100 West Houston Street
P.O. Box 1600
San Antonio, Texas 78296
Telephone: (210) 220-4011
Fax: (210) 220-4791
Toll Free: 800-562-6732
Employees: 2,550 (1977)
Total Assets: $6.43 billion (1998)
Stock Exchanges: New York
Ticker Symbol: CFR
SICs: 6712 Bank Holding Companies; 6021 National Commercial Banks
Cullen/Frost Bankers, Inc. is committed to relationship banking, that is, to combining a high level of professional competence and personal service with financial products that answer to the needs and interests of its customers.
Cullen/Frost Bankers, Inc. is a bank holding company consisting of two wholly owned banking subsidiaries: Frost National Bank (Frost)--the largest independent bank in Texas--and United States National Bank of Galveston. Each subsidiary bank is a separate entity that operates under the day-to-day management of its own board of directors and officers. Frost accounted for approximately 97 percent of the bank holding company's 1997 consolidated assets and 98 percent of its loans and deposits. Cullen/Frost operates 76 financial centers dispersed throughout San Antonio, Austin, Boerne, Corpus Christi, the Fort Worth/Dallas area, the Galveston/Houston area, McAllen, New Braunfels, and San Marcos. The company provides policy direction to its two member banks for asset and liability management, accounting, budgeting, planning and insurance; capitalization; and regulatory compliance. The subsidiary banks offer services related to commercial banking, consumer banking, international banking, trusts, correspondent banking, and discount brokerage. Cullen/Frost, with trust assets totaling $10 billion and a market capitalization of over $1 billion, ranks among the 60 largest trust banks in the nation. According to September 30, 1997 data from the Federal Reserve Board, Cullen/Frost is the largest of the 93 unaffiliated bank holding companies headquartered in Texas.
The Beginnings of Frost National Bank in the Late-1800s
The early history of Frost National Bank is rooted in that of Texas. Its founder, Thomas Claiborne Frost, was born in Alabama in 1833 and graduated from Irving College in Tennessee. He then settled in Texas as an assistant professor at Austin College, studied law in Sam Houston's office, and was admitted to the bar in 1856 by Judge R.E.B. Baylor. The young lawyer played an active role in community and state affairs: in 1857 he served with the Texas Rangers to protect citizens against Indian raids and was elected district attorney for Comanche County. In 1861 he was a delegate to the Secession Convention in Austin and, when Texas seceded from the Union, served as a lieutenant colonel in the Confederate Army.
After the Civil War, due to Reconstruction regulations against former Confederate officers, Colonel Frost could not resume his law practice. Thus, he instead established a freight business between San Antonio and the Gulf port of Indianola. Soon afterwards, John Frost (his brother) and J. L. Fitch (John's partner) asked him to join their mercantile and auction business. As a partner of Fitch, Frost and Bro., the Colonel anticipated the needs of post-war Texas and stocked the hard merchandise--such as axes, rifles, pistols, ammunition, boots, harnesses, saddles, and plows--that men would need to finish taming the land. He bought Fitch's share of the business and the store operated as Frost & Bro. until 1881.
Recognizing the difficulty Texas wool producers experienced in getting their goods to market during the poor economy of the postwar period, Colonel Frost formulated a plan to help. He contracted with haulers to collect the wool, built a large warehouse, and stored the wool until market conditions became favorable. The Colonel made loans (based on the wool stocks he was holding) to the producers. Thus began the state's first merchandising, financing, and marketing program. Proceeds of wool shipments made to eastern markets were deposited in New York bank accounts that accumulated increasingly large balances, against which Colonel Frost ordered supplies of silver and gold from mints for his own trade and to supply silver to bankers and merchants in nearby Texas towns. Growers became accustomed to leaving some of their money on deposit with him in order to draw against them during periods between sales.
In 1896 Colonel Frost abandoned his wool-commission business and applied for a national bank charter. In February 1899 the bank's official name became Frost National Bank of San Antonio, with assets of $1.3 million. Upon the death of Colonel Frost in 1903, T.C. Frost, Jr. was named president, a position he held until 1926 when he became chairman and his younger brother, J.H. Frost, was named president.
Frost's Success in Weathering the Depression
During this period, the U.S. population tripled and the gross national product rose sharply from $6 billion a year to $70 billion. Banks played a primary role in supporting this growth through loans, investments, and community involvement. Due to the boom in construction and real estate, during the early 1920s both individuals and institutions invested heavily in the stock market. In 1928 Frost Bank--in a fortuitous move that created a financial institution strong enough to survive the hardships that were to come--merged with the city's oldest bank, Lockwood National Bank.
As bank customers continued to withdraw funds to fuel their investments, the real-estate boom came to a halt. The stock market crashed, and nearly 5,000 banks failed. During the first several years of the 1930s, additional banks failed and some states declared bank holidays. Recognizing the urgency of the situation, President Franklin D. Roosevelt declared a mandatory bank holiday to give Congress time to vote on an emergency banking bill. Frost Bank records attest to the fact that, except for the government-decreed bank holidays, the bank never closed its doors during these troubled times.
In an effort to pull the nation and financial institutions out of the depression, the U.S. Congress passed The Banking Act of 1933 to establish federal insurance of deposits and, hopefully, prevent further runs on banks. But the economy recovered slowly until it was fueled by the job market created by the defense industry during World War II. After the war, military personnel returned home to find jobs plentiful. Having survived a depression and the restrictions imposed by another war, U.S. citizens were quick to demand new housing, appliances, automobiles and other tangible goods. During the 1950s and 1960s, American industry expanded--and banks prospered. For the first time, banks began to offer consumer loans that could be repaid in installments, replacing the old "call loan" method.
During the 1970s, Frost Bank began a period of steady expansion. Assets climbed 12 percent in 1972 to reach $667 million, while loans increased to $312 million--a 31 percent leap that boosted operating profits by more than 50 percent. In 1973, the FrostBank Corporation was formed as a bank holding company and opened three additional banks. Frost entered the Corpus Christi market in 1974 by acquiring Parkdale State Bank. About this time, a gradual--and then sudden--decline occurred in the national economy. Climbing interest rates began to choke economic activity, triggering increased loan defaults. Equities markets continued to slide, and real-estate trusts--created by many bank holding companies as ancillary vehicles--reported severe losses. With loan demand steadily diminishing, banks across the country began to shift into government and municipal securities. It was a period of lingering inflation and a stagnant economy but, thanks to conservative operating policies, Frost Bank continued to prosper.
Cullen's Texas Roots
While FrostBank Corporation had been sinking its roots deep into Texas soil during the 1920s and '30s, two native Texas oil wildcatters--Hugh Roy Cullen and Robert E. Smith--built a fortune and invested some of it in serving the Houston community. Cullen wanted to build an office center in downtown Houston similar to that of Rockefeller Center in order to house a family-controlled bank. He died in 1957 but his dream was realized in part when his sons-in-law began the development of seven blocks of land in the south part of downtown Houston.
Over the years, the Cullen Center complex grew to include the 20-story Marathon Building that served as Cullen Bank headquarters, three other office buildings, the Whitehall Hotel, and a multi-story parking garage. In 1968, Smith and V.F. Neuhaus joined members of the Cullen family to obtain a charter for the Cullen Center Bank & Trust of Houston. Deposits of $29 million on July 1, 1969--the opening day--exceeded the founders' projections for the first three years of the bank's operation. Within five years, Cullen Center Bank & Trust held deposits of $210 million and was the county's ninth-largest bank. In 1974 the holding company of Cullen Bankers, Inc. was formed and acquired both Cullen Center Bank & Trust of Houston and Citizens National Bank of Dallas.
Cullen/Frost Bankers, Inc: 1977-90
On July 7, 1977, Cullen Bankers, Inc. merged into FrostBank Corporation to form Cullen/Frost Bankers, Inc. In the early 1920s, Frost Bank had issued stock to non-family members to fund its new 12-story bank building; brokers conducted over-the-counter market trading of the bank's stock. Later, in 1977, Cullen/Frost stock was quoted and traded on NASDAQ.
Mergers followed apace. In 1982 Cullen/Frost entered the Galveston market by acquiring United States National Bancshares, expanded in the Houston area with the acquisition of Sugar Land State Bank, and entered the Austin market through a merger agreement with Chase National Bank. The growth market looked promising but difficult times were ahead. An unexpected drop in the price of oil, the real-estate crash and the demise of the savings and loan industry resulted in a severe economic downturn. Problem loans increased and many financial institutions struggled to survive. Nevertheless, Frost Bank remained healthier than many other institutions and, ultimately, was the only one of Texas' 10 largest banking companies of the 1980s to survive without federal assistance or acquisition by an out-of-state institution.
The Texas banking picture began to change when new legislation allowed the banks to open branches in the state, thereby capturing a large segment of the retail market previously dominated by credit unions, and savings and loans institutions. Fortunately for Frost Bank, sound credit analysis apparently ran in the Frost family's genes. "While many of Frost's Texas rivals piled up loans to speculative real-estate ventures in the early and mid-1980s, Frost concentrated on making commercial loans to longtime customers and well-secured mortgage loans to owners of existing residential and commercial property," wrote Graham Button in a 1992 issue of Forbes. "By 1987 Cullen/Frost was the only Texas bank with assets of more than $1.5 billion to show a profit. 'In the land of the blind,' Frost told Forbes in 1988, 'the one-eyed man is king."' And despite the perpetually volatile behavior of the stock markets during the 1980s, the total trust assets of Frost Bank's Trust Division regularly outperformed Standard and Poor's 500-stock index.
During the 1990s, Cullen/Frost continued to make strategic acquisitions, thereby strengthening its position in established markets and securing a presence in new locations. In August 1997, the company was listed on the New York Stock Exchange and traded under the symbol CFR. By June 30, 1998, the bank holding company operated 76 financial centers across Texas through 17 locations in San Antonio, five in Austin, two in Boerne, 10 in Corpus Christi, 14 in the Fort Worth/Dallas area, 22 in the Galveston/Houston area, two in McAllen, one in New Braunfels, and three in San Marcos.
Relationship Banking in the 1990s
Through its two banking subsidiaries, Cullen/Frost provided commercial banking services for corporations and other business clients, on both a national and an international basis. Loans were made for a wide variety of purposes, including interim-construction financing, and financing on recapitalizations and turnaround situations. The subsidiary banks offered a full range of consumer banking services, international banking, trust services, correspondent banking, and discount brokerage.
Keeping alive the Frost commitment to staying close to customers in order to understand and serve their needs, the subsidiary banks continually introduced, developed and updated products according to the latest available banking technologies. In fact, in a 1996 issue of the Houston Business Journal, industry analyst Steve Didion commented that "Cullen/Frost is perceived as a 'super community bank' because it serves more than one market, but in every market, it targets that middle market and upper market customer."
For example, Cullen/Frost participated in the introduction of automatic teller machines (ATMs) in the mid-1970s and in their continuing deployment through its markets. By November 1997 the Frost ReadyBank card carried the Visa/PLUS ATM Network symbol and could be used to access not only the bank's Texas ATMs but also the 250,000 ATMs in the Visa network. It could be used as a debit card wherever the Visa symbol was found, that is, in more than 13 million places around the world. By June 1998, Cullen/Frost operated ATMs throughout central and southern Texas. Other electronic services included ReadyBank Touch-Tone Bill Pay and ReadyBank Online.
In May 1996, Frost National Bank launched a series of new products designed to answer the needs of small businesses in Texas. The Frost Bank Business CreditLine provided a credit line of up to $50,000 with interest payable monthly and a maximum maturity term of three years; long-term, fixed rate financing from $100,000 to $1 million for the purchase of owner-occupied premises, with up to 15-year amortization tied to the 10-year and 5-year treasury rates. Additionally, long-term, fixed-rate financing was available for loans between $1 million and $2.5 million. With this option, there was a 15-year amortization term; the rate was fixed for the first seven years; a floating rate was in effect for the remaining eight years.
Cullen/Frost's business did not stop at the state border. As a leader in Texas' growing international-banking market, the company had correspondent banking relationships throughout Mexico--where it had begun to do business in the 1930s--and in Canada. The company's customers had access to confirmation of foreign letters of credit, clearance of foreign drafts drawn on Frost Bank accounts, over-the-counter exchange of foreign currency, and international wiring of funds through S.W.I.F.T. (Society for Worldwide Interbank Financial Telecommunications), the global network that member banks used to exchange various transaction types in standardized, language-independent format.
Cullen/Frost further implemented its commitment to relationship banking by forming the Frost Financial Management Group to consolidate all the bank's financial management services, including the previously separate trust and brokerage services of the bank. In this way, the company built upon the longstanding Frost reputation for sound financial management and integrity, becoming one of the 60 largest trust banks in the United States. The Group enabled customers to combine their investment and banking relationships in a single institution that offered a wide range of products at highly competitive rates. Financial Management Services combined trust investments, financial management, and brokerage services in a single entity. Private trust services provided new and former trust clients with revocable and irrevocable trusts. Retirement services brought new expertise, products and services to the employee benefits function and offered customers a broader range of investment and savings opportunities.
Additionally, Cullen/Frost owned three non-banking companies. In April 1981 Cullen/Frost had purchased Daltex General Agency, Inc., a managing general-insurance agency. As a wholly owned non-banking subsidiary, Daltex provided vendor's single-interest insurance for the subsidiary banks. Another non-banking subsidiary, Main Plaza Corporation, held real estate for future expansion of certain subsidiary banks, and occasionally made loans to qualified borrowers. Loans were funded with borrowings against Cullen/Frost's current cash or borrowings against credit lines. Finally, the New Galveston Company, Inc. was a second-tier bank holding company subsidiary which held all shares of each banking and non-banking subsidiary.
As the 20th century came to a close, Cullen/Frost Bankers, Inc. had reaffirmed its commitment to relationship banking, especially through the decentralization strategy implemented in its "family of Texas banks." In the new millennium, Cullen/Frost--the largest unaffiliated bank holding company headquartered in Texas--would continue to grow while offering its customers the personal and efficient service that nurtured its roots.
Principal Subsidiaries: The Frost National Bank; United States National Bank of Galveston; Daltex General Agency, Inc.; Main Plaza Corporation; The New Galveston Company, Inc.
Bamford, Janet and Suzanne Woolley, "The Prize Catches Being Eyed by Big Banks," Business Week, July 27, 1992, pp. 64-65.
Button, Graham, "One-Eyed King," Forbes, November 9, 1992, p. 13.
Chase, Brett, "In the Heart of Texas, Cullen/Frost Buying Overton for $254 Million in Stock," American Banker, February 18, 1998, pp. 1-2.
Lowe, Sandra, "Cullen/Frost Restructures in Quest for Growth," San Antonio Business Journal, September 10, 1993, pp. 1-3.
Martin, Steven, "Processing Move Pays Off for Cullen/Frost Bankers," Bank Systems & Technology, June 1997, p. 48.
Perin, Monica. "Several Companies Try but Fail to Reach Wall Street in 1997," Houston Business Journal, January 2, 1998, p. 7.
Pybus, Kenneth R., "Bull Markets Boost Prices of Bank Company Stocks," Houston Business Journal, July 12, 1996, p. 32.
Willis, Belinda, "Overton Bank Acquisition Hits Texas High," The Business Press, February 20, 1998, pp. 3-4.
Source: International Directory of Company Histories, Vol. 25. St. James Press, 1999.