EXHIBIT 19.2
The Financial Statements and Supplemental Schedules for the 401(k) Stock
Purchase Plan for Employees of Cullen/Frost Bankers, Inc.
for the years ended December 31, 1998 and 1997
401(k) Stock Purchase Plan
for the Employees of
Cullen/Frost Bankers, Inc.
and Its Affiliates
Financial Statements
and Supplemental Schedules
Years Ended December 31, 1998 and 1997
with Report of Independent Auditors
401(k) Stock Purchase Plan for the Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
Financial Statements
and Supplemental Schedules
Years Ended December 31, 1998 and 1997
Contents
Report of Independent Auditors........................................ 1
Financial Statements
Statements of Net Assets Available for Benefits....................... 3
Statements of Changes in Net Assets Available for Benefits............ 4
Notes to Financial Statements......................................... 5
Supplemental Schedules
Item 27a - Schedule of Assets Held for Investment Purposes............ 15
Item 27d - Schedule of Reportable Transactions........................ 16
Report of Independent Auditors
Compensation and Benefits Committee of the
401(k) Stock Purchase Plan for the Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
San Antonio, Texas
We have audited the accompanying statements of net assets available for benefits
of the 401(k) Stock Purchase Plan for the Employees of Cullen/Frost Bankers,
Inc. and Its Affiliates as of December 31, 1998 and 1997, and the related
statements of changes in net assets available for benefits for the years then
ended. These financial statements are the responsibility of the Plan'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 net assets available for benefits of the Plan at
December 31, 1998 and 1997, and the changes in its net assets available for
benefits for the years then ended, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
held for investment purposes as of December 31, 1998 and reportable transactions
for the year then ended, are presented for purposes of additional analysis and
are not a required part of the financial statements but are supplementary
information required by the Department of
1
Compensation and Benefits Committee of the
401(k) Stock Purchase Plan for the Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. These supplemental schedules are the
responsibility of the Plan's management. The supplemental schedules have been
subjected to the auditing procedures applied in our audit of the 1998 financial
statements and, in our opinion, are fairly stated in all material respects in
relation to the 1998 financial statements taken as a whole.
The schedule of assets held for investment purposes and schedule of reportable
transactions that accompany the Plan's financial statements do not disclose the
historical cost of certain plan investments or the net gain or loss from certain
sales transactions. Disclosure of this information is required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974.
/s/ERNST & YOUNG L.L.P.
San Antonio, Texas
May 28, 1999
2
401(k) Stock Purchase Plan for the Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
Statements of Net Assets Available for Benefits
December 31
1998 1997
----------------------
Assets
Common stock of Cullen/Frost Bankers, Inc.
(pending distribution) $ - $ 17,538
Investments, at fair value:
Common stock of Cullen/Frost Bankers, Inc. 82,223,198 88,099,682
AIM Short-Term Prime Money Market Fund - 82,917
AIM LTD Maturity Treasury Fund - 921,338
Templeton Growth Fund 3,287,158 2,934,922
Fidelity Advisor Growth Opportunities Fund 8,021,620 4,107,804
Fidelity Money Market Fund 6,396,502 4,953,482
Frost EB Low Duration Fund 661,618 -
Optimum Mix/Total Return Portfolio 5,989,919 4,416,454
Optimum Mix/Equities Only Portfolio 1,675,115 -
Short-Term Investments Co. Prime Portfolio - 417,283
Participant loans 6,903,667 6,133,895
------------------------------
Total investments 115,158,797 112,085,315
Receivables:
Employer contributions 149,831 102,149
Participants' contributions 234,441 161,607
Interest 267 1,035
Merger asset - 705,496
-----------------------------
Net assets available for benefits $ 115,543,336 $ 113,055,602
=============================
See accompanying notes.
3
401(k) Stock Purchase Plan for the Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
Statements of Changes in Net Assets Available for Benefits
Year Ended December 31
1998 1997
---------------------------
Additions to net assets attributed to:
Investment activities:
Interest $ 328,202 $ 233,798
Dividends 2,668,772 2,389,485
Net appreciation (depreciation) in
fair value of investments (3,897,172) 40,750,675
---------------------------
(900,198) 43,373,958
Contributions:
Employer 3,024,548 1,961,981
Participants 5,398,984 4,831,873
---------------------------
Total additions 7,523,334 50,167,812
Deductions from net assets attributed to:
Benefits paid to participants 5,035,600 2,397,145
Transfer of funds due to plan merger - (705,496)
----------------------------
Net increase 2,487,734 48,476,163
Net assets available for benefits at
beginning of year 113,055,602 64,579,439
----------------------------
Net assets available for benefits at
end of year $115,543,336 $113,055,602
============================
See accompanying notes.
4
401(k) Stock Purchase Plan for the Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
Notes to Financial Statements
December 31, 1998 and 1997
1. Significant Accounting Policies
The accounting records of the 401(k) Stock Purchase Plan for the Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates (the Plan) are maintained on the
accrual basis of accounting.
The Plan's investments are held in common stock of Cullen/Frost Bankers, Inc.
(CFBI), Templeton Growth Fund, Fidelity Advisor Growth Opportunities Fund, Frost
EB Low Duration Fund, Optimum Mix/Total Return Portfolio, and Optimum
Mix/Equities Only Portfolio, which are stated at fair value based on quoted
market prices on the valuation date, and in the Fidelity Money Market Fund.
Changes in fair market value and gains and losses on the sale of investment
securities are reflected in the statements of changes in net assets available
for benefits as net appreciation (depreciation) in fair value of investments.
Money market investments are valued at cost, which approximates fair value.
Administrative expenses of the Plan are paid by CFBI.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. Description of the Plan
The following is a general description of the Plan. Participants should refer
to the plan agreement for a more complete description of the Plan's provisions.
General
The Plan is a defined contribution plan qualified under Section 401(a) of the
Internal Revenue Code (IRC) and covers full-time employees who complete 90 days
of service and part-time employees who complete 90 days of service and are
scheduled to work more than 1,000 hours in a year. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
5
401(k) Stock Purchase Plan for the Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
Notes to Financial Statements (continued)
December 31, 1998 and 1997
2. Description of the Plan (continued)
Contributions and Investment Options
Participants may contribute an amount not less than 2% and not exceeding 16% of
their compensation, limited by 401(k) regulations, and may direct investments of
their accounts in either common stock of CFBI, Templeton Growth Fund, Fidelity
Advisor Growth Opportunities Fund, Fidelity Money Market Fund, Frost EB Low
Duration Fund, Optimum Mix/Total Return Portfolio, or Optimum Mix/Equities Only
Portfolio. Participants are able to invest their contributions in these funds
in 1% increments. CFBI matches 100% of the participants' contributions up to 6%
of the participants'compensation. The match is invested in the common stock of
CFBI.
Participant Accounts
Each participant's account is credited with the participant's contributions and
allocations of (a) CFBI's contributions and (b) plan earnings. Forfeited
balances of terminated participants' nonvested accounts are used to restore
forfeitures of reemployed participants, pay administrative expenses to the
extent not paid by CFBI, or reduce future company contributions. The benefit
to which a participant is entitled is the benefit that can be provided from
the participant's account.
Vesting
Participants are immediately vested in their voluntary contributions plus
actual earnings thereon. Participants employed prior to January 1, 1991 are
100% vested in their employer contributions. Participants employed after
December 31, 1990 vest in their employer contributions at 20% per year with
100% vesting occurring after completion of five years of service, upon death
or disability, or when the participant reaches age 65.
Participant Loans
Participants may borrow from their fund accounts a minimum of $500 up to a
maximum of $50,000 or 50% of their account balance, reduced by the highest
amount of any loan outstanding within the previous twelve months. Loan
transactions are treated as a transfer from (to) the investment fund to (from)
the loan fund. Loan terms range from
6
401(k) Stock Purchase Plan for the Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
Notes to Financial Statements (continued)
December 31, 1998 and 1997
2. Description of the Plan (continued)
1 to 5 years or up to 30 years for the purchase of a primary residence. The
loans are secured by the balance in the participant's account and bear interest
at a rate commensurate with local prevailing rates. Principal and interest are
paid ratably through semimonthly payroll deductions. Subject to Internal
Revenue Service (IRS) limitations, participants may make hardship withdrawals
from a portion of their 401(k) contributions to pay for an immediate and heavy
financial need. Participant loans are stated at cost which approximates fair
value.
Payment of Benefits
Upon normal retirement at age 65, or in the event of death or disability, a
participant will receive a lump-sum payment of his (her) account in the Plan
and all amounts which have been allocated to his (her) plan account.
Distribution of a participant's account must occur no later than April of the
calendar year after the participant reaches age 70 1/2. In the event of
termination of employment with the employer for any other reason, the
participant is entitled to the vested portion of his (her) account in the Plan
and all vested amounts which have been allocated to his (her) plan account.
Plan Termination
Although it has not expressed any intent to do so, CFBI has the right under the
Plan to discontinue its contributions at any time and to terminate the Plan
subject to the provisions of ERISA. In the event of plan termination,
participants will become 100% vested in their accounts.
3. Benefits Payable to Terminated Participants
At December 31, 1998, there were 23 terminated participants in the Plan who had
requested a distribution entitled to aggregate vested benefits totaling $102,522
in cash disbursements and 1,533 shares of CFBI common stock, or $84,123,
applying the fair market value of the stock of $54.86 per share at December 31,
1998. At December 31, 1997, there were nine terminated participants in the Plan
who had requested a distribution entitled to aggregate vested benefits totaling
$82,411 in cash distributions and 5,211 shares of CFBI common stock, or
$316,256, applying the fair market value of the stock of $60.69 per share at
December 31, 1997.
7
401(k) Stock Purchase Plan for the Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
Notes to Financial Statements (continued)
December 31, 1998 and 1997
4. Form 5500
The following is a reconciliation of net assets available for benefits per the
financial statements to the Form 5500:
December 31
1998 1997
--------------------------
Net assets available for benefits per the
financial statements $115,543,336 $113,055,602
Amounts allocated to withdrawing
participants (186,645) (398,667)
--------------------------
Net assets available for benefits per the
Form 5500 $115,356,691 $112,656,935
==========================
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
Year Ended December 31
1998 1997
-------------------------
Benefits paid to participants per the
financial statements $ 5,035,600 $ 2,397,145
Add: Amounts allocated to withdrawing
participants at the end of the year 186,645 398,667
Less: Amounts allocated to withdrawing
participants at the end of the prior year (398,667) (343,138)
-------------------------
Benefits paid to participants per the
Form 5500 $ 4,823,578 $ 2,452,674
=========================
Amounts allocated to withdrawing participants are recorded on the Form 5500 for
benefit claims that have been processed and approved for payment prior to
December 31 but not yet paid as of that date.
8
401(k) Stock Purchase Plan for the Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
Notes to Financial Statements (continued)
December 31, 1998 and 1997
5. Income Tax Status
The IRS has determined and informed CFBI by a letter dated October 26, 1996
that the Plan and related trust are designed in accordance with applicable
sections of the IRC. The Plan has been amended since receiving the
determination letter. However, the plan administrator believes that the Plan
is designed and is currently being operated in compliance with the applicable
requirements of the IRC.
6. Impact of Year 2000 (Unaudited)
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four to define the applicable year. Any of the
Plan's computer programs, including programs from outside vendors, that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations including, among other things, a temporary
inability to process transactions.
Management of Frost National Bank, trustee, has an extensive program in place
to address the internal and external risks associated with the century date
change to the year 2000. The trustee has completed the renovation, testing,
and installation of 99 percent of technology systems in its owned facilities
and has completed 98 percent of the testing of mission-critical systems. The
trustee is also updating business continuity plans for the date change and
expects to be substantially complete with regard to nonmission-critical systems
in the second quarter of 1999. Costs associated with this program are paid by
the trustee and not by the Plan.
9
401(k) Stock Purchase Plan for the Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
Notes to Financial Statements (continued)
December 31, 1998 and 1997
7. Statement of Changes in Net Assets Available for Benefits Segregated by
Participant-Directed Investment Type
The following represents the changes in net assets available for benefits
segregated by participant-directed investment type for the year ended
December 31, 1998:
Common
Stock of Cullen/Frost AIM Short-
Cullen/Frost Bankers, Inc. Term Prime AIM LTD
Bankers, Inc. Common Money Maturity Templeton
(Pending Stock Market Treasury Growth
Distribution) Fund Fund Fund Fund
-------------------------------------------------------------
Additions to net assets
attributed to:
Interest $ - $ - $ - $ - $ -
Dividends - 1,723,836 - 14 408,700
Net appreciation
(depreciation) in fair value
of investments - (5,139,453) - 1,943 (494,226)
Investment election transfer (17,538) (6,120,302) (82,917) (923,295) 152,434
Contributions:
Employer - 2,874,717 - - -
Participants - 2,746,958 - - 479,674
-----------------------------------------------------------
Total additions (deductions) (17,538) (3,914,244) (82,917) (921,338) 546,582
Deductions from net assets
attributed to:
Benefits paid to participants - 2,932,527 - - 194,346
-----------------------------------------------------------
Total deductions - 2,932,527 - - 194,346
-----------------------------------------------------------
Net increase (decrease) (17,538) (6,846,771) (82,917) (921,338) 352,236
Net assets available for benefits
at beginning of year 17,538 89,069,969 82,917 921,338 2,934,922
-----------------------------------------------------------
Net assets available for benefits
at end of year $ - $ 82,223,198 $ - $ - $3,287,158
===========================================================
10
Fidelity Advisor Optimum
Growth Fidelity Mix/Total Short-Term Frost EB
Opportunities Money Market Return Investments Co. Participant Low Duration
Fund Fund Portfolio Prime Portfolio Loans Fund
- -----------------------------------------------------------------------------------
$ - $ 327,935 $ - $ - $ - $ -
331,991 - 173,230 - - 20,854
1,036,617 20,269 495,672 - - 9,206
1,995,413 1,763,288 571,544 (417,283) 1,153,356 607,416
- - - - - -
833,209 421,269 480,031 - - 24,555
- ---------------------------------------------------------------------------------
4,197,230 2,532,761 1,720,477 (417,283) 1,153,356 662,031
283,414 1,089,741 147,012 - 383,584 413
- ---------------------------------------------------------------------------------
283,414 1,089,741 147,012 - 383,584 413
- ---------------------------------------------------------------------------------
3,913,816 1,443,020 1,573,465 (417,283) 769,772 661,618
4,107,804 4,953,482 4,416,454 417,283 6,133,895 -
- ---------------------------------------------------------------------------------
$ 8,021,620 $ 6,396,502 $5,989,919 $ - $ 6,903,667 $ 661,618
=================================================================================
11
401(k) Stock Purchase Plan for the Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
Notes to Financial Statements (continued)
December 31, 1998 and 1997
7. Statement of Changes in Net Assets Available for Benefits Segregated by
Participant-Directed Investment Type (continued)
Optimum Mix/ PIMCO
Equities Only Low Duration
Portfolio Fund Other Totals
-------------------------------------------------------
Additions to net assets
attributed to:
Interest $ - $ - $ 267 $ 328,202
Dividends 10,147 - - 2,668,772
Net appreciation
(depreciation) in fair value of
investments 158,123 14,677 - (3,897,172)
Investment election transfer 1,348,020 (30,136) -
Contributions:
Employer - - 149,831 3,024,548
Participants 163,385 15,462 234,441 5,398,984
------------------------------------------------------
Total additions (deductions) 1,679,675 3 384,539 7,523,334
Deductions from net assets
attributed to:
Benefits paid to participants 4,560 3 - 5,035,600
------------------------------------------------------
Total deductions 4,560 3 - 5,035,600
------------------------------------------------------
Net increase (decrease) 1,675,115 - 384,539 2,487,734
Net assets available for benefits
at beginning of year - - - 113,055,602
------------------------------------------------------
Net assets available for benefits
at end of year $ 1,675,115 $ - $ 384,539 $ 115,543,336
======================================================
12
401(k) Stock Purchase Plan for the Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
Notes to Financial Statements (continued)
December 31, 1998 and 1997
7. Statement of Changes in Net Assets Available for Benefits Segregated by
Participant-Directed Investment Type (continued)
The following represents the changes in net assets available for benefits
segregated by participant-directed investment type for the year ended
December 31, 1997:
Common Stock
of Cullen/Frost Cullen/Frost AIM Short- AIM LTD Fidelity Advisor
Bankers, Inc. Bankers, Inc. Term Prime Maturity Growth
(Pending Common Stock Money Market Treasury Templeton Opportunities
Distribution) Fund Fund Fund Growth Fund Fund
--------------------------------------------------------------------------------------
Additions to net assets
attributed to:
Interest $ - $ - $ 189,040 $ - $ - $ -
Dividends - 1,405,212 - 38,450 423,910 340,770
Net appreciation (depreciation)
in fair value of investments - 37,733,069 1,587,681 3,766 (95,739) 20,214
Investment election transfer - (2,358,007) (5,372,144) 267,323 474,024 687,196
Contributions:
Employer - 1,961,981 - - - -
Participants 17,538 2,581,993 200,405 56,442 390,949 645,782
---------------------------------------------------------------------------------
Total additions (deductions) 17,538 41,324,248 (3,395,018) 365,981 1,193,144 1,693,962
Deductions from net assets
attributed to:
Benefits paid to participants - 1,946,290 160,951 1,820 46,755 78,946
Transfer of funds due to
plan merger - (705,496) - - - -
---------------------------------------------------------------------------------
Total deductions (additions) - 1,240,794 160,951 1,820 46,755 78,946
---------------------------------------------------------------------------------
Net increase (decrease) 17,538 40,083,454 (3,555,969) 364,161 1,146,389 1,615,016
Net assets available for benefits
at beginning of year - 48,986,515 3,638,886 557,177 1,788,533 2,492,788
---------------------------------------------------------------------------------
Net assets available for benefits
at end of year $ 17,538 $ 89,069,969 $ 82,917 $921,338 $2,934,922 $4,107,804
=================================================================================
13
Optimun
Fidelity Mix/Total Short-Term
Money Market Return Investments Co. Participant
Fund Portfolio Prime Portfolio Loans Totals
- ------------------------------------------------------------------------
$ 44,758 $ - $ - $ - $ 233,798
- 181,143 - - 2,389,485
279,251 1,222,433 - - 40,750,675
4,613,453 151,080 - 1,537,075 -
- - - - 1,961,981
20,186 501,295 417,283 - 4,831,873
- ------------------------------------------------------------------------
4,957,648 2,055,951 417,283 1,537,075 50,167,812
4,166 20,236 - 137,981 2,397,145
- - - - (705,496)
- -------------------------------------------------------------------------
4,166 20,236 - 137,981 1,691,649
- -------------------------------------------------------------------------
4,953,482 2,035,715 417,283 1,399,094 48,476,163
- 2,380,739 - 4,734,801 64,579,439
- -------------------------------------------------------------------------
$ 4,953,482 $ 4,416,454 $ 417,283 $ 6,133,895 $ 113,055,602
=========================================================================
14
Supplemental Schedules
401(k) Stock Purchase Plan for the Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
EIN: 74-1751768 Plan No.: 003
Item 27a - Schedule of Assets Held for Investment Purposes
December 31, 1998
Description of Investment
Including Maturity Date
Identity of Issue, Rate of Interest
Borrower, Lessor, Collateral, Par or Current
or Similar Party Maturity Date Cost Value
- ------------------------------------------------------------------------------
*Cullen/Frost Bankers, Inc. Common stock
1,496,017 shares ** $ 82,223,198
Fidelity Money Market Money market deposit
Fund account $ 6,396,502 6,396,502
*Participant loans Interest accrued at Frost
National Bank prime
rate, varying maturity
dates, 8.25% - 8.50%
charged during 1998 - 6,903,667
Optimum Mix/Total Return
Portfolio Mutual fund ** 5,989,919
Optimum Mix/Equities
Only Portfolio Mutual fund ** 1,675,115
Templeton Growth Fund Mutual fund 3,789,344 3,287,158
Fidelity Advisor Growth
Opportunities Fund Mutual fund 6,528,305 8,021,620
*Frost EB Low Duration
Bond Fund Mutual fund ** 661,618
--------------
$ 115,158,797
==============
* Denotes party-in-interest
** Historical cost is not available.
15
401(k) Stock Purchase Plan for the Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
EIN: 74-1751768 Plan No.: 003
Item 27d - Schedule of Reportable Transactions
Year Ended December 31, 1998
Description of Current Value
Asset (Including Interest of Asset on
Identity of Rate and Maturity Purchase Selling Cost of Transaction Net Gain
Party Involved* in Case of a Loan) Price Price Asset Date or (Loss)
- ----------------------------------------------------------------------------------------------------------------------
Category (iii) - Series of
Securities Transactions
AIM Short-Term Prime
Money Market Fund $ 11,631,154 $ - $ 11,631,154 $ 11,631,154 $ -
AIM Short-Term Prime
Money Market Fund - 16,543,419 16,543,419 16,543,419 -
Fidelity Money Market Fund 9,185,619 - 9,185,619 9,185,619 -
Fidelity Money Market Fund - 2,415,842 2,415,842 2,415,842 -
Common stock:
Cullen/Frost Bankers, Inc. 12,818,018 - 12,818,018 12,818,018 -
Cullen/Frost Bankers, Inc. - 9,002,433 ** 9,002,433 **
Fidelity Advisors Growth
Opportunity Fund 4,610,261 - 4,610,261 4,610,261 -
Fidelity Advisors Growth
Opportunity Fund - 3,380,344 3,380,344 3,380,344 -
There were no Category (i),
(ii), or (iv) transactions
during the year ended
December 31, 1998.
* All transactions on market.
** Historical information is not available.
16