 $4,549,867 ========== ========== ========== 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 Treasury Stock Surplus Earnings for Sale Stock Total -------- -------- -------- --------- ------ -------- <S> <C> <C> <C> <C> <C> <C> Balance at January 1, 1996 $ 55,997 $118,418 $158,563 $8,486 $341,464 Net income for the year ended December 31, 1996 54,978 54,978 Exercise of employee stock options and related tax benefit 300 1,095 (409) 986 Issuance of restricted stock 15 65 80 Restricted stock plan deferred compensation expense, net 392 392 Adjustment to unrealized gain (loss) on securities available for sale, net of tax (884) (884) Cash dividend (18,073) (18,073) Two-for-one stock split 56,098 (56,098) ------- -------- -------- ------- ------- -------- Balance at December 31, 1996 112,410 63,480 195,451 7,602 378,943 Net income for the six months ended June 30, 1997 30,694 30,694 Exercise of employee stock options and related tax benefit 189 744 (610) $1,111 1,434 Purchase of treasury stock (4,425) (4,425) Restricted stock plan deferred compensation expense 240 240 Adjustment to unrealized gain (loss) on securities available for sale, net of tax (64) (64) Cash dividend (10,349) (10,349) --------- -------- -------- ------- ------- -------- Balance at June 30, 1997 $112,599 $64,224 $215,426 $7,538 $(3,314) $396,473 ========= ======== ======== ======= ======= ======== 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 ------------------ 1997 1996 ------- ------- <S> <C> <C> Operating Activities Net income $ 30,694 $ 26,593 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible loan losses 3,900 3,200 Credit for deferred taxes (1,917) (2,206) Accretion of discounts on loans (588) (1,079) Accretion of securities' discounts (6,914) (8,242) Amortization of securities' premiums 1,391 1,504 Net (gain) loss on securities transactions (20) 998 Net gain on sale of assets (168) (1,264) Depreciation and amortization 11,454 11,195 Increase in interest receivable (2,815) (3,565) Increase in interest payable 3,928 401 Net change in other assets and liabilities (31,494) 34,922 --------- -------- Net cash provided by operating activities 7,451 62,457 Investing Activities Proceeds from maturities of securities held to maturity 14,035 18,867 Proceeds from sales of securities available for sale 173,918 54,406 Proceeds from maturities of securities available for sale 173,283 352,843 Purchases of securities available for sale (349,813) (384,862) Net increase in loans (155,508) (83,922) Net increase in bank premises and equipment (7,163) (6,129) Proceeds from sales of repossessed properties 694 607 Net cash and cash equivalents received from acquisitions 14,277 19,198 --------- --------- Net cash used by investing activities (136,277) (28,992) Financing Activities Net increase (decrease) in demand deposits, IOC accounts, and savings accounts (168,083) 119,072 Net decrease in certificates of deposits (11,474) (142,159) Net increase (decrease) in short-term borrowings (93,060) 2,992 Proceeds from issuance of guaranteed preferred beneficial interest in Corporation's subordinated debentures 98,376 Proceeds from employee stock purchase plan and options 1,434 177 Purchase of treasury stock (4,425) Dividends paid (10,349) (8,637) --------- -------- Net cash used by financing activities (187,581) (28,555) --------- -------- Increase (decrease) in cash and cash equivalents (316,407) 4,910 Cash and cash equivalents at beginning of year 924,878 633,947 --------- -------- Cash and cash equivalents at the end of the period $608,471 $638,857 ========= ======== Supplemental information: Interest paid $ 58,758 $ 54,948 Loans originated to facilitate the sale of repossessed properties 612 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, 1996. The balance sheet at December 31, 1996 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. Certain reclassifications have been made to make prior periods comparable. 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) 1997 1996 - ----------------------------------------------------------------------- <S> <C> <C> Balance at beginning of the period $37,626 $32,268 Provision for possible loan losses 3,900 3,200 Loan loss reserve of acquired institutions 2,105 627 Net charge-offs: Losses charged to the allowance (4,444) (4,297) Recoveries 1,893 4,555 ------- ------- Net (charge-offs) recoveries (2,551) 258 ------- ------- Balance at the end of period $41,080 $36,353 ======= ======= </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, 1997, 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. Interest revenue recognized on impaired loans as of June 30, 1997 and 1996 was $95,000 and $106,000, respectively. 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) 1997 1996 - -------------------------------------------------------------------------- <S> <C> <C> Impaired loans with no valuation reserve $3,248 $5,124 Impaired loans with a valuation reserve 3,542 2,657 ------ ------ Total recorded investment in impaired loans $6,790 $7,781 ====== ====== Average recorded investment in impaired loans $5,562 $8,625 Valuation reserve 1,886 612 </TABLE> Earnings Per Common Share 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 ----------------------- ----------------------- 1997 1996 1997 1996 ----------------------- ----------------------- <S> <C> <C> <C> <C> Primary 23,107,678 22,859,954 23,101,502 22,844,729 Fully Diluted 23,174,669 22,906,104 23,192,873 22,906,370 </TABLE> Repurchases of common stock were made during the second quarter of 1997 in connection with the Company's stock repurchase program approved in the second quarter of 1996 which allowed for the repurchase of up to 500,000 shares. The repurchased shares are being accounted for under the cost method where the gross cost of the shares reacquired is debited to a treasury shares account. As of June 30, 1997, 84,000 shares had been repurchased at an average price of $39.46 per share. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Corporation will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact is expected to result in an immaterial increase in primary earnings per share for the second quarter ended June 30, 1997 and June 30, 1996 and for the six months ended June 30, 1997 and 1996. Statement 128 is not expected to have an impact on the calculation of fully diluted earnings per share for these quarters. Capital The table below reflects various measures of regulatory capital at June 30, 1997 and 1996. As a result of the issuance of the $100,000,000 Trust Preferred Capital Securities discussed in the "Capital and Liquidity" section found on page 17, all the regulatory capital ratios are up when compared to the second quarter of 1996. <TABLE> <CAPTION> June 30, 1997 June 30, 1996 ------------------- ------------------- Capital Amount Ratio Amount Ratio - ------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Risk-Based Tier 1 Capital $ 409,246 14.14% $ 277,135 11.35% Tier 1 Capital Minimum requirement 115,760 4.00 97,671 4.00 Total Capital $ 445,482 15.39% $ 307,713 12.60% Total Capital Minimum requirement 231,521 8.00 195,342 8.00 Risk-adjusted assets, net of goodwill $2,894,010 $2,441,773 Leverage ratio 8.45% 6.24% Average equity as a percentage of average assets 7.95 7.83 </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, 1997 and 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. The Corporation is subject to the regulatory capital requirements administered by the Federal Reserve Bank. Regulators can initiate certain mandatory actions, if the Corporation fails to meet the minimum requirements, that could have a direct material effect on the Corporation's financial statements. The Corporation and its subsidiary banks currently exceed all minimum capital requirements. Cullen/Frost Capital Trust I, a Delaware statutory business trust (the "Issuer Trust") and wholly-owned subsidiary of the Corporation, issued on February 6, 1997 $100,000,000 of its 8.42 percent Capital Securities, Series A (the "Capital Securities"), which represent beneficial interests in the Issuer Trust, in an offering exempt from registration under the Securities Act of 1933 pursuant to Rule 144A. The Capital Securities will mature on February 1, 2027 and are redeemable in whole or in part at the option of the Corporation at any time after February 1, 2007 with the approval of the Federal Reserve and in whole at any time upon the occurrence of certain events affecting their tax or regulatory capital treatment. The Issuer Trust used the proceeds of the offering of the Capital Securities to purchase Junior Subordinated Debentures of the Corporation which constitute its only assets and which have terms substantially similar to the Capital Securities. Payments of distributions on the Capital Securities and payments on liquidation or redemption of the Capital Securities are guaranteed by the Corporation on a limited basis pursuant to a Guarantee. The Corporation has also entered into an Agreement as to Expenses and Liabilities with the Issuer Trust pursuant to which it has agreed on a subordinated basis to pay any costs, expenses or liabilities of the Issuer Trust other than those arising under the Capital Securities. The obligations of the Corporation under the Junior Subordinated Debentures, the related Indenture, the trust agreement establishing the Issuer Trust, the Guarantee and the Agreement as to Expenses and Liabilities, in the aggregate, constitute a full and unconditional guarantee by the Corporation of the Issuer Trust's obligations under the Capital Securities. The Corporation will use the proceeds of the sale of the Junior Subordinated Debentures for general corporate purposes, which may include the reduction of short-term indebtedness, investments at the holding company level, investments in the capital of, or extensions of credit to, the Corporation's subsidiaries, acquisitions and the repurchase of the Corporation's common stock. The Capital Securities are included in the Tier 1 capital of the Corporation for regulatory capital purposes and are reported as debt on the balance sheet. The Corporation records distributions payable on the Capital Securities as interest expense. The Corporation has the right to defer payments of interest on the Junior Subordinated Debentures at any time or from time to time for a period of up to ten consecutive semi-annual periods with respect to each deferral period. Under the terms of the Junior Subordinated Debentures, in the event that under certain circumstances there is an event of default under the Junior Subordinated Debentures or the Corporation has elected to defer interest on the Junior Subordinated Debentures, the Corporation may not, with certain exceptions, declare or pay any dividends or distributions on its capital stock or purchase or acquire any of its capital stock. On March 13, 1997, the Corporation and the Issuer Trust, filed a Registration Statement on Form S-4 with the Securities and Exchange Commission to register under the Securities Act of 1933 the exchange of up to $100,000,000 aggregate Liquidation Amount of "new" 8.42 percent Capital Securities, Series A for the then outstanding Capital Securities. On April 25, 1997, the Corporation exchanged all of the outstanding Capital Securities for registered Capital Securities. The "new" Capital Securities have the same terms as the "old" Capital Securities. This exchange enhanced the transferability of the Capital Securities and will have no impact on redemption of the Capital Securities, the Junior subordinated Debentures issued by the Company, the Company's guarantee of the Capital Securities, or other matters described above.
Income Taxes The tax expense for the second quarter of 1997 was $8,814,000. This amount consisted of current tax expense of $9,726,000 and deferred tax benefit of $912,000. Year-to-date tax expense is $17,236,000, consisting of current tax expense of $19,153,000 and deferred tax benefit of $1,917,000. Net deferred tax assets were $8,226,000 with no valuation allowance. The deferred tax assets were supported by taxes paid in prior years. The tax expense for the second quarter of 1996 was $7,577,000. Income tax payments for the first six months of 1997 and 1996 were $17,450,000 and $13,603,000, respectively. Acquisitions On March 7, 1997, the Corporation paid approximately $32.2 million to acquire Corpus Christi Bancshares, Inc., including its subsidiary, Citizens State Bank in Corpus Christi, Texas. The purchase price has been allocated to the underlying assets and liabilities based on estimated fair value at the date of acquisition. Such estimates may be subsequently revised. Total intangible assets associated with the transaction amounted to approximately $21.4 million. The Corporation acquired loans of approximately $108 million and deposits of approximately $184 million. The acquisition did not have a material impact on the second quarter net income and is not expected to have a material impact on the Corporation's 1997 net income. 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. Other Accounting Changes In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." The statement provides that all items that are required to be recognized under accounting standards as comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The provisions of SFAS No. 130 are effective for fiscal years beginning after December 15, 1997. Management has not completed its review of SFAS No. 130, and has not determined the impact, if any, that adoption of this statement will have on the Corporation. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The statement establishes standards for the method that public entities use to report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographical areas and major customers. The provisions of SFAS No. 131 are effective for fiscal years beginning after December 15, 1997. Management has not completed its review of SFAS No. 131, but does not anticipate that the adoption of this statement will have a significant effect on the Corporation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Review Cullen/Frost Bankers, Inc. and Subsidiaries (taxable-equivalent basis - tables in thousands) Results of Operations The results of operations are included in the material that follows. The Corporation completed one acquisition during the first quarter of 1997 and two for the entire year of 1996. These acquisitions, which are outlined in the footnotes to the financial statements on page nine, 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 periods 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 1997 1996 ----------------- ------------------ ------- 1997 1996 June 30 March 31 June 30 - ------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Taxable-equivalent net interest income $96,561 $87,538 $49,627 $46,934 $44,624 Taxable-equivalent adjustment 540 496 272 268 250 ------- ------- ------- ------- ------- Net interest income 96,021 87,042 49,355 46,666 44,374 Provision for possible loan losses 3,900 3,200 2,275 1,625 1,325 Non-Interest income: Net gain (loss) on securities transactions 20 (998) 20 (903) Other 53,157 48,365 27,721 25,436 25,544 ------- ------- ------- ------- ------- Total non-interest income 53,177 47,367 27,741 25,436 24,641 Non-Interest expense: Intangible amortization 5,829 5,518 3,119 2,710 2,903 Other 91,539 84,222 47,257 44,282 43,692 ------- ------- ------- ------- ------- Total non-interest expense 97,368 89,740 50,376 46,992 46,595 ------- ------- ------- ------- ------- Income before income taxes 47,930 41,469 24,445 23,485 21,095 Income Taxes 17,236 14,876 8,814 8,422 7,577 ------- ------- ------- ------- ------- Net Income $30,694 $26,593 $15,631 $15,063 $13,518 ======= ======= ======= ======= ======= Cash Earnings* $34,880 $30,530 $17,857 $17,023 $15,602 Net income per common share: Primary $ 1.33 $ 1.16 $ .68 $ .65 $ .59 Fully diluted 1.32 1.16 .67 .65 .59 Cash earnings per common share 1.51 1.34 .77 .74 .68 Return on Average Assets 1.28% 1.20% 1.27% 1.28% 1.21% Cash earnings ROA 1.45 1.38 1.45 1.45 1.39 Return on Average Equity 15.91 15.21 16.02 15.80 15.41 Cash earnings ROE 18.08 17.46 18.30 17.86 17.78 * Net income before intangible amortization (including goodwill and core deposit intangibles, net of tax). </TABLE> Cullen/Frost Bankers, Inc. reported net income of $15,631,000 or $.68 per common share for the quarter ended June 30, 1997 compared to $13,518,000 or $.59 per common share for the second quarter of 1996 and net income of $15,063,000 or $.65 per common share for the first quarter of 1997. Net income for the six months ended June 30, 1997 was $30,694,000 or $1.33 per common share compared to $26,593,000 or $1.16 per common share for the same period of
1996. Return on average assets and average equity increased to 1.27 percent and 16.02 percent for the second quarter of 1997. This compares to 1.21 percent and 15.41 percent for the second quarter of 1996. Return on average assets and average equity for the six months ended June 30, 1997 increased to 1.28 percent and 15.91 percent compared to 1.20 percent and 15.21 percent for 1996. The Corporation has historically paid cash and used the purchase method of accounting for its acquisitions which has resulted in the creation of intangible assets. These intangible assets are deducted from capital in the determination of regulatory capital. Thus, "cash" or "tangible" earnings represents regulatory capital generated during the year and can be viewed as net income excluding intangible amortization, net of tax. While the definition of "cash" or "tangible" earnings may vary by company, we believe this definition is appropriate as it measures the per share growth of regulatory capital, which impacts the amount available for dividends, stock repurchases and acquisitions. The following table reconciles reported earnings to net income excluding intangible amortization ("cash" earnings): <TABLE> <CAPTION> Six Months Ended -------------------------------------------------------------- June 1997 June 1996 - ----------------------------------------------------------------------------------------- Reported Intangible "Cash" Reported Intangible "Cash" earnings Amortization earnings earnings Amortization earnings - ----------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Income before income taxes $47,930 $ 5,829 $53,759 $41,469 $5,518 $46,987 Income taxes 17,236 1,643 18,879 14,876 1,581 16,457 ------- ------- ------- ------- ------ ------- Net income $30,694 $ 4,186 $34,880 $26,593 $3,937 $30,530 ======= ======= ======= ======= ====== ======= Net income per common share $ 1.33 $ .18 $ 1.51 $ 1.16 $ .18 $ 1.34 Return on assets 1.28% 1.45%* 1.20% 1.38%* Return on equity 15.91 18.08 ** 15.21 17.46** * Calculated as A/B ** Calculated as A/C June 1997 June 1996 ----------------- ---------- ---------- (A) Net income before intangible amortization (including goodwill and core deposit intangibles, net of tax) $ 34,880 $ 30,530 (B) Total average assets 4,838,535 4,443,999 (C) Average shareholders' equity 389,045 351,566 </TABLE> <TABLE> <CAPTION> Three Months Ended -------------------------------------------------------------- June 1997 March 1997 - ----------------------------------------------------------------------------------------- Reported Intangible "Cash" Reported Intangible "Cash" earnings Amortization earnings earnings Amortization earnings - ----------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Income before income taxes $24,445 $ 3,119 $27,564 $23,485 $2,710 $26,195 Income taxes 8,814 893 9,707 8,422 750 9,172 ------- ------- ------- ------- ------ ------- Net income $15,631 $ 2,226 $17,857 $15,063 $1,960 $17,023 ======= ======= ======= ======= ====== ======= Net income per common share $ .68 $ .09 $ .77 $ .65 $ .09 $ .74 Return on assets 1.27% 1.45%* 1.28% 1.45%* Return on equity 16.02 18.30 ** 15.80 17.86** * Calculated as A/B ** Calculated as A/C June 1997 March 1997 ----------------- ---------- ----------- (A) Net income before intangible amortization (including goodwill and core deposit intangibles, net of tax) $ 17,857 $ 17,023 (B) Total average assets 4,922,916 4,756,209 (C) Average shareholders' equity 391,439 386,626 </TABLE>
<TABLE> <CAPTION> Three Months Ended -------------------------------- June 1996 - -------------------------------------------------------------- Reported Intangible "Cash" earnings Amortization earnings - -------------------------------------------------------------- <S> <C> <C> <C> Income before income taxes $21,095 $2,903 $23,998 Income taxes 7,577 819 8,396 ------- ------ ------- Net income $13,518 $2,084 $15,602 ======= ====== ======= Net income per common share $ .59 $ .09 $ .68 Return on assets 1.21% 1.39%* Return on equity 15.41 17.78 ** * Calculated as A/B ** Calculated as A/C June 1996 ---------- (A) Net income before intangible amortization (including goodwill and core deposit intangibles, net of tax) $ 15,602 (B) Total average assets 4,509,455 (C) Average shareholders' equity 352,867 </TABLE> Net Interest Income Net interest margin was 4.75 percent for the second quarter of 1997 compared to 4.73 percent and 4.74 percent for the first quarter of 1997 and second quarter of 1996, respectively. The increase in net interest income and net interest margin from the first quarter of 1997 and second quarter of last year is reflective of the favorable impact of the acquisitions and higher loan volumes offset by higher deposit costs and interest expense related to the $100 million Trust Preferred Capital Securities, see "Capital and Liquidity" on page 17. Net interest spread of 3.91 percent decreased three basis points from the first quarter of 1997 and six basis points from the second quarter of 1996. The net interest spread decreased from the previous quarters primarily because of the increase in deposit costs and interest expense related to the Trust Preferred Capital Securities. <TABLE> <CAPTION> Change in Net Interest Income ------------------------------------------------------------------- Second Quarter Second Quarter Year-to-Date 1997 1997 1997 vs. vs. vs. Second Quarter First Quarter Year-to-Date 1996 1997 1996 ------------------------------------------------------------------- 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 $10,256 66.13% $ 6,027 64.38% $16,360 69.04% Due to interest rate spread (5,253) 33.87 (3,334) 35.62 (7,337) 30.96 ------- ------- ------- ------- ------- ------- $ 5,003 100.00% $ 2,693 100.00% $ 9,023 100.00% ======= ======= ======= ======= ======= ======= </TABLE>
Non-Interest Income <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------------------------ June 30 1997 1996 ------------------ -------------------- ------- Non-Interest Income 1997 1996 June 30 March 31 June 30 - ------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Trust fees $19,359 $16,716 $ 9,716 $ 9,643 $ 8,384 Service charges on deposit accounts 21,201 18,441 10,911 10,290 9,656 Other service charges, collection and exchange charges, commissions and fees 4,756 4,782 2,627 2,129 2,154 Net gain (loss) on securities transactions 20 (998) 20 (903) Other 7,841 8,426 4,467 3,374 5,350 ------- ------- ------- ------- ------- Total $53,177 $47,367 $27,741 $25,436 $24,641 ======= ======= ======= ======= ======= </TABLE> For the second quarter 1997... Total non-interest income was up $2.3 million, an increase of 9.1 percent, compared to the first quarter of 1997 and up $3.1 million, an increase of 12.6 percent compared to the second quarter of 1996. The increase from the first quarter is primarily due to a refund of franchise taxes and the increase from the second quarter of 1996 is the result of higher trust fee and service charge income. Trust fee income increased slightly compared to last quarter and increased 15.9 percent from the second quarter of 1996. The increase from the second quarter of 1996 is attributable to the increase in the number of accounts held and trust asset growth resulting from improvement in the stock market. Service charges on deposit accounts increased 6.0 percent from the first quarter of this year and 13.0 percent from the second quarter of 1996. The majority of the increase from the previous quarter and second quarter a year ago is primarily a result of higher service charges related to commercial deposits, volumes processed for correspondent banks and overdraft charges. Other service charges were up 23.4 percent and 22.0 percent compared to the first quarter of 1997 and the second quarter of 1996, respectively. The increase from both quarters is primarily due to higher loan prepayment penalty fees and higher volumes as well as higher mutual fund fees compared to the second quarter of 1996. An immaterial gain on securities transactions was realized in the second quarter of 1997 compared to a loss in the second quarter 1996. In the second quarter of 1996, the Corporation restructured a portion of its available for sale investment portfolio resulting in losses. Other non-interest income increased $1.1 million or 32.4 percent from the first quarter of this year and decreased $883,000 or 16.5 percent compared to the second quarter of 1996. The increase from the first quarter is mostly due to a refund of franchise taxes. Most of the decrease from the second quarter of 1996 is due to gains on the disposition of certain loans and foreclosed assets of approximately $2.7 million recorded in 1996, and a reduction in income on bankcard due to the outsourcing of the Corporation's processing operations in the second quarter of 1996. For the six months ended June 30, 1997... Non-interest income rose $5.8 million or 12.3 percent compared to the same period last year. Trust income increased $2.6 million and is attributable to the increase in the number of accounts held and trust asset growth resulting from improvement in the stock market. Service charges on deposit accounts increased $2.8 million compared to the same period one year ago. The increase is mainly due to higher service charges related to commercial deposits, volumes processed for correspondent banks and overdraft charges. Other income is down $585,000 or 6.9 percent compared to the same period last year primarily related to gains on the disposition of certain loans recorded in 1996.
Non-Interest Expense <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------------------------ June 30 1997 1996 ------------------ ------------------- ------- Non-Interest Expense 1997 1996 June 30 March 31 June 30 - ------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Salaries and wages $39,434 $34,987 $20,200 $19,234 $18,350 Pension and other employee benefits 8,725 7,956 4,332 4,393 4,498 Net occupancy of banking premises 9,438 9,526 4,680 4,758 4,665 Furniture and equipment 5,926 5,692 3,060 2,866 2,811 Intangible amortization 5,829 5,518 3,119 2,710 2,903 Other 28,016 26,061 14,985 13,031 13,368 ------- ------- ------- ------- ------- Total $97,368 $89,740 $50,376 $46,992 $46,595 ======= ======= ======= ======= ======= </TABLE> For the second quarter 1997... Non-interest expense was up $3.4 million or 7.2 percent compared to last quarter and increased $3.8 million or 8.1 percent compared to the second quarter of 1996. The increase from the first quarter of 1997 is due to the acquisition and higher operating costs. The increase from the second quarter of 1996 results primarily from higher salaries expense related to acquisitions and normal merit increases and higher operating expenses, including acquisition related costs. Salaries and wages increased 5.0 percent from the first quarter of 1997 and 10.1 percent from the second quarter of 1996 primarily as a result of the acquisitions and normal merit increases. Pension and employee benefits decreased 1.4 percent compared to last quarter and 3.7 percent compared to the second quarter of 1996. The decrease from a year ago reflects the early retirement charge recorded in the second quarter of 1996. Net occupancy of banking premises expense decreased 1.6 percent from the first quarter of 1997 and remained constant from the second quarter of 1996. Furniture and equipment expense increased 6.8 percent compared to the first quarter of 1997 and increased 8.9 percent from the same quarter last year mostly due to equipment rental and software amortization. Amortization of intangibles increased 15.1 percent from the first quarter of 1997 and 7.4 percent from the second quarter of 1996 due to the acquisition. Other non-interest expenses increased 15.0 percent and 12.1 percent from the first and second quarter, respectively, mainly due to higher operating expenses, including acquisition related costs. For the six months ended June 30, 1997... Total non-interest expense was up $7.6 million or 8.5 percent compared to the same period one year ago. Salaries and wages were up $4.4 million or 12.7 percent compared to the same period one year ago primarily because of the acquisitions and normal merit increases. Pension and other benefits increased $769,000 from the same period last year due to higher payroll tax and contributions to the employee related stock plan. Net occupancy of banking premises was down slightly compared to a year ago. Furniture and equipment expense increased $234,000, or 4.1 percent due to higher equipment rental cost. Intangible amortization increased $311,000 or 5.6 percent from the same period one year ago due to acquisitions. Other non-interest expenses increased $2.0 million or 7.5 percent, primarily due to higher operating expenses, including acquisition related costs. The efficiency ratio measures what percentage of bank revenue is absorbed by non-interest expense. The Corporation's year-to- date efficiency ratio was 65.0 percent compared to 66.0 percent in 1996. Income Taxes The Corporation's effective tax rate for the first and second quarters of 1997 and 1996 approximated the statutory rate of 35 percent. Balance Sheet Average assets of $4,922,916,000 increased 3.5 percent and 9.2 percent from the first quarter of 1997 and the second quarter of 1996, respectively, principally because of the acquisitions. Total deposits averaged $4,241,432,000 for the current quarter, up 3.8 percent from the previous quarter and up 8.5 percent when compared to the second quarter of 1996. Average loans for the second quarter of 1997 were $2,458,990,000. This represents an increase in average loans of 6.8 percent from the first quarter of 1997 and an increase in average loans of 19.5 percent from the second quarter of last year.
Loans <TABLE> <CAPTION> 1997 1996 ---------------------- ------------------------- Loan Portfolio Percentage Period-End Balances June 30 of Total December 31 June 30 - ------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Commercial $ 769,703 30.6% $ 650,114 $ 602,823 Consumer 558,880 22.2 491,086 439,972 Real estate 1,113,266 44.3 1,044,391 996,655 Other 74,312 3.0 69,031 71,255 Unearned discount (3,108) (.1) (1,154) (1,803) ---------- ----- ---------- ---------- Total Loans $2,513,053 100.0% $2,253,468 $2,108,902 ========== ===== ========== ========== </TABLE> At June 30, 1997, period-end loans totaled $2,513,053,000 up 4.1 percent from the previous quarter and up 19.2 percent from the same period last year. Approximately 73 percent of the increase in loans from a year ago resulted from internally generated growth. Real Estate Loans Real estate loans at June 30, 1997, were $1,113,266,000 or 44.3 percent of period-end loans compared to 47.3 percent a year ago. Residential permanent mortgage loans at June 30, 1997, were $443,914,000 compared to $435,124,000 at March 31, 1997, and $403,687,000 at June 30, 1996. 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, 1997, real estate loans 90 days past due (excluding non- accrual and restructured loans) were $2,038,000, compared with $3,072,000 at March 31, 1997, and $3,461,000 at June 30, 1996. <TABLE> <CAPTION> 1997 1996 ------------------------ -------- Real Estate Loans Percentage Period-End Balances June 30 of Total June 30 - ------------------------------------------------------------------------------- <S> <C> <C> <C> Construction $ 100,998 9.1% $ 57,977 Land 58,660 5.2 48,274 Permanent mortgages: Commercial 243,857 21.9 209,523 Residential 443,914 39.9 403,687 Other 265,837 23.9 277,194 ---------- ----- -------- $1,113,266 100.0% $996,655 ========== ===== ======== Non-accrual and restructured $ 8,996 .8% $ 11,177 </TABLE> Mexico The Corporation's cross border outstandings to Mexico, excluding $21,381,000 in loans secured by assets held in the United States, totaled $34,426,000 at June 30, 1997, or 1.4 percent of total loans down from $39,722,000 at March 31, 1997 and up compared to $25,345,000 last year. Most 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 73.5 percent are related to companies exporting from Mexico. As of June 30, 1997, none of the Mexican related loans were on non-performing status. <TABLE> <CAPTION> MEXICAN LOANS ----------------------- Percentage of June 30, 1997 Amount Total Loans - ---------------------------------------------------------------------- <S> <C> <C> Loans to financial institutions $26,426 1.1% Loans to private firms or individuals 8,000 .3 ------- --- $34,426 1.4% ======= === </TABLE>
Non-Performing Assets <TABLE> <CAPTION> NON-PERFORMING ASSETS -------------------------- Real June 30, 1997 Estate Other Total - --------------------------------------------------------------------------- <S> <C> <C> <C> Non-accrual and restructured loans $ 8,996 $4,483 $13,479 Foreclosed assets 1,571 874 2,445 ------- ------ ------- Total $10,567 $5,357 $15,924 ======= ====== ======= As a percentage of total non-performing assets 66.4% 33.6% 100.0% </TABLE> Non-performing assets totaled $15,924,000 at June 30, 1997 up 3.5 percent and down 3.4 percent, respectively, from $15,382,000 at June 30, 1996 and $16,490,000 at March 31, 1997. Non-performing assets as a percentage of total loans and foreclosed assets decreased to .63 percent at June 30, 1997 from .73 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 $225,000 or $.01 per common share for the second quarter of 1997, compared to approximately $231,000 or $.01 per common share for the second quarter of 1996 and $180,000 or $.01 per common share for the first quarter of 1997. For the six months ended June 30, 1997, the after-tax impact (assuming a 35 percent marginal tax rate) was approximately $405,000 or $.02 per common share, compared with approximately $470,000 or $.02 per common share for the comparable period last year. Total loans 90 days past due (excluding non-accrual and restructured loans) were $5,589,000 at June 30, 1997, compared to $5,693,000 at June 30, 1996, and $7,703,000 at March 31, 1997. Allowance for Possible Loan Losses The allowance for possible loan losses was $41,080,000 or 1.63 percent of period-end loans at June 30, 1997, compared to $36,353,000 or 1.72 percent at June 30, 1996 and $40,047,000 or 1.66 percent at March 31, 1997. The allowance for possible loan losses as a percentage of non-accrual and restructured loans was 304.8 percent at June 30, 1997, compared to 259.8 percent at June 30, 1996 and 281.5 percent at the end of the first quarter of 1997. The Corporation recorded a $2,275,000 provision for possible loan losses during the second quarter of 1997. This compares to $1,325,000 provision for possible loan losses during the second quarter of 1996 and $1,625,000 for the first quarter of 1997. Net charge-offs in the second quarter of 1997 totaled $1,242,000, compared to a net recoveries of $481,000 for the second quarter of 1996 and net charge-offs of $1,309,000 for the first quarter of 1997. <TABLE> <CAPTION> NET CHARGE-OFFS (RECOVERIES) ---------------------------- 1997 1996 ------------------ ------- Second First Second Quarter Quarter Quarter - ------------------------------------------------------------------- <S> <C> <C> <C> Real estate $ (294) $ 26 $(1,306) Commercial and industrial 387 159 401 Consumer 1,051 1,039 424 Other, including foreign 98 85 ------- ------- ------- $ 1,242 $ 1,309 $ (481) ======= ======= ======= Provision for possible loan losses $ 2,275 $ 1,625 $ 1,325 Allowance for possible loan losses 41,080 40,047 36,353 </TABLE>
Capital and Liquidity At June 30, 1997, shareholders' equity was $396,473,000 compared to $347,850,000 at June 30, 1996 and $383,701,000 at March 31, 1997. The Corporation had an unrealized gain on securities available for sale, net of deferred taxes, of $7.5 million as of June 30, 1997 compared to a $3.7 million unrealized loss as of June 30, 1996, reflecting a change of $11.2 million. The unrealized gain is primarily due to the decrease in market interest rates in 1997. 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. The Corporation raised its cash dividend 19 percent for the second quarter of 1997 to $.25 per common share compared to $.21 per common share in the first quarter of 1997 and fourth quarter of 1996. This equates to a dividend payout ratio of 36.0 percent, 31.4 percent and 34.9 percent for the second and first quarters of 1997 and the second quarter of 1996, respectively. 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, 1997. During February 1997, Cullen/Frost Capital Trust I, a Delaware statutory business trust and wholly-owned subsidiary of the Corporation (The Trust), issued $100,000,000 of its 8.42 percent Capital Securities, Series A which represents a beneficial interest in The Trust. For additional information regarding the foregoing see the footnotes to the financial statements on page 8. 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. NYSE Listing On July 30, 1997, the Corporation filed a formal application to list its common stock on the New York Stock Exchange (NYSE). The Corporation expects to begin trading on the NYSE by mid-August.
<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, 1997 June 30, 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 $ 24 $ 1 3.50% Securities: U.S. Treasury $ 269,517 $ 7,104 5.32% 294,463 7,728 5.28 U.S. Government agencies and corporations 1,227,809 40,875 6.66 1,299,447 43,021 6.62 States and political subdivisions 5,472 260 9.49 5,488 259 9.45 Other 7,245 209 5.76 6,910 197 5.70 --------- -------- --------- -------- Total securities 1,510,043 48,448 6.42 1,606,308 51,205 6.38 Federal funds sold 201,061 5,208 5.15 130,470 3,413 5.17 Loans, net of unearned discount 2,381,585 104,868 8.88 1,996,660 88,268 8.89 --------- -------- ---------- -------- Total Earning Assets and Average Rate Earned 4,092,689 158,524 7.79 3,733,462 142,887 7.68 Cash and due from banks 494,251 470,039 Allowance for possible loan losses (36,677) (33,729) Banking premises and equipment 105,041 98,819 Accrued interest and other assets 183,231 175,408 --------- ---------- Total Assets $4,838,535 $4,443,999 ========== ========== LIABILITIES Demand deposits: Commercial and individual $ 895,854 $ 808,264 Correspondent banks 221,273 180,440 Public funds 43,148 42,459 --------- --------- Total demand deposits 1,160,275 1,031,163 Time deposits: Savings and Interest-on-Checking 732,849 4,600 1.27 738,049 5,127 1.40 Money market deposit accounts 928,137 18,515 4.02 777,361 14,872 3.85 Time accounts 1,069,045 25,986 4.90 1,044,809 25,549 4.92 Public funds 274,119 6,084 4.48 250,725 5,515 4.42 --------- -------- --------- -------- Total time deposits 3,004,150 55,185 3.70 2,810,944 51,063 3.65 --------- --------- Total Deposits 4,164,425 3,842,107 Federal funds purchased and securities sold under resale agreements 122,183 2,725 4.44 155,250 3,833 4.88 Guaranteed preferred beneficial interests in Corporation's subordinated debentures 78,943 3,414 8.72 Other borrowings 23,482 639 5.48 17,554 453 5.19 --------- -------- ---------- -------- Total Interest-Bearing Funds and Average Rate Paid 3,228,758 61,963 3.87 2,983,748 55,349 3.73 --------- -------- ---- ---------- -------- ---- Accrued interest and other liabilities 60,457 77,522 --------- ---------- Total Liabilities 4,449,490 4,092,433 SHAREHOLDERS' EQUITY 389,045 351,566 --------- ---------- Total Liabilities and Shareholders' Equity $4,838,535 $4,443,999 ========== ========== Net interest income $ 96,561 $ 87,538 ======== ======== Net interest spread 3.92% 3.95% ==== ==== Net interest income to total average earning assets 4.74% 4.70% ==== ==== *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, 1997 March 31, 1997 ---------------------------- ------------------------ Interest Interest Average Income/ Yield/ Average Income/ Yield/ Balance Expense Cost Balance Expense Cost ---------- ------- ----- -------- ------- ----- <S> <C> <C> <C> <C> <C> <C> ASSETS Time deposits Securities: U.S. Treasury $ 283,467 $ 3,778 5.35% $ 255,412 $ 3,326 5.28% U.S. Government agencies and corporations 1,229,527 20,510 6.67 1,226,336 20,365 6.64 States and political subdivisions 4,599 106 9.21 6,356 154 9.68 Other 7,760 111 5.70 6,459 98 6.08 ---------- ------- ---------- ------- Total securities 1,525,353 24,505 6.43 1,494,563 23,943 6.42 Federal funds sold 200,752 2,806 5.53 201,373 2,402 4.77 Loans, net of unearned discount 2,458,990 54,603 8.91 2,303,330 50,265 8.85 ---------- ------- ---------- ------- Total Earning Assets and Average Rate Earned 4,185,095 81,914 7.84 3,999,266 76,610 7.74 Cash and due from banks 471,513 517,232 Allowance for possible loan losses (36,256) (37,103) Banking premises and equipment 106,908 103,153 Accrued interest and other assets 195,656 173,661 ---------- ---------- Total Assets $4,922,916 $4,756,209 ========== ========== LIABILITIES Demand deposits: Commercial and individual $ 927,391 $ 863,967 Correspondent banks 210,002 232,669 Public funds 41,294 45,021 ---------- ---------- Total demand deposits 1,178,687 1,141,657 Time deposits: Savings and Interest-on-Checking 746,782 2,321 1.25 718,760 2,279 1.29 Money market deposit accounts 961,751 9,755 4.07 894,150 8,761 3.97 Time accounts 1,092,292 13,406 4.92 1,045,539 12,580 4.88 Public funds 261,920 3,016 4.62 286,454 3,067 4.34 ---------- ------- ---------- ------- Total time deposits 3,062,745 28,498 3.73 2,944,903 26,687 3.68 ---------- ------- ---------- ------- Total Deposits 4,241,432 4,086,560 Federal funds purchased and securities sold under resale agreements 109,140 1,327 4.81 135,371 1,398 4.13 Guaranteed preferred beneficial interests in Corporation's subordinated debentures 98,372 2,144 8.74 59,299 1,271 8.69 Other borrowings 22,657 318 5.64 24,316 320 5.34 ---------- ------- ---------- ------- Total Interest-Bearing Funds and Average Rate Paid 3,292,914 32,287 3.93 3,163,889 29,676 3.80 ---------- ------- ----- ---------- ------- ---- Accrued interest and other liabilities 59,876 64,037 ---------- ---------- Total Liabilities 4,531,477 4,369,583 SHAREHOLDERS' EQUITY 391,439 386,626 ---------- ---------- Total Liabilities and Shareholders' Equity $4,922,916 $4,756,209 ========== ========== Net interest income $49,627 $46,934 ======= ======= Net interest spread 3.91% 3.94% ==== ==== Net interest income to total average earning assets 4.75% 4.73% ==== ==== *Taxable-equivalent basis assuming a 35% tax rate. </TABLE>
[CAPTION] <TABLE> Consolidated Average Balance Sheets and Interest Income Analysis-By Quarter Cullen/Frost Bankers, Inc. and Subsidiaries (dollars in thousands - taxable-equivalent basis*) December 31, 1996 September 30, 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 Securities: U.S. Treasury $ 268,794 $ 3,629 5.37% $ 273,301 $ 3,692 5.37 U.S. Government agencies and corporations 1,203,835 20,102 6.68 1,235,556 20,660 6.69 States and political subdivisions 5,447 128 9.44 5,457 129 9.45 Other 6,405 97 6.05 6,672 95 5.67 ---------- ------ ---------- ------- Total securities 1,484,481 23,956 6.45 1,520,986 24,576 6.46 Federal funds sold 186,933 2,338 4.90 107,189 1,475 5.38 Loans, net of unearned discount 2,209,951 48,855 8.80 2,142,038 47,423 8.81 ---------- ------ ---------- ------ Total Earning Assets and Average Rate Earned 3,881,365 75,149 7.71 3,770,213 73,474 7.76 Cash and due from banks 500,288 486,938 Allowance for possible loan losses (36,883) (35,541) Banking premises and equipment 102,466 101,290 Accrued interest and other assets 170,443 171,417 ---------- ---------- Total Assets $4,617,679 $4,494,317 ========== ========== LIABILITIES Demand deposits: Commercial and individual $ 867,955 $ 844,418 Correspondent banks 225,671 208,050 Public funds 47,770 46,949 ---------- ---------- Total demand deposits 1,141,396 1,099,417 Time deposits: Savings and Interest-on-Checking 702,749 2,293 1.30 711,562 2,373 1.33 Money market deposit accounts 862,455 8,625 3.98 824,565 8,321 4.01 Time accounts 1,034,977 12,692 4.88 1,062,842 12,938 4.84 Public funds 272,639 2,840 4.14 207,093 2,330 4.48 ---------- ------ ---------- ------- Total time Deposits 2,872,820 26,450 3.66 2,806,062 25,962 3.68 ---------- ------ ---------- ------- Total Deposits 4,014,216 3,905,479 Federal funds purchased and securities sold under repurchase agreements 141,654 1,587 4.38 127,292 1,517 4.66 Guaranteed preferred beneficial interests in Corporation's subordinated debentures Other borrowings 19,031 259 5.41 23,376 307 5.23 ---------- ------ ---------- ------ Total Interest-Bearing Funds and Average Rate Paid 3,033,505 28,296 3.71 2,956,730 27,786 3.73 ---------- ------ ---- ---------- ------- ---- Accrued interest and other liabilities 68,461 80,427 ---------- ---------- Total Liabilities 4,243,362 4,136,574 SHAREHOLDERS' EQUITY 374,317 357,743 ---------- ---------- Total Liabilities and Shareholders' Equity $4,617,679 $4,494,317 ========== ========== Net interest income $46,853 $ 45,688 ======= ======== Net interest spread 4.00% 4.03% ==== ==== Net interest income to total average earning assets 4.81% 4.83% ==== ==== * 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 --------------------------- Interest Average Income/ Yield/ Balance Expense Cost ---------- ------- ----- <S> <C> <C> <C> ASSETS Time deposits $ 21 $ 1 3.50% Securities: U.S. Treasury 301,233 3,899 5.21 U.S. Government agencies and corporations 1,287,518 21,316 6.62 States and political subdivisions 5,480 129 9.45 Other 6,235 91 5.86 ---------- ------- Total securities 1,600,466 25,435 6.36 Federal funds sold 122,940 1,472 4.73 Loans, net of unearned discount 2,057,029 45,473 8.89 ---------- ------- Total Earning Assets and Average Rate Earned 3,780,456 72,381 7.68 Cash and due from banks 486,828 Allowance for possible loan losses (35,067) Banking premises and equipment 99,984 Accrued interest and other assets 177,254 ---------- Total Assets $4,509,455 ========== LIABILITIES Demand deposits: Commercial and individual $ 839,300 Correspondent banks 193,535 Public funds 40,138 ---------- Total demand deposits 1,072,973 Time deposits: Savings and Interest-on-Checking 732,882 2,499 1.37 Money market deposit accounts 796,624 7,787 3.93 Time accounts 1,055,894 12,696 4.84 Public funds 252,071 2,826 4.51 ---------- ------- Total time deposits 2,837,471 25,808 3.66 ---------- ------- Total Deposits 3,910,444 Federal funds purchased and securities sold under resale agreements 150,965 1,728 4.53 Guaranteed preferred beneficial interests in Corporation's subordinated debentures Other borrowings 16,936 221 5.25 ---------- ------- Total Interest-Bearing Funds and Average Rate Paid 3,005,372 27,757 3.71 ---------- ------- Accrued interest and other liabilities 78,243 ---------- Total Liabilities 4,156,588 SHAREHOLDERS' EQUITY 352,867 ---------- Total Liabilities and Shareholders' Equity $4,509,455 ========== Net interest income $44,624 ======= Net interest spread 3.97% ==== Net interest income to total average earning assets 4.74% ==== *Taxable-equivalent basis assuming a 35% tax rate. </TABLE>
Part II: Other Information Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of the Corporation was held on May 28, 1997. The following matters were submitted to a vote of the Corporation's shareholders. 1. Election of Directors: Election of all ten director nominees into three classes with Class I term expiring in 2000 and Class II and III terms expiring in 1998 and 1999, respectively, was approved with no nominee receiving less than 16.4 million votes. Nominee Total Votes For Total Votes Withheld - ------- --------------- -------------------- Class I: Isaac Arnold, Jr. 18,570,665 316,949 Harry H. Cullen 17,113,713 1,773,901 Roy H. Cullen 18,029,120 858,494 Patrick B. Frost 18,471,139 416,475 James L. Hayne 18,571,299 316,315 Robert S. McClane 18,560,414 327,200 Mary Beth Williamson 16,470,750 2,416,864 Class II: Horace Wilkins, Jr. 18,565,209 322,405 Class III: Bob W. Coleman 18,570,109 317,505 Joe R. Fulton 18,570,159 317,455 2. Increase authorized shares Total Votes For 17,230,574 Total Votes Against 1,557,125 3. Amend 1992 Stock Plan Total Votes For 14,958,061 Total Votes Against 2,137,724 4. Director's Stock Plan Total Votes For 15,451,466 Total Votes Against 1,634,534 5. Selection of Independent Auditors Total Votes For 18,839,573 Total Votes Against 18,850 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: August 8, 1997 By:/s/Phillip D. Green ----------------------- Phillip D. Green Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Accounting Officer) Cullen/Frost Bankers, Inc. Form 10-Q Exhibit Index Exhibit Description - ------- ----------- 11 Statement re: Computation of Earnings per Share