8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 28, 2010

CULLEN/FROST BANKERS, INC.

(Exact name of issuer as specified in its charter)

Texas	001-13221	74-1751768
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)
100 West Houston Street, San Antonio, Texas		78205
(Address of principal executive offices)		(Zip Code)

(210) 220-4011

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition

Attached as Exhibit 99.1 and incorporated into this item by reference is a press release issued by the Registrant on July 28, 2010 regarding its financial results for the quarter ended June 30, 2010. The information furnished by the Registrant pursuant to this item shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits:

99.1 Press Release dated July 28, 2010 with respect to the Registrant’s financial results for the quarter ended June 30, 2010

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	CULLEN/FROST BANKERS, INC.
By:	/s/ Phillip D. Green
	Phillip D. Green
	Group Executive Vice President
	and Chief Financial Officer
Dated: July 28, 2010

EXHIBIT INDEX

Exhibit Number	Description
99.1	Press Release dated July 28, 2010 with respect to the Registrant’s financial results for the quarter ended June 30, 2010

EX-99.1

Exhibit 99.1

Greg Parker

Investor Relations

210/220-5632

or

Renee Sabel

Media Relations

210/220-5416

FOR IMMEDIATE RELEASE

July 28, 2010

CULLEN/FROST REPORTS STRONG SECOND QUARTER RESULTS

Non-performing assets down for third consecutive quarter

• Capital exceeds $2 billion and ratios remain strong

• Continued solid deposit growth

• Assets exceed $17 billion

SAN ANTONIO – Cullen/Frost Bankers, Inc. (NYSE: CFR) today reported strong results for the second quarter, as the Texas financial services leader continues to demonstrate its ability to operate effectively in the current economic environment.

Cullen/Frost reported net income for the second quarter of 2010 of $52.9 million, a 39.7 percent increase over second quarter 2009 earnings of $37.9 million. On a per-share basis, income was $0.87 per diluted common share, compared to $0.63 per diluted common share reported a year earlier. Returns on average assets and equity were 1.26 percent and 10.67 percent respectively, compared to 0.98 percent and 8.35 percent for the same period a year earlier.

“I am very pleased with our company’s strong performance this quarter, as it demonstrates our ability to operate effectively and provide superior value to customers during challenging times,” said Dick Evans, Cullen/Frost chairman and CEO. “Once again, we saw excellent deposit growth, as Texans, trusting the safety and soundness of our company and appreciating our value proposition, continue to bring their money and their business to Frost. I was glad to see growth in net interest income, as even in this near-zero rate environment, we have been able to strategically deploy some of our liquidity into quality investments.

“Signs of the recovery in Texas are broad-based as our state’s diversified and resilient economy, positive job growth — expected to be 3 percent in 2010 — and stable housing markets, continue to outpace the U.S. I am very encouraged at the improvement in asset quality, as we saw a decline for the third consecutive quarter in non-performing assets, which were down $12 million sequentially and $31 million compared to a year ago. Similarly, the provision for possible loan losses declined by $8.0 million compared to a year earlier. Net charge-offs, at $8.6 million, were down significantly from the high of $20.1 million reported for the fourth quarter of 2009.

“This continues to be a period of great opportunity for Cullen/Frost. With our strong balance sheet and capital levels, we are poised for growth, and we are taking advantage of our position as a financial institution that did not take federal bailout money. Instead of worrying about repaying TARP funds, we have been able to focus our efforts on making more calls and bringing in new relationships, while helping our existing customers navigate through the uncertainty. In spite of our strong efforts, the lending environment continues to be challenged, with businesses remaining cautious about hiring or investing in capital improvements until they know the impact of various new government regulations on their operations. I share their frustration.

“With regard to the financial regulatory reform bill just passed by Congress, there will be many changes going forward that we can’t control. But what we can control — the quality service and value we provide to our customers — will not change. As always, I want to express my appreciation to our outstanding employees, whose loyalty, energy and commitment to our company and its culture help us provide value and the very best service to our customers,” Evans continued.

For the first six months of 2010, net income was $100.7 million, or $1.66 per diluted common share, compared to $82.8 million, or $1.39 per diluted common share, for the first six months of 2009. Returns on average assets and average equity for the first six months of 2010 were 1.22 percent and 10.38 percent, respectively, compared to 1.10 percent and 9.32 percent for the same period in 2009.

Other noted financial data for the second quarter follows:

• Tier 1 and Total Risk-Based Capital Ratios remained strong at 13.16 percent and 15.52 percent, respectively, at the end of the second quarter of 2010 and are in excess of well capitalized levels. The tangible common equity ratio was 9.06 percent at the end of the second quarter of 2010 compared to 8.19 percent for the same quarter last year.

• Net interest income on a taxable-equivalent basis increased $10.7 million, or 7.4 percent, to $155.1 million, from the $144.3 million reported a year earlier. This increase primarily resulted from an increase in the average volume of interest earning assets and was partly offset by a decrease in the net interest margin. Strong growth in deposits helped to fund the increase in the volume of earning assets, which was used, in part, to purchase high-quality higher-yielding tax-exempt securities. The net interest margin was 4.18 percent for the second quarter, compared to 4.19 percent for the first quarter this year and 4.28 percent for the second quarter of 2009.

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• Non-interest income for the second quarter of 2010 was $69.9 million, compared to the $68.0 million reported a year earlier.

Trust fees were $17.0 million, up $162 thousand, compared to $16.9 million in the second quarter of 2009. This was primarily due to higher oil and gas trust management fees, up $187 thousand, and real estate fees, up $186 thousand. These fee increases were offset in part by lower securities lending income, down by $203 thousand.

Other service charges and fees were $8.0 million a 27.7 percent increase when compared to $6.3 million reported in the same quarter a year earlier. The largest components of this increase were increases in commission income related to the sale of mutual funds, up $591 thousand, mutual fund management fees, up $328 thousand, and investment banking fees related to corporate advisory services, up $297 thousand.

• Non-interest expense for the quarter was $134.7 million, a decrease of $1.6 million, down 1.2 percent compared to the $136.3 million reported for the second quarter of last year. Most of the decrease in non-interest expense is due to the $7.3 million FDIC special assessment recorded during the second quarter of 2009. FDIC insurance expense was $5.4 million for the second quarter of 2010, down $6.2 million from $11.7 million recorded in last year’s second quarter. Total salaries rose $2.3 million or 4.0 percent, to $58.8 million, and were impacted by normal annual merit increases and an increase in incentive compensation, partially offset by lower staff levels. Employee benefits were down $1.1 million or 8.0 percent due primarily to decreases in expenses related to the company’s retirement and profit sharing plans. Net occupancy was up $773 thousand, or 7.1 percent, compared to the second quarter of 2009, mainly due to an increase in expenses related to the opening of the new technology center. Furniture and fixtures increased $1.0 million, or 9.4 percent, from the same quarter last year, with most of the increase coming from equipment rental and depreciation expense related to the new technology center. Other non-interest expense increased $2.1 million or 6.7 percent from a year earlier. The most significant components of the increase included sundry expense from miscellaneous items, up $1.7 million, and losses on the sale/write-down of foreclosed assets, up $1.4 million. Sundry expenses included several one-time charges for write-offs, losses and refunds.

• For the second quarter of 2010, the provision for possible loan losses was $8.7 million, compared to net charge-offs of $8.6 million. The loan loss provision for the second quarter of 2009 was $16.6 million, compared to net charge-offs of $8.3 million. Non-performing assets for the second quarter of 2010 were $159.3 million, compared to $171.6 million last quarter and $190.3 million a year earlier. The allowance for possible loan losses as a percentage of loans at June 30, 2010 was 1.56 percent, compared to 1.42 percent at the end of the second quarter of 2009.

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Cullen/Frost Bankers, Inc. will host a conference call on Wednesday, July 28, 2010, at 10:00 a.m. Central Time (CT) to discuss the results for the quarter. The media and other interested parties are invited to access the call in a “listen only” mode at 1-800-944-6430. Digital playback of the conference call will be available after 2:00 p.m. CT until midnight Sunday, August 1, 2010 at 1-800-642-1687 or 1-706-645-9291 for international calls, with Conference ID # of 89043074. The call will also be available by webcast at the URL listed below and available for playback after 2:00 p.m. CT. After entering the Web site, www.frostbank.com, go to “About Frost” on the top navigation bar, then click on Investor Relations.

Cullen/Frost Bankers, Inc. (NYSE: CFR) is a financial holding company, headquartered in San Antonio, with assets of $17.1 billion at June 30, 2010. The corporation provides a full range of commercial and consumer banking products, investment and brokerage services, insurance products and investment banking services. Frost operates more than 110 financial centers across Texas in the Austin, Corpus Christi, Dallas, Fort Worth, Houston, Rio Grande Valley and San Antonio regions. Founded in 1868, Frost is the largest Texas-based banking organization that operates only in Texas, with a legacy of helping clients with their financial needs during three centuries.

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Forward-Looking Statements and Factors that Could Affect Future Results

Certain statements contained in this Earnings Release that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in the Corporation’s future filings with the SEC, in press releases, and in oral and written statements made by or with the approval of the Corporation that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of Cullen/Frost or its management or Board of Directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes”, “anticipates”, “expects”, “intends”, “targeted”, “continue”, “remain”, “will”, “should”, “may” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

• Local, regional, national and international economic conditions and the impact they may have on the Corporation and its customers and the Corporation’s assessment of that impact.

• Volatility and disruption in national and international financial markets.

• Government intervention in the U.S. financial system.

• Changes in the level of non-performing assets and charge-offs.

• Changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements.

• The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board.

• Inflation, interest rate, securities market and monetary fluctuations.

• Political instability.

• Acts of God or of war or terrorism.

• The timely development and acceptance of new products and services and perceived overall value of these products and services by users.

• Changes in consumer spending, borrowings and savings habits.

• Changes in the financial performance and/or condition of the Corporation’s borrowers.

• Technological changes.

• Acquisitions and integration of acquired businesses.

• The ability to increase market share and control expenses.

• Changes in the competitive environment among financial holding companies and other financial service providers.

• The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Corporation and its subsidiaries must comply.

• The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters.

• Changes in the Corporation’s organization, compensation and benefit plans.

• The costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews.

• Greater than expected costs or difficulties related to the integration of new products and lines of business.

• The Corporation’s success at managing the risks involved in the foregoing items.

Forward-looking statements speak only as of the date on which such statements are made. The Corporation undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.

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Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

(In thousands, except per share amounts)

	2010						2009
	2nd Qtr			1st Qtr			4th Qtr			3rd Qtr			2nd Qtr
CONDENSED INCOME STATEMENTS
Net interest income	$	141,896		$	137,584		$	138,594		$	133,989		$	134,464
Net interest income(1)		155,054			150,343			150,743			144,915			144,325
Provision for possible loan losses		8,650			13,571			22,250			16,940			16,601
Non-interest income:
Trust fees		17,037			16,963			17,669			16,755			16,875
Service charges on deposit accounts		24,925			24,809			26,017			26,395			25,152
Insurance commissions and fees		7,512			11,138			6,734			8,505			7,106
Other charges, commissions and fees		8,029			6,919			7,804			6,845			6,288
Net gain (loss) on securities transactions		1			5			(1,309	)		—			49
Other		12,428			11,559			29,430			10,991			12,536
Total non-interest income		69,932			71,393			86,345			69,491			68,006
Non-interest expense:
Salaries and wages		58,827			60,275			58,736			58,591			56,540
Employee benefits		12,675			14,521			12,756			13,445			13,783
Net occupancy		11,637			11,135			11,523			11,111			10,864
Furniture and equipment		11,662			11,489			12,065			11,133			10,662
Deposit insurance		5,429			5,443			5,126			4,643			11,667
Intangible amortization		1,299			1,333			1,473			1,564			1,719
Other		33,125			30,398			32,537			31,747			31,054
Total non-interest expense		134,654			134,594			134,216			132,234			136,289
Income before income taxes		68,524			60,812			68,473			54,306			49,580
Income taxes		15,624			12,994			16,979			9,607			11,721
Net income	$	52,900		$	47,818		$	51,494		$	44,699		$	37,859
PER SHARE DATA
Net income – basic	$	0.87		$	0.79		$	0.86		$	0.75		$	0.64
Net income – diluted		0.87			0.79			0.86			0.75			0.63
Cash dividends		0.45			0.43			0.43			0.43			0.43
Book value at end of quarter		33.65			32.25			31.55			31.80			30.12
OUTSTANDING SHARES
Period-end shares		60,656			60,443			60,038			59,929			59,653
Weighted-average shares – basic		60,365			59,972			59,762			59,537			59,331
Dilutive effect of stock compensation		199			185			64			91			119
Weighted-average shares – diluted		60,564			60,157			59,826			59,628			59,450
SELECTED ANNUALIZED RATIOS
Return on average assets		1.26	%		1.17	%		1.25	%		1.11	%		0.98	%
Return on average equity		10.67			10.07			10.70			9.70			8.35
Net interest income to average earning assets(1)		4.18			4.19			4.20			4.12			4.28

⁽¹⁾ Taxable-equivalent basis assuming a 35% tax rate.

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Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

	2010						2009
	2nd Qtr			1st Qtr			4th Qtr			3rd Qtr			2nd Qtr
BALANCE SHEET SUMMARY
($ in millions)
Average Balance:
Loans	$	8,142		$	8,271		$	8,440		$	8,582		$	8,784
Earning assets		15,071			14,665			14,501			14,121			13,632
Total assets		16,872			16,530			16,335			16,047			15,519
Non-interest-bearing demand deposits		4,906			4,684			4,574			4,343			4,138
Interest-bearing deposits		8,911			8,806			8,644			8,453			8,045
Total deposits		13,817			13,490			13,218			12,796			12,183
Shareholders’ equity		1,989			1,926			1,909			1,829			1,818
Period-End Balance:
Loans	$	8,066		$	8,190		$	8,368		$	8,519		$	8,644
Earning assets		15,245			14,991			14,437			14,436			13,855
Goodwill and intangible assets		545			546			547			549			549
Total assets		17,060			16,761			16,288			16,158			15,785
Total deposits		13,952			13,734			13,313			12,922			12,497
Shareholders’ equity		2,041			1,949			1,894			1,906			1,797
Adjusted shareholders’ equity(1)		1,826			1,785			1,740			1,709			1,675
ASSET QUALITY
($ in thousands)
Allowance for possible loan losses	$	125,442		$	125,369		$	125,309		$	123,122		$	122,501
as a percentage of period-end loans		1.56	%		1.53	%		1.50	%		1.45	%		1.42	%
Net charge-offs	$	8,577		$	13,511		$	20,063		$	16,319		$	8,268
Annualized as a percentage of average loans		0.42	%		0.66	%		0.94	%		0.75	%		0.38	%
Non-performing assets:
Non-accrual loans	$	134,524		$	144,617		$	146,867		$	191,754		$	168,805
Foreclosed assets		24,744			26,936			33,312			29,112			21,478
Total	$	159,268		$	171,553		$	180,179		$	220,866		$	190,283
As a percentage of:
Total loans and foreclosed assets		1.97	%		2.09	%		2.14	%		2.58	%		2.20	%
Total assets		0.93			1.02			1.11			1.37			1.21
CONSOLIDATED CAPITAL RATIOS
Tier 1 Risk-Based Capital Ratio		13.16	%		12.70	%		11.91	%		11.49	%		10.91	%
Total Risk-Based Capital Ratio		15.52			15.05			14.19			13.72			13.34
Leverage Ratio		8.80			8.70			8.50			8.47			8.50
Equity to Assets Ratio (period-end)		11.96			11.63			11.63			11.80			11.38
Equity to Assets Ratio (average)		11.79			11.65			11.69			11.40			11.72

⁽¹⁾ Shareholders’ equity excluding accumulated other comprehensive income (loss).

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Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

(In thousands, except per share amounts)

	Six Months Ended June 30,
	2010			2009
CONDENSED INCOME STATEMENTS
Net interest income	$	279,480		$	264,096
Net interest income(1)		305,397			282,058
Provision for possible loan losses		22,221			26,202
Non-interest income
Trust fees		34,000			32,844
Service charges on deposit accounts		49,734			50,062
Insurance commissions and fees		18,650			17,857
Other charges, commissions and fees		14,948			13,050
Net gain (loss) securities transactions		6			49
Other		23,987			24,008
Total non-interest income		141,325			137,870
Non-interest expense
Salaries and wages		119,102			113,316
Employee benefits		27,196			29,023
Net occupancy		22,772			21,554
Furniture and equipment		23,151			21,025
Deposit insurance		10,872			16,043
Intangible amortization		2,632			3,500
Other		63,523			61,327
Total non-interest expense		269,248			265,788
Income before income taxes		129,336			109,976
Income taxes		28,618			27,135
Net income	$	100,718		$	82,841
PER SHARE DATA
Net income – basic	$	1.67		$	1.39
Net income – diluted		1.66			1.39
Cash dividends		0.88			0.85
Book value at end of period		33.65			30.12
OUTSTANDING SHARES
Period-end shares		60,656			59,653
Weighted-average shares – basic		60,170			59,260
Dilutive effect of stock compensation		195			78
Weighted-average shares – diluted		60,365			59,338
SELECTED ANNUALIZED RATIOS
Return on average assets		1.22	%		1.10	%
Return on average equity		10.38			9.32
Net interest income to average earning assets(1)		4.15			4.30

⁽¹⁾ Taxable-equivalent basis assuming a 35% tax rate.

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Cullen/Frost Bankers, Inc.

CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)

	As of or for the Six Months Ended June 30,
	2010			2009
BALANCE SHEET SUMMARY
($ in millions)
Average Balance:
Loans	$	8,206		$	8,796
Earning assets		14,888			13,289
Total assets		16,702			15,203
Non-interest-bearing demand deposits		4,796			4,055
Interest-bearing deposits		8,859			7,768
Total deposits		13,654			11,823
Shareholders’ equity		1,957			1,793
Period-End Balance:
Loans	$	8,066		$	8,644
Earning assets		15,245			13,855
Goodwill and intangible assets		545			549
Total assets		17,060			15,785
Total deposits		13,952			12,497
Shareholders’ equity		2,041			1,797
Adjusted shareholders’ equity(1)		1,826			1,675
ASSET QUALITY
($ in thousands)
Allowance for possible loan losses	$	125,442		$	122,501
As a percentage of period-end loans		1.56	%		1.42	%
Net charge-offs:	$	22,088		$	13,945
Annualized as a percentage of average loans		0.54	%		0.32	%
Non-performing assets:
Non-accrual loans	$	134,524		$	168,805
Foreclosed assets		24,744			21,478
Total	$	159,268		$	190,283
As a percentage of:
Total loans and foreclosed assets		1.97	%		2.20	%
Total assets		0.93			1.21
CONSOLIDATED CAPITAL RATIOS
Tier 1 Risk-Based Capital Ratio		13.16	%		10.91	%
Total Risk-Based Capital Ratio		15.52			13.34
Leverage Ratio		8.80			8.50
Equity to Assets Ratio (period-end)		11.96			11.38
Equity to Assets Ratio (average)		11.72			11.79

⁽¹⁾ Shareholders’ equity excluding accumulated other comprehensive income (loss).

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