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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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
___ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
(with attached rights)
--------------------------
(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 to file 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 $816,829,125 based on the closing price of such stock as of
March 25, 1997.
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, 1997
-------------------------- --------------
Common Stock, $5 par value 22,507,928
DOCUMENTS INCORPORATED BY REFERENCE
(1) Annual Report to Shareholders for the Year Ended December 31, 1996 (Parts I
& II)
(2) Proxy Statement for Annual Meeting of Shareholders to be held May 28, 1997
(Part III)
TABLE OF CONTENTS
PART I Page
- ------ ----
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 9
ITEM 3. LEGAL PROCEEDINGS 9
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 10
ITEM 6. SELECTED FINANCIAL DATA 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 10
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE *
PART III
- --------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 11
ITEM 11. EXECUTIVE COMPENSATION 11
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 11
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 11
PART IV
- -------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K 12
* Not Applicable
PART I
Item 1. BUSINESS
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General
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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 BHC 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.
At December 31, 1996, Cullen/Frost's principal assets consisted of all of the
capital stock of two national banks. Including acquisitions completed in the
first quarter of 1997, Cullen/Frost had 52 offices in six Texas banking markets
with 19 locations in San Antonio, 14 in the Houston/Galveston area, five in
Austin, ten in the Corpus Christi area, three in San Marcos and one in McAllen.
At December 31, 1996, Cullen/Frost had consolidated total assets of
$4,888,384,000 and total deposits of $4,242,594,000. Based on information from
the Federal Reserve Board, at December 31, 1996, Cullen/Frost was the largest
of the 91 unaffiliated bank holding companies headquartered in Texas.
Cullen/Frost provides policy direction to the Cullen/Frost subsidiary
banks in, among others, the following areas: (i) asset and liability
management; (ii) accounting, budgeting, planning and insurance; (iii)
capitalization; and (iv) regulatory compliance.
Subsequent Event
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Cullen/Frost Capital Trust, a Delaware statutory business trust (the
"Issuer Trust") and wholly-owned subsidiary of the Corporation, issued on
February 6, 1997 $100,000,000 of its 8.42 percent Capital Securities, Series A
(the "Capital Securities") which represent beneficial interests in the Issuer
Trust. Reference is made to footnote U on page 51 of the Cullen/Frost Annual
Report to Shareholders for the Year Ended December 31, 1996, which page is
incorporated herein by reference.
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 ("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, 1996, Frost Bank, which accounted for approximately 97 percent
of consolidated assets, loans, and deposits of Cullen/Frost, was the largest
bank headquartered in San Antonio and South Texas.
The following table provides information as of December 31, 1996, 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, Houston, McAllen and
San Marcos, Texas $4,761,806,000 $2,196,569,000 $4,120,973,000
United States National Bank of Galveston
Galveston, Texas 147,229,000 55,467,000 133,143,000
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, accounts receivable,
leverage buyouts and recapitalizations and turnaround situations. Frost Bank
provides 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 provides 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 20 and 28 of the Cullen/Frost Annual Report to
Shareholders for the Year Ended December 31, 1996, 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, 1996, trust assets with a market value of
approximately $8.1 billion were being administered by the subsidiary banks.
These assets were comprised of discretionary assets of $4.2 billion and non-
discretionary assets of $3.9 billion.
Correspondent Banking
Frost Bank acts as correspondent for approximately 327 financial
institutions, primarily banks in Texas. These banks maintain deposits with
Frost Bank, which offers to the correspondents a full range of services
including check clearing, transfer of funds, loan participations, and
securities custody and clearance.
Discount Brokerage
Frost Brokerage Services 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. Frost Brokerage Services 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 occasionally makes loans to qualified borrowers. Loans
are funded with borrowings against Cullen/Frost's current cash or borrowings
against credit lines.
Daltex General Agency, Inc. ("Daltex"), a wholly owned non-banking
subsidiary, is a managing general insurance agency. Daltex provides vendor's
single interest insurance.
Competition
- -----------
The subsidiary banks encounter intense competition in their commercial
banking businesses, primarily from other banks located in their respective
service areas. The subsidiary banks also compete with insurance, finance and
mortgage companies, savings and
loan institutions, credit unions, money market funds and other financial
institutions. 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 BHC Act. The
BHC Act generally prohibits Cullen/Frost from engaging in any business activity
other than banking, 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 certain assets of any company (including a bank) or to merge
or consolidate with another bank holding company.
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. 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.
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.
Subsidiary Banks
The two 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 United States National Bank of Galveston ("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 bank
subsidiaries has authority 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.
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. In addition, a
national bank may not pay dividends in an amount in excess of its undivided
profits less certain bad debts. Although not necessarily indicative of amounts
available to be paid in future periods, Cullen/Frost's subsidiary banks had
approximately $6,476,000 available for payment of dividends, without prior
regulatory approval, at December 31, 1996.
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 percent.
At least half of the total capital is to be comprised of common stock, retained
earnings, 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
instruments, and limited amounts of subordinated debt and the allowance for
loan and lease loss.
In addition, bank regulators have 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 percent 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 percent 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. Furthermore, 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 bank regulators
have not advised Cullen/Frost or any bank subsidiary 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 28 and
Footnote L "Capital" on page 43 of the Cullen/Frost Annual Report to
Shareholders for the Year Ended December 31, 1996, which discussions are
incorporated herein by reference.
FDICIA
The Federal Deposit Insurance Corporation Improvements Act of 1991
("FDICIA"), among other things, requires the Federal banking agencies to take
"prompt corrective action" in respect of depository institutions that do not
meet minimum capital requirements. FDICIA established five capital tiers:
"well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" and "critically undercapitalized". Under the
final rules adopted by the Federal banking regulators relating to these capital
tiers, an 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; 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 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, 1996, the two subsidiaries of Cullen/Frost that are
insured depository institutions -- Frost Bank and U.S. National Bank -- were
considered "well capitalized". At December 31, 1996, the subsidiary banks
capital ratios were as follows:
Tier 1 Total
Leverage Risk Based Risk Based
Ratio Capital Ratio Capital Ratio
-------- -------------- -------------
Frost Bank 5.76% 9.78% 11.03%
U. S. National Bank 7.11 14.43 15.72
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. Undercapitalized institutions are subject to
growth limitations and are required 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.
"Significantly undercapitalized" depository institutions may be subject to
a number of requirements and restrictions, including orders to sell sufficient
voting stock to become "adequately capitalized", requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
"Critically undercapitalized" institutions are subject to the appointment of a
receiver or conservator.
FDICIA also contains a variety of other provisions that affect the
operations of Cullen/Frost, including 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 have issued standards establishing loan-to-value
limitations on real estate lending. These standards have not had a significant
effect on Cullen/Frost and are not expected to have a significant effect in the
future.
Any loans by a bank holding company to any of its subsidiary banks are
subordinate in right of payment to deposits and to certain other indebtedness
of such subsidiary banks. In the event of a bank holding company's bankruptcy,
any commitment by the bank holding company to a federal bank regulatory agency
to maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and be entitled to a priority of payment.
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 risk-based assessment system
imposes insurance premiums based upon a matrix that takes into account a bank's
capital level and supervisory rating. For the second half of 1995, the FDIC
assessment rate imposed on banks ranged from four 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). This was a decrease
from the previous assessment range of 23 cents to 31 cents for those respective
categories for each $100 of domestic deposits. For 1996, the FDIC Board
reduced the insurance premiums to range from zero, with a minimum of $2,000 per
year for banks in the lowest risk category, to 27 cents for each $100 of
domestic deposits. However, legislative action enacted in 1996 provides for
assessments on banks (based on deposit levels) to pay interest on Financing
Corporation (FICO) bonds, the proceeds of which were used in the bailout of the
Savings and Loan industry in the 1980's. For each of the three years beginning
in 1997, the assessment on banks is expected to be approximately 1.3 cents for
each $100 of qualified deposits. Based on year-end deposit levels, the
Corporations 1997 expense would be approximately $500,000.
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.
Depositor Preference
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Deposits and certain claims for administrative expenses and employee
compensation against an insured depository institution are afforded priority
over other general unsecured claims against such an institution, including
federal funds and letters of credit, in the "liquidation or other resolution"
of such an institution by any receiver.
Acquisitions
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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 or bank
holding company. 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 regulatory
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
and fair housing laws.
The Corporation regularly evaluates acquisition opportunities and
regularly conducts due diligence activities in connection with possible
acquisitions. As a result,
acquisition discussions and, in some cases negotiations, regularly take place
and future acquisitions could occur.
Interstate Banking and Branching Legislation
- --------------------------------------------
The Riegle-Neal Interstate Branching Efficiency Act of 1994 ("IBBEA"),
authorizes interstate acquisitions of banks and bank holding companies without
geographic limitation beginning one year after enactment. In addition,
beginning June 1, 1997, IBBEA authorizes a bank to merge with a bank in another
state as long as neither of the states has opted out of interstate branching
between the date of enactment of IBBEA and May 31, 1997. IBBEA further provides
that states may enact laws permitting interstate bank merger transactions
prior to June 1, 1997. A bank may establish a de novo branch in a state in
which the bank does not maintain a branch if the state expressly permits de
novo branching. Once a bank has established branches in a state through an
interstate merger transaction, the bank may establish and acquire additional
branches at any location in the state where any bank involved in the merger
transaction could have established or acquired branches under applicable
federal or state law. A bank that has established a branch in a state through
de novo branching may establish and acquire additional branches in such state
in the same manner and to the same extent as a bank having a branch in such
state as a result of an interstate merger. If a state opts out of interstate
branching within the specified time period, no bank in any other state may
establish a branch in the opting out state, whether through an acquisition or
de novo. On August 28, 1995, Texas enacted legislation opting out of
interstate branching.
Regulatory Economic Policies
- ----------------------------
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 12 through 29,
pages 53 and 54 and pages 56 through 59 of the Cullen/Frost Annual Report to
Shareholders for the year ended December 31, 1996, which information is
incorporated herein by reference.
Employees
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At December 31, 1996, Cullen/Frost employed 2,306 full-time equivalent
employees. Employees of Cullen/Frost enjoy a variety of employee benefit
programs, including a retirement plan, 401(k) stock purchase plans, various
comprehensive medical, accident and group life insurance plans and paid
vacations. Cullen/Frost considers its employee relations to be good.
Executive Officers of the Registrant
- ------------------------------------
The names, ages, recent business experience and positions or offices held
by each of the executive officers during 1996 of Cullen/Frost are as follows:
Name and Positions or Offices Age as of 12/31/96 Recent Business Experience
- ----------------------------- ------------------ --------------------------
T.C. Frost 69 Officer and director of
Senior Chairman of the Board, Frost Bank since 1950.
Chief Executive Officer, and Chairman of the Board
Director of Cullen/Frost 1973 to
October 1995. Member of
the Executive Committee
of Cullen/Frost 1973 to
present. Chief Executive
Officer of Cullen/Frost
July 1977 to present.
Senior Chairman of
Cullen/Frost from
October 1995 to present.
Richard W. Evans, Jr. 50 Officer of Frost Bank
Chairman of the Board, Chief since 1973. Executive
Operating Officer, and Director Vice President of Frost
Bank from 1978 to April
1985. President of Frost
Bank from April 1985 to
August 1993. Chairman of
the Board and Chief
Executive Officer of Frost
Bank from August 1993 to
present. Director and
Member of the Executive
Committee of Cullen\Frost
from August 1993 to
present. Chairman of the
Board and Chief Operating
Officer of Cullen/Frost
from October 1995 to
present.
Robert S. McClane 57 Officer of Frost Bank
President and Director since 1962. Senior Vice
President of Cullen/Frost
from November 1973 to
April 1978. Secretary from
May 1973 to April 1985.
Executive Vice President
from April 1978 to April
1985. Chief
Administrative Officer of
Cullen/Frost from 1993 to
October 1995. President
and Director of
Cullen/Frost from April
1985 to present.
Phillip D. Green 42 Officer of Frost Bank
Executive Vice President, since July 1980. Vice
and Chief Financial Officer President and Controller
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 October 1995.
Executive Vice President
and Chief Financial
Officer of Cullen/Frost
from January 1996 to
present.
Diane Jack, age 48, has been an officer of Frost Bank since 1984; Secretary of
Cullen/Frost from October 1993 to present.
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 both a 21-story office tower and a nine-
story office building located on approximately 3.5 acres of land in downtown
San Antonio. Cullen/Frost and Frost Bank lease approximately 50 percent of the
office tower. The nine-story office building was purchased in April 1994.
Frost Bank also leases space in a seven-story parking garage 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 subsidiary bank located in Galveston is housed in facilities which,
together with tracts of adjacent land used for parking and drive-in facilities,
are either owned or leased by the 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.
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 55 and "Note K-Dividends"
on page 43 of the Cullen/Frost Annual Report to Shareholders for the Year Ended
December 31, 1996.
Item 6. SELECTED FINANCIAL DATA
- --------------------------------
The information called for by Item 6 is incorporated herein by reference
to "Selected Financial Data" on page 56 and "Consolidated Statements of
Operations" and "Consolidated Average Balance Sheets" on pages 58 through 59 of
the Cullen/Frost Annual Report to Shareholders for the Year Ended December 31,
1996.
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 12 through 29, "Consolidated Statements of
Operations" and "Consolidated Average Balance Sheets" on pages 57 through 59 of
the Cullen/Frost Annual Report to Shareholders for the Year Ended December 31,
1996.
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 30 through 52 and "Quarterly Results of Operations" on page
55, of the Cullen/Frost Annual Report to Shareholders for the Year Ended
December 31, 1996.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
---------------------
None.
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 28, 1997.
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 28, 1997.
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 28, 1997.
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 28, 1997.
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
-------
3.1 Restated Articles of Incorporation, as amended (1988 Form S-8,
Exhibit 4(a))(2)
3.2 Amended By-Laws of Cullen/Frost Bankers, Inc. (1995 Form 10-K/A,
Exhibit 3.2)(11)
4.1 Shareholder Protection Rights Agreement dated as of August 1, 1996
between Cullen/Frost Bankers, Inc. and The Bank of New York, as
Rights Agent (1996 Form 8-A12G/A, Exhibit 1)(13)
10.1 1983 Non-qualified Stock Option Plan, as amended (1989 Form S-8,
Exhibit 4(g))(4)
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)(3)*
10.3 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)(1)
10.4 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)(1)
10.5 Form of Revised Change-In-Control Agreements with four Executive
Officers (1989 Form 10-K, Exhibit 10.13(a))(6)*
10.6 1988 Non-qualified Stock Option Plan (1989 Form S-8, Exhibit
4(g))(5)
10.7 The 401(k) Stock Purchase Plan for employees of Cullen/Frost
Bankers, Inc. and its Affiliates (1990 Form S-8, Exhibit 4(g))(7)*
10.8 1991 Thrift Incentive Stock Purchase Plan for Employees of
Cullen/Frost Bankers, Inc. and its Affiliates (1991 Form S-8,
Exhibit 4(g))(8)*
10.9 Cullen/Frost Bankers, Inc. Restricted Stock Plan (1992 Form S-8,
Exhibit 4(d))(9)*
10.10 Cullen/Frost Bankers, Inc. 1992 Stock Plan (1992 Form S-8, Exhibit
4(d))(10)
10.11 Cullen/Frost Bankers, Inc. Supplemental Executive Retirement Plan
(1994 Form 10-K, Exhibit 10.13)(12)
10.12 Form of Revised Change-In-Control Agreements with one Executive
Officer (1994 Form 10-K, Exhibit 10.14)(12)
10.13 Retirement agreement with one Executive Officer
11 Statement re: computation of earnings per share
13 The Cullen/Frost 1996 Annual Report to Shareholders for the Year
Ended December 31, 1996, (furnished for the information of the
Commission and not deemed to be "filed" except for the portion
expressly incorporated by reference)
19.1 Annual Report on Form 11-K for the Year Ended December 31, 1996,
for the 1991 Thrift Incentive Stock Purchase Plan (filed pursuant
to Rule 15d-21 of the Securities and Exchange Act of 1934)(14)
19.2 Annual Report on Form 11-K for the Year Ended December 31, 1996,
for the 401(k) Stock Purchase Plan (filed pursuant to Rule 15d-21
of the Securities and Exchange Act of 1934)(14)
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 -- No such reports were filed during the quarter ended
December 31, 1996.
______________________
(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,
1987 (File No. 0-7275)
(2) 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)
(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,
1988 (File No. 0-7275)
(4) 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)
(5) 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)
(6) 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)
(7) 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)
(8) 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)
(9) 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)
(10) 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)
(11) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Annual Report on Form 10-K for the Year Ended
December 31, 1994 (File No. 0-7275)
(12) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Annual Report on Form 10-K for the Year Ended
December 31, 1994 (File No. 0-7275)
(13) Incorporated herein by reference to the designated Exhibits to
Cullen/Frost's Current Report on Form 8-A12G/A dated August 1, 1996
(File No. 0-7275)
(14) To be filed as an amendment.
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 28, 1997 CULLEN/FROST BANKERS, INC.
(Registrant)
By:/s/ Phillip D. Green
------------------------
Phillip D. Green
Executive Vice President and
Chief Financial 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 28, 1997
Signatures Title Date
---------- ----- -----
Senior Chairman of the Board
and Director (Principal Executive
T.C. FROST* Officer)
- ------------------------
(T.C. Frost)
Chairman of the Board
RICHARD W. EVANS, Jr* and Director
- --------------------------
(Richard W. Evans, Jr.)
ROBERT S. McCLANE* President and Director
- ------------------------
(Robert S. McClane)
ISAAC ARNOLD, JR.* Director
- ------------------------
(Isaac Arnold, Jr.)
ROYCE S. CALDWELL* Director
- ------------------------
(Royce S. Caldwell)
RUBEN R. CARDENAS* Director
- ------------------------
(Ruben R. Cardenas)
HENRY E. CATTO* Director
- ------------------------
(Henry E. Catto)
Signatures Title Date
---------- ----- -----
HARRY H. CULLEN* Director
- ------------------------
(Harry H. Cullen)
ROY H. CULLEN Director
- ------------------------
(Roy H. Cullen)
EUGENE H. DAWSON, SR.* Director
- ------------------------
(Eugene H. Dawson, Sr.)
Director
- ------------------------
(Ruben M. Escobedo)
W.N. FINNEGAN III* Director
- ------------------------
(W.N. Finnegan III)
JAMES W. GORMAN, JR.* Director
- ------------------------
(James W. Gorman, Jr.)
JAMES L. HAYNE* Director
- ------------------------
(James L. Hayne)
RICHARD M. KLEBERG, III* Director
- ------------------------
(Richard M. Kleberg, III)
IDA CLEMENT STEEN* Director
- ------------------------
(Ida Clement Steen)
CURTIS VAUGHAN, JR.* Director
- ------------------------
(Curtis Vaughan, Jr.)
MARY BETH WILLIAMSON* Director
- ------------------------
(Mary Beth Williamson)
Executive Vice President
*By:/s/ Phillip D. Green and Chief Financial Officer March 28, 1997
- --------------------------
(Phillip D. Green)
[as Attorney-in-Fact for
the persons indicated]
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
- ------------------------------------------
10.13 Retirement agreement with one Executive Officer
11 Statement re: computation of earnings per share
13 The Cullen/Frost 1996 Annual Report to Shareholders for the Year Ended
December 31, 1996 (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