-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, l3u0cR8uFFH/Kze4a/+OfsouU+2bF6SP7nSXJ1bJgwSLVbEm+aMuHhZRKWGiwN3A Bf+RSSKrgDFzm5vS1vA/qQ== 0000039263-94-000003.txt : 19940331 0000039263-94-000003.hdr.sgml : 19940331 ACCESSION NUMBER: 0000039263-94-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CULLEN FROST BANKERS INC CENTRAL INDEX KEY: 0000039263 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 741751768 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 000-07275 FILM NUMBER: 94518932 BUSINESS ADDRESS: STREET 1: 100 W HOUSTON ST STREET 2: P O BOX 1600 CITY: SAN ANTONIO STATE: TX ZIP: 78205 BUSINESS PHONE: 2102204841 FORMER COMPANY: FORMER CONFORMED NAME: FROST BANK CORP DATE OF NAME CHANGE: 19770823 10-K 1 10-K ELECTRONIC SUBMISSION 12/31/93 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 ___ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] FOR THE TRANSITION PERIOD FROM _______ to _______ 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) Registrant's telephone number, including area code: (210) 220-4011 Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, $5 Par Value -------------------------- (Title of Class) 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 such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. __ The aggregate market value of the voting stock held by non-affiliates of the registrant was $384,304,372 based on the closing price of such stock as of March 25, 1994. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Outstanding at Class March 25, 1994 -------------------------- -------------- Common Stock, $5 par value 11,031,723 DOCUMENTS INCORPORATED BY REFERENCE (1) Annual Report to Shareholders for the Year Ended December 31, 1993 (Parts I & II) (2) Proxy Statement for Annual Meeting of Shareholders to be held May 17,1994 (Part III) TABLE OF CONTENTS PART I Page - ------ ---- ITEM 1. BUSINESS 1 ITEM 2. PROPERTIES 8 ITEM 3. LEGAL PROCEEDINGS 8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS * PART II - ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS 9 ITEM 6. SELECTED FINANCIAL DATA 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 9 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE * PART III - -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 10 ITEM 11. EXECUTIVE COMPENSATION 10 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 10 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 10 PART IV - ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 11 * Not Applicable PART I Item 1. BUSINESS - ------------------ General Cullen/Frost Bankers, Inc. ("Cullen/Frost" or "Company"), a Texas business corporation incorporated in 1977 and headquartered in San Antonio, Texas, is a bank holding company within the meaning of the Bank Holding Company Act of 1956 ("the Bank Holding Company Act") and as such is registered with the Board of Governors of the Federal Reserve System ("Federal Reserve Board"). The New Galveston Company, incorporated under the laws of Delaware, is a wholly owned second tier bank holding company subsidiary which owns all banking and non-banking subsidiaries. Cullen/Frost's principal assets consist of all the capital stock of three national banks. At year end 1993, Cullen/Frost had 27 offices in five major Texas banking markets with 16 locations in San Antonio, four in the Houston/Galveston area, three in the Corpus Christi area, three in the Austin area and one in Dallas. At December 31, 1993, Cullen/Frost had consolidated total assets of $3,639,047,000 and total deposits of $3,149,428,000. Based on information from the Federal Reserve Board, as of September 30, 1993, Cullen/Frost was the second largest of the 81 bank holding companies in Texas and the seventh largest of 928 banking organizations in Texas. Cullen/Frost provides policy direction to the Cullen/Frost subsidiary banks in the following areas: (i) lending policies and techniques, loan participation and credit administration; (ii) asset and liability management; (iii) trust services; (iv) personnel management and compensation; (v) accounting, budgeting, planning, operations, insurance and auditing; (vi) capitalization; (vii) marketing programs and (viii) regulatory compliance. Cullen/Frost Subsidiary Banks - ----------------------------- Each of the Cullen/Frost subsidiary banks is a separate entity which operates under the day-to-day management of its own board of directors and officers. The largest of these banks is The Frost National Bank of San Antonio ("Frost Bank"), the origin of which can be traced to a mercantile partnership organized in 1868. Frost Bank was chartered as a national banking association in 1899. At December 31, 1993, Frost Bank, which accounted for approximately 92 percent of consolidated assets, 91 percent of consolidated loans, and 92 percent of consolidated deposits of Cullen/Frost, was the largest bank headquartered in San Antonio and South Texas. The following table provides information as of December 31, 1993, as to total assets, total loans and total deposits of each of the Cullen/Frost subsidiary banks:
Name of Bank and Location Total Assets Total Loans Total Deposits - ------------------------- ------------ ----------- -------------- The Frost National Bank, San Antonio, Corpus Christi, Austin, and Houston, Texas $3,344,678,000 $1,138,655,000 $2,894,302,000 Cullen/Frost Bank of Dallas, N.A., Dallas, Texas 178,167,000 58,252,000 155,436,000 United States National Bank of Galveston Galveston, Texas 136,220,000 50,206,000 121,589,000
During 1993, Cullen/Frost converted its Houston subsidiary bank, which had three offices, into branches of Frost Bank. Early during 1994, Cullen/Frost is expected to acquire Texas Commerce Bank in Corpus Christi as a branch of Frost Bank in exchange for Cullen/Frost Bank of Dallas, N.A. ("Cullen/Frost Bank"). The banks being exchanged are comparable in asset size. 1 Services Offered by the Cullen/Frost Subsidiary Banks - ----------------------------------------------------- Commercial Banking The subsidiary banks provide commercial services for corporations and other business clients. Loans are made for a wide variety of purposes, including interim construction financing on industrial and commercial properties and financing on equipment, inventories and accounts receivable. Frost Bank and Cullen/Frost Bank provide financial services to business clients on both a national and international basis. Consumer Services The subsidiary banks provide a full range of consumer banking services, including checking accounts, savings programs, automated teller machines, installment and real estate loans, drive-in and night deposit services, safe deposit facilities, credit card services and discount brokerage services. International Banking Frost Bank and Cullen/Frost Bank provide international banking services to customers residing in or dealing with businesses located in Mexico. Such services consist of accepting deposits (in United States dollars only), making loans (in United States dollars only), issuing letters of credit, handling foreign collections, transmitting funds and, to a limited extent, dealing in foreign exchange. Reference is made to pages 16 and 21 of the Cullen/Frost Annual Report to Shareholders for the Year Ended December 31, 1993, which pages are incorporated herein by reference. Trust Services The subsidiary banks provide a wide range of trust, investment, agency and custodial services for individual and corporate clients. These services include the administration of estates and personal trusts and the management of investment accounts for individuals, employee benefit plans and charitable foundations. At December 31, 1993, trust assets with a market value of approximately $11.1 billion were being administered by these subsidiary banks. In addition, Frost Bank and United States National Bank of Galveston ("U.S. National Bank") serve as transfer agents or registrars for securities, as trustees of bond issues and as paying agents for dividends and interest. Correspondent Banking Frost Bank and Cullen/Frost Bank act as correspondents for approximately 299 financial institutions, primarily banks in Texas. These banks maintain deposits with the subsidiary banks, which offer to the correspondents a full range of services including check clearing, transfer of funds, loan participations, and securities custody and clearance. Discount Brokerage Cullen/Frost Discount Brokers, Inc. was formed in March 1986 to provide discount brokerage services and perform other transactions or operations related to the sale and purchase of securities of all types. Cullen/Frost Discount Brokers, Inc. is a subsidiary of Frost Bank. Services Offered by the Cullen/Frost Non-Banking Subsidiaries - ------------------------------------------------------------- Main Plaza Corporation ("Main Plaza") is a wholly owned non-banking subsidiary. Main Plaza holds real estate for future expansion of certain of the subsidiary banks and occasionally makes loans to qualified borrowers. Loans are funded with borrowings against Cullen/Frost's current cash or borrowings against credit lines. In April 1981, Cullen/Frost acquired the capital stock of Daltex General Agency, Inc. ("Daltex"), a wholly owned non-banking subsidiary. As a managing general insurance agency, Daltex provides vendor's single interest insurance for the subsidiary banks. Competition - ----------- The subsidiary banks encounter intense competition in their commercial banking businesses, primarily from other banks located in their respective service areas. The subsidiary bank also compete with insurance, finance and mortgage companies, savings and loan institutions, credit unions, money market funds, ans other financial institutions. 2 In the case of some larger customers, competition exists with institutions in other major metropolitan areas in Texas and in the remainder of the United States, some of which are larger than the Cullen/Frost subsidiary banks in terms of capital, resources and personnel. Supervision and Regulation - -------------------------- Cullen/Frost Cullen/Frost is a legal entity separate and distinct from its bank subsidiaries and is a registered bank holding company under the Bank Holding Company Act (the "BHC Act"). The Bank Holding Company Act generally prohibits Cullen/Frost from engaging in any business activity other than bank- ing, managing and controlling banks, furnishing services to a bank which it owns and controls or engaging in non-banking activities closely related to banking. As a bank holding company, Cullen/Frost is primarily regulated by the Federal Reserve Board which has established guidelines with respect to the maintenance of appropriate levels of capital and payment of dividends by bank holding companies. Cullen/Frost is required to obtain prior approval of the Federal Reserve Board for the acquisition of more than five percent of the voting shares or substantially all of the assets of any company (including a bank) or to merge or consolidate with another bank holding comp- any. During 1986 the Texas Banking Code was amended by the Texas Legislature authorizing the acquisition of Texas banks or bank holding companies by certain out-of-state registered bank holding companies. A Texas bank holding company would likewise be permitted to acquire a bank or bank holding company in other states if the acquisition is permitted by the laws of the other states. The Federal Reserve Act and the Federal Deposit Insurance Act ("FDIA") impose restrictions on loans by the subsidiary banks to Cullen/Frost and certain of its subsidiaries, on investments in securities thereof and on the taking of such securities as collateral for loans. Such restrictions generally prevent Cullen/Frost from borrowing from the subsidiary banks unless the loans are secured by marketable obligations. Also, such restrictions prevent Cullen/Frost and certain other subsidiaries from borrowing from Cullen/ Frost's bank subsidiaries unless the loans are secured. Further, such secured loans, other transactions, and investments by each of such bank subsidiaries are limited in amount as to Cullen/Frost or to certain other subsidiaries to ten percent of the lending bank subsidiary's capital and surplus and as to Cullen/Frost and all such subsidiaries to an aggregate of 20 percent of the lending bank subsidiary's capital and surplus. Subsidiary Banks The three subsidiary national banks are organized as national banking associations under the National Bank Act and are subject to regulation and examination by the Office of the Comptroller of the Currency (the "Comptroller of the Currency"). Federal and state laws and regulations of general application to banks have the effect, among others, of regulating the scope of the business of the subsidiary banks, their investments, cash reserves, the purpose and nature of loans, collateral for loans, the maximum interest rates chargeable on loans, the amount of dividends that may be declared and required capitalization ratios. Federal law imposes restrictions on extensions of credit to, and certain other transactions with, Cullen/Frost and other subsidiaries, on investments in stock or other securities thereof and on the taking of such securities as collateral for loans to other borrowers. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, Frost Bank and U.S. National Bank have registered with the Comptroller of the Currency as transfer agents and are subject to certain reporting requirements of and regulatory control by the Comptroller of the Currency. The bond department of Frost Bank is subject to regulation under the Texas Securities Act. The Comptroller of the Currency with respect to Cullen/Frost's national bank subsidiaries has authority under the Financial Institutions Supervisory Act to prohibit a bank from engaging in what, in such agency's opinion, constitutes an unsafe or unsound practice in conducting its business. It is possible, depending upon the financial condition of the bank in question and other factors, that such agency could claim that the payment of dividends or other payments might, under some circumstances, be such an unsafe or unsound practice. 3 The principal source of Cullen/Frost's cash revenues is dividends from its bank subsidiaries, and there are certain limitations on the payment of dividends to Cullen/Frost by such bank subsidiaries. The prior approval of the Comptroller of the Currency is required if the total of all dividends declared by a national bank in any calendar year would exceed the bank's net profits, as defined, for that year combined with its retained net profits for the preceding two calendar years less any required transfers to surplus. Although not necessarily indicative of amounts available to be paid in future periods, under the most restrictive possible interpretation of these requirements, Cullen/Frost's subsidiary banks had approximately $23,951,000 available for payment of dividends at December 31, 1993. Capital Adequacy Bank regulators have adopted risk-based capital guidelines for bank holding companies and banks. The minimum ratio of qualifying total capital to risk- weighted assets (including certain off-balance sheet items) is 8%. At least half of the total capital is to be comprised of common stock, retained earnings, noncumulative perpetual preferred stocks minority interests and for bank holding companies, a limited amount of qualifying cumulative perpetual preferred stock, less certain intangibles including goodwill ("Tier 1 capital"). The remainder ("Tier 2 capital") may consist of other preferred stock, certain other instru- ments, and limited amounts of subordinated debt and the loan and lease loss allowance. In addition, the Federal Reserve Board has established minimum Leverage Ratio (Tier 1 capital to average total assets) guidelines for bank holding companies and banks. These guidelines provide for a minimum leverage ratio of 3% for bank holding companies and banks that meet certain specified criteria, including that they have the highest regulatory rating. All other banking organizations will be required to maintain a leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. Futhermore, the guidelines indicate that the Federal Reserve Board will continue to consider a "Tangible Tier 1 Leverage Ratio" in evaluating proposals for expansion or new activities. The Tangible Tier 1 Leverage Ratio is the ratio of Tier 1 capital, less intangibles not deducted from Tier 1 capital, to average total assets. The Federal Reserve Board has not advised Cullen/Frost of any specific minimum leverage ratio applicable to it. For information concerning Cullen/Frost's capital ratios, see the discussion under the caption "Capital" on page 22 of the Cullen/Frost Annual Report to Shareholders for the Year Ended December 31, 1993, which discussion is incorporated herein by reference. Federal banking agencies have proposed regulations that would modify exist- ing rules related to risk-based and leverage capital ratios. Cullen/Frost does not believe that the aggregate impact of these modifications would have a sig- nificant impact on its capital position. Bank regulators contiue to indicate their desire to raise capital require- ments applicable to banking organizations beyond their current levels. However, management is unable to predict whether and when higher capital requirements would be imposed and, if so, at what level and on what schedule. FDICIA In December 1991, the Federal Deposit Insurance Corporation Improvements Act of 1991 ("FDICIA") was enacted, which substantially revises the bank regulatory and funding provisions of the Federal Deposit Insurance Act and makes revisions to several other Federal banking statutes. Among other things, FDICIA requires the Federal banking agencies to take "prompt corrective action" in respect of depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital tiers: "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized" and "critically undercapitalized". Federal banking agencies have adopted final rules, effective December 16, 1992, relating to these capital tiers. Under the final rules, an institution will be 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 capital level for any capital measure; adequately capitalized if the institution has a total risk-based capital ratio of 8.0 percent or greater, a Tier 1 risk-based capital ratio of 4.0 percent or greater, and a 4 leverage ratio of 4.0 percent or greater (or a leverage ratio of 3.0 percent for bank holding companies which meet certain specified criteria, including having the highest regulatory rating); undercapitalized if the institution has a total risk-based capital ratio that is less than 8.0 percent, a Tier 1 risk-based capital ratio less than 4.0 percent or a leverage ratio less than 4.0 percent (or a leverage ratio less than 3.0 percent if the institution is rated composite 1 in its most recent report of examination, subject to appropriate Federal banking agency guidelines); significantly undercapitalized if the institution has a total risk-based capital ratio less than 6.0 percent, a Tier 1 risk-based capital ratio less than 3.0 percent, or a leverage ratio less than 3.0 percent; and critically undercapitalized if the institution has a ratio of tangible equity to total assets equal to or less than 2.0 percent. At December 31, 1993, all three subsidiaries of Cullen/Frost that are insured depository institutions -- Frost Bank, Cullen/Frost Bank and U.S. National Bank -- were considered "well capitalized". At December 31, 1993, the subsidiary banks capital ratios were as follows: Tier 1 Capital Total Capital Leverage Ratio Ratio Ratio -------------- ------------- ---------- Frost Bank 13.11% 14.85% 5.76% Cullen/Frost Bank 23.52 24.36 10.25 U.S. National Bank 13.84 14.85 9.26 FDICIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Federal banking agencies subject undercapitalized institutions to growth limitations and require such institutions to submit a capital restoration plan. The agencies may not accept such a plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. In addition, for a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of (i) an amount equal to 5 percent of the depository institution's total assets at the time it became undercapitalized and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. FDICIA also contains a variety of other provisions that may affect the operations of Cullen/Frost, including new reporting requirements, regulatory standards for real estate lending, "truth in savings" provisions, and the requirement that a depository institution give 90 days' prior notice to customers and regulatory authorities before closing any branch. The Federal regulatory agencies issued a final rule on real estate lending standards which became effective March 19, 1993. These standards establish loan-to-value ("LTV") limitations on real estate lending. The LTV limitations range from 50 percent for raw land loans to 95 percent for loans on one to four family residential properties, subject to certain exceptions and limitations. These new standards will not have a significant effect on Cullen/Frost. Deposit Insurance - ----------------- Cullen/Frost's subsidiary banks are subject to FDIC deposit insurance assessments and to certain other statutory and regulatory provisions applicable to FDIC-insured depository institutions. The FDIC adopted in 1993 a risk-based assessment system to replace the previous flat-rate system. The new system imposes insurance premiums based upon a matrix that takes into account a bank's capital level and supervisory rating. Under this risk-based system, the assess- ment rate imposed on banks ranges from 23 cents for each $100 of domestic deposits (for well capitalized banks in the highest of three supervisory rating categories) to 31 cents (for inadequately capitalized banks in the lowest of the three supervisory rating categories.) Cullen/Frost's rate is 23 cents for each $100 of domestic deposits as compared to a rate of 29 cents for $100 of domestic deposits under the flat-rate system; this change in rates did not have a material impact on the results of operations. 5 A depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC after August 9, 1989, in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled, FDIC-insured depository institution in danger of default. "Default" is defined generally as the appointment of a conservator or receiver, and "in danger of default" is defined generally as the existence of certain conditions indicating that a "default" is likely to occur in the absence of regulatory assistance. Acquisitions - ------------ The BHC Act generally limits acquisitions by Cullen/Frost to commercial banks and companies engaged in activities that the Federal Reserve Board has determined to be so closely related to banking as to be a proper incident thereto. Cullen/Frost's direct activities are generally limited to furnishing to its subsidiaries services that qualify under the "closely related" and "proper incident" tests. Prior Federal Reserve Board approval is required under the BHC Act for new activities and acquisitions of most nonbanking companies. The BHC Act, the Federal Bank Merger Act, and the Texas Banking Code regulate the acquisition of commercial banks. The BHC Act requires the prior approval of the Federal Reserve Board for the direct or indirect acquisition of more than five percent of the voting shares of a commercial bank. The BHC Act generally prohibits the acquisition of a domestic bank located outside Cullen/Frost's state of principal operations, Texas, unless authorized by the law of the state of the target bank. With respect to Cullen/Frost's subsidiary banks, the approval of the Comptroller of the Currency is required for branching, purchasing the assets of other banks and for bank mergers in which the continuing bank is a national bank. In reviewing bank acquisition and merger applications, the bank re- gulatory authorities will consider, among other things, the competitive effect and public benefits of the transactions, the capital position of the combined organization, and the applicant's record under the Community Reinvestment Act. Under Federal Reserve Board policy, Cullen/Frost is expected to act as a source of financial strength to its banks and to commit resources to support such banks in circumstances where it might not do so absent such policy. In addition, any loans by Cullen/Frost to its banks would be subordinate in right of payment to deposits and to certain other indebtedness of its banks. Economic Environment - -------------------- The earnings of the subsidiary banks are affected not only by general economic conditions but also by the policies of various governmental regulatory authorities. The Federal Reserve Board regulates the supply of credit in order to influence general economic conditions, primarily through open market operations in United States government obligations, varying the discount rate on financial institution borrowings, varying reserve requirements against financial institution deposits and restricting certain borrowings by such financial institutions and their subsidiaries. The deregulation of interest rates has had and is expected to continue to have an impact on the competitive environment in which the subsidiary banks operate. Governmental policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. However, Cullen/Frost cannot accurately predict the nature or extent of any effect such policies may have on its future business and earnings. Statistical Information - ----------------------- Statistical and other information is included on pages 9 through 23, pages 43 and 44 and pages 46 through 49 of the Cullen/Frost Annual Report to Shareholders for the year ended December 31, 1993, which information is incorporated herein by reference. Employees - --------- At December 31, 1993, Cullen/Frost employed 1,877 persons. Employees of Cullen/ Frost enjoy a variety of employee benefit programs, including a retirement plan, stock purchase plans, various comprehensive medical, accident and group life insurance plans and paid vacations. Cullen/Frost considers its employee relations to be good. 6 Executive Officers of the Registrant - ------------------------------------ The names, ages, recent business experience and positions or offices held by each of the principal executive officers during 1993 of Cullen/Frost are as follows: Age as of Name and Positions or Offices 12/31/93 Recent Business Experience - ----------------------------- ---------- -------------------------- T.C. Frost 66 Officer and/or director of various Chairman of the Board subsidiary banks, including Frost and Chief Executive Officer, Bank, and Cullen/Frost Bank of Director, and Member of the Dallas, since 1950. Chairman of Executive Committee the Board and Member of the Exec- utive Committee of Cullen/Frost from 1973 to present. Robert S. McClane 54 Officer of Frost Bank since 1962. President and Chief Senior Vice President of Cullen/ Administrative Officer, Frost from November 1973 to April Director and Member of the 1978, Secretary from May 1973 to Executive Committee April 1985. Executive Vice Pres- ident from April 1978 to April 1985. President, Director and Member of the Executive Committee of Cullen/Frost from April 1985 to present. Richard W. Evans, Jr. 47 Officer of Frost Bank since 1973. Chief Banking Officer of Executive Vice President of Frost Cullen/Frost, Chairman of the Bank from 1978 to April 1985. Board and Chief Executive President of Frost Bank from April Officer of Frost Bank, Director, 1985 to August 1993. Chairman of and Member of the Executive the Board of Frost Bank, Director, Committee of Cullen/Frost and Member of the Executive Com- mittee from August 1993 to present. J. Gordon Muir, Jr. 52 President of Cullen/Frost Bank Vice Chairman, Director, and from September 1978 to June 1983. Member of the Executive Committee Director of Cullen/Frost and Member of the Executive Committee since 1979. Chairman of the Board and Chief Executive Officer of Cullen Bank from June 1983 to August 1993. Vice Chairman of Cullen/Frost from November 1993 to present. Kenneth A. Trapp 52 Officer of Frost Bank since Executive Vice President, 1968. Executive Vice President Retail Banking of Frost of Frost Bank from 1978 to July Bank of 1985. Executive Vice President of Cullen/Frost from April 1985 to August 1993. Executive Vice President of Frost Bank from August 1993 to present. Phillip D. Green 39 Officer of Frost Bank since July Executive Vice President 1980. Vice President and Control- and Treasurer ler of Frost Bank from January 1981 to January 1983. Senior Vice President and Controller of Frost Bank from January 1983 to July 1985. Senior Vice President and Treasurer of Cullen/Frost from July 1985 to April 1989. Executive Vice President and Treasurer of Cullen/Frost from May 1989 to present. Diane Jack, age 45, has been an officer of Frost Bank since 1984; Secretary of Cullen/Frost from October 1993 to present. 7 There are no arrangements or understandings between any executive officer of Cullen/Frost and any other person pursuant to which he was or is to be selected as an officer. Item 2. PROPERTIES - ------------------- The executive offices of Cullen/Frost, as well as the principal banking quarters of Frost Bank, are housed in a 21-story office tower located on approximately two acres of land in downtown San Antonio. Cullen/Frost and Frost Bank lease approximately 50 percent of the office tower. Frost Bank also leases space in a seven-story parking garage and a nine-story office building adjacent to the banking quarters. In June 1987 Frost Bank consummated the sale of its office tower and leased back a portion of the premises under a 13-year primary lease term with options allowing for occupancy up to 50 years. The Bank also sold its related parking garage facility and leased back space in that structure under a 12-year primary lease term with options allowing for occupancy up to 50 years. The principal offices of Frost Bank in Houston are located in downtown Houston with leased facilities in three buildings within the Cullen Center complex. The remainder of the subsidiary banks located in Dallas and Galveston are housed in modern facilities which, together with tracts of adjacent land used for parking and drive-in facilities, are either owned or leased by the particular subsidiary bank. Item 3. LEGAL PROCEEDINGS - -------------------------- Certain subsidiaries of Cullen/Frost are defendants in various matters in litigation which have arisen in the ordinary course of conducting a commercial banking business. In the opinion of management, the judicial disposition of such pending litigation will not have a material effect on Cullen/Frost's consolidated financial position. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ None. 8 PART II Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS - ----------------------------------------------------------------------------- The information called for by Item 5 is incorporated herein by reference to "Common Stock Market Prices and Dividends" on page 45 and "Note K-Dividends" on page 34 of the Cullen/Frost Annual Report to Shareholders for the Year Ended December 31, 1993. Item 6. SELECTED FINANCIAL DATA - -------------------------------- The information called for by Item 6 is incorporated herein by reference to "Selected Financial Data" on page 46 and "Consolidated Statements of Operations" and "Consolidated Average Balance Sheets" on pages 47 through 49 of the Cullen/Frost Annual Report to Shareholders for the Year Ended December 31, 1993. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------- The information called for by Item 7 is incorporated herein by reference to "Financial Review" on pages 9 through 23, "Consolidated Statements of Operations" and "Consolidated Average Balance Sheets" on pages 47 through 49 of the Cullen/Frost Annual Report to Shareholders for the Year Ended December 31, 1993. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- The information called for by Item 8 is incorporated herein by reference to the consolidated financial statements and report of independent auditors included on pages 24 through 42 and "Quarterly Results of Operations" on page 45, of the Cullen/Frost Annual Report to Shareholders for the Year Ended December 31, 1993. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ------------------------------- None. 9 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ The information regarding directors and executive officers called for by Item 10 is incorporated herein by reference to Cullen/Frost's Proxy Statement for its Annual Meeting of Shareholders to be held May 17, 1994. The additional information regarding executive officers called for by Item 10 is included in Part I, Item 1 of this document under the heading "Executive Officers of the Registrant". Item 11. EXECUTIVE COMPENSATION - -------------------------------- The information called for by Item 11 is incorporated herein by reference to Cullen/Frost's Proxy Statement for its Annual Meeting of Shareholders to be held May 17, 1994. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ The information called for by Item 12 is incorporated herein by reference to Cullen/Frost's Proxy Statement for its Annual Meeting of Shareholders to be held May 17, 1994. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- The information called for by Item 13 is incorporated herein by reference to Cullen/Frost's Proxy Statement for its Annual Meeting of Shareholders to be held May 17, 1994. 10 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------- (a) The following documents are filed as part of this Annual Report on Form 10-K: 1. Financial Statements -- Reference is made to Part II, Item 8, of this Annual Report on Form 10-K. 2. The Financial Statement Schedules are omitted, as the required information is not applicable. 3. Exhibits -- The following exhibits are filed as a part of this Annual Report on Form 10-K: Exhibit Number ------- 2.1 Purchase and Assumption Agreement dated as of February 13, 1993 among the FDIC - receiver of New First City, Texas - Austin, N.A., the FDIC and Frost Bank. (1993 Form 8-K, Exhibit 2.1)(14) 2.2 Purchase and Assumption Agreement dated as of February 13, 1993 among the FDIC - receiver of New First City, Texas - San Antonio, N.A., the FDIC and Frost Bank. (1993 Form 8-K, Exhibit 2.2)(14) 2.3 Agreement and Plan of Merger among Texas Commerce Bancshares, Inc., Texas Commerce Equity Holdings, Inc., Texas Commerce Bank, N.A., Texas Commerce Bank - Corpus Christi, N.A., Cullen/Frost Bankers, Inc., The New Galveston Company, The Frost National Bank of San Antonio and Cullen/Frost Bank of Dallas, N.A. dated August 26, 1993. (1993 Form 8-K, Exhibit 10)(15) 3.1 Restated Articles of Incorporation, as amended (1988 Form S-8, Exhibit 4(a))(4) 3.2 Amended By-Laws of Cullen/Frost Bankers, Inc. 4.1 Guaranty, dated April 27, 1981, by Cullen/Frost Bankers, Inc. to Colonial/Citizens Associates (1985 Form S-8, Exhibit 4(e))(2) 4.2 Shareholder Protection Rights Agreement dated as of July 25, 1989 between Cullen/Frost Bankers, Inc. and The Bank of New York, as Rights Agent (1989 Form 8-K, Exhibit 1)(6) 10.1 1983 Non-qualified Stock Option Plan, as amended (1989 Form S-8, Exhibit 4(g))(7) 10.2 Restoration of Retirement Income Plan for Participants in the Retirement Plan for Employees of Cullen/Frost Bankers, Inc. and its Affiliates (as amended and restated)(1988 Form 10-K, Exhibit 10.4) (5)* 10.3 Pension Benefit Contract (1984 Form 10-K, Exhibit 10.8)(1)* 10.4 Contract of Sale, dated June 9, 1987, between The Frost National Bank of San Antonio and Tower Investors, Ltd. for the sale of the Frost Bank Tower (1987 Form 10-K, Exhibit 10.10)(3) 10.5 Master Lease, dated June 9, 1987, between The Frost National Bank of San Antonio and Tower Investments, Ltd. for the lease of the Frost Bank Tower (1987 Form 10-K, Exhibit 10.11)(3) 10.6 Agreement dated September 30, 1988, among Electronic Data Systems Corporation, The Frost National Bank of San Antonio and Cullen/Frost Bankers, Inc. for the sale of rights to revenues of data processing services (1988 Form 10-K, Exhibit 10.12)(5) 10.7(a) Form of Revised Change-In-Control Agreements with six Executive Officers (1989 Form 10-K, Exhibit 10.13(a))(9)* 10.7(b) Form of Revised Change-in-Control Agreement with one Executive Officer (1989 Form 10-K, Exhibit 10.13(b))(9)* 10.8 1988 Non-qualified Stock Option Plan (1989 Form S-8, Exhibit 4(g))(8) 10.9 The 401(k) Stock Purchase Plan for employees of Cullen/Frost Bankers, Inc. and its Affiliates (1990 Form S-8, Exhibit 4(g))(10)* 10.10 1991 Thrift Incentive Stock Purchase Plan for Employees of Cullen/Frost Bankers, Inc. and its Affiliates (1991 Form S-8, Exhibit 4(g))(11)* 10.11 Cullen/Frost Bankers, Inc. Restricted Stock Plan (1992 Form S-8, Exhibit 4(d))(12)* 10.12 Cullen/Frost Bankers, Inc. 1992 Stock Plan (1992 Form S-8, Exhibit 4(d))(13) 11 Statement re: computation of earnings per share 11 13 The Cullen/Frost 1993 Annual Report to Shareholders for the Year Ended December 31, 1993, (furnished for the information of the Commission and not deemed to be "filed" except for the portion expressly incorporated by reference) 21 Subsidiaries of Cullen/Frost 23 Consent of Independent Auditors 24 Power of Attorney * Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K. (b) Reports on Form 8-K -- During the quarter ended December 31, 1993, a Report on Form 8-K dated October 27, 1993, was filed in respect of the Cullen/Frost Bankers, Inc. press release dated October 26, 1993 announcing Registrant's declaration of a cash dividend. ___________________ (1) Incorporated herein by reference to the designated Exhibits to the Cullen/Frost Annual Report on Form 10-K for the Year Ended December 31, 1984 (File No. 0-7275) (2) Incorporated herein by reference to the designated Exhibits to Cullen/Frost's Report on Form S-8 filed December 18, 1985 (File No. 33-2271) (3) Incorporated herein by reference to the designated Exhibits to the Cullen/Frost Annual Report on Form 10-K for the Year Ended December 31, 1987 (File No. 0-7275) (4) Incorporated herein by reference to the designated Exhibits to Cullen/Frost's Report on Form S-8 filed June 24, 1988 (File No. 33-22758) (5) Incorporated herein by reference to the designated Exhibits to the Cullen/Frost Annual Report on Form 10-K for the Year Ended December 31, 1988 (File No. 0-7275) (6) Incorporated herein by reference to the designated Exhibits to Cullen/Frost's Current Report on Form 8-K dated July 25, 1989 (File No. 0-7275) (7) Incorporated herein by reference to the designated Exhibits to Cullen/Frost's Report on Form S-8 filed September 5, 1989 (File No. 33-30776) (8) Incorporated herein by reference to the designated Exhibits to Cullen/Frost's Report on Form S-8 filed September 5, 1989 (File No. 33-30777) (9) Incorporated herein by reference to the designated Exhibits to the Cullen/Frost Annual Report on Form 10-K for the Year Ended December 31, 1989 (File No. 0-7275) (10) Incorporated herein by reference to the designated Exhibits to Cullen/Frost's Report on Form S-8 filed October 31, 1990 (File No. 33-37500) (11) Incorporated herein by reference to the designated Exhibits to Cullen/Frost's Report on Form S-8 filed March 18, 1991 (File No. 33-39478) (12) Incorporated herein by reference to the designated Exhibits to Cullen/Frost's Report on Form S-8 filed October 20, 1992 (File No. 33-53492) (13) Incorporated herein by reference to the designated Exhibits to Cullen/Frost's Report on Form S-8 filed October 23, 1992 (File No. 33-53622) (14) Incorporated herein by reference to the designated Exhibits to Cullen/Frost's Current Report on Form 8-K dated February 13, 1993 (File No. 0-7275) (15) Incorporated herein by reference to the designated Exhibits to Cullen/Frost's Current Report on Form 8-K dated August 26, 1993 (File No. 0-7275) 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date: March 29, 1994 CULLEN/FROST BANKERS, INC. (Registrant) By: /s/ ROBERT S. McCLANE Robert S. McClane President and Chief Administrative Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 29, 1994. Signatures Title Date ---------- ----- ----- Chairman of the Board and Director (Principal Executive T.C. FROST* Officer) - ------------------------ (T.C. Frost) Executive Vice President and Treasurer (Principal Accounting /s/ PHILLIP D. GREEN Officer) March 29, 1994 - ------------------------ (Phillip D. Green) ISAAC ARNOLD, JR.* Director - ------------------------ (Isaac Arnold, Jr.) HENRY E. CATTO* Director - ------------------------ (Henry E. Catto) HARRY H. CULLEN* Director - ------------------------ (Harry H. Cullen) ROY H. CULLEN* Director - ------------------------ (Roy H. Cullen) RICHARD W. EVANS, JR.* Director - ------------------------ (Richard W. Evans, Jr.) W.N. FINNEGAN III* Director - ------------------------ (W.N. Finnegan III) 13 Signatures Title Date ---------- ----- ----- JOSEPH H. FROST* Director - ------------------------ (Joseph H. Frost) JAMES W. GORMAN, JR.* Director - ------------------------ (James W. Gorman, Jr.) JAMES L. HAYNE* Director - ------------------------ (James L. Hayne) HARRIS L. KEMPNER, JR.* Director - ------------------------ (Harris L. Kempner, Jr.) RICHARD M. KLEBERG, III* Director - ------------------------ (Richard M. Kleberg, III) QUINCY LEE* Director - ------------------------ (Quincy Lee) ROBERT S. McCLANE * Director - ------------------------ (Robert S. McClane) J. GORDON MUIR, JR.* Director - ------------------------ (J. Gordon Muir, Jr.) W.B. OSBORN, JR.* Director - ------------------------ (W.B. Osborn, Jr.) ROBERT G. POPE* Director - ------------------------ (Robert G. Pope) HERMAN J. RICHTER* Director - ------------------------ (Herman J. Richter) 14 Signatures Title Date ---------- ----- ----- A. FRANK SMITH, JR.* Director - ------------------------ (A. Frank Smith, Jr.) CURTIS VAUGHAN, JR.* Director - ------------------------ (Curtis Vaughan, Jr.) *By: /s/ ROBERT S. McCLANE March 29, 1994 - ------------------------ (Robert S. McClane) [as Attorney-in-Fact for the persons indicated] 15 EXHIBIT INDEX Exhibit Number Description of Exhibits - ------------------------------------------ 3.2 Amended By-Laws of Cullen/Frost Bankers, Inc. 11 Statement re: computation of earnings per share 13 The Cullen/Frost 1993 Annual Report to Shareholders for the Year Ended December 31, 1993 (furnished for the information of the Commission and not deemed to be "filed" except for the portion expressly incorporated by reference) 21 Subsidiaries of Cullen/Frost 23 Consent of Independent Auditors 24 Power of Attorney EX-3 2 AMENDED BY-LAWS OF CULLEN/FROST BANKERS, INC. EXHIBIT 3.2 Amended By-Laws of Cullen/Frost Bankers, Inc. BYLAWS OF CULLEN/FROST BANKERS, INC. ARTICLE I - OFFICES ------------------- SECTION 1.1 - REGISTERED OFFICE: The registered office of the corporation shall be at 100 W. Houston Street, San Antonio, Texas. SECTION 1.2 - EXECUTIVE OFFICES: The executive offices of the corporation shall be at 100 W. Houston Street, San Antonio, Texas. SECTION 1.3 - OTHER OFFICES: The corporation may also have offices at such other places as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II - STOCKHOLDERS ------------------------- SECTION 2.1 - ANNUAL MEETING: The annual meeting of the stockholders for the purpose of electing Directors shall be on the third Tuesday in May each year if not a legal holiday, and, if a legal holiday, then on such other date as shall be fixed by the Board of Directors. Any business may be transacted at an annual meeting, except as otherwise provided by law or by the Bylaws. SECTION 2.2 - SPECIAL MEETING: A special meeting of the stockholders may be called at any time by the holders of at least ten percent (10%) of the outstanding stock entitled to be voted at such meeting or by the Board of Directors or by the Chairman of the Board or by the President. Only such business shall be transacted at a special meeting as may be stated or indicated in the notice of such meeting. SECTION 2.3 - PLACE: The annual meeting and any special meeting of the stockholders shall be held at 100 W. Houston Street, San Antonio, Texas, unless another place is designated by the Board of Directors. SECTION 2.4 - NOTICE: Written or printed notice stating the place, day and hour of each meeting of stockholders and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, to each stockholder of record entitled to vote at such meeting. SECTION 2.5 - QUORUM: The holders of a majority of the shares issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute, by the articles of incorporation or by these bylaws. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. When a quorum is present at any meeting, the vote of the holders of a majority of the shares having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the articles of incorporation or of these bylaws, a different vote is required in which case such express provision shall govern and control the decision of such question. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. SECTION 2.6 - PROXIES: At all meetings of stockholders, a stockholder may vote either in person or by proxy executed in writing by the stockholder or by his duly authorized attorney-in-fact. Such proxies shall be filed with the Secretary of the corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided in the proxy. Each proxy shall be revocable unless expressly provided therein to be irrevocable, and unless otherwise made irrevocable by law. SECTION 2.7 - VOTES PER SHARE AND CUMULATIVE VOTING: Each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders, except to the extent that the voting rights of the shares of any class or classes are limited or denied by the articles of incorporation, or as otherwise provided by the Texas Business Corporation Act. At each election of Directors every stockholder entitled to vote at such election shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are Directors to be elected and for whose election he has a right to vote. It is expressly prohibited for any stockholder to cumulate his votes in any election of Directors for any other purpose. SECTION 2.8 - PRESIDING OFFICERS: The Chairman of the Board shall preside at and the Secretary shall keep the records of each meeting of stockholders, and in the absence of the Chairman, his duties shall be performed by the President. In the absence of the Secretary, his duties shall be performed by the Assistant Secretary. SECTION 2.9 - LIST OF STOCKHOLDERS: A complete list of stockholders entitled to vote at each stockholders' meeting, arranged in alphabetical order, with the address of and number of shares held by each, shall be prepared by the Secretary and filed at the registered office and the executive offices of the corporation and subject to inspection by any stockholder during usual business hours for a period of ten (10) days prior to such meeting. Such list shall be produced and subject to inspection by any stockholder during such meeting. ARTICLE III - BOARD OF DIRECTORS --------------------------------- SECTION 3.1 - POWERS: The business and property of the corporation shall be managed by the Board of Directors, and subject to the restrictions imposed by law, by the articles of incorporation, or by these bylaws, they may exercise all the powers of the corporation. SECTION 3.2 - NUMBER: The Board of Directors shall consist of not less than five nor more than twenty Directors, as so determined from time to time by resolution of the Board of Directors. Within the above limits, the number of directors may be increased or decreased (provided such decrease does not shorten the term of any incumbent director) from time to time by resolution of the Board of Directors. SECTION 3.3 - TERM: Each Director shall hold office for the term for which he is elected and until his successor shall have been elected and qualified. Directors need not be stockholders nor residents of Texas. Any Director may be removed either for or without cause, at any special meeting of stockholders by the affirmative vote of a majority in number of shares of the stockholders present in person or by proxy at such meeting and entitled to vote for the election of such Director, if notice of the intention to act upon such matter shall have been given in the notice calling such meeting. SECTION 3.4 - VACANCY: Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining Directors though less than a quorum of the Board of Directors. A Director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. In case of any increase in the number of Directors, the additional Directors shall be elected at an annual meeting or at a special meeting of stockholders called for that purpose. SECTION 3.5 - MEETING OF DIRECTORS: The Directors may hold their meetings and may have an office and keep the books of the corporation, except as otherwise provided by statute, in such place or places, as the Board of Directors may from time to time determine. SECTION 3.6 - ORGANIZATIONAL MEETING: Other than the first meeting of the initial Board of Directors, each newly elected Board of Directors may hold its first meeting for the purpose of organization and the transaction of business, if a quorum is present, immediately after and at the same place as the annual meeting of the stockholders, and no notice of such meeting shall be necessary. SECTION 3.7 - ELECTION OF OFFICERS: At the first meeting of the Board of Directors in each year at which a quorum shall be present, held next after the annual meeting of stockholders, the Board of Directors shall proceed to the election of the officers of the corporation. SECTION 3.8 - REGULAR MEETINGS: Regular meetings of the Board of Directors shall be held at such times and places as shall be designated, from time to time by resolution of the Board of Directors. Notice of such regular meetings shall not be required. SECTION 3.9 - SPECIAL MEETINGS: Special meetings of the Board of Directors may be called by the Chairman of the Board or the President on three days' notice to each Director, either personally or by mail, or by telegram or such special meetings may be called by the President or Secretary in like manner and on like notice on the written request of two Directors. Neither the business to be transacted at, nor the purpose of, any special meeting need be specified in a notice or waiver of notice except where expressly provided by statute, the articles of incorporation or by these bylaws. SECTION 3.10 - NOTICE: The Secretary shall give notice of each special meeting in person, or by mail, telegraph, or facsimile at least three (3) days before the meeting to each Director. The attendance of a Director at any meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. SECTION 3.11 - FULL DIRECTORS' MEETINGS: At any meeting at which every Director shall be present, even though without any notice, any business may be transacted. SECTION 3.12 - QUORUM: A majority of the Directors fixed in the manner provided in these bylaws shall constitute a quorum for the transaction of business, but if at any meeting of the Board of Directors there be less than a quorum present, a majority of those present or any Director solely present may adjourn the meeting from time to time without further notice. The act of a majority of the Directors present at a meeting at which a quorum is in attendance shall be the act of the Board of Directors, unless the act of a greater number is required by the articles of incorporation or by these bylaws. SECTION 3.13 - ORDER OF BUSINESS: At meetings of the Board of Directors, business shall be transacted in such order as from time to time the Board may determine. SECTION 3.14 - COMPENSATION: Directors as such shall not receive any stated salary for their service, but by resolution of the Board a fixed sum and expense of attendance, if any, may be allowed for attendance at such regular or special meetings of the Board; provided that nothing contained herein shall be construed to preclude any Director from serving the corporation in any other capacity or receiving compensation therefor. SECTION 3.15 - PRESUMPTION OF ASSENT: A Director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action. SECTION 3.16 - EXECUTIVE COMMITTEE AND OTHER COMMITTEES: The Board of Directors by resolution adopted by a majority of the full Board of Directors, may designate from among its members an Executive Committee and one or more other committees, each of which, to the extent provided in such resolution, shall have and may exercise all of the authority of the Board of Directors except that no committee shall have the authority of the Board of Directors in those matters specifically prohibited by Art. 2.36 of the Texas Business Corporation Act. The designation of any such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed by law. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors at the Board's next meeting. ARTICLE IV - OFFICERS --------------------- SECTION 4.1 - NUMBER, TITLE AND TERM OF OFFICE: The officers of the corporation shall be the Chairman of the Board, a President, a Vice- Chairman of the Board, one or more Vice-Presidents, a Secretary, a Treasurer, and such other officers as the Board of Directors may from time to time elect or appoint. Each officer shall hold office until his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. One person may hold more than one office, except that the President shall not hold the office of Secretary. None of the officers need be a Director, except the Chairman of the Board, the President, and the Vice-Chairman of the Board, who must be Directors. SECTION 4.2 - REMOVAL: Any officer, or member of any committee, or agent, elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. SECTION 4.3 - VACANCIES: A vacancy in the office of any officer may be filled by vote of a majority of the Directors for the unexpired portion of the term. SECTION 4.4 - THE CHAIRMAN OF THE BOARD - POWERS AND DUTIES: The Chairman of the Board shall preside at all meetings of the stockholders and the Board of Directors at which he shall be present. He shall perform all of the duties incident to the office of Chairman of the Board of Directors of a corporation and such other duties as from time to time, may be assigned to him by the Board of Directors. The Chairman of the Board shall be the chief executive officer of the corporation and shall have all powers and authority of the President. SECTION 4.5 - PRESIDENT - POWERS AND DUTIES: The President shall have general executive charge, management and control of the properties and operations of the corporation in the ordinary course of its business with all such powers with respect to such properties and operations as may be reasonably incident to such responsibilities. SECTION 4.6 - VICE-CHAIRMAN OF THE BOARD - POWERS AND DUTIES: The Vice- Chairman of the Board shall exercise such powers and perform such duties as, from time to time, may be assigned to him by the Board of Directors. SECTION 4.7 - VICE-PRESIDENTS - POWERS AND DUTIES: Each Vice-President shall have such powers and duties as may be assigned to him by the Board of Directors and shall exercise the powers of the President during that officer's absence or inability to act. Any action taken by a Vice- President in the performance of the duties of the President shall be conclusive evidence of the absence or inability to act of the President at the time such action was taken. SECTION 4.8 - TREASURER - POWERS AND DUTIES: The Treasurer shall have custody of all the funds and securities of the corporation which come into his hands. He shall perform all acts incident to the position of Treasurer subject to the control of the Board of Directors, and give such bond for the faithful discharge of his duties in such form as the Board of Directors may require. SECTION 4.9 - ASSISTANT TREASURER - POWERS AND DUTIES: Each Assistant Treasurer shall have the usual powers and duties pertaining to his office, together with such other powers and duties as may be assigned to him by the Board of Directors. The Assistant Treasurer shall exercise the powers of the Treasurer during that officer's absence or inability to act. SECTION 4.10 - SECRETARY - POWERS AND DUTIES: The Secretary shall keep the minutes of all meetings of the Board of Directors and the minutes of all meetings of the stockholders, in books provided for that purpose. He shall have charge of the certificate books, transfer books and stock ledgers, and such other books and papers as the Board of Directors may direct, all of which shall at all reasonable times be open to the inspection of any Director upon application at the executive offices of the corporation during business hours, and he shall in general perform all duties incident to the office of Secretary, subject to the control of the Board of Directors. SECTION 4.11 - ASSISTANT SECRETARY - POWERS AND DUTIES: Each Assistant Secretary shall have the usual powers and duties pertaining to his office, together with such other powers and duties as may be assigned to him by the Board of Directors or the Secretary. The Assistant Secretary shall exercise the powers of the Secretary during that officer's absence or inability to act. ARTICLE V - INDEMNIFICATION OF DIRECTORS AND OFFICERS SECTION 5.1 - IN GENERAL: The corporation shall, to the fullest extent to which it is empowered to do so by the Texas Business Corporation Act and any other applicable laws as may from time to time be in effect, indemnify any person who was, is or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, partner, venturer, proprietory, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding. The corporation's obligations under this section include, but are not limited to, the convening of any meeting, and the consideration of any matter thereby, required by statute in order to determine the eligibility of an officer or director for indemnification. Reasonable expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of (i) a written affirmation by the director, officer, employee or agent who may be entitled to such indemnification of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification under the applicable statute, and (ii) a written undertaking by or behalf of the director, officer, employee or agent who may be entitled to such indemnification, to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation. The corporation's obligation to indemnify and to prepay expenses under this Section 5.1 shall arise, and all rights granted to directors, officers, employees or agents hereunder shall vest, at the time of the occurrence of the transaction or event to which such action, suit or proceeding relates, or at the time that the action or conduct to which such action, suit or proceeding relates was first taken or engaged (or omitted to be taken or engaged in), regardless of when such action, suit or proceeding is first threatened, commenced or completed. Notwithstanding any other provision of these bylaws or the Articles of Incorporation of the corporation, no action taken by the corporation, either by amendment of the bylaws or the Articles of Incorporation of the corporation or otherwise, shall diminish or adversely affect any rights to indemnification or prepayment of expenses granted under this Section 5.1 which shall have become vested as aforesaid prior to the date that such amendment or other corporate action is taken. Further, if any provision of this Section 5.1 shall be held to be invalid or unenforceable, the validity and enforceability of the remaining provisions shall not in any way be affected or impaired. ARTICLE VI - CAPITAL STOCK SECTION 6.1 - CERTIFICATES OF SHARES: The certificates for shares of the capital stock of the corporation shall be in such form as shall be approved by the Board of Directors. The certificates shall be signed by the Chairman of the Board and the President or a Vice-President, and also by the Secretary or an Assistant Secretary or by the Treasurer or an Assistant Treasurer and may be sealed with the seal of this corporation or a facsimile thereof. They shall be consecutively numbered and shall be entered in the books of the corporation as they are issued and shall exhibit the holder's name and the number of shares. SECTION 6.2 - TRANSFER OF SHARES: The shares of stock of the corporation shall be transferable only on the books of the corporation by the holders thereof in person or by their duly authorized attorneys or legal representatives, upon surrender and cancellation of certificates for a like number of shares. SECTION 6.3 - REGULATIONS: The Board of Directors shall have power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration or the replacement of certificates for shares of the capital stock of the corporation. ARTICLE VII - MISCELLANEOUS PROVISIONS SECTION 7.1 - FISCAL YEAR: The fiscal year of the corporation shall be such as the Board of Directors shall by resolution, establish. SECTION 7.2 - SEAL: The seal of the corporation shall be such as from time to time may be approved by the Board of Directors. SECTION 7.3 - NOTICE AND WAIVER OF NOTICE: Whenever any notice whatsoever is required to be given under the provisions of these bylaws, said notice shall be deemed to be sufficient if given by depositing the same in a post office box in a sealed postpaid wrapper addressed to the person entitled thereto at his post office address, as it appears on the books of the corporation, and such notice shall be deemed to have been given on the day of such mailing. A waiver of notice, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. SECTION 7.4 - RESIGNATIONS: Any Director or officer may resign at any time. Such resignations shall be made in writing and shall take effect at the time specified therein, or, if no time be specified, at the time of its receipt by the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation. SECTION 7.5 - SECURITIES OF OTHER CORPORATIONS: The President (or any Vice- President) of the corporation shall have power and authority to transfer, endorse for transfer, vote, consent and take any other action with respect to any securities of another issuer which may be held or owned by the corporation and to make, execute and deliver any waiver, proxy or consent with respect to any such securities. SECTION 7.6 - DIVIDENDS: Dividends upon the outstanding shares of the corporation, subject to the provision of the articles of incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, property, or in shares of the corporation, subject to the provisions of the Texas Business Corporation Act, and the articles of incorporation. SECTION 7.7 - CONTRACTS: The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. SECTION 7.8 - LOANS: No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. SECTION 7.9 - BYLAWS: These bylaws may be altered, amended, or repealed and new bylaws may be adopted by the Board of Directors, subject to repeal or change by action of the stockholders. _______________________________________ EX-11 3 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 Statement re: Computation of Earnings Per Share
CULLEN/FROST BANKERS, INC. Computation of Earnings per Common Share Primary and Fully Diluted (Unaudited) (in thousands) December 31, ---------------------------- Primary Earnings per Share 1993 1992 1991 - ------------------------------------------------ -------- ------- ------- Income before extraordinary credit and cumulative effect of accounting change $ 38,797 $17,625 $ 205 Elimination of interest on 9.75% convertible subordinated debentures due 1996, net of tax 54 643 -------- ------- ------- Income applicable to common stock before extraordinary credit and cumulative effect of accounting change 38,851 18,268 205 Extraordinary credit 6,497 Cumulative effect of accounting change 8,439 ------- ------- ------- Net income applicable to common stock $47,290 $24,765 $ 205 ======= ======= ======= Weighted average shares outstanding 10,922 10,175 9,897 Addition from assumed exercise of stock options 189 284 178 Addition of assumed conversion of 9.75% convertible subordinated debentures due 1996 40 515 ------- ------- ------- Weighted average number of common shares outstanding 11,151 10,974 10,075 ======= ======= ======= Primary earnings per common share: Income before extraordinary credit and cumulative effect of accounting change $3.48 $1.66 $0.02 Net income 4.24 2.26 0.02 December 31, ---------------------------- Fully Diluted Earnings per Share 1993 1992 1991 - ------------------------------------------------ -------- ------- ------- Income before extraordinary credit and cumulative effect of accounting change $38,797 $17,625 $ 205 Elimination of interest on 9.75% convertible subordinated debentures due 1996, net of tax 54 643 ------- ------- ------ Income applicable to common stock before extraordinary credit and cumulative effect of accounting change 38,851 18,268 205 Extraordinary credit 6,497 Cumulative effect of accounting change 8,439 ------- ------- ------ Net income applicable to common stock $47,290 $24,765 $ 205 ======= ======= ====== Weighted average shares outstanding 10,922 10,175 9,897 Addition from assumed exercise of stock options 189 325 178 Addition of assumed conversion of 9.75% convertible subordinated debentures due 1996 40 515 ------- ------- ------ Weighted average number of common shares outstanding 11,151 11,015 10,075 ======= ======= ====== Fully diluted earnings per common share: Income before extraordinary credit and cumulative effect of accounting change $3.48 $1.66 $0.02 Net income 4.24 2.25 0.02
EX-13 4 CULLEN/FROST 1993 ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 13 The Cullen/Frost 1993 Annual Report to Shareholders for the Year Ended December 31, 1993 (furnished for the information of the Commission and not deemed to be "filed" except for the portion expressly incorporated by reference) GRAPHICS APPENDIX LIST EDGAR VERSION TYPESET VERSION - ------------- --------------- 1993 Form 10-K, Exhibit 13 -- 1993 Form 10-K, Exhibit 13 -- (Selected Portions of CFBI's (Selected Portions of CFBI's 1993 Annual Report to Stockholders) 1993 Annual Report to Stockholders) Page 10 -- One line graph omitted Page 10 -- One line graph with two lines depicting Net Interest Income and Net Interest Margin, respective- ly. (The text and numbers used in this graph appear in the text of the EDGAR Version). Page 10 -- One combination bar-line Page 10 -- One combination bar-line graph omitted graph with two lines and five bars depicting Cost of Funds, Earnings on Funds and Net Interest Spread, re- spectively. (The text and numbers used in this graph appear in the text of the EDGAR Version). Page 12 -- One bar graph omitted Page 12 -- One bar graph depicting a comparison of Non-Interest income categorized into Trust, Service Charges, Other Service Charges, Other and Net Gain (Loss) on Securities Transactions. (The text and numbers used in this graph appear in the text of the EDGAR Version). Page 13 -- One bar graph omitted Page 13 -- One bar graph depicting a comparison of Non-Interest expense excluding non-recurring items cate- gorized into Salaries, Wages & Pen- sions, Net Occupancy & Furniture and Equipment, Other, and Provision for Real Estate Losses. (The text and numbers used in this graph appear in the text of the EDGAR Version). Page 14 -- One line graph omitted Page 14 -- One line graph with two lines depicting Average Loans and Average Loan Yield, respectively. (The text and numbers used in this graph appear in the text of the EDGAR Version). Page 16 -- One bar graph omitted Page 16 -- One bar graph depicting the combined Foreclosed Assets and Non- Accrual and Restructured Loans, re- spectively. (The text and numbers used in this graph appear in the text of the EDGAR Version). Page 19 -- One combination bar-line Page 19 -- One combination bar-line graph omitted graph with one line and five bars depicting Allowance to year-end loans and Allowance for possible loan losses, respectively. (The text and numbers used in this graph appear in the text of the EDGAR Version). Page 21 -- One combination bar-line Page 21 -- One combination bar-line gragh omitted graph with one line and five bars depicting Cost of Time deposits, Average Demand and Average Time de- posits, respectively. (The text and numbers used in this graph appear in the text of the EDGAR Version). FINANCIAL REVIEW Cullen/Frost Bankers, Inc. and Subsidiaries The accompanying audited consolidated financial statements of Cullen/Frost Bankers, Inc. and Subsidiaries ("Cullen/Frost" or the "Corporation") present the Corporation's results of operations for the years 1991 through 1993. All balance sheet amounts presented in the following financial review are averages unless otherwise indicated. Earnings and other per share amounts have been restated to give effect to a ten percent stock dividend declared and paid by the Corporation during the first quarter of 1993. Taxable-equivalent adjustments assume a 35 percent federal tax rate for 1993 and a 34 percent federal income tax rate for 1992 and 1991. Dollar amounts in tables are stated in thousands, except for per share amounts. Amounts reported for 1993 include the February 13, 1993 acquisition, from the Federal Deposit Insurance Corporation, of New First City offices in San Antonio and Austin, Texas which added approximately $458 million in assets. The acquisition was accounted for as a purchase and as such 1993 includes results of operations from the date of acquisition. RESULTS OF OPERATIONS For the year ended December 31, 1993, the Corporation reported net income of $47,236,000 or $4.24 per common share, compared with $24,122,000 or $2.26 per common share for 1992 and $205,000 or $.02 per common share for 1991. The improved 1993 results were heavily impacted by an improvement in asset quality which resulted in a combined credit for possible loan and real estate losses of $4.6 million in 1993 compared to a net expense for these combined provisions of $18.5 million in 1992. The 1993 results also include the operating impact of the acquisition and non- recurring items including: (i) $6.7 million in restructuring costs related to bank premises resulting from downsizing of office space and valuations on owned buildings resulting from the decision to sell, (ii) $3.6 million in combined early retirement incentive and job restructuring costs, (iii) $5.0 million in non-recurring costs related to the acquisition of the New First City locations, and (iv) a one-time benefit of $8.4 million related to a required change in the method of accounting for income taxes. During 1993, the Corporation reached agreement to acquire Texas Commerce Bank- Corpus Christi in exchange for Cullen/Frost Bank of Dallas, N.A. This transaction is subject to regulatory approval and is expected to be completed during April 1994. No gain or loss is expected from this transaction. The 1992 results include an increase of $8.1 million in net interest income, a decrease of $12.4 million in the combined provisions for real estate and loan losses and a $4.3 million increase in non-interest income. During 1992, the Corporation recorded an extraordinary credit for utilization of net operating loss carryforwards of $6.5 million.
1993 Change 1992 Change EARNINGS SUMMARY 1993 from 1992 1992 from 1991 1991 - -------------------------------------------------------------------------------------- Taxable-equivalent net interest income $128,709 $ 10,923 $117,786 $7,132 $110,654 Taxable-equivalent adjustment 883 (246) 1,129 (1,011) 2,140 -------- -------- -------- ------ -------- Net interest income 127,826 11,169 116,657 8,143 108,514 Provision (credit) for possible loan losses (6,085) (5,235) (850) (10,870) 10,020 Non-interest income: Net gain (loss) on securities transactions 1,433 1,665 (232) (2,254) 2,022 Other 74,796 12,751 62,045 6,585 55,460 -------- -------- -------- -------- -------- Total non-interest income 76,229 14,416 61,813 4,331 57,482 Non-interest expense: Provision for real estate losses 1,445 (17,866) 19,311 (1,488) 20,799 Restructuring costs 10,285 10,285 Other operating expenses 160,348 26,161 134,187 (152) 134,339 -------- -------- -------- -------- -------- Total non-interest expense 172,078 18,580 153,498 (1,640) 155,138 -------- -------- -------- -------- -------- Income before income taxes (credits), extraordinary credit and cumulative effect of accounting change 38,062 12,240 25,822 24,984 838 Income taxes (credits) (735) (8,932) 8,197 7,564 633 -------- -------- -------- -------- -------- Income before extraordinary credit and cumulative effect of accounting change 38,797 21,172 17,625 17,420 205 Extraordinary Credit - income tax benefit (6,497) 6,497 6,497 Cumulative effect of change in accounting for income taxes 8,439 8,439 -------- -------- -------- -------- -------- Net income $ 47,236 $ 23,114 $24,122 $23,917 $ 205 ======== ======== ======== ======== ======== Per share Net income-primary $ 4.24 $ 1.98 $ 2.26 $2.24 $ .02 Net income-fully diluted 4.24 1.99 2.25 2.23 .02
Page 9 NET INTEREST INCOME Net interest income on a taxable-equivalent basis was $128,709,000 for the year ended December 31, 1993, compared with $117,786,000 and $110,654,000 for 1992 and 1991, respectively. Increases in demand deposits and larger business volumes resulting from the New First City acquisition were the primary reasons for the increase in net interest income from 1992. Net interest margin was 4.29 percent for the year ended December 31, 1993, compared to 4.47 percent and 4.13 percent for the years ended December 31, 1992 and 1991, respectively. Net interest spread for 1993 declined 8 basis points to 3.78 percent. Net interest spread was 3.86 percent and 3.35 percent for 1992 and 1991, respectively. The decline in net interest margin and net interest spread in 1993 is primarily due to lower yields on securities. Higher-yielding securities continue to mature and, given the current rate environment, are being replaced with lower-yielding securities. Net interest income has been favorably impacted by the significant decrease in non-performing assets during 1993 and 1992. Net interest income increased during 1992 compared to 1991 primarily due to an increase in demand deposits and lower rates on interest bearing accounts. During 1993, yields on earning assets declined 90 basis points while the cost of funds decreased 82 basis points from 1992. The net interest spread as well as the net interest margin could be impacted by future changes in short and long-term interest rate levels.
Net Interest Income and Net Interest Margin Net Interest Spread ($ in millions - taxable-equivalent) (taxable-equivalent) (Graphic Material omitted) (Graphic material omitted) Year Net Interest Net Interest Year Earnings Cost of Net Interest Ended Income Margin Ended on Funds Funds Spread - ------ ------------ ----------- ----- -------- -------- ------------ 1989 $111 3.60% 1989 9.87% 7.17% 2.70% 1990 113 3.93 1990 9.60 6.54 3.06 1991 111 4.13 1991 8.70 5.35 3.35 1992 118 4.47 1992 7.25 3.39 3.86 1993 129 4.29 1993 6.35 2.57 3.78
INTEREST RATE SENSITIVITY The Corporation's interest rate sensitivity and liquidity are monitored by its Asset/Liability Management Committee on an ongoing basis. The Committee seeks to avoid fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing interest rates. As the accompanying interest rate sensitivity table indicates, the Corporation is liability sensitive on a cumulative basis at both the three month and one year time periods. The Corporation continuously monitors and manages the balance between interest rate-sensitive assets and liabilities. The Corporation's objective is to confine the impact of fluctuating market rates on net interest income within acceptable levels of risk. Page 10
Immediately Non-Rate CUMULATIVE Rate Sensitive Rate Sensitive Within Sensitive INTEREST RATE -------------- ------------------------------ --------- SENSITIVITY 0-30 days 90 days One Year Five Years >5Years Total - ---------------------------------------------------------------------------------------- Earning Assets: Loans $ 566,394 $ 621,980 $ 827,068 $1,181,033 $66,776 $1,247,809 Securities 247,298 315,943 1,144,919 1,457,611 154,260 1,611,871 Federal funds sold and other short-term investments 250,397 250,397 250,397 250,397 250,397 ---------- ---------- ---------- --------- -------- ---------- Total earning assets $1,064,089 $1,188,320 $2,222,384 $2,889,041 $221,036 $3,110,077 =========== ========== ========== ========== ======== ========== Interest-Bearing Liabilities: Savings and Interest- on-Checking $ 800,161 $ 800,161 $ 800,161 $ 800,161 $800,161 Money market deposit accounts 527,230 527,230 527,230 527,230 527,230 Certificates of deposit and other time accounts 240,998 501,509 827,301 893,631 $47,314 940,945 Federal funds purchased and other borrowings 166,519 166,519 166,519 166,519 166,519 ---------- ---------- ---------- ---------- -------- ---------- Total interest-bearing liabilities $1,734,908 $1,995,419 $2,321,211 $2,387,541 $47,314 $2,434,855 ========== =========== ========== ========== ======== ========== Interest sensitivity gap$ (670,819) $ (807,099) $ (98,827)$ 501,500 $173,722 $ 675,222 ========== =========== ========== ========== ======== ========== Ratio of earning assets to interest-bearing liabilities .61 .60 .96 1.21 ========== =========== ========== ==========
In developing the classifications used for this analysis, it was necessary to make certain assumptions and approximations in assigning assets and liabilities to different maturity categories. For example, savings and Interest-on-Checking are subject to immediate withdrawal and as such are presented as repricing within the earliest period presented even though their balances have historically not shown significant sensitivity to changes in interest rates. Unearned discounts on loans in the amount of $8,456,000 are excluded from the balances of loans in the above table. Consumer loans are distributed in the immediately rate- sensitive category for those tied to market rates or to other categories according to the repayment schedule. LIQUIDITY Asset liquidity is provided by cash and assets which are readily marketable or pledgeable or which will mature in the near future. Liquid assets include cash, short-term investments in time deposits in banks, Federal funds sold and securities purchased under resale agreements and securities available for sale. Liquidity is also provided by access to core funding sources. These include core depositors and correspondent banks in the Corporation's natural trade area which maintain accounts with and sell Federal funds to subsidiary banks of the Corporation. The Corporation does not solicit brokered deposits. NON-INTEREST INCOME Non-interest income of $76,229,000 was reported for 1993, compared with $61,813,000 for 1992 and $57,482,000 for 1991. Excluding securities transactions, total non-interest income increased 20.6 percent from 1992. All categories of non-interest income increased before the additional volumes added by the acquisition.
Year Ended December 31 -------------------------------------------------------- 1993 1992 1991 ---------------- ------------------ ------------------ Percent Percent Percent Non-Interest Income Amount Change Amount Change Amount Change - -------------------------------------------------------------------------------- Trust department $ 26,278 + 20.2% $21,861 + 9.1% $20,030 + 6.7% Service charges on deposit accounts 25,386 + 15.6 21,958 + 16.1 18,915 + 24.9 Other service charges, collection and exchange charges, commissions and fees 9,889 + 25.4 7,888 - 4.8 8,288 + 13.5 Net gain(loss) on securities transactions 1,433 +717.7 (232) - 111.5 2,022 +1,467.4 Other 13,243 + 28.1 10,338 + 25.7 8,227 - 10.9 ------- ------- ------ Total $76,229 + 23.3 $61,813 + 7.5 $57,482 + 13.6 ======= ======= =======
Page 11 Trust income was up 20.2 percent during 1993. This is attributable to an increase in the number of accounts held and assets under management primarily due to the acquisition of additional trust customers from New First City, Texas-Austin. At December 31, 1993, the market value of trust assets totaled $11.1 billion compared to $8.6 billion at December 31, 1992. The 9.1 percent increase in trust income from 1991 to 1992 was due to an increase in the number of accounts. Service charges on deposit accounts and other service charges increased 15.6 percent and 25.4 percent respectively when compared to 1992. Deposit service charges and other service charges were both impacted by an increase in activity levels and additional volumes resulting from the acquisition. During 1992, service charges on deposit accounts increased 16.1 percent because of increased activity and lower earnings rates on commercial checking accounts which resulted in more payments for services through fees rather than through keeping balances. In anticipation of implementing Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Corporation sold certain investment securities in December 1993 resulting in a gain of $1.4 million. Securities gains of $2.0 million were realized in 1991 as $45 million in long duration mortgage pass-through securities were sold. This allowed the Corporation to restructure a portion of its securities portfolio into shorter term securities which have less price sensitivity to interest rate fluctuations. Other non-interest income increased 28.1 percent to $13,243,000 in 1993 compared to a 25.7 percent increase in 1992. The increase from 1992 was primarily due to gains on the sale of foreclosed assets and increased brokerage commissions resulting from greater sales of mutual funds. The 25.7 percent increase in 1992 is primarily due to higher gains and income from foreclosed assets. During 1991, other non-interest income decreased 10.9 percent from 1990 due to lower fees from third party data processing customers and lower gains on sales of assets.
Non-Interest Income ($ in thousands) (Graphic material omitted) Net Gain(Loss) Year Trust Service Other Service Other on Securities Ended Department Charges Charges Transactions - ----- ---------- ------- ------------- ------- -------------- 1989 $16,211 $13,290 $6,293 $14,170 $ 516 1990 18,777 15,146 7,304 9,236 129 1991 20,030 18,915 8,288 8,227 2,022 1992 21,861 21,958 7,888 10,338 (232) 1993 26,278 25,386 9,889 13,243 1,433
NON-INTEREST EXPENSE Excluding the provision for real estate losses, non-interest expense was $170,633,000 for 1993 compared with $134,187,000 for 1992 and $134,339,000 for 1991. This 27.2 percent increase in non-interest expense is primarily due to a higher expense base as a result of the New First City acquisition and $10.3 million in restructuring charges recorded during 1993. These costs include $6.7 million in net-occupancy restructuring costs related to office downsizing and valuations of banking premises owned resulting from the decision to sell and $3.6 million related to an early retirement incentive program and costs related to job restructurings. The acquisition of New First City added $5.0 million in non-recurring costs including costs of interim data processing services, temporary staffing and related costs. The restructure of banking offices reflects primarily the conversion to branching which has been put into place over the last several years following changes in Texas banking law. The $3.6 million charge in salaries and benefits is related to $1.9 million early retirement incentive program costs and severance associated with job eliminations and restructurings. The occupancy and job restructurings are expected to reduce annual operating costs beginning in 1994 by approximately $6 million. Page 12
Year Ended December 31 ----------------------------------------------------- 1993 1992 1991 ---------------- ------------------ --------------- Percent Percent Percent Non-Interest Expense Amount Change Amount Change Amount Change - ----------------------------------------------------------------------------- Salaries and wages $ 53,654 + 16.2% $ 46,184 + 4.6% $ 44,154 + 2.6% Pension and other employee benefits 12,052 + 23.7 9,746 + 7.6 9,058 - 1.0 Net occupancy of banking premises 21,307 + 23.2 17,294 + 2.9 16,807 - 2.1 Furniture and equipment 10,155 + 22.4 8,295 + 7.4 7,726 - 4.2 Intangible amortization 6,877 +882.4 700 +17.3 597 - 27.6 Restructuring costs 10,285 +100.0 Other 56,303 + 8.3 51,968 - 7.2 55,997 + 18.6 -------- -------- -------- 170,633 +27.2 134,187 - .1 134,339 + 7.1 Provision for real estate losses 1,445 -92.5 19,311 - 7.2 20,799 + 86.2 -------- -------- -------- Total $172,078 +12.1 $153,498 - 1.1 $155,138 + 13.5 ======== ======== ========
Combined salaries and employee benefits increased 17.5 percent during 1993, excluding the $3.6 million restructuring charge. The number of full time equivalent employees increased 7 percent primarily because of staff needed to support the acquired customer base. Pension and other employee benefits increased during 1993 and 1992 due to higher expenses related to payroll taxes, medical insurance and retirement expenses. The Corporation adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," in the first quarter of 1993. This statement did not have a material impact on the financial position or operations of the Corporation. Net occupancy of banking premises increased by 23.2 percent during 1993. The increase is primarily due to costs of operating the additional locations obtained in the acquisition. The acquisition required re- equipping of all work stations in the additional offices. This was a principal cause of furniture and equipment costs increasing 22.4 percent during 1993. For 1992 net occupancy of banking premises increased 2.9 percent and furniture and equipment costs increased 7.4 percent. The increase in furniture and equipment costs during 1992 resulted from higher depreciation and software expense. The provision for real estate losses was $1,445,000 in 1993, compared with $19,311,000 and $20,799,000 in 1992 and 1991, respectively. This reduction is due to improving asset quality and a declining volume of foreclosed assets. See "Non-Performing Assets", page 16. Other non-interest expense and intangible amortization increased 20.0 percent in 1993. Excluding the operating expenses of the New First City offices and non-recurring costs incurred in acquiring these locations, other non-interest expenses were flat when compared to 1992. An increase in amortization of goodwill and other intangibles of $6.2 million, created by the acquisition, was offset by lower expenses of operating foreclosed properties and lower expenses spread throughout various categories including insurance, attorneys' expenses, and consulting costs. Other non-interest expense and intangible amortization decreased 6.9 percent in 1992. Excluding a $5.4 million litigation settlement in the second quarter of 1991, other non-interest expense increased $1.5 million, or 2.9 percent in 1992. The primary reasons for the increase were outside computer services, FDIC insurance, and trust investment advisory fees which were partially offset by lower attorney and other professional expenses.
Non-Interest Expense Excluding Non-recurring Items ($ in thousands) (Graphic material omitted) Net Occupancy Provision Year Salaries, Wages & Furniture and for Real Estate Ended and Pensions Equipment Other Losses - ----- --------------- --------------- ------- --------------- 1989 $51,928 $25,060 $40,546 $ 8,131 1990 52,167 25,238 48,050 11,172 1991 53,212 24,533 51,194 20,799 1992 55,930 25,589 52,668 19,311 1993 64,494 31,462 59,492 1,445
Page 13 INCOME TAXES Effective January 1, 1993, Cullen/Frost adopted Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes." FAS 109 permits the recognition of deferred tax assets to a greater extent than previously permitted. The one-time cumulative effect of adopting FAS 109 increased income by $8.4 million. The Corporation recorded a tax benefit in 1993 of $735,000. The effective tax rate in 1993 was affected by the reduction of the valuation allowance for deferred tax assets established at the beginning of 1993 by $13.5 million. The reduction of the valuation allowance was based mainly on the level of earnings obtained in 1993, projected future earnings, and the increase in deferred tax credits resulting from the adoption of FAS 115 at the end of 1993. No valuation allowance was considered necessary because Cullen/Frost has $5,600,000 in recoverable taxes paid in prior years, the future reversal of approximately $22,900,000 in taxable temporary differences, and future income. During 1993, the Omnibus Budget Reconciliation Act increased the corporate tax rate from 34 percent to 35 percent. The Corporation is projecting an effective tax rate for 1994 which approximates the statutory rate. Cullen/Frost recorded income tax expense of $8,197,000 in 1992. Additionally, the Corporation reported an extraordinary credit from utilizing net operating loss carryforwards of $6,497,000. This resulted in income tax expense net of the extraordinary credit of $1,700,000 for 1992. In 1991, Cullen/Frost recorded income tax expense of $633,000. SOURCES AND USES OF FUNDS Average assets for 1993 of $3,512,163,000 increased by 15.0 percent from 1992 levels and declined 1.6 percent between 1991 and 1992. Funding sources changed little in 1993. A shift from time deposits to demand deposits continued, and borrowed funds decreased from 1992 levels primarily due to the conversion of $10,000,000 in subordinated debentures in February 1993.
Percentage of Total Average Assets Sources and Uses of Funds 1993 1992 1991 - ------------------------- ------- ------ ------ Sources of Funds: Deposits: Demand 23.2% 21.8% 19.3% Time 64.6 66.9 69.5 Federal funds purchased 3.7 3.4 3.8 Equity capital 7.1 6.3 5.7 Borrowed funds .1 .5 .5 Other liabilities 1.3 1.1 1.2 ------ ------ ------ Total 100.0% 100.0% 100.0% ====== ====== ====== Uses of Funds: Loans 33.0% 33.5% 37.0% Securities 45.1 46.4 43.0 Federal funds sold 7.3 6.4 6.4 Non-earning assets 14.6 13.7 13.6 ------ ------ ------ Total 100.0% 100.0% 100.0% ====== ====== ======
LOANS Average loans for 1993 were $1,158,057,000, an increase of 13.0 percent from 1992. The increase results primarily from the first quarter acquisition of New First City. In addition, period-end loans increased 6.3 percent between the third and fourth quarters of 1993. A several-year decline in loan volume was reversed during 1993.
Total Average Loans and Yields ($ in millions) (Graphic material omitted) Average Loan Year Average Loans Yield - ---- ------------- ------------ 1989 $1,407 10.81% 1990 1,315 10.30 1991 1,149 9.54 1992 1,025 8.27 1993 1,158 7.88
Page 14
December 31 --------------------------------------------------------------- 1993 ----------------------- Loan Portfolio Analysis Percentage of Period-End Balances Amount Total Loans 1992 1991 1990 1989 - ----------------------------------------------------------------------------------- Real estate: Construction $ 32,297 2.6% $ 26,632 $ 24,620 $ 39,316 $ 36,289 Land 22,990 1.8 21,288 26,474 62,850 77,358 Permanent Mortgages: Commercial 144,122 11.6 77,347 64,605 86,934 95,193 Residential 276,148 22.1 253,471 258,303 246,101 238,838 Other 150,499 12.1 134,470 161,439 192,330 216,672 Commercial and Industrial: Energy 24,548 2.0 52,345 41,894 49,077 60,769 Other 286,282 22.9 204,175 241,180 305,059 361,236 Consumer 268,331 21.5 217,232 198,521 215,231 190,158 Financial institutions 284 9,380 14,819 18,056 25,313 Foreign 31,763 2.6 17,871 31,988 29,647 29,188 Purchasing or carrying securities 1,204 .1 1,918 3,389 5,127 14,983 Other 17,797 1.4 7,737 21,019 35,350 38,001 Unearned discount (8,456) (.7) (12,632) (14,854) (16,858) (14,133) ----------- ------ ---------- ---------- ---------- ---------- Total $1,247,809 100.0% $1,011,234 $1,073,397 $1,268,220 $1,369,865 =========== ====== ========== ========== ========== ========== Percent change from previous year +23.4% -5.8% -15.4% -7.4% -12.4%
Total real estate loans at December 31, 1993 were $626,056,000, up 22.0 percent from year-end 1992. Commercial mortgages increased $66,775,000 or 86.3 percent. Real estate loans categorized as "other" are primarily amortizing commercial and industrial loans with maturities less than five years. Most are collateralized by completed, owner occupied commercial real estate properties. As part of the acquisition, certain commercial and commercial real estate loans of the Austin operation are protected by a loss-sharing arrangement with the Federal Deposit Insurance Corporation (the "FDIC"). Losses are shared 80 percent to the FDIC and 20 percent to the Corporation. At December 31, 1993 these loans approximated $42 million. Of the real estate loans outstanding at year end, the geographic concentrations were San Antonio, 68 percent; Houston/Galveston, 16 percent; Austin, 10 percent; and Dallas, 5 percent. Amortizing permanent mortgages represented 67.1 percent of the total real estate loan portfolio at year end.
December 31 ---------------------------------------------------- 1993 1992 ---------------------------------------------------- Real Estate Loans Percentage of Percentage of Period-End Balances Amount Real Estate Loans Amount Real Estate Loans - ---------------------------------------------------------------------------- Construction $ 32,297 5.2% $ 26,632 5.2% Land 22,990 3.7 21,288 4.1 Permanent mortgages: Commercial 144,122 23.0 77,347 15.1 Residential 276,148 44.1 253,471 49.4 Other 150,499 24.0 134,470 26.2 -------- ------ -------- ------ Total $626,056 100.0% $513,208 100.0% ======== ====== ======== ======
December 31 -------------------------- 1991 -------------------------- Real Estate Loans Percentage of Period-End Balances Amount Real Estate Loans - -------------------------------------------------- Construction $ 24,620 4.6% Land 26,474 4.9 Permanent mortgages: Commercial 64,605 12.1 Residential 258,303 48.2 Other 161,439 30.2 -------- ------ Total $535,441 100.0% ======== ======
Page 15 MEXICAN LOANS At December 31, 1993, the Corporation's cross-border outstandings, excluding $16,326,000 in loans secured by liquid U.S. assets, totaled $15,437,000 up from $1,301,000 last year. This increase reflects the expansion in trade-related debt in connection with the continuing confidence in the Mexican economy. During the first quarter of 1992, the Corporation sold its $9,694,000 par bonds which had been received in 1990 under the Brady Mexican debt exchange. The par bonds were sold for $6,017,000 and resulted in a charge- off of $3,677,000.
December 31 ------------------------------------------ 1993 ------------------------------------------ Percentage of Percentage of Mexican Loans Amount Total Loans Total Assets - ---------------------------------------------------------------------- Financial institutions $ 15,384 1.2% .4% Commercial and industrial 53 -------- ---- ---- Total $ 15,437 1.2% .4% ======== ==== ====
December 31 ------------------------------------------ 1992 ------------------------------------------ Percentage of Percentage of Mexican Loans Amount Total Loans Total Assets - ---------------------------------------------------------------------- Financial institutions $1,000 .1% % Commercial and industrial 301 ------ --- --- Total $1,301 .1% % ======= === ===
December 31 ------------------------------------------ 1991 ------------------------------------------ Percentage of Percentage of Mexican Loans Amount Total Loans Total Assets - ---------------------------------------------------------------------- Financial institutions $1,500 .2% .1% Commercial and industrial 410 ------ --- --- Total $1,910 .2% .1% ====== === ===
The above tables exclude $16,326,000, $16,570,000 and $20,384,000 in loans secured by liquid assets held in the United States in 1993, 1992 and 1991, respectively. NON-PERFORMING ASSETS Non-performing assets were down 39.4 percent to $31,110,000 at December 31, 1993, compared with $51,303,000 at December 31, 1992 and $100,642,000 at December 31, 1991. Non-performing assets as a percentage of total loans and foreclosed assets decreased to 2.47 percent at December 31, 1993 down from 4.94 percent one year ago. As part of the acquisition of New First City-Austin, commercial and commercial real estate loans of that bank are protected by a loss-sharing arrangement with the Federal Deposit Insurance Corporation (the "FDIC") whereby losses are shared 80 percent to the FDIC and 20 percent to the Corporation. At December 31, 1993, non-performing assets covered by the loss-sharing arrangement totaled $1,503,000. These assets are included in total non-performing assets at $128,000 which represents the carrying value net of loss-sharing coverage and associated discount.
December 31 --------------------------------------------------- NON-PERFORMING ASSETS 1993 1992 1991 1990 1989 - ----------------------------------------------------------------------------- Non-accrual loans $17,171 $ 23,117 $ 36,172 $ 52,557 $ 59,223 Restructured loans 556 31 313 178 17,170 Foreclosed assets 13,383 28,155 64,157 69,130 55,340 ------- -------- -------- -------- ------- Total $31,110 $ 51,303 $100,642 $121,865 $131,733 ======= ======== ======== ======== ======== As a percentage of total assets .85% 1.63% 3.27% 3.74% 3.76% As a percentage of total loans plus foreclosed assets 2.47% 4.94% 8.85% 9.11% 9.24% After-tax impact of lost interest per common share $ .20 $ .39 $ .78 $ .92 $ .99 Accruing loans 90 days past due: Consumer $ 765 $ 414 $ 1,378 $ 1,403 $ 1,706 All other 3,827 1,431 7,177 4,410 7,502 ------- -------- -------- -------- ------- Total $ 4,592 $ 1,845 $ 8,555 $ 5,813 $ 9,208 ======= ======== ======== ======== ========
Interest income that would have been recorded in 1993 on non-performing assets, had such assets performed in accordance with their original contract terms, was $1,394,000 on non-accrual and restructured loans and $2,487,000 on foreclosed assets. During 1993, the amount of interest income actually recorded on non-accrual and restructured loans was $57,000 and $315,000 on foreclosed assets.
Non-Performing Assets ($ in millions) (Graphic material omitted) Non-Accrual and Foreclosed Year Restructured Assets - ---- --------------- ---------- 1989 $77 $55 1990 53 69 1991 37 64 1992 23 28 1993 18 13
Page 16
Changes in Non-Performing Assets December 31, 1993 - ----------------------------------------------------------------------- Balance at beginning of period $ 51,303 Additions 5,080 Payments and sales (20,983) Provision for real estate losses (1,375) Loan charge-offs (2,245) Other (670) --------- Net Change (20,193) --------- Balance at end of period $ 31,110 =========
Real estate related non-performing assets were $28,938,000 (93.0 percent of total non-performing assets) at December 31, 1993, compared with $47,029,000 (91.7 percent of total non-performing assets) at December 31, 1992. Non-performing real estate assets represented 4.5 percent of all real estate loans and foreclosed real estate assets at December 31, 1993 compared to 8.7 percent at the end of 1992.
December 31, 1993 ---------------------------------- Non-Performing Assets Classified by Industry Real Estate Other Total - ---------------------------------------------------------------------------- Non-accrual $15,109 $2,062 $17,171 Restructured loans 496 60 556 Foreclosed assets 13,333 50 13,383 ------- ------ ------- Total $28,938 $2,172 $31,110 ======= ====== ======= Accruing loans 90 days past due $ 3,283 $1,309 $ 4,592
Loans 90 days past due in the "other" category include $89,000 in foreign loans. Foreclosed assets include $9,950,000 of in-substance foreclosures at December 31, 1993. Loans to a customer whose financial condition has deteriorated are considered for non-accrual status whether or not the loan is 90 days or more past due. All non-consumer loans 90 days or more past due are classified as non-accrual unless the loan is well secured and in the process of collection. When a loan is placed on non-accrual status, interest income is not recognized until collected, and any previously accrued but uncollected interest is reversed. Classification of an asset in the non-performing category does not preclude ultimate collection of loan principal or interest. Restructured loans have been modified as to original terms, resulting in a reduction or deferral of principal and/or interest as a concession to the debtor and are accounted for in accordance with Statement of Financial Accounting Standards No. 15. Foreclosed assets consist of property which has been formally repossessed and those considered in-substance foreclosed even though formal repossession has not occurred. An in-substance foreclosure will generally occur when all of the following conditions are met:(1) the debtor has little or no equity in the collateral, (2) repayment proceeds can only be expected from the operation or sale of the collateral, and (3) the debtor has either formally or effectively abandoned control of the collateral or it is doubtful the debtor will be able to build equity in the collateral or otherwise repay the loan. When property is acquired through foreclosure, it is valued at the lower of the loan balance or its estimated fair value less estimated costs to sell. Write-downs occurring at acquisition are charged against the allowance for possible loan losses. On an on-going basis, properties are appraised as required by applicable regulations. Write-downs or allowances are provided for subsequent declines in value. The provision for real estate losses was $1,445,000 for the year ended December 31, 1993 compared with $19,311,000 and $20,799,000 for 1992 and 1991, respectively. Expenses related to maintaining foreclosed properties are included in non-interest expense.
Year Ended December 31 -------------------------------- Foreclosed Assets 1993 1992 1991 - --------------------------------------------------------------------------- Foreclosed assets $ 13,383 $28,155 $64,157 Provision for real estate losses 1,445 19,311 20,799 Foreclosed assets expense 3,102 5,666 5,209
Foreclosed assets expenses include operating expenses such as property taxes, insurance, maintenance costs, and allocations for salaries and benefits, net occupancy, and furniture and fixtures. At December 31, 1993, the Corporation had $3,497,000 in loans to borrowers experiencing financial difficulties which had not been included in either non-accrual, restructured or 90 days past due loans. Management monitors such loans closely and reviews their performance on a regular basis. Page 17 ALLOWANCE FOR POSSIBLE LOAN LOSSES At December 31, 1993, the allowance for possible loan losses was $26,298,000 or 2.11 percent of period-end loans compared with $31,897,000 or 3.15 percent of period-end loans at year-end 1992. The allowance for possible loan losses as a percentage of non-accrual and restructured loans was 148.3 percent at December 31, 1993, up from 137.8 percent at December 31, 1992. During 1993, the Corporation recorded a credit to the provision for possible loan losses of $6,085,000 primarily reflecting improvements in credit quality and better real estate market conditions. This compares to a credit to the provision for possible loan losses of $850,000 during 1992 and a provision for possible loan losses of $10,020,000 for 1991. In 1992, the negative provision for possible loan losses occurred because of decreases in net charge-offs and improvements in asset quality. The Corporation recorded net recoveries of $486,000 for the year ended December 31, 1993, compared to net charge-offs of $9,640,000 for 1992 and $13,237,000 for 1991. During the first quarter of 1992, the Corporation sold $9.7 million of par bonds received during the 1990 Brady Mexican debt exchange. The sale resulted in a charge-off of $3,677,000 which is included in the "other" category.
Year Ended December 31 Allowance for ------------------------------------------------------ Possible Loan Losses 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------- Average loans outstanding during year, net of unearned discount $1,158,057 $1,024,885 $1,149,233 $1,314,907 $1,406,773 ========== ========== ========== ========== ========== Balance of allowance for possible loan losses at beginning of year $ 31,897 $ 42,387 $ 45,604 $ 42,282 $ 40,702 Allowance of acquired banks 810 Provision (credit) for possible loan losses (6,085) (850) 10,020 31,993 28,902 Charge-offs: Real estate (3,481) (6,381) (10,587) (12,664) (17,148) Commercial and industrial (1,287) (4,057) (5,625) (13,499) (8,497) Energy (4) (56) (2,380) Consumer (3,369) (3,217) (3,395) (3,602) (3,411) Other, including foreign (63) (3,828) (1,973) (5,230) (3,518) ---------- ---------- --------- ---------- ---------- Total charge-offs (8,200) (17,487) (21,636) (34,995) (34,954) ---------- ---------- --------- ---------- ---------- Recoveries: Real estate 2,412 2,034 2,530 1,641 1,109 Commercial and industrial 3,567 3,634 3,633 2,182 3,093 Energy 10 149 58 722 1,288 Consumer 2,237 1,852 1,389 1,147 1,084 Other, including foreign 460 178 789 632 248 ---------- ---------- ---------- ---------- ---------- Total recoveries 8,686 7,847 8,399 6,324 6,822 ---------- ---------- ---------- ---------- ---------- Net (charge-offs) recoveries 486 (9,640) (13,237) (28,671) (28,132) ---------- ---------- ---------- ---------- ---------- Balance of allowance for possible loan losses at end of year $ 26,298 $ 31,897 $ 42,387 $ 45,604 $ 42,282 ========== ========= ========= ========== ========= Net (charge-offs) recoveries as a percentage of average loans outstanding during the year, net of unearned discount .04% (0.94)% (1.15)% (2.18)% (2.00)% Allowance for possible loan losses as a percentage of year-end loans, net of unearned discount 2.11% 3.15% 3.95% 3.60% 3.09%
There were no foreign charge-offs in 1993 or 1991. There were $3,677,000 in foreign charge-offs in 1992 all relating to Brady Bonds (see page 16). Foreign activity includes net recoveries of $379,000 in 1990 and net charge- offs of $1,339,000 in 1989. Other charge-offs for 1990 of $5,230,000 included $4,833,000 in bank stock charge-offs. Page 18
Allowance for Possible Loan Losses and Allowance to Year-End Loans ($ in thousands) (Graphic material omitted) Year Allowance For Possible Allowance to Allowance to Non- Ended Loan Losses Year-End Loans Performing Loans - ----- ---------------------- --------------- ----------------- 1989 $42,282 3.09% 55.3% 1990 45,604 3.60 86.5 1991 42,387 3.95 116.2 1992 31,897 3.15 137.8 1993 26,298 2.11 148.3
The combined net provision for possible loan losses and real estate losses for 1993 was a credit of $4,640,000 compared with a provision of $18,461,000 and $30,819,000 for the years ended December 31, 1992 and 1991, respectively.
1993 1992 1991 -------- ------- ------- Provision (credit) for possible loan losses $ (6,085) $ (850) $10,020 Provision for real estate losses 1,445 19,311 20,799 -------- ------- ------- Total provisions (credits) $ (4,640) $18,461 $30,819 ======== ======= =======
The provision for possible loan losses has continued to decline as trends in the loan portfolio have improved. The provision for real estate losses decreased $17,866,000 or 92.5 percent from 1992. During 1993, the provision for real estate losses decreased significantly because the number and dollar value of foreclosed properties had been reduced. Additionally, real estate values began to stabilize. During May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan." The standard addresses the accounting for impairment of loans by specifying how allowances for certain loans should be determined and the accounting for in-substance foreclosures. This standard is effective for fiscal years beginning after December 15, 1994. The Corporation has not yet determined the impact the adoption of this standard will have on its financial statements. Management has established credit policies and procedures designed to manage exposure to credit risks. These are monitored through periodic reviews of individual credits in light of economic conditions, business trends, and the risks in specific industries and individual loans. Formal internal loan review examinations are also conducted by the Corporation. Compliance with concentration levels and standards, policies and procedures is also monitored. Loans identified as losses by management, internal loan review and/or bank examiners are charged-off. Exceptions are installment and credit card loans which are charged-off based on past-due status. An allowance for possible loan losses is maintained at each bank in an amount which, in management's judgment, provides an adequate reserve to absorb possible loan losses. Industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, economic, political and regulatory conditions and other pertinent factors are all considered in determining the adequacy of the allowance. Page 19 An audit committee of non-management directors reviews the adequacy of the allowance for possible loan losses quarterly. The following table reflects the consolidated allocation of the allowance by loan type.
December 31 ------------------------------------------------ 1993 1992 ----------------------- ------------------------ Allowance As a Allowance As a for Percentage for Percentage Possible of Possible of Allocation of Allowance Loan Total Loan Total for Possible Loan Losses Losses Loans Losses Loans - --------------------------------------------------------------------------------- Commercial and industrial, including energy $ 3,453 .28% $ 3,752 .37% Real estate 10,432 .84 14,069 1.39 Consumer 6,756 .54 5,238 .52 Purchasing or carrying securities 3 59 Financial institutions 8 123 .01 Other, including foreign 332 .03 498 .05 Not allocated 5,314 .42 8,158 .81 ---------- ----- ------- ----- Total $26,298 2.11% $31,897 3.15% ========== ===== ======= =====
December 31 ------------------------------------------------ 1991 1990 ----------------------- ------------------------ Allowance As a Allowance As a for Percentage for Percentage Possible of Possible of Allocation of Allowance Loan Total Loan Total for Possible Loan Losses Losses Loans Losses Loans - --------------------------------------------------------------------------------- Commercial and industrial, including energy $ 4,970 .46% $11,238 .89% Real estate 17,725 1.65 13,985 1.10 Consumer 3,212 .30 5,284 .42 Purchasing or carrying securities 7 201 .02 Financial institutions 197 .02 1,300 .10 Other, including foreign 1,152 .11 364 .03 Not allocated 15,124 1.41 13,232 1.04 ------- ----- ------- ----- Total $42,387 3.95 $45,604 3.60% ======= ===== ======= =====
December 31, 1989 ----------------------- Allowance As a for Percentage Possible of Allocation of Allowance Loan Total for Possible Loan Losses Losses Loans - -------------------------------------------------------- Commercial and industrial, including energy $10,799 .79% Real estate 14,791 1.08 Consumer 2,563 .19 Purchasing or carrying securities 1,110 .08 Financial institutions 4,178 .30 Other, including foreign 5,475 .40 Not allocated 3,366 .25 ------- ----- Total $42,282 3.09 ======= =====
Allocation of a portion of the allowance does not preclude its availability to absorb losses in other categories. The unallocated portion of the allowance represents an additional amount, beyond that specifically reserved for identified risk, available to absorb unidentified losses in the current loan portfolio. SECURITIES At December 31, 1993, the Corporation adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The standard addresses the accounting for and reporting of investments in debt securities and requires classification and accounting treatment for securities as held to maturity, trading securities and securities available for sale. The adoption of this standard did not impact earnings but had the effect of increasing shareholders' equity by $9.1 million. As loan volumes declined, securities became the largest component of earning assets. Total securities including securities available for sale were $1,611,871,000 at year-end 1993. Securities available for sale totaled $614,476,000 at December 31, 1993. The securities available for sale consist primarily of U.S. Treasury securities and obligations of U.S. Government agencies. The remaining securities, also consisting primarily of U.S. Treasury and U.S. Government agency obligations, are classified as securities held for investment and are carried at amortized cost. Debt securities are classified as held to maturity when the Corporation has the positive intent and ability to hold the securities to maturity. Held to maturity securities are stated at amortized cost. Securities not classified as held to maturity are classified as available for sale. Available for sale securities are stated at fair value, with unrealized gains and losses, net of tax, reported in a separate component of shareholders' equity. The average yield of the securities portfolio for the year ended December 31, 1993 was 5.78 percent compared with 7.03 percent for 1992. Higher-yielding securities continue to mature and, given the current rate environment, are being replaced with lower- yielding securities.
December 31 ----------------------------------------------------------------- 1993 1992 1991 --------------------- --------------------- --------------------- Period-end Percentage Period-end Percentage Period-end Percentage Securities Balance of Total Balance of Total Balance of Total - ------------------------------------------------------------------------------------ U.S. Treasury $ 285,068 17.7% $ 666,133 47.1% $ 511,994 35.5% U.S. Government agencies and corporations 1,280,915 79.5 665,222 47.0 761,372 52.9 States and political subdivisions 7,216 .4 13,670 1.0 44,252 3.1 Other 38,672 2.4 68,940 4.9 121,807 8.5 ---------- ------ ---------- ------ ---------- ------ Total $1,611,871 100.0% $1,413,965 100.0% $1,439,425 100.0% ========== ====== ========== ====== ========== ====== Average yield earned during the year (taxable- equivalent basis) 5.78% 7.03% 8.41%
Page 20 DEPOSITS Total deposits for 1993 averaged $3,083,750,000, up 13.8 percent from the average for 1992. The increase in average total deposits results from the first quarter acquisition and strong growth trends in demand deposits. Total average demand deposits increased 22.7 percent from 1992. Deposits from public funds and commercial and individual increased 24.3 percent and 27.5 percent from 1992, respectively.
Total Deposits ($ in millions) (Graphic material omitted) Average Average Average Year Demand Time Total Cost of Time Ended Deposits Deposits Deposits Deposits - ----- -------- -------- ---------- ------------ 1989 $542,125 $2,320,415 $2,862,540 6.92% 1990 576,348 2,291,367 2,867,715 6.43 1991 599,439 2,158,481 2,757,920 5.34 1992 665,528 2,045,169 2,710,697 3.36 1993 816,446 2,267,304 3,083,750 2.56
1993 1992 1991 ------------------ ------------------ ------------------- Average Percent Average Percent Average Percent Demand Deposits Balance Change Balance Change Balance Change - ----------------------------------------------------------------------------- Commercial and individual $631,363 +27.5% $495,199 + 8.3% $457,266 + .4% Correspondent banks 143,008 + 4.8 136,487 +22.4 111,542 +10.9 Public Funds 42,075 +24.3 33,842 +10.5 30,631 +49.6 -------- -------- -------- Total $816,446 +22.7 $665,528 +11.0 $599,439 + 4.0 ======== ======== ========
Total average time deposits increased 10.9 percent from 1992 with the largest dollar increase coming from savings and Interest-on-Checking. Time accounts of $100,000 or more continued to decrease, down 19.0 percent from 1992 due to the continued low rate environment.
1993 1992 1991 ------------------ ------------------ ------------------- Average Percent Average Percent Average Percent Time Deposits Balance Change Balance Change Balance Change - ----------------------------------------------------------------------------- Savings and Interest- on-Checking $ 750,386 +38.7% $ 541,191 +14.3% $ 473,485 + 9.5% Money market deposit accounts 534,814 +11.9 477,877 +10.8 431,141 - 1.0 Time accounts of $100,000 or more 375,322 -19.0 463,509 -21.7 591,701 - 17.4 Time accounts under $100,000 531,803 +10.1 482,971 -12.8 554,024 - 3.6 Public funds 74,979 - 5.8 79,621 -26.4 108,130 - 18.8 ---------- ---------- ---------- Total $2,267,304 +10.9 $2,045,169 - 5.2% $2,158,481 - 5.8% ========== ========== ==========
Mexico is a part of the natural trade territory of the banking subsidiaries of Cullen/Frost; thus foreign deposits from Mexican sources have traditionally been a significant source of funding. These balances have decreased as the investment climate in Mexico has improved.
Foreign Deposits 1993 1992 1991 - -------------------------------------------------------------------------- Average balance $505,746 $529,018 $613,672 Percentage of total average deposits 16.4% 19.5% 22.3%
Page 21 SHORT-TERM BORROWINGS The Corporation's primary source of short-term borrowings is Federal funds purchased from correspondent banks and securities sold under repurchase agreements in the natural trade territories of the Cullen/Frost subsidiary banks. These funds are generally resold in the national Federal funds market.
1993 1992 1991 ---------------- ---------------- ---------------- Average Average Average Average Average Average Federal Funds Balance Rate Balance Rate Balance Rate - ----------------------------------------------------------------------------- Federal funds sold and securities purchased under resale agreements $255,613 3.02% $195,398 3.43% $197,467 5.81% Federal funds purchased and securities sold under repurchase agreements 131,096 2.52 102,550 3.06 116,281 5.08 -------- -------- -------- Net funds sold position $124,517 $ 92,848 $ 81,186 ======== ======== ========
Other funding sources include a $7,500,000 short-term line of credit to the parent Corporation used for short-term liquidity needs. There were no borrowings outstanding from this source at December 31, 1993 and 1992. CAPITAL At December 31, 1993, shareholders' equity reached the highest level in the Corporation's history, $273,533,000, an increase of 32.7 percent from $206,144,000 at December 31, 1992. In addition to earnings growth, this is partially due to the first quarter conversion of the Corporation's 9.75 percent convertible subordinated debentures, which increased equity capital by $10,000,000. Also, on December 31, 1993, the Corporation adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (See page 20). Conforming to this accounting standard had the effect of increasing shareholders' equity by $9.1 million. During the first quarter of 1993, the Corporation paid a 10% stock dividend and in the fourth quarter paid a cash dividend of $.15 per common share. Cash dividends had been suspended since the first quarter of 1987. 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 summarizes Tier 1 and Total Capital information for the Corporation at December 31, 1993 and December 31, 1992.
December 31, 1993 December 31, 1992 ----------------- ------------------ Risk-Based Capital Amount Ratio Amount Ratio - ------------------------------------------------------------------------------------- Tier 1 Capital $ 221,436 14.23% $ 199,936 15.66% Tier 1 Capital Minimum requirement 62,232 4.00 51,075 4.00 Total Capital $ 240,968 15.49% $ 223,738 17.52% Total Capital Minimum requirement 124,463 8.00 102,149 8.00 Risk-adjusted assets, net of goodwill $1,555,789 $1,276,865 Leverage Ratio 6.24% 6.43%
The Board guidelines also require a leverage capital ratio which measures Tier 1 capital against quarterly average total assets, net of goodwill. A leverage ratio of 3.0 percent is the minimum requirement for only the most highly rated banking organizations. The leverage ratio for the Corporation was 6.24 percent and 6.43 percent at December 31, 1993 and December 31, 1992, respectively. In December of 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") established five capital tiers. Effective December 16, 1992, federal banking agencies adopted final rules relating to these tiers. At December 31, 1993 the Corporation was "well capitalized" as defined by FDICIA, the highest rating. 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 capital level for any capital measure. Page 22 PARENT CORPORATION Historically, a large portion of the parent Corporation's income which provides funds for the payment of dividends to shareholders and for other corporate purposes has been derived from Cullen/Frost's investments in subsidiaries. Dividends received from the subsidiaries are based upon each bank's earnings and capital position. See Note K-Dividends on page 34. Management fees are not assessed. NON-BANKING SUBSIDIARIES Cullen/Frost has two principal non-banking subsidiaries. Main Plaza Corporation holds real estate for future expansion of Cullen/Frost's bank subsidiaries and occasionally makes loans to qualified borrowers. Such loans are typically funded with borrowings against Cullen/Frost's current cash or borrowing against credit lines. Daltex General Agency, Inc., a managing general insurance agency, provides vendor's single interest insurance for Cullen/Frost subsidiary banks. MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The management of Cullen/Frost Bankers, Inc. is responsible for the preparation of the financial statements, related financial data and other information in this annual report. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include amounts based on management's estimates and judgment where appropriate. Financial information appearing throughout this annual report is consistent with the financial statements. In meeting its responsibility both for the integrity and fairness of these financial statements and information, management depends on the accounting systems and related internal accounting controls that are designed to provide reasonable assurances that transactions are authorized and recorded in accordance with established procedures and that assets are safeguarded and that proper and reliable records are maintained. The concept of reasonable assurance is based on the recognition that the cost of a system of internal controls should not exceed the related benefits. As an integral part of the system of internal controls, Cullen/Frost maintains an internal audit staff which monitors compliance with and evaluates the effectiveness of the system of internal controls and coordinates audit coverage with the independent auditors. The Audit Committee of Cullen/Frost's Board of Directors, which is composed entirely of directors independent of management, meets regularly with management, regulatory examiners, internal auditors, the asset review staff and independent auditors to discuss financial reporting matters, internal controls, internal auditing and the nature, scope and results of the audit efforts. Internal Audit and Asset Review report directly to the Audit Committee. The banking regulators, internal auditors and independent auditors have direct access to the Audit Committee. The consolidated financial statements have been audited by Ernst & Young, independent auditors, who render an independent opinion on management's financial statements. Their appointment was recommended by the Audit Committee and approved by the Board of Directors and by the shareholders. The audit by the independent auditors provides an additional assessment of the degree to which Cullen/Frost's management meets its responsibility for financial reporting. Their opinion on the financial statements is based on auditing procedures, which include their consideration of the internal control structure and performance of selected tests of transactions and records, as they deem appropriate. These auditing procedures are designed to provide an additional reasonable level of assurance that the financial statements are fairly presented in all material respects. /s/ T.C. FROST /s/ ROBERT S. McCLANE T.C. Frost Robert S. McClane Chairman President and Chief Administrative Officer /s/ RICHARD W. EVANS, JR. /s/ PHILLIP D. GREEN Richard W. Evans, Jr. Phillip D. Green Chief Banking Officer Executive Vice President and Treasurer Page 23
CONSOLIDATED STATEMENTS OF OPERATIONS Cullen/Frost Bankers, Inc. and Subsidiaries (dollars in thousands, except per share amounts) Year Ended December 31 ----------------------------- 1993 1992 1991 -------- -------- -------- Interest income: Loans, including fees $ 90,756 $ 84,074 $108,617 Securities: Taxable 90,447 98,389 108,881 Tax-exempt 698 799 2,251 -------- -------- -------- Total securities 91,145 99,188 111,132 Time deposits 4 8 13 Federal funds sold and securities purchased under resale agreements 7,714 6,711 11,478 -------- -------- -------- Total Interest Income 189,619 189,981 231,240 Interest expense: Deposits 58,079 68,807 115,286 Federal funds purchased and securities sold under repurchase agreements 3,304 3,139 5,913 Long-term notes payable and other borrowings 410 1,378 1,527 -------- -------- -------- Total Interest Expense 61,793 73,324 122,726 -------- -------- -------- Net Interest Income 127,826 116,657 108,514 Provision (credit) for possible loan losses (6,085) (850) 10,020 -------- -------- -------- Net Interest Income After Provision (Credit) For Possible Loan Losses 133,911 117,507 98,494 Non-interest income: Trust department 26,278 21,861 20,030 Service charges on deposit accounts 25,386 21,958 18,915 Other service charges, collection and exchange charges, commissions and fees 9,889 7,888 8,288 Net gain (loss) on securities transactions 1,433 (232) 2,022 Other 13,243 10,338 8,227 -------- -------- -------- Total Non-Interest Income 76,229 61,813 57,482 Non-interest expense: Salaries and wages 53,654 46,184 44,154 Pension and other employee benefits 12,052 9,746 9,058 Net occupancy of banking premises 21,307 17,294 16,807 Furniture and equipment 10,155 8,295 7,726 Provision for real estate losses 1,445 19,311 20,799 Restructuring costs 10,285 Other 63,180 52,668 56,594 -------- -------- -------- Total Non-Interest Expense 172,078 153,498 155,138 -------- -------- -------- Income Before Income Taxes (Credits), Extraordinary Credit and Cumulative Effect of Accounting Change 38,062 25,822 838 Income taxes (credits) (735) 8,197 633 -------- -------- -------- Income before extraordinary credit and cumulative effect of accounting change 38,797 17,625 205 Extraordinary Credit-income tax benefit 6,497 Cumulative effect of change in accounting for income taxes 8,439 -------- -------- -------- Net Income $ 47,236 $ 24,122 $ 205 ======== ======== ======== Per share Income before extraordinary credit and cumulative effect of accounting change- Primary $ 3.48 $ 1.66 $ .02 Fully diluted 3.48 1.66 .02 Net income- Primary 4.24 2.26 .02 Fully diluted 4.24 2.25 .02 See notes to consolidated financial statements.
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CONSOLIDATED BALANCE SHEETS Cullen/Frost Bankers, Inc. and Subsidiaries (dollars in thousands, except per share amounts) December 31 ----------------------- 1993 1992 ---------- ---------- Assets Cash and due from banks $ 334,564 $ 296,270 Time deposits 147 153 Securities held to maturity (market value: 1993-$1,013,712;1992-$1,085,174) 997,395 1,045,554 Securities available for sale 614,476 368,411 Federal funds sold and securities purchased under resale agreements 250,250 282,630 Loans, net of unearned discount of $8,456 in 1993 and $12,632 in 1992 1,247,809 1,011,234 Less: Allowance for possible loan losses (26,298) (31,897) ---------- ---------- Net loans 1,221,511 979,337 Banking premises and equipment 86,676 82,372 Accrued interest and other assets 134,028 96,144 ---------- ---------- Total Assets $3,639,047 $3,150,871 ========== ========== Liabilities Demand deposits: Commercial and individual $ 705,786 $ 599,078 Correspondent banks 129,106 125,216 Public funds 46,200 41,909 ---------- ---------- Total demand deposits 881,092 766,203 Time deposits: Savings and Interest-on-Checking 800,161 612,137 Money market deposit accounts 527,230 492,882 Time accounts 860,642 857,819 Public funds 80,303 40,451 ---------- ---------- Total time deposits 2,268,336 2,003,289 ---------- ---------- Total deposits 3,149,428 2,769,492 Federal funds purchased and securities sold under repurchase agreements 166,519 122,221 Long-term notes payable -- 13,400 Accrued interest and other liabilities 49,567 39,614 ---------- ---------- Total Liabilities 3,365,514 2,944,727 Shareholders' Equity Common stock, par value $5 per share 55,046 52,061 Shares authorized: 1993-30,000,000;1992-30,000,000 Shares outstanding: 1993-11,009,198;1992-10,412,184 Surplus 113,385 102,042 Retained earnings 95,978 52,041 Unrealized gain on securities available for sale 9,124 -- ---------- ---------- Total Shareholders' Equity 273,533 206,144 ---------- ---------- Total Liabilities and Shareholders' Equity $3,639,047 $3,150,871 ========== ========== See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS Cullen/Frost Bankers, Inc. and Subsidiaries (dollars in thousands) Year Ended December 31 ------------------------------- 1993 1992 1991 --------- --------- --------- Operating Activities Net income $ 47,236 $ 24,122 $ 205 Adjustments to reconcile net income to net cash provided by operating activities: Provision (credit) for possible loan losses (6,085) (850) 10,020 Provision for real estate losses 1,445 19,311 20,799 Credit for deferred taxes (6,364) -- -- Extraordinary credit from utilization of net operating loss carryforward (6,497) Accretion of discounts on loans (8,615) (9,329) (10,420) Accretion of securities' discounts (2,602) (2,853) (2,844) Amortization of securities' premiums 5,678 5,819 3,602 Net realized loss(gain) on securities transactions (1,433) 232 (2,022) Net gain on sale of assets (3,443) (1,846) (832) Depreciation and amortization 16,766 8,797 7,516 Decrease in accrued interest receivable 1,624 6,325 2,570 Increase (decrease)in accrued interest payable 160 (3,434) (3,538) Restructuring accrual 7,715 Cumulative effect of change in accounting principle (8,439) Net change in other assets and liabilities (634) 15,110 7,481 --------- --------- --------- Net cash provided by operating activities 43,009 54,907 32,537 Investing Activities Proceeds from sales of securities held to maturity 101,309 62,846 75,960 Proceeds from maturities of securities held to maturity 483,153 778,924 345,431 Purchases of securities held to maturity (900,825) (819,507) (622,601) Proceeds from sales of securities available for sale 101,181 Proceeds from maturities of securities available for sale 778,066 Purchases of securities available for sale (688,504) Net (increase) decrease in loan portfolio (64,638) 60,155 144,183 Proceeds from sales of equipment 4,167 1,500 772 Purchases of premises and equipment (13,326) (11,679) (10,361) Proceeds from sales of repossessed properties 4,775 6,594 11,520 Net cash and cash equivalents received from bank acquisition 183,131 -- -- --------- --------- --------- Net cash provided (used) by investing activities (11,511) 78,833 (55,096) Financing Activities Net increase in demand deposits, IOC accounts, and savings accounts 108,968 198,183 56,246 Net decrease in certificates of deposit (175,267) (194,725) (167,807) Net increase (decrease) in Federal funds pur- chased and securities sold under repurchase agreements 43,605 34,165 (52,578) Principal payments on long-term debt (3,400) (1,268) (1,612) Proceeds from employee stock purchase plan and options 2,154 3,875 2,312 Dividends paid (1,650) --------- --------- --------- Net cash provided (used) by financing activities (25,590) 40,230 (163,439) --------- --------- --------- Increase (decrease) in cash and cash equivalents 5,908 173,970 (185,998) Cash and cash equivalents at beginning of year 579,053 405,083 591,081 --------- --------- --------- Cash and cash equivalents at end of year $ 584,961 $ 579,053 $ 405,083 ========= ========= ========= See notes to consolidated financial statements.
Page 26
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY CULLEN/FROST BANKERS, INC. (dollars in thousands) Unrealized Gain on Securities Common Retained Available Stock Surplus Earnings for Sale Total ------- -------- --------- -------- -------- Balance at January 1, 1991 $44,324 $65,452 $63,666 $173,442 Net Income for 1991 205 205 Proceeds from employee stock purchase plan and options 1,224 1,088 2,312 Loan payments from employee stock ownership plan 200 200 Issuance of restricted stock 106 148 254 Restricted stock plan deferred compensation, net (191) (191) ------- ------- ------- ------- ------- Balance at December 31, 1991 45,654 66,688 63,880 176,222 Net Income for 1992 24,122 24,122 Proceeds from employee stock purchase plan and options 1,674 2,201 (69) 3,806 Tax benefit related to exercise of stock options 1,680 1,680 Loan payments from employee stock ownership plan 200 200 Restricted stock plan deferred compensation expense 114 114 Effect of ten percent stock dividend 4,733 31,473 (36,206) ------- -------- ------- -------- ------- Balance at December 31, 1992 52,061 102,042 52,041 206,144 Net Income for 1993 47,236 47,236 Proceeds from employee stock purchase plan and options 387 1,767 2,154 Tax benefit related to exercise of stock options 207 207 Issuance of restricted stock 25 152 177 Loan payments from employee stock ownership plan 200 200 Restricted stock plan deferred compensation, net (59) (59) Conversion of subordinated debentures 2,339 7,661 10,000 Unrealized gain on securities available for sale, net of tax $9,124 9,124 Cash dividend (1,650) (1,650) Effect of ten percent stock dividend 234 1,556 (1,790) ------- -------- ------- ------ -------- Balance at December 31, 1993 $55,046 $113,385 $95,978 $9,124 $273,533 ======= ======== ======= ====== ======== See notes to consolidated financial statements.
Page 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cullen/Frost Bankers, Inc. and Subsidiaries NOTE A - SUMMARY OF ACCOUNTING POLICIES The accounting and reporting policies followed by Cullen/Frost Bankers, Inc. and Subsidiaries ("Cullen/Frost" or the "Corporation") are in accordance with generally accepted accounting principles and conform to general practices within the banking industry. The more significant accounting and reporting policies are summarized below. Basis of Presentation - The consolidated financial statements include the accounts of Cullen/Frost and its wholly-owned subsidiaries. Condensed parent company financial statements reflect investments in subsidiaries using the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation. Securities - Effective December 31, 1993, the Corporation adopted Statement of Financial Accounting Standards No. 115 ("SFAS 115"). Under this pronouncement, management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date. If the securities are purchased with the intent and the Corporation has the ability to hold the securities until maturity, they are classified as securities held to maturity and carried at amortized historical cost. Securities to be held for indefinite periods of time are classified as available for sale and stated at fair value, with the unrealized gains and losses net of tax, reported in a separate component of shareholders' equity. The adjusted carrying value of the specific security sold is used to compute gain or loss on the sale of securities. Prior to the adoption of SFAS 115, securities available for sale were carried at the lower of cost or market value. Loans - Interest on loans is accrued and accreted to operations based on the principal amount outstanding. Interest on certain consumer loans is recognized over their respective terms using a method which approximates the interest method. Generally, loans are placed on a non-accrual status if principal or interest payments become 90 days past due and/or management deems the collectability of the principal and/or interest to be in question. Once interest accruals are discontinued, uncollected interest is charged to current year operations. Loans which are determined to be uncollectible are charged to the allowance for possible loan losses. The collectability of loans is continually reviewed by management. Allowance for Possible Loan Losses - The allowance for possible loan losses is established through a provision for possible loan losses charged to current operations. The amount maintained in the allowance reflects management's continuing assessment of the potential losses inherent in the portfolio based on evaluations of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, and antic- ipated economic, political and regulatory conditions. Foreclosed Assets - Foreclosed assets consist of property which has been formally repossessed and that which is considered in-substance foreclosed even though formal repossession has not occurred. An in- substance foreclosure will occur when all of the following conditions are met: (1) the debtor has little or no equity in the collateral, (2) repayment proceeds can only be expected from the operation or sale of the collateral, and (3) the debtor has either formally or effectively abandoned control of the collateral or it is doubtful the debtor will be able to build equity in the collateral or otherwise repay the loan. In-substance foreclosures are accounted for in the same manner as property which has been formally repossessed. Collateral obtained through foreclosure or loans considered to be in-substance foreclosures are recorded at the lower of fair value less estimated selling costs or the underlying loan amounts. Write-downs or allowances are provided for subsequent declines in value. Banking Premises and Equipment - Banking premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are generally computed on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the term of the respective leases or the estimated useful lives of the improvements. Page 28 Federal Income Taxes - Cullen/Frost files a consolidated federal income tax return which includes the taxable income of all of its principal subsidiaries. Applicable federal income taxes of the individual subsidiaries are generally determined on a separate return basis. Effective January 1, 1993, deferred federal income taxes are recognized under SFAS 109 which requires use of the liability method. The liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting bases and the tax bases of assets and liabilities. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. For 1992 and prior years, the Corporation accounted for income taxes under APB 11. Fair Values of Financial Instruments - FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments" requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The fair value disclosures are included throughout the footnotes. FASB Statement No. 107 excludes certain financial instruments and all non- financial instruments from its disclosure requirements. Stock Dividends - All share and per share amounts for 1992 and 1991 have been retroactively adjusted for a ten percent stock dividend paid March 2, 1993. NOTE B - ACQUISITIONS Acquisition of New First City - San Antonio and New First City - Austin On February 13, 1993, the Corporation acquired certain assets and assumed certain liabilities of New First City, Texas - San Antonio, N.A. and New First City, Texas - Austin, N.A. (collectively referred to as First City). These two First City banks were bridge banks established by the Federal Deposit Insurance Corporation (FDIC) following the closing of the banks owned by First City Bancorporation of Texas, Inc. Under the terms of the acquisition agreement, the Corporation agreed to pay the FDIC a $38 million premium over the book value of assets acquired less liabilities assumed. This transaction was funded through internal sources. The acquisition has been accounted for as a purchase, whereby the purchase price has been allocated to the assets acquired and liabilities assumed based on their respective fair values as of the date of acquisition. Goodwill associated with the transaction amounted to approximately $23.2 million and is being amortized on accelerated and straight-line methods over lives ranging from 9-15 years. Other intangibles associated with the acquisition of approximately $20.2 million are being amortized over their estimated lives ranging from five to ten years on an accelerated method. The Corporation acquired loans of $158 million, investment securities and Federal funds sold of $225 million, and deposits of $446 million. These amounts represent the estimated fair values at New First City as of the date of acquisition. Under the acquisition agreement, during the first five years after the acquisition by the Corporation, the FDIC is required to reimburse the Corporation quarterly for 80 percent of all net charge-offs and certain related expenses on commercial and certain real estate loans acquired by the Corporation from New First City, Texas - Austin, N.A. This reimbursement increases to 95 percent as to such charge-offs and certain related expenses in excess of $5,344,000. Pro-forma financial information has not been presented, as the Corporation believes that such information would not be meaningful or indicative of the operating results of the combined company. The First City acquisition involved financial assistance from the FDIC. In addition, there have been significant changes to the management structure, assets, liabilities, and operations of First City subsequent to the acquisition. Pending Acquisition On August 26, 1993 the Corporation entered into an agreement with Texas Commerce Bancshares whereby the Corporation will acquire Texas Commerce Bank in Corpus Christi in exchange for Cullen/Frost Bank of Dallas N.A. ("C/F Dallas"). The banks being exchanged are of comparable asset size. C/F Dallas represents 4.9 percent of the Corporation's total assets at December 31, 1993. This transaction is subject to regulatory approval and is expected to be completed during April 1994. Upon consummation of this transaction, no gain or loss will be recognized. Page 29 NOTE C - CASH AND DUE FROM BANKS Cullen/Frost subsidiary banks are required to maintain reserves with the Federal Reserve Bank which are equal to specified percentages of deposits. The average amount of reserve balances were $45,783,000 for 1993 and $37,390,000 for 1992. NOTE D - SECURITIES At December 31, 1993, the Corporation adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Under the new standard, debt securities that the Corporation has both the positive intent and ability to hold to maturity are carried at amortized cost. Debt securities that the Corporation does not have the positive intent and ability to hold to maturity are classified as available for sale or trading and carried at fair value. Unrealized holding gains and losses on securities classified as available for sale are carried, net of tax effect, as a separate component of shareholders' equity. Unrealized holding gains and losses on securities classified as trading are reported in earnings. In accordance with the Statement, prior period financial statements have not been restated to reflect the change in accounting principle. The adoption of this standard did not impact earnings but had the effect of increasing shareholders' equity by $9.1 million. A summary of the amortized cost and estimated fair value of securities is presented below. Fair values are based on quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar instruments.
December 31, 1993 ------------------------------------------------ Amortized Unrealized Unrealized Estimated (in thousands) Cost Gains Losses Market Value - ---------------------------------------------------------------------------- Securities Held for Investment: U.S. Treasury $ 6,080 $ 1 $ 6,081 U.S. Government agencies and corporations 964,483 17,527 $ 1,838 980,172 States and political subdivisions 7,216 412 7,628 Other 19,616 216 1 19,831 --------- --------- ---------- ----------- Total $ 997,395 $ 18,156 $ 1,839 $1,013,712 ========= ========= ========== ===========
December 31, 1993 ------------------------------------------------ Amortized Unrealized Unrealized Estimated (in thousands) Cost Gains Losses Market Value - ---------------------------------------------------------------------------- Securities Available for Sale U.S. Treasury $ 277,955 $ 1,081 $ 48 $ 278,988 U.S. Government agencies and 303,643 13,190 401 316,432 corporations Other 18,840 216 19,056 --------- --------- ---------- ----------- Total $ 600,438 $ 14,487 $ 449 $ 614,476 ========= ========= ========== ===========
December 31, 1992 ------------------------------------------------ Amortized Unrealized Unrealized Estimated (in thousands) Cost Gains Losses Market Value - ---------------------------------------------------------------------------- Securities Held for Investment: U.S. Treasury $ 297,722 $ 6,126 $ 303,848 U.S. Government agencies and corporations 665,222 32,739 $140 697,821 States and political subdivisions 13,670 94 17 13,747 Other 68,940 819 1 69,758 ---------- ------- ---- ---------- Total $1,045,554 $39,778 $158 $1,085,174 ========== ======= ==== ==========
December 31, 1992 ------------------------------------------------ Amortized Unrealized Unrealized Estimated (in thousands) Cost Gains Losses Market Value - ---------------------------------------------------------------------------- Securities Available for Sale: U.S. Treasury $368,411 $ 39 $ 25 $368,425 ======== ======= ==== ========
Page 30 The amortized cost and estimated market value of securities at December 31, 1993 are presented below by contractual maturity. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.
December 31, 1993 ------------------------------------------------------------- Securities Held for Investment Securities Available for Sale ------------------------------------------------------------- Amortized Estimated Amortized Estimated (in thousands) Cost Market Value Cost Market Value - ------------------------------------------------------------------------------------------ Due in one year or less $ 6,210 $ 6,211 $277,955 $278,988 Due after one year through five years 15,526 15,744 Due after five years through ten years 452 467 Due after ten years 7,758 8,152 -------- --------- -------- -------- 29,946 30,574 277,955 278,988 Mortgage-backed securities and collateralized mortgage 967,449 983,138 322,483 335,488 obligations -------- --------- -------- -------- Total $997,395 $1,013,712 $600,438 $614,476 ========= ========== ======== ========
Proceeds from sales of debt securities during 1993 and 1992 were $202,490,000 and $62,846,000, respectively. During 1993, securities were sold in anticipation of adopting Statement of Financial Accounting Standards No. 115. During 1993, gross gains of $1,502,000 and gross losses of $69,000 were realized on those sales. During 1992, gross gains of $639,000 and gross losses of $871,000 were realized on those sales. During 1991, gross gains of $2,217,000 and gross losses of $195,000 were realized. The amortized cost of securities pledged to secure public funds, trust deposits, securities sold under repurchase agreements and for other purposes as required or permitted by law amounted to $578,095,000 at December 31, 1993 and $486,123,000 at December 31, 1992. NOTE E - LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES A summary of loans outstanding follows:
December 31 ------------------------- (in thousands) 1993 1992 - ------------------------------------------------------------------------------ Real estate: Construction $ 32,297 $ 26,632 Land 22,990 21,288 Permanent mortgages: Commercial 144,122 77,347 Residential 276,148 253,471 Other 150,499 134,470 Commercial and industrial: Energy 24,548 52,345 Other 286,282 204,175 Consumer 268,331 217,232 Financial institutions 284 9,380 Foreign 31,763 17,871 Purchasing or carrying securities 1,204 1,918 Other 17,797 7,737 Unearned discount (8,456) (12,632) ---------- ---------- Total loans $1,247,809 $1,011,234 ========== ==========
In the normal course of business, in order to meet the financial needs of its customers, the Corporation is a party to financial instruments with off-balance sheet risk. These include commitments to extend credit and standby letters of credit which commit the Corporation to make payments on behalf of customers when certain specified future events occur. Both arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Corporation's normal credit policies. Collateral is obtained based on management's credit assessment of the customer. No material losses are anticipated as a result of these commitments. Commitments to extend credit and standby letters of credit amounted to $381,386,000 and $31,322,000, respectively, at December 31, 1993. Commitments to extend credit and standby letters of credit amounted to $356,601,000 and $24,747,000, respectively, at December 31, 1992. Commercial and industrial loan commitments represent approximately 74 percent and 82 percent of the total loan commitments outstanding at December 31, 1993 and 1992, respectively. The majority of the Corporation's real estate loans are secured by real estate in San Antonio and Austin. At December 31, 1993, mortgage loans of approximately $9.0 million were held for sale by the Corporation and are included in residential permanent mortgages. These loans are valued at the lower of cost or market on an aggregate basis. Page 31 For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for certain mortgage loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The fair value for other loans is estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The fair value of loans was estimated to be approximately $1,258,000,000 at December 31, 1993 and $988,000,000 at December 31, 1992. The carrying amount of accrued interest approximates its fair value. Cullen/Frost's off-balance sheet instruments (lending commitments) have variable interest rates and "escape" clauses if the customer's credit quality deteriorates. Therefore the amounts committed approximate fair value. In the normal course of business, Cullen/Frost subsidiary banks make loans to directors and officers of both Cullen/Frost and its subsidiaries. These loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. Loans made to directors and executive officers of Cullen/Frost and its significant subsidiaries, including loans made to their associates, amounted to $44,985,000 and $51,635,000 at December 31, 1993 and 1992, respectively. During 1993, additions to these loans amounted to $51,908,000, repayments totaled $49,622,000 and other changes totaled $8,936,000. These other changes consist primarily of changes in related-party status. Standby letters of credit extended to directors and executive officers of Cullen/Frost and its significant subsidiaries and their associates amounted to $1,611,000 and $1,757,000 at December 31, 1993 and 1992, respectively. A summary of the changes in the allowance for possible loan losses follows:
Year Ended December 31 ---------------------------------- (in thousands) 1993 1992 1991 - --------------------------------------------------------------------------------- Balance at the beginning of the year $ 31,897 $ 42,387 $ 45,604 Provision (credit) for possible loan losses (6,085) (850) 10,020 Net charge-offs: Losses charged to the allowance (8,200) (17,487) (21,636) Recoveries 8,686 7,847 8,399 -------- -------- -------- Net (charge-offs) recoveries 486 (9,640) (13,237) -------- -------- -------- Balance at the end of the year $ 26,298 $ 31,897 $ 42,387 ======== ======== ========
In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan." This standard addresses the accounting for impairment of loans by specifying how allowances for certain loans should be determined and for in-substance foreclosures. This standard is effective for fiscal years beginning after December 15, 1994. The Corporation has not yet determined the impact this standard will have on its financial statements. NOTE F - NON-PERFORMING ASSETS A summary of non-performing assets follows:
December 31, ------------------- (in thousands) 1993 1992 - --------------------------------------------------------------------------------- Non-accrual and restructured loans $17,727 $23,148 Foreclosed assets 13,383 28,155 ------- ------- $31,110 $51,303 ======= =======
Cullen/Frost recognized interest income on non-accrual and restructured loans of approximately $57,000, $117,000 and $542,000 in 1993, 1992 and 1991, respectively. Had these reduced earning and non-earning loans performed according to their original contract terms, Cullen/Frost would have recognized interest income of approximately $1,394,000 in 1993, $2,818,000 in 1992 and $4,995,000 in 1991. Income related to foreclosed assets approximated $1.2 million for 1993. Net expenses related to foreclosed assets amounted to approximately $19.3 million and $23.0 million in 1992 and 1991, respectively. These expenses include the provision for real estate losses, operating expenses such as property taxes, insurance, maintenance costs and allocations for salaries and benefits, net occupancy, and furniture and fixtures, net of income and gains on foreclosed properties. Page 32 NOTE G - BANKING PREMISES AND EQUIPMENT A summary of banking premises and equipment follows:
December 31 ------------------------------------------------------------ 1993 1992 ----------------------------- ---------------------------- Accumulated Accumulated Depreciation Net Depreciation Net and Carrying and Carrying (in thousands) Cost Amortization Value Cost Amortization Value - ------------------------------------------------------------------------------------- Land $30,581 $ 30,581 $ 30,226 $30,226 Buildings 42,668 $17,247 25,421 36,547 $12,935 23,612 Furniture and equipment 64,553 47,983 16,570 58,852 43,881 14,971 Leasehold improvements 24,543 11,112 13,431 19,800 9,937 9,863 Construction in progress 673 673 3,700 3,700 -------- ------- ------- -------- ------- ------- Total banking premises and equipment $163,018 $76,342 $86,676 $149,125 $66,753 $82,372 ======== ======= ======= ======== ======= =======
NOTE H - DEPOSITS FASB Statement No. 107 defines the fair value of demand deposits as the amount payable on demand, and prohibits adjusting fair value for any deposit base intangible. The deposit base intangible is not considered in the fair value amounts below. The carrying amounts for variable-rate money market accounts and fixed-term certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities. The carrying amount and approximate fair value of deposits consisted of the following at December 31, 1993 and 1992.
December 31, 1993 December 31, 1992 ----------------------------- ----------------------------- Approximate Approximate (in thousands) Carrying Amount Fair Value Carrying Amount Fair Value - ------------------------------------------------------------------------------------------ Demand deposits $ 881,092 $ 881,092 $ 766,203 $ 766,203 Savings and Interest-on-Checking 800,161 800,161 612,137 612,137 Money market deposit accounts 527,230 527,230 492,882 492,882 Time accounts of $100,000 or more 349,103 348,513 411,412 410,412 Time accounts under $100,000 511,539 513,241 446,407 447,383 Other 80,303 80,303 40,451 40,451 ---------- ---------- ---------- ---------- Total Deposits $3,149,428 $3,150,540 $2,769,492 $2,769,468 ========== ========== ========== ==========
Foreign deposits totaled $492,936,000 and $514,937,000 at December 31, 1993 and 1992, respectively. Page 33 NOTE I - BORROWED FUNDS The carrying amounts of long-term borrowings consisted of the following at December 31, 1993 and 1992.
December 31 ----------------- (in thousands) 1993 1992 - ---------------------------------------------------------------------------------------- Convertible subordinated debentures of Cullen/Frost maturing in 1996 $ --- $10,000 Subordinated notes of Frost National Bank maturing in 1997 --- 3,400 -------- -------- Total long-term notes payable $ --- $13,400 ======== ========
During January 1993, Cullen/Frost called the $10,000,000 convertible 9.75 percent subordinated debentures which were scheduled to mature in 1996. On February 1, 1993, the holders chose to convert such debentures into Cullen/Frost common stock. The debentures were converted into common stock based on the original contractual terms at $21.37 per share and resulted in the issuance of 467,836 additional shares of common stock. During the fourth quarter of 1993, Frost National Bank ("Frost Bank") made its required minimum annual payment of $600,000 and exercised its option to prepay the remaining balance of the 8.75 percent subordinated notes of $2,800,000. Cullen/Frost has a $7,500,000 revolving credit facility with another financial institution. The line of credit bears interest at prime. There were no borrowings outstanding on this line at December 31, 1993 and 1992. The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings approximate their fair values. The fair values of Cullen/Frost's long-term borrowings (other than deposits) are based on the Bank's current incremental borrowing rates for similar types of borrowing arrangements. The fair value of borrowed funds at December 31, 1992 was $13,641,000. NOTE J - COMMON STOCK AND EARNINGS PER COMMON SHARE The number of shares outstanding and related earnings per share amounts for 1992 and 1991 have been restated to retroactively give effect to a ten percent stock dividend declared and paid by the Corporation during the first quarter of 1993. During the first quarter of 1993, the Corporation's $10,000,000 convertible subordinated debentures were converted into Cullen/Frost common stock resulting in the issuance of 467,836 additional shares of common stock. For purposes of calculating 1992 earnings per share, the convertible debentures were treated as common stock equivalents and accordingly, the conversion had no effect on 1992 earnings per share calculations. Earnings per share calculations for the years ended December 31, 1993 and 1992 include the effect of common stock equivalents applicable to the convertible subordinated debentures and stock option contracts. Earnings per share calculations for the year ended December 31, 1991 include the effect of common stock equivalents applicable to the stock option contracts. The weighted average numbers of shares outstanding used to compute primary and fully diluted earnings per share were 11,150,788 for the year ended December 31, 1993. The weighted average number of shares outstanding used to compute primary and fully diluted earnings per share were 10,974,329 and 11,015,590, respectively, for the year ended December 31, 1992. The weighted average numbers of shares outstanding used to compute primary and fully diluted earnings per common share were 10,075,263 for the year ended December 31, 1991. NOTE K - DIVIDENDS Cullen/Frost is primarily dependent upon dividends from its subsidiary banks to provide funds for the payment of dividends to shareholders and to provide for other cash requirements. The amount of dividends that subsidiary banks may declare is subject to regulatory regulations. Under the most restrictive interpretation of these regulatory requirements, the subsidiary banks had approximately $23,951,000 available for the payment of dividends to Cullen/Frost at December 31, 1993. Page 34 NOTE L - LEASES AND RENTAL AGREEMENTS Rental expense for all leases amounted to $11,699,000, $8,850,000 and $9,311,000 for the years ended December 31, 1993, 1992 and 1991, respectively. The Corporation's lead bank, Frost National Bank, leases an office building and parking garage from separate partnerships in which a member of a Bank director's immediate family is a principal investor. The Bank's director has no financial interest in the transaction. The lease expense for the building and parking garage was $4,688,000, $4,652,000 and $4,616,000 for 1993, 1992 and 1991, respectively. The leases for the building and garage expire in 2000 and 1999, respectively. A summary of the total future minimum rental commitments due under non- cancelable equipment leases and long-term agreements on banking premises at December 31, 1993 follows:
Total (in thousands) Commitments - ------------------------------------------------------------------------------ 1994 $10,232 1995 10,208 1996 9,557 1997 6,388 1998 5,690 Subsequent to 1998 14,188 ------- Total future minimum rental commitments $56,263 =======
It is expected that certain leases will be renewed, or equipment replaced with new leased equipment, as these leases expire. NOTE M - EMPLOYEE BENEFIT PLANS Retirement Plans- Cullen/Frost has a non-contributory defined benefit plan which covers substantially all employees who have completed at least one year of service and have attained the age of 21. Defined benefits are provided based on an employee's compensation, age at retirement and years of service. Cullen/Frost's funding policy is to contribute quarterly an amount necessary to satisfy the Employee Retirement Income Security Act (ERISA) funding standards. An eligible employee's right to receive benefits under the plan becomes fully vested upon the earlier of the date on which such employee has completed five years of service or the date on which such employee attains 65 years of age. Retirement benefits under the plan are paid to vested employees upon their (i) normal retirement at age 65 or later or (ii) early retirement at or after age 55, but before age 65. In addition, Cullen/Frost has a Restoration of Retirement Income Plan (providing benefits in excess of the limits under Section 415 of the Internal Revenue Code of 1986, as amended) for eligible employees which is designed to comply with the requirements of ERISA and the entire cost of which is provided by Cullen/Frost contributions. Effective January 1, 1993, the Corporation amended its retirement plans including changing the formula for determining monthly pension benefits. Both plans, as amended, provide for the payment of monthly retirement income pursuant to a formula based on an eligible employee's final average compensation during the last ten years of employment. The funded status of the plans and the amounts recognized in Cullen/Frost's consolidated balance sheets at December 31, 1993 and 1992 are presented below:
(in thousands) 1993 1992 - --------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $20,295 in 1993 and $16,140 in 1992 $20,755 $16,322 ======= ======= Projected benefit obligation for service rendered to date $29,593 $19,280 Plan assets at fair value (primarily listed stocks and U.S. and corporate bonds) 16,195 12,650 ------- ------- Projected benefit obligation in excess of plan assets 13,398 6,630 Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions (5,943) (3,217) Unrecognized prior service cost (4,965) (105) Unrecognized net transitional asset 990 1,089 ------- ------- Accrued pension cost included in other liabilities $ 3,480 $ 4,397 ======= =======
Page 35 Net pension cost included the following components:
(in thousands) 1993 1992 1991 - -------------------------------------------------------------------------------- Service cost for benefits earned during the year $ 1,172 $2,073 $1,971 Actual return on plan assets, net of expenses (567) (260) (808) Interest cost on project benefit obligation 2,135 1,431 884 Net amortization and deferral (345) (706) 35 ------- ------ ------ Net pension cost $ 2,395 $2,538 $2,082 ======= ====== ======
The weighted-average discount rate used for calculating the pension obligation at December 31, 1992 and for calculating the net periodic pension cost for 1993 was 9 percent; the assumed rate of future compensation increases was 6 percent. The discount rate used for calcu- lating the pension obligation as of December 31, 1993 was 7.75 percent, and the assumed rate of future compensation increases was 5 percent; these assumptions will be used for calculating the 1994 net periodic pension cost. The accumulated benefit obligation increased from 1992 primarily as a result of reducing the discount rate to 7.75 percent. The projected benefit obligation increased from 1992 as the reduction in the discount rate and the plan changes each increased the projected benefit obligation by approximately $5.8 million. The decrease in the projected rate of future compensation increases to 5 percent had the effect of decreasing the projected benefit obligation by approximately $3.1 million. The changes in the unrecognized prior service cost and the service cost for 1993 are primarily due to the plan changes. The expected long-term rate of return on plan assets is 9 percent. Savings Plans - The Corporation maintains a 401(k) stock purchase plan (the "401(k) Plan"). The 401(k) Plan permits each participant to make before-tax contributions up to 16% of eligible compensation. Cullen/Frost makes matching contributions to the 401(k) Plan based on the amount of each participant's contributions up to a maximum of six percent of eligible compensation. All eligible employees as of December 31, 1990 became participants in the 401(k) Plan and are 100 percent vested in the Corporation's matching contributions. Eligible employees hired on or after January 1, 1991 must complete 90 days of service to be eligible for enrollment and vest in the Corporation's matching contributions over a five- year period. Shares issued under the 401(k) Plan totaled 43,018 during 1993 and 55,910 during 1992. Effective January 1, 1991, the 1986 Thrift Incentive Stock Purchase Plan was amended and restated into the 1991 Thrift Incentive Stock Purchase Plan ("1991 Stock Purchase Plan"). The 1991 Stock Purchase Plan was adopted to offer those employees whose participation in the 401(k) Plan is limited, an alternative means of receiving comparable benefits. Cullen/Frost shares issued under this plan totaled 17,909 during 1993 and 25,105 during 1992. Executive Stock Plans - The Corporation has four principal executive stock plans, the 1983 Nonqualified Stock Option Plan ("1983 Plan"), the 1988 Nonqualified Stock Option Plan ("1988 Plan"), the Restricted Stock Plan, and the 1992 Stock Plan. The 1992 Stock Plan is an all-inclusive plan, with an aggregate of 880,000 shares of common stock authorized for award. The 1992 Stock Plan has replaced all other previously approved executive stock plans. These plans which were approved by shareholders were established to enable the Corporation to retain and motivate key employees. A committee of non-participating directors has sole authority to select the employees, establish the awards to be issued, and approve the terms and conditions of each award contract. The 1992 Stock Plan allows the Corporation to grant restricted stock, incentive stock options, nonqualified stock options, stock appreciation rights, or any combination thereof to certain key executives of the Corporation. Page 36 The following is a summary of options transactions in each of the last three years.
1983 Plan 1988 Plan 1992 Stock Plan --------------------- ---------------------- ------------------- Option Price Option Price Option Price Options Per Share Options Per Share Options Per Share - -------------------------------------------------------------------------------------------- Balance, Dec. 31, 1990 352,791 $ 6.03- 20.68 48,847 $ 6.03 Granted 39,620 10.91 168,710 10.91 Exercised 23,978 6.03- 6.82 1,359 6.03 Canceled 23,737 6.82- 20.68 154 6.03 ------- ------------- ------- ------------- Balance, Dec. 31, 1991 344,696 6.03- 20.68 216,044 6.03- 10.91 Granted 62,948 $25.45 Exercised 270,271 6.03- 20.68 33,151 6.03- 10.91 Canceled 499 6.03 ------- ------------- ------- ------------- ------ ------ Balance, Dec. 31, 1992 74,425 6.82- 14.09 182,394 6.03- 10.91 62,948 25.45 Granted 116,660 35.50 Exercised 11,404 6.82- 14.09 9,871 6.03- 10.91 Canceled 993 6.82 12,067 6.03- 10.91 4,036 25.45 ------- ------------- ------- ----------- ------------- Balance, Dec. 31, 1993 62,028 $ 6.82-$14.09 160,456 $6.03-$10.91 175,572 $25.45-$35.50 ======= ============= ======= =========== ======= =============
The Restricted Stock Plan, approved by the Corporation's shareholders in May of 1990, provides for periodic awards of Cullen/Frost Common Stock to key employees, subject to certain transfer restrictions and forfeiture provisions. Under this plan, an aggregate of 100,000 shares of common stock may be awarded. Shares of common stock totaling 21,137 and 17,687 were awarded during 1991 and 1989, respectively. In 1993, restricted stock grants were awarded under the 1992 Stock Plan totaling 4,988 shares. Deferred compensation expense related to the restricted stock was $117,000 in 1993, $114,000 in 1992, and $63,000 in 1991. The market value of restricted shares at the date of grant is expensed over the restriction period. The Corporation has change-in-control agreements with 15 of its executives. Under these agreements, as revised, each covered person could receive, in the event of a change in control, one-half of his base compensation upon the effectiveness of the change in control, and one and one-half times (2.49 times in the case of six key executives) of his average annual W-2 compensation during the previous five years if such person is constructively terminated or discharged for reasons other than cause within two years following the change in control. The agreements, in all events, limit payments to avoid being considered "parachute payments" as defined by the Internal Revenue Code. The maximum contingent liability under these agreements approximate $9,174,000 at December 31, 1993. The Corporation adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" on January 1, 1993. This statement did not have a material impact on the financial position or operations of the Corporation. The Financial Accounting Standards Board issued Statement of Financial Standards No. 112, "Employers' Accounting for Post Employment Benefits" effective for calendar year 1994. This statement requires accrual accounting for certain benefits other than pensions that were previously accounted for on a cash basis. Based on current circumstances, this statement is not expected to have a material effect on the Corporation's financial statements. Page 37 NOTE N - INCOME TAXES The Corporation adopted as of January 1, 1993, Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). The implementation of SFAS 109 changes the Corporation's method of accounting for income taxes from the deferred method (APB 11) to the liability method. The liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting bases and the tax bases of assets and liabilities. As permitted by SFAS 109, the Corporation has elected not to restate the financial statements of any prior years. The cumulative effect of the change increased net income $8,439,000 or $.76 per share. The Corporation recorded a tax benefit in 1993 of $735,000. The effective tax rate was affected by the reduction of the valuation allowance for deferred tax assets established at the beginning of 1993 by $13.5 million. The reduction of the valuation allowance was based mainly on the level of earnings obtained in 1993, projected future earnings, and the increase in deferred tax credits resulting from the adoption of SFAS 115 at the end of 1993. No valuation allowance was considered necessary because Cullen/Frost has $5,600,000 in recoverable taxes paid in prior years, the future reversal of approximately $22,900,000 in taxable temporary differences, and future income. The Corporation recorded an extraordinary credit of $6,497,000 for the year ended December 31, 1992. This credit represents the utilization of net operating loss carryforwards for financial reporting purposes. The following is an analysis of the Corporation's income taxes included in the consolidated statements of operations for the years ended December 31, 1993, 1992, and 1991.
(in thousands) 1993 1992 1991 - -------------- ------ ------ ------ Current income tax expense $5,629 $4,114 $2,336 Deferred income tax (credit) 7,196 4,083 (1,703) Decrease in deferred tax valuation allowance (13,560) - - -------- ------- ------- Income tax expense (credit) as reported ($735) $8,197 633 ======= ======= =======
The following is a reconciliation of the difference between income tax expense as reported and the amount computed by applying the statutory income tax rate to income before income taxes, extraordinary credit, and cumulative effect of accounting change:
Year Ended December 31, (in thousands) 1993 1992 1991 - -------------- ------------------------------- Income before income taxes, extraordinary credit, and cumulative effect of accounting change $ 38,062 $25,822 $ 838 Statutory rate 35% 34% 34% -------- ------- ------- Income tax expense at the statutory rate 13,322 8,780 285 Effect of tax-exempt interest (574) (745) (1,380) Change in deferred tax valuation allowance (13,560) - - Net operating loss carryforwards - - 1,187 Other 77 162 541 -------- ------- ------- Income tax expense (credit) as reported ($ 735) $ 8,197 $ 633 ======== ======= =======
Cullen/Frost recognized a tax expense of $501,000 and a tax benefit of $79,000 related to securities transactions in 1993 and 1992, respectively. There were no income taxes related to securities transactions in 1991. Page 38 The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 1993 are presented below:
(in thousands) 1993 - -------------- -------- Deferred tax assets: Allowance for possible loan losses $10,452 Other real estate and repossessed collateral 3,964 Building modification reserve 1,592 Gain on sale of assets 1,416 Amortization of intangibles 1,316 Net occupancy restructuring 2,334 Other 2,943 ------- Total gross deferred tax assets 24,017 Deferred tax liabilities: Depreciation and amortization ($2,129) Prepaid expenses (880) Unrealized gain on securities available for sale (4,913) Other (1,070) ------- Total gross deferred tax liabilities (8,992) ------- Net deferred tax asset $15,025 =======
The components of the provision for deferred income taxes for the years ended December 31, 1992 and 1991 are as follows:
(in thousands) 1992 1991 - -------------- ------ ------ Deferred federal income taxes: Unrecognized timing differences $ - $2,530 Provision (credit) for possible loan losses 3,925 1,104 Gain on sale of assets 152 288 Contributions (89) 192 Retirement plan contributions 331 228 Depreciation and amortization (309) (684) Repossessed collateral adjustments 73 (5,361) ------ ------ Provision for deferred income taxes $4,083 ($1,703) ====== ======
NOTE 0 - NON-INTEREST EXPENSE Significant components of other non-interest expense for the years ended December 31, 1993, 1992, and 1991 are presented below:
Year Ended December 31 ----------------------------- Other Non-Interest Expense (in thousands) 1993 1992 1991 - --------------------------------------------------------------------------- Outside computer service $10,611 $ 7,403 $ 6,498 FDIC insurance 6,793 6,115 5,768 Other professional expenses 3,953 2,852 4,159 Intangible amortization 3,865 270 151 Amortization of goodwill 3,012 430 446 Stationery printing and supplies 2,890 2,349 2,681 Attorneys' expenses 1,787 2,131 3,035 Other non-interest expense 30,269 31,118 33,856 ------- ------- ------- Total $63,180 $52,668 $56,594 ======= ======= =======
During the second quarter of 1991, the Corporation's lead bank settled a foreclosure-related lawsuit. The suit was originated in 1982 against the bank. A Texas Court of Appeals reaffirmed a lower court decision which awarded the Plaintiff $2.5 million in damages, plus interest, for a total award of approximately $5.8 million. The Corporation settled this lawsuit for $5.4 million. Page 39 NOTE P - CASH FLOW DATA For purposes of reporting cash flow, cash and cash equivalents include the following:
December 31 ------------------------------ (in thousands) 1993 1992 1991 - --------------------------------------------------------------------------- Cash and due from banks $334,564 $296,270 $306,422 Time deposits 147 153 266 Federal funds sold and securities purchased under resale agreements 250,250 282,630 98,395 -------- -------- -------- $584,961 $579,053 $405,083 ======== ======== ========
Generally, Federal funds are sold for one-day periods and securities purchased under resale agreements are held for less than thirty-five days. The carrying amounts reported on the balance sheet for cash and short-term investments approximate their fair value. Supplemental cash flow information is as follows:
Year Ended December 31 --------------------------------- (in thousands) 1993 1992 1991 - ------------------------------------------------------------------------------------ Cash piad: Interest $ 61,633 $ 76,758 $126,264 Income Taxes 6,695 2,675 2,005 Non-cash items: Loans originated to facilitate the sale of foreclosed assets 5,275 9,037 3,872 Loan foreclosures (including in-substance foreclosures) 1,440 10,934 61,281 Conversion of long-term debt to common stock 10,000 Unrealized gains on securities available for sale 14,037
NOTE Q - CONTINGENCIES Certain subsidiaries of Cullen/Frost are defendants in various matters in litigation which have arisen in the normal course of conducting a commercial banking business. In the opinion of management, the disposition of such pending litigation will not have a material effect on Cullen/Frost's consolidated financial position. NOTE R - CONDENSED PARENT CORPORATION FINANCIAL STATEMENTS Condensed financial information of the parent Corporation as of December 31, 1993 and 1992 and for each of the three years in the period ended December 31, 1993 follows:
Year Ended December 31 -------------------------------- Statement of Operations (in thousands) 1993 1992 1991 - ------------------------------------------------------------------------------ Income: Dividends from subsidiaries $21,692 $ 3,388 $ 6,678 Interest and other 220 631 326 ------- ------- ------- Total Income 21,912 4,019 7,004 Expenses: Salaries and employee benefits 812 897 1,012 Interest 111 975 1,001 Other 1,553 1,679 1,250 ------- ------- ------- Total Expenses 2,476 3,551 3,263 Income Before Income Taxes (Credits) and Equity in Undistributed Net (Income) Losses of Subsidiaries 19,436 468 3,741 Income taxes (credits) (22,351) (3,388) 793 Equity in undistributed net (income) losses of subsidiaries (5,449) (20,266) 2,743 ------- -------- ------- Net Income $47,236 $ 24,122 $ 205 ======= ======== =======
Page 40
December 31 ------------------------ Balance Sheets (in thousands) 1993 1992 - ----------------------------------------------------------------------------- Assets Cash and time deposits $ 180 $ 219 Securities purchased under resale agreements 2,300 12,220 Loans to non-bank subsidiaries 2,028 1,696 Investments in subsidiaries 272,047 224,449 Other 2,484 956 -------- -------- Total Assets $279,039 $239,540 ======== ======== Liabilities Long-term notes payable $ 10,000 Other $ 5,506 23,396 -------- -------- Total Liabilities 5,506 33,396 Shareholders' Equity 273,533 206,144 -------- -------- Total Liabilities and Shareholders' Equity $279,039 $239,540 ======== ========
Year Ended December 31 -------------------------------- Statements of Cash Flows (in thousands) 1993 1992 1991 - ----------------------------------------------------------------------------------------- Operating Activities Net income $ 47,236 $ 24,122 $ 205 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed net(income)losses of subsidiaries (5,449) (20,266) 2,743 Decrease (increase) in interest receivable 189 (136) 63 Decrease in interest payable (83) (3) (9) Net change in other liabilities and assets (19,199) (1,007) 1,975 -------- ------- -------- Net cash provided by operating activities 22,694 2,710 4,977 Investing Activities Capital contributions to subsidiaries (33,025) (625) (6,090) Net (increase) decrease in loans (132) 263 (470) -------- -------- ------- Net cash used by investing activities (33,157) (362) (6,560) Financing Activities Cash dividends (1,650) Proceeds from employee stock purchase plans and options 2,154 3,875 2,312 -------- ------- ------- Net cash provided by financing activities 504 3,875 2,312 -------- ------- ------- Increase (Decrease) in cash and cash equivalents (9,959) 6,223 729 Cash and equivalents at beginning of year 12,439 6,216 5,487 -------- ------- ------- Cash and cash equivalents at end of year $ 2,480 $ 12,439 $ 6,216 ======== ======== ========
NOTE S - RESTRUCTURING CHARGES During 1993, the Corporation recorded restructuring charges of $10.3 million. Included in the charges are $6.7 million related to downsizing office space used to provide banking services, $1.9 million for a retirement incentive program and $1.7 million in related job eliminations and restructurings. Of the $6.7 million net occupancy restructuring charge, a portion is for leased space and a portion is for valuations on owned buildings resulting from the decision to sell. Page 41 REPORT OF ERNST & YOUNG INDEPENDENT AUDITORS SHAREHOLDERS AND BOARD OF DIRECTORS CULLEN/FROST BANKERS, INC. We have audited the accompanying consolidated balance sheets of Cullen/Frost Bankers, Inc. and Subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cullen/Frost Bankers, Inc. and Subsidiaries at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in Notes D and N to the financial statements, in 1993 the Corporation changed its method of accounting for certain investments in debt securities and changed its method of accounting for income taxes. /S/ ERNST & YOUNG San Antonio, Texas January 31, 1994 Page 42 FINANCIAL STATISTICS Cullen/Frost Bankers, Inc. and Subsidiaries (in thousands) The following unaudited schedules and statistics are presented for additional information and analysis.
1993/1992 -------------------------------- Increase (Decrease) Total Due to Change in or Net ------------------- Average Average Increase Rate/Volume Analysis Rate Balance (Decrease) - ------------------------------------------------------------------------------------- Changes in interest earned on: Time deposits $ (2) $ (2) $ (4) Securities: U.S. Treasury (6,386) (6,395) (12,781) U.S. Government agencies and corporations (16,316) 24,759 8,443 States and political subdivisions Tax-exempt 63 (198) (135) Taxable 173 (814) (641) Other (527) (2,437) (2,964) Federal funds sold and securities purchased under resale agreements (885) 1,888 1,003 Loans (4,163) 10,634 6,471 --------- --------- --------- Total (28,043) 27,435 (608) Changes in interest paid on: Savings, Interest-on-Checking 3,158 (4,512) (1,354) Money market deposits accounts 3,049 (1,637) 1,412 Time accounts and public funds 8,989 1,681 10,670 Federal funds purchased and securities sold under repurchase agreements 614 (779) (165) Long-term notes payable 71 897 968 Other borrowings --------- --------- --------- Total 15,881 (4,350) 11,531 --------- --------- --------- Changes in net interest income $(12,162) $ 23,085 $ 10,923 ========= ========= =========
The allocation of the rate/volume variance has been made on a pro-rata basis assuming absolute values. The above information is shown on a taxable-equivalent basis assuming a 35 percent tax rate in 1993 and a 34 percent tax rate in 1992 and 1991.
1992/1991 -------------------------------- Increase (Decrease) Total Due to Change in or Net ------------------- Average Average Increase Rate/Volume Analysis Rate Balance (Decrease) - ------------------------------------------------------------------------------------- Changes in interest earned on: Time deposits $ (4) $ (1) $ (5) Securities: U.S. Treasury (6,461) 16,142 9,681 U.S. Government agencies and corporations (4,407) (12,780) (17,187) States and political subdivisions Tax-exempt 62 (2,303) (2,241) Taxable (258) (362) (620) Other (1,741) (585) (2,326) Federal funds sold and securities purchased under resale agreements (4,648) (119) (4,767) Loans (13,653) (11,152) (24,805) --------- --------- --------- Total (31,110) (11,160) (42,270) Changes in interest paid on: Savings, Interest-on-Checking 8,371 (2,480) 5,891 Money market deposits accounts 7,237 (1,998) 5,239 Time accounts and public funds 23,166 12,183 35,349 Federal funds purchased and securities sold under repurchase agreements 2,139 635 2,774 Long-term notes payable (18) 142 124 Other borrowings 13 12 25 --------- --------- -------- Total 40,908 8,494 49,402 --------- --------- --------- Changes in net interest income $ 9,798 $ (2,666) $ 7,132 ========= ========= =========
The allocation of the rate/volume variance has been made on a pro-rata basis assuming absolute values. The above information is shown on a taxable-equivalent basis assuming a 35 percent tax rate in 1993 and a 34 percent tax rate in 1992 and 1991.
December 31, 1993 --------------------------------------------- Due in After One, After One Year but Within Five Loan Maturity and Sensitivity or Less Five Years Years Total - ------------------------------------------------------------------------------------------ Real estate construction and land loans $ 35,099 $ 16,769 $ 3,419 $ 55,287 Other real estate loans 79,089 146,969 91,062 317,120 All other loans 223,181 119,270 19,381 361,832 -------- -------- -------- -------- Total $337,369 $283,008 $113,862 $734,239 ======== ======== ======== ======== Loans with fixed interest rates $105,318 $ 91,660 $ 74,860 $271,838 Loans with floating interest rates 232,051 191,348 39,002 462,401 -------- -------- -------- -------- Total $337,369 $283,008 $113,862 $734,239 ======== ======== ======== ========
Loans for 1-4 family housing totaling $253,649,000 and consumer loans totaling $268,377,000 are not included in the amounts in the table. Page 43
Maturity Distribution and Securities Portfolio Yields (dollars in thousands) December 31, 1993 - ---------------------------------------------------------------------------------------------------------------------- Maturity ---------------------------------------------------------------------------------- Total Within 1 Year 1-5 Years 5-10 Years After 10 Years Carrying Amount ---------------- --------------- ---------------- ---------------- --------------- Weighted Weighted Weighted Weighted Weighted Average Average Average Average Average Amount Yield Amount Yield Amount Yield Amount Yield Amount Yeild ------- ------- ------- ------- -------- ------- -------- ------- -------- --------- Held to maturity: U.S. Treasury $ 6,080 3.19% $ 6,080 3.19% U.S. Government agencies and corporations $369,335 5.42% $595,148 5.64% 964,483 5.56 States and political subdivisions 120 6.87 $ 183 5.47% 410 5.98 6,503 6.62 7,216 6.56 Other 10 14.86 15,337 5.40 48 8.46 4,221 6.04 19,616 5.55 -------- ----- ------- ---- -------- ---- -------- ---- -------- ---- Total securities held to maturity $ 6,210 3.28% 15,520 5.40% $369,793 5.42% $605,872 5.66% $997,395* 5.55% ======== ===== ======= ==== ======== ==== ======== ==== ======== ==== Available for sale: U.S. Treasury $278,988 4.23% $278,988 4.23% U.S. Government agencies and corporations $ 154 1.24% $ 33,440 6.68% $282,838 6.52% 316,432 6.53 Other 19,056 4.03 19,056 4.03 -------- ----- ------- ---- -------- ---- -------- ---- -------- ---- Total securities available for sale $278,988 4.23% $ 154 1.24% $ 33,440 6,68% $301,894 6.36% $614,476* 5.41% ======== ==== ======= ==== ======== ==== ======== ==== ======== ==== Weighted average yields have been computed on a fully taxable-equivalent basis assuming a tax rate of 35%. * Included in the totals are mortgage-backed securities and collateralized mortgage obligations of $1,302,937 which are included in maturity categories based on their stated maturity date.
Year Ended December 31 Federal Funds Purchased and Securities ----------------------------------- Sold Under Repurchase Agreements 1993 1992 1991 - ------------------------------------------------------------------------------------------ Balance at year end $166,519 $122,221 $ 88,056 Maximum month-end balance 168,198 126,230 159,493 For the year: Average daily balance 131,096 102,550 116,281 Average interest rate 2.52% 3.06% 5.08% Weighted average daily interest rate 2.86 3.32 5.45
December 31 ------------------------------------------ 1993 1992 Remaining Maturity of Private ------------------- ------------------- Certificates of Deposit Percentage Percentage of $100,000 or More Amount of Total Amount of Total - ------------------------------------------------------------------------------------------ Three months or less $ 58,314 16.7% $307,529 74.6% After three, within six months 123,486 35.4 80,259 19.5 After six, within twelve months 108,643 31.1 22,741 5.5 After twelve months 58,660 16.8 1,813 .4 -------- ----- -------- ----- Total $349,103 100.0% $412,342 100.0% ======== ===== ======== ===== Percentage of total private time deposits 16.0% 21.0%
Other time deposits of $100,000 or more were $41,274,000 at December 31, 1993. Of this amount 58.8 percent matures within three months, 3.9 percent matures between three and six months and the remainder matures between six months and one year. Page 44
QUARTERLY RESULTS OF OPERATIONS Cullen/Frost Bankers, Inc. and Subsidiaries Three Months Ended 1993 (in thousands, except per share amounts) March 31 June 30 Sept 30 Dec 31 - ------------------------------------------------------------------------------------ Interest income $46,155 $48,985 $47,095 $47,384 Interest expense 15,175 16,151 15,205 15,262 Net interest income 30,980 32,834 31,890 32,122 Provision (credit) for possible loan losses (590) -- (2,251) (3,244) Gain (loss) on securities transactions 8 (3) 3 1,425 Non-interest income 17,683 18,822 18,846 20,878 Restructuring costs 1,958 -- 591 7,736 Non-interest expense 41,308 40,711 40,850 49,209 Income before income taxes (credits), extraordinary credit and cumulative effect of accounting change 7,945 10,945 12,137 7,035 Income taxes (credits) 160 218 160 (1,273) Extraordinary credit Cumulative effect of accounting change 8,439 Net income 16,224 10,727 11,977 8,308 Per share Income before extraordinary credit and cumulative effect of accounting change Primary .71 .96 1.07 .74 Fully diluted .71 .96 1.07 .74 Net income - Primary 1.47 .96 1.07 .74 Fully diluted 1.46 .96 1.07 .74
Three Months Ended 1992 (in thousands, except per share amounts) March 31 June 30 Sept 30 Dec 31 - ------------------------------------------------------------------------------------ Interest income $50,109 $48,273 $46,596 $45,003 Interest expense 21,284 19,379 17,345 15,316 Net interest income 28,825 28,894 29,251 29,687 Provision (credit) for possible loan losses (2,468) 418 1,000 200 Gain (loss) on securities transactions (366) 119 15 Non-interest income 14,103 15,549 15,911 16,250 Restructuring costs -- -- -- -- Non-interest expense 42,020 38,636 36,565 36,277 Income before income taxes and extraordinary credit 3,376 5,389 7,597 9,460 Income taxes (credits) 845 1,800 2,377 3,175 Extraordinary credit 807 1,751 2,183 1,756 Net income 3,338 5,340 7,403 8,041 Per share Income before extraordinary credit- Primary .25 .34 .49 .58 Fully diluted .25 .34 .49 .58 Net income Primary .32 .50 .69 .74 Fully diluted .32 .50 .69 .74
COMMON STOCK MARKET PRICES AND DIVIDENDS Shares of Cullen/Frost Bankers common stock are traded in the over-the- counter market under the symbol CFBI. The number of record holders of the common stock at February 22, 1994 was 2,602.
1993 1992 ------------- ---------------- Market Price (per share)* High Low High Low - ------------------------------------------------------------------------------ First Quarter $40.25 $29.50 $21.50 $13.50 Second Quarter 39.75 31.00 27.50 20.50 Third Quarter 39.25 33.75 30.25 22.00 Fourth Quarter 38.75 30.25 31.50 26.75 *Market prices have not been restated for effect of the ten percent stock dividend.
Market prices shown above are high and low sales prices as reported through NASDAQ National Market System. These prices reflect inter-dealer prices, without retail mark-up, mark-down or commissions and represent actual transactions.
Cash Dividends (per share) 1993 - ------------------------------------------------------------------------------- First Quarter -- Second Quarter -- Third Quarter -- Fourth Quarter $.15 ---- Total $.15 ====
During the fourth quarter of 1993, the Company resumed its quarterly dividend and paid $.15 per share on December 15, 1993. There were no cash dividends paid during 1992. See "Capital" section (page 22) in the Financial Review for further discussion. Page 45
SELECTED FINANCIAL DATA Cullen/Frost Bankers, Inc. and Subsidiaries (dollars in thousands, except per share amounts) Year Ended December 31 -------------------------------------- 1993 1992 1991 ----------- ----------- ---------- Balance Sheet Data Total assets $ 3,639,047 $ 3,150,871 $ 3,078,986 Long-term notes payable -- 13,400 14,668 Shareholders' equity 273,533 206,144 176,222 Average shareholders' equity to average total assets 7.08% 6.29% 5.67% Tier 1 capital ratio (1992 rules) 14.23 15.66 12.98 Total capital ratio (1992 rules) 15.49 17.52 15.04 Per Common Share Data Net income (loss)** $ 4.24 $ 2.26 $ .02 Cash dividends paid .15 - - Shareholders' equity 24.85 19.80 17.55 Loan Performance Indicators Non-performing assets $ 31,110 $ 51,303 $ 100,642 Non-performing assets to: Total loans plus foreclosed assets 2.47% 4.94% 8.85% Total assets .85 1.63 3.27 Allowance for possible loan losses $ 26,298 $ 31,897 $ 42,387 Allowance for possible loan losses to period-end loans 2.11% 3.15% 3.95% Net loan charge-offs (recoveries) $ (486) $ 9,640 $ 13,237 Net loan charge-offs (recoveries) to average loans (.04)% .94% 1.15% Common Stock Data Common shares outstanding at period end 11,009,198 10,412,184 10,043,844 Weighted average common and common equivalent shares outstanding 11,150,788 10,974,329 10,075,263 Dividends as a percentage of net income 3.54% -- -- Non-Financial Data Number of employees 1,877 1,754 1,737 Shareholders of record 2,644 2,824 3,547
Year Ended December 31 -------------------------------------- 1990 1989 1988 ----------- ----------- ---------- Balance Sheet Data Total assets $ 3,254,744 $ 3,505,038 $ 3,385,916 Long-term notes payable 16,280 17,450 18,616 Shareholders' equity 173,442 179,313 175,020 Average shareholders'equity to average total assets 5.42% 5.14% 5.28% Tier 1 capital ratio (1992 rules) 10.93 * * Total capital ratio (1992 rules) 13.05 * * Per Common Share Data Net income (loss)** $ (.85) $ .28 $ .26 Cash dividends paid - - - Shareholders' equity 17.79 18.92 18.80 Loan Performance Indicators Non-performing assets $ 121,865 $ 131,733 $ 98,179 Non-performing assets to: Total loans plus foreclosed assets 9.11% 9.24% 6.16% Total assets 3.74 3.76 2.90 Allowance for possible loan losses $ 45,604 $ 42,282 $ 40,702 Allowance for possible loan losses to period-end loans 3.60% 3.09% 2.60% Net loan charge offs (recoveries) $ 28,671 $ 28,132 $ 22,276 Net loan charge-offs (recoveries) to average loans 2.18% 2.00% 1.42% Common Stock Data Common shares outstanding at period end 9,751,234 9,479,026 9,307,199 Weighted average common and common equivalent shares outstanding 9,651,942 9,516,321 9,297,586 Dividends as a percentage of net income -- -- -- Non-Financial Data Number of employees 1,755 1,869 1,880 Shareholders of record 4,136 4,088 4,152 *Risk-based capital ratios are effective for years beginning December 31, 1990. ** 1993 primary and fully diluted earnings per share before extraordinary credit was $1.66. Fully diluted net income per share for 1992 was $2.25.
CULLEN/FROST BANKERS, INC. AND SUBSIDIARIES Bank Subsidiaries (in thousands) - --------------------------------------------------------------------------------------- December 31, 1993 ---------------------------------- Total Total Total Assets Loans Deposits ---------- ---------- ---------- Frost National Bank $3,344,678 $1,138,655 $2,894,302 San Antonio, Houston, Austin and Corpus Christi Main Office: P. O. Box 1600, 100 West Houston Street San Antonio, Texas 78296 (210)220-4011 Cullen/Frost Bank of Dallas, N.A. 178,167 58,252 155,436 P. O. Box 1649, 2001 Bryan Street at Harwood Dallas, Texas 75221 (214) 979-2000 United States National Bank 136,220 50,206 121,589 P. O. Box 179, 2201 Market Street Galveston, Texas 77553 (409) 763-1151
Page 46
CONSOLIDATED STATEMENTS OF OPERATIONS Cullen/Frost Bankers, Inc. and Subsidiaries (in thousands, except per share amounts) Year Ended December 31 -------------------------------- 1993 1992 1991 -------- -------- -------- Interest Income: Loans, including fees $ 90,756 $ 84,074 $108,617 Securities 91,145 99,188 111,132 Time deposits 4 8 13 Federal funds sold and securities purchased under resale agreements 7,714 6,711 11,478 -------- -------- -------- Total Interest Income 189,619 189,981 231,240 Interest expense: Deposits 58,079 68,807 115,286 Federal funds purchased and securities sold under repurchase agreements 3,304 3,139 5,913 Long-term notes payable 410 1,378 1,502 Other borrowings 25 -------- -------- -------- Total Interest Expense 61,793 73,324 122,726 -------- -------- -------- Net Interest Income 127,826 116,657 108,514 Provision (credit) for possible loan losses (6,085) (850) 10,020 -------- -------- -------- Net Interest Income After Provision (Credit) for Possible Loan Losses 133,911 117,507 98,494 Non-interest income: Trust department 26,278 21,861 20,030 Service charges on deposit accounts 25,386 21,958 18,915 Other service charges, collection and exchange charges, commissions and fees 9,889 7,888 8,288 Net gain (loss) on securities transactions 1,433 (232) 2,022 Other 13,243 10,338 8,227 -------- ------- ------- Total Non-Interest Income 76,229 61,813 57,482 Non-interest expense: Salaries and wages 53,654 46,184 44,154 Pension and other employee benefits 12,052 9,746 9,058 Net occupancy of banking premises 21,307 17,294 16,807 Furniture and equipment 10,155 8,295 7,726 Provision for real estate losses 1,445 19,311 20,799 Restructuring costs 10,285 Other 63,180 52,668 56,594 -------- ------- ------- Total Non-Interest Expense 172,078 153,498 155,138 -------- ------- ------- Income (Loss) Before Income Taxes (Credits), Extraordinary Credit and Cumulative Effect of Accounting Change 38,062 25,822 838 Income taxes (735) 8,197 633 -------- ------- ------- Income (Loss) before extraordinary credit and cumulative effect of accounting change 38,797 17,625 205 Extraordinary Credit-income tax benefit 6,497 Cumulative effect of change in accounting for income taxes 8,439 -------- ------- ------- Net Income (Loss) $ 47,236 $24,122 $ 205 ======== ======= ======= Net income (loss) per common share $ 4.24 $ 2.26 $ .02 ======== ======= ======= Return on average assets 1.34% .79% .01% Return on average equity 19.00 12.56 .12
CONSOLIDATED STATEMENTS OF OPERATIONS Cullen/Frost Bankers, Inc. and Subsidiaries (in thousands, except per share amounts) Year Ended December 31 -------------------------------- 1990 1989 1988 -------- -------- -------- Interest Income: Loans, including fees $134,217 $150,550 $152,871 Securities 115,452 101,424 60,800 Time deposits 82 1,814 784 Federal funds sold and securities purchased under resale agreements 23,130 45,578 46,774 -------- -------- -------- Total Interest Income 272,881 299,366 261,229 Interest expense: Deposits 147,399 160,536 135,417 Federal funds purchased and securities sold under repurchase agreements 13,805 27,892 23,565 Long-term notes payable 1,630 1,709 1,776 Other borrowings 3 2,269 2,548 -------- -------- -------- Total Interest Expense 162,837 192,406 163,306 -------- -------- -------- Net Interest Income 110,044 106,960 97,923 Provision (credit) for possible loan losses 31,993 28,902 27,224 -------- -------- -------- Net Interest Income After Provision (Credit) for Possible Loan Losses 78,051 78,058 70,699 Non-interest income: Trust department 18,777 16,211 13,912 Service charges on deposit accounts 15,146 13,290 12,330 Other service charges, collection and exchange charges, commissions and fees 7,304 6,293 5,577 Net gain (loss) on securities transactions 129 516 732 Other 9,236 14,170 20,746 ------- ------- ------- Total Non-Interest Income 50,592 50,480 53,297 Non-interest expense: Salaries and wages 43,019 43,361 43,499 Pension and other employee benefits 9,148 8,567 8,556 Net occupancy of banking premises 17,171 16,370 15,454 Furniture and equipment 8,067 8,690 10,591 Provision for real estate losses 11,172 8,131 6,633 Restructuring costs -- -- -- Other 48,050 40,546 36,660 ------- ------- ------- Total Non-Interest Expense 136,627 125,665 121,393 Income (Loss) Before Income Taxes (Credits), Extraordinary Credit and Cumulative Effect of Accounting Change (7,984) 2,873 2,603 Income Taxes (credits) 236 200 200 ------- ------- ------- Income (Loss) before extraordinary credit and cumulative effect of accounting change (8,220) 2,673 2,403 Extraordinary Credit-income tax benefit -- -- -- Cumulative effect of change in accounting for income taxes -- -- -- ------- ------- ------- Net Income (Loss) $(8,220) $ 2,673 $ 2,403 ======== ======= ======= Net income (loss) per common share $ (.85) $ .28 $ .26 ======== ======= ======= Return on average assets N/M .08% .07% Return on average equity N/M 1.51 1.39
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CONSOLIDATED AVERAGE BALANCE SHEETS Cullen/Frost Bankers, Inc. and Subsidiaries (in thousands - taxable-equivalent basis) Year Ended December 31 ----------------------------- 1993 ------------------------------ Interest Average Income/ Yield/ Balance Expense Cost - --------------------------------------------------------------------------------- Assets: Time deposits $ 147 $ 4 2.68% Securities: U.S. Treasury 495,760 22,386 4.52 U.S. Government agencies and corporations 1,021,083 65,155 6.38 States and political subdivisions: Tax-exempt 11,078 1,093 9.86 Taxable 1,148 95 8.25 Other 54,333 2,792 5.14 ---------- ------- Total securities 1,583,402 91,521 5.78 Federal funds sold and securities purchased under resale agreements 255,613 7,714 3.02 Loans, net of unearned discount 1,158,057 91,263 7.88 ---------- ------- Total Earning Assets and Average Rate Earned 2,997,219 190,502 6.35 Cash and due from banks 315,354 Allowance for possible loan losses (31,127) Banking premises and equipment 87,085 Accrued interest and other assets 143,632 ---------- Total Assets $3,512,163 ========== Liabilities: Demand deposits: Commercial and individual $ 631,363 Correspondent banks 143,008 Public funds 42,075 ---------- Total demand deposits 816,446 Time deposits: Savings and Interest-on-Checking 750,386 14,840 1.98 Money market deposit accounts 534,814 13,426 2.51 Time accounts 907,125 27,693 3.05 Public funds 74,979 2,120 2.83 ---------- ------- Total time deposits 2,267,304 58,079 2.56 ---------- Total deposits 3,083,750 Federal funds purchased and securities sold under repurchase agreements 131,096 3,304 2.52 Long-term notes payable 4,075 380 9.33 Other borrowings 508 30 5.91 ---------- ------- Total Interest-Bearing Funds and Average Rate Paid 2,402,983 61,793 2.57 ------- ---- Accrued interest and other liabilities 44,184 ---------- Total Liabilities 3,263,613 Shareholders' Equity 248,550 ---------- Total Liabilities and Shareholders' Equity $3,512,163 ========== Net interest income $128,709 ======== Net interest spread 3.78% ==== Net interest income to total average earning assets 4.29% ==== Net interest income to total average earning assets- with federal funds net 4.49% ==== The above information is shown on a taxable-equivalent basis assuming a 35 percent tax rate for 1993 and a 34 percent tax rate for 1992 through 1988. Non-accrual loans are included in the average loan amounts outstanding for these computations.
CONSOLIDATED AVERAGE BALANCE SHEETS Cullen/Frost Bankers, Inc. and Subsidiaries (in thousands - taxable-equivalent basis) Year Ended December 31 ------------------------------ 1992 ------------------------------ Interest Average Income/ Yield/ Balance Expense Cost - --------------------------------------------------------------------------------- Assets: Time deposits $ 203 $ 8 4.10% Securities: U.S. Treasury 621,460 35,167 5.66 U.S. Government agencies and corporations 669,786 56,712 8.47 States and political subdivisions: Tax-exempt 13,126 1,228 9.43 Taxable 11,600 736 6.35 Other 100,839 5,756 5.71 ---------- -------- Total securities 1,416,811 99,599 7.03 Federal funds sold and securities purchased under resale agreements 195,398 6,711 3.43 Loans, net of unearned discount 1,024,885 84,792 8.27 ---------- -------- Total Earning Assets and Average Rate Earned 2,637,297 191,110 7.25 Cash and due from banks 262,995 Allowance for possible loan losses (36,793) Banking premises and equipment 80,794 Accrued interest and other assets 110,951 ---------- Total Assets $3,055,244 ========== Liabilities: Demand deposits: Commercial and individual $ 495,199 Correspondent banks 136,487 Public funds 33,842 ---------- Total demand deposits 665,528 Time deposits: Savings and Interest-on-Checking 541,191 13,486 2.49 Money market deposit accounts 477,877 14,838 3.11 Time accounts 946,480 36,775 3.89 Public funds 79,621 3,708 4.66 ---------- ------- Total time deposits 2,045,169 68,807 3.36 ---------- ------- Total deposits 2,710,697 Federal funds purchased and securities sold under repurchase agreements 102,550 Long-term notes payable 14,568 3,139 3.06 Other borrowings 1,378 9.46 ---------- ------- Total Interest-Bearing Funds and Average Rate Paid 2,162,287 73,324 3.39 ------- ---- Accrued interest and other liabilities 35,398 ---------- Total Liabilities 2,863,213 Shareholders' Equity 192,031 ---------- Total Liabilities and Shareholders' Equity $3,055,244 ========== Net interest income $117,786 ======== Net Interest spread 3.86% ==== Net interest income to total average earning assets 4.47% ==== Net interest income to total average earning assets- with federal funds net 4.65% ==== The above information is shown on a taxable-equivalent basis assuming a 35 percent tax rate for 1993 and a 34 percent tax rate for 1992 through 1988. Non-accrual loans are included in the average loan amounts outstanding for these computations.
Page 48
CONSOLIDATED AVERAGE BALANCE SHEETS Cullen/Frost Bankers, Inc. and Subsidiaries (in thousands - taxable-equivalent basis) Year Ended December 31 ----------------------------- 1991 ------------------------------ Interest Average Income/ Yield/ Balance Expense Cost - --------------------------------------------------------------------------------- Assets: Time deposits $ 212 $ 13 6.30% Securities: U.S. Treasury 352,698 25,486 7.23 U.S. Government agencies and corporations 818,174 73,899 9.03 States and political subdivisions: Tax-exempt 37,742 3,469 9.19 Taxable 16,717 1,356 8.11 Other 109,231 8,082 7.40 ---------- -------- Total securities 1,334,562 112,292 8.41 Federal funds sold and securities purchased under resale agreements 197,467 11,478 5.81 Loans, net of unearned discount 1,149,233 109,597 9.54 ---------- -------- Total Earning Assets and Average Rate Earned 2,681,474 233,380 8.70 Cash and due from banks 250,412 Allowance for possible loan losses (44,483) Banking premises and equipment 74,014 Accrued interest and other assets 143,236 ---------- Total Assets $3,104,653 ========== Liabilities: Demand deposits: Commercial and individual $ 457,266 Correspondent banks 111,542 Public funds 30,631 ---------- Total demand deposits 599,439 Time deposits: Savings and Interest-on-Checking 473,485 19,377 4.09 Money market deposit accounts 431,141 20,077 4.66 Time accounts 1,145,725 68,528 5.98 Public funds 108,130 7,304 6.75 ---------- ------- Total time deposits 2,158,481 115,286 5.34 ---------- Total deposits 2,757,920 Federal funds purchased and securities sold under repurchase agreements 116,281 5,913 5.08 Long-term notes payable 16,064 1,502 9.35 Other borrowings 266 25 9.54 ---------- ------- Total Interest-Bearing Funds and Average Rate Paid 2,291,092 122,726 5.35 ------- ---- Accrued interest and other liabilities 38,123 ---------- Total Liabilities 2,928,654 Shareholders' Equity 175,999 ---------- Total Liabilities and Shareholders' Equity $3,104,653 ========== Net interest income $110,654 ======== Net Interest spread 3.35% ==== Net interest income to total average earning assets 4.13% ==== Net interest income to total average earning assets- with federal funds net 4.31% ==== The above information is shown on a taxable-equivalent basis assuming a 35 percent tax rate for 1993 and a 34 percent tax rate for 1992 through 1988. Non-accrual loans are included in the average loan amounts outstanding for these computations.
CONSOLIDATED AVERAGE BALANCE SHEETS Cullen/Frost Bankers, Inc. and Subsidiaries (in thousands - taxable-equivalent basis) Year Ended December 31 ----------------------------- 1990 ------------------------------ Interest Average Income/ Yield/ Balance Expense Cost - --------------------------------------------------------------------------------- Assets: Time deposits $ 878 $ 82 9.34% Securities: U.S. Treasury 211,096 18,384 8.71 U.S. Government angencies and corporations 874,229 82,118 9.39 States and political subdivisions: Tax-exempt 54,078 4,935 9.13 Taxable 17,510 1,417 8.09 Other 119,022 10,243 8.61 ---------- -------- Total securities 1,275,935 117,097 9.18 Federal funds sold and securities purchased under resale agreements 281,628 23,130 8.21 Loans, net of unearned discount 1,314,907 135,451 10.30 ---------- -------- Total Earning Assets and Average Rate Earned 2,873,348 275,760 9.60 Cash and due from banks 257,929 Allowance for possible loan losses (42,608) Banking premises and equipment 71,902 Accrued interest and other assets 128,539 ---------- Total Assets $3,289,110 ========== Liabilities: Demand deposits: Commercial and individual $ 455,325 Correspondent banks 100,542 Public funds 20,481 ---------- Total demand deposits 576,348 Time deposits: Savings and Interest-on-Checking 432,280 20,933 4.84 Money market deposit accounts 435,332 21,703 4.99 Time accounts 1,290,617 94,986 7.36 Public funds 133,138 9,777 7.34 ---------- -------- Total time deposits 2,291,367 147,399 6.43 ---------- Total deposits 2,867,715 Federal funds purchased and securities sold under repurchase agreements 181,620 13,805 7.60 Long-term notes payable 17,424 1,630 9.35 Other borrowings 37 3 8.28 ---------- -------- Total Interest-Bearing Funds and Average Rate Paid 2,490,448 162,837 6.54 Accrued interest and other liabilities 44,003 -------- ---- ---------- Total Liabilities 3,110,799 Shareholders' Equity 178,311 ---------- Total Liabilities and Shareholders' Equity $3,289,110 ========== Net interest income $112,923 ======== Net Interest spread 3.06% ==== Net interest income to total average earning assets 3.93% ==== Net interest income to total average earning assets- with federal funds net 4.20% ==== The above information is shown on a taxable-equivalent basis assuming a 35 percent tax rate for 1993 and a 34 percent tax rate for 1992 through 1988. Non-accrual loans are included in the average loan amounts outstanding for these computations.
CONSOLIDATED AVERAGE BALANCE SHEETS Cullen/Frost Bankers, Inc. and Subsidiaries (in thousands - taxable-equivalent basis) Year Ended December 31 ----------------------------- 1989 ------------------------------ Interest Average Income/ Yield/ Balance Expense Cost - --------------------------------------------------------------------------------- Assets: Time deposits $ 19,407 $ 1,814 9.35% Securities: U.S. Treasury 253,326 21,058 8.31 U.S. Government agencies and corporations 676,778 61,865 9.14 States and political subdivisions: Tax-exempt 68,234 6,133 8.99 Taxable 22,232 2,303 10.36 Other 132,745 12,150 9.15 ---------- -------- Total securities 1,153,315 103,509 8.97 Federal funds sold and securities purchased under resale agreements 491,073 45,578 9.28 Loans, net of unearned discount 1,406,773 152,051 10.81 ---------- -------- Total Earning Assets and Average Rate Earned 3,070,568 302,952 9.87 Cash and due from banks 256,228 Allowance for possible loan losses (42,328) Banking premises and equipment 67,061 Accrued interest and other assets 103,589 ---------- Total Assets $3,455,118 ========== Liabilities: Demand deposits: Commercial and individual $ 442,697 Correspondent banks 83,194 Public funds 16,234 ---------- Total demand deposits 542,125 Time deposits: Savings and Interest-on-Checking 378,739 19,015 5.02 Money market deposit accounts 472,333 24,215 5.13 Time accounts 1,336,139 107,416 8.04 Public funds 133,204 9,890 7.42 ---------- -------- Total time deposits 2,320,415 160,536 6.92 ---------- Total deposits 2,862,540 Federal funds purchased and securities sold under repurchase agreements 323,854 27,892 8.61 Long-term notes payable 18,536 1,709 9.22 Other borrowings 21,221 2,269 10.69 ---------- -------- Total Interest-Bearing Funds and Average Rate Paid 2,684,026 192,406 7.17 Accrued interest and other liabilities 51,452 -------- ---- ---------- Total Liabilities 3,277,603 Shareholders' Equity 177,515 ---------- Total Liabilities and Shareholders' Equity $3,455,118 ========== Net interest income $110,546 ======== Net Interest spread 2.70% ==== Net interest income to total average earning assets 3.60% ==== Net interest income to total average earning assets- with federal funds net 4.02% ==== The above information is shown on a taxable-equivalent basis assuming a 35 percent tax rate for 1993 and a 34 percent tax rate for 1992 through 1988. Non-accrual loans are included in the average loan amounts outstanding for these computations.
CONSOLIDATED AVERAGE BALANCE SHEETS Cullen/Frost Bankers, Inc. and Subsidiaries (in thousands - taxable-equivalent basis) Year Ended December 31 ----------------------------- 1988 ------------------------------ Interest Average Income/ Yield/ Balance Expense Cost - --------------------------------------------------------------------------------- Assets: Time deposits $ 10,683 $ 784 7.34% Securities: U.S. Treasury 257,472 18,850 7.32 U.S. Government agencies and corporations 329,881 28,941 8.77 States and political subdivisions: Tax-exempt 70,247 7,010 9.98 Taxable 23,659 1,923 8.13 Other 79,907 6,234 7.80 ---------- -------- Total securities 761,166 62,958 8.27 Federal funds sold and securities purchased under resale agreements 608,870 46,774 7.68 Loans, net of unearned discount 1,566,663 154,503 9.86 ---------- -------- Total Earning Assets and Average Rate Earned 2,947,382 265,019 8.99 Cash and due from banks 214,148 Allowance for possible loan losses (37,278) Banking premises and equipment 65,381 Accrued interest and other assets 83,313 ---------- Total Assets $3,272,946 ========== Liabilities: Demand deposits: Commercial and individual $ 411,505 Correspondent banks 70,372 Public funds 15,999 ---------- Total demand deposits 497,876 Time deposits: Savings and Interest-on-Checking 342,252 17,356 5.07 Money market deposit accounts 506,074 26,372 5.21 Time accounts 1,196,238 83,137 6.95 Public funds 134,444 8,552 6.36 ---------- -------- Total time deposits 2,179,008 135,417 6.21 ---------- Total deposits 2,676,884 Federal funds purchased and securities sold under repurchase agreements 333,650 23,565 7.06 Long-term notes payable 19,931 1,776 8.91 Other borrowings 27,287 2,548 9.34 ---------- -------- Total Interest-Bearing Funds and Average Rate Paid 2,559,876 163,306 6.38 Accrued interest and other liabilities 42,393 -------- ---- ---------- Total Liabilities 3,100,145 Shareholders' Equity 172,801 ---------- Total Liabilities and Shareholders' Equity $3,272,946 ========== Net interest income $101,713 ======== Net Interest spread 2.61% ==== Net interest income to total average earning assets 3.45% ==== Net interest income to total average earning assets- with federal funds net 3.89% ==== The above information is shown on a taxable-equivalent basis assuming a 35 percent tax rate for 1993 and a 34 percent tax rate for 1992 through 1988. Non-accrual loans are included in the average loan amounts outstanding for these computations.
Page 49 EX-21 5 SUBSIDIARIES OF CULLEN/FROST EXHIBIT 21 Subsidiaries of Cullen/Frost SUBSIDIARIES OF THE REGISTRANT ------------------------------ As of March 18, 1994, Cullen/Frost owned directly, or indirectly through wholly owned subsidiaries, the following subsidiaries. PERCENTAGES OF ORGANIZED VOTING SECURITIES UNDER OWNED BY LAWS OF CULLEN/FROST ---------- ----------------- The Frost National Bank of United States 100% San Antonio Cullen/Frost Bank of Dallas, N.A. United States 100% United States National Bank United States 100% of Galveston Main Plaza Corporation Texas 100% Daltex General Agency, Inc. Texas 100% The New Galveston Company, Inc. Delaware 100% EX-23 6 CONSENTOF INDEPENDENT AUDITORS EXHIBIT 23 Consent of Independent Auditors CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Cullen/Frost Bankers, Inc. of our report dated January 31, 1994, included in the 1993 Annual Report to Shareholders of Cullen/Frost Bankers, Inc. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-30776) pertaining to the Cullen/Frost Bankers, Inc. 1983 Nonqualified Stock Option Plan, the Registration Statement (Form S-8 No. 33-30777) pertaining to the Cullen/Frost Bankers, Inc. 1988 Nonqualified Stock Option Plan, the Registration Statement (Form S-8 No. 33-37500) pertaining to the 401(k) Stock Purchase Plan for Employees of Cullen/Frost Bankers, Inc. and its Affiliates, the Registration Statement (Form S-8 No. 33-39478) pertaining to the 1991 Thrift Incentive Stock Purchase Plan for Employees of Cullen/Frost Bankers, Inc. and its Affiliates, the Registration Statement (Form S-8 No. 33-53492) pertaining to the Cullen/Frost Bankers, Inc. Restricted Stock Plan, and the Registration Statement (Form S-8 No. 33-53622) pertaining to the Cullen/Frost Bankers, Inc. 1992 Stock Plan, of our report dated January 31, 1994 with respect to the consolidated financial statements of Cullen/Frost Bankers, Inc. incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 1993. /s/ ERNST & YOUNG ----------------- ERNST & YOUNG San Antonio, Texas March 29, 1994 EX-24 7 POWER OF ATTORNEY EXHIBIT 24 Power of Attorney CULLEN/FROST BANKERS, INC. OFFICERS' AND DIRECTORS' POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints T.C. Frost, Robert S. McClane and Phillip D. Green, and each of them, his true and lawful attorneys-in-fact and agents, and with power of substitution and resubstitution, for him and in his name, place and stead, and in any and all capacities, to sign the Annual Report on Form 10-K of Cullen/Frost Bankers, Inc. for the fiscal year ended December 31, 1993, to sign any and all amendments thereto, and to file such Annual Report and amendments, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Signatures Title Date - -------------------------- ------------------------ ---------------- Chairman of the Board and Director (Principal) /s/ T.C. FROST Executive Officer) February 1, 1994 - -------------------------- ---------------- (T.C. Frost) President and /s/ ROBERT S. McCLANE Director February 1, 1994 - -------------------------- ---------------- (Robert S. McClane /s/ ISAAC ARNOLD, JR. Director February 1, 1994 - -------------------------- ---------------- (Isaac Arnold, Jr.) /s/ HENRY E. CATTO Director February 1, 1994 - -------------------------- ---------------- (Henry E. Catto) /s/ HARRY H. CULLEN Director February 1, 1994 - -------------------------- ---------------- (Harry H. Cullen) /s/ ROY H. CULLEN Director February 1, 1994 - -------------------------- ---------------- (Roy H. Cullen) /s/ RICHARD W. EVANS, JR. Director February 1, 1994 - -------------------------- ---------------- (Richard W. Evans, Jr.) /s/ W. N. FINNEGAN, III Director February 1, 1994 - -------------------------- ---------------- (W. N. Finnegan, III) /s/ JOSEPH H. FROST Director February 1, 1994 - -------------------------- ---------------- (Joseph H. Frost) /s/ JAMES W. GORMAN, JR. Director February 1, 1994 - -------------------------- ---------------- (James W. Gorman, Jr.) /s/ JAMES L.HAYNE Director February 1, 1994 - -------------------------- ---------------- (James L. Hayne) /s/ HARRIS L. KEMPNER, JR. Director February 1, 1994 - -------------------------- ---------------- (Harris L. Kempner, Jr.) /s/ RICHARD M. KLEBERG, III Director February 1, 1994 - -------------------------- ---------------- (Richard M. Kleberg, III) Signatures Title Date - -------------------------- ------------------------ ---------------- /s/ QUINCY LEE Director February 1, 1994 - -------------------------- ---------------- (Quincy Lee) /s/ J. GORDON MUIR, JR. Director February 1, 1994 - -------------------------- ---------------- (J. Gordon Muir, Jr.) /s/ W.B. OSBORN, JR. Director February 1, 1994 - -------------------------- ---------------- (W.B. Osborn, Jr.) /s/ ROBERT G. POPE Director February 1, 1994 - -------------------------- ---------------- (Robert G. Pope) /s/ HERMAN RICHTER Director February 1, 1994 - -------------------------- ---------------- (Herman Richter) /s/ A. FRANK SMITH, JR. Director February 1, 1994 - -------------------------- ---------------- (A. Frank Smith, Jr.) /s/ CURTIS VAUGHAN, JR. Director February 1, 1994 - -------------------------- ---------------- (Curtis Vaughan, Jr.) Executive Vice President and /s/ PHILLIP D. GREEN Treasurer February 1, 1994 - -------------------------- ---------------- (Phillip D. Green) -----END PRIVACY-ENHANCED MESSAGE-----