Securities and Exchange Commission
Washington, D.C. 20549

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Form 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For Quarter Ended September 30, 2002

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
 incorporation or organization)

(I.R.S. Employer
 Identification No.)

100 W. Houston Street, San Antonio, Texas

78205

(Address of principal executive offices)

(Zip code)

(210) 220-4011

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:     At October 17, 2002, there were 51,072,006 shares of Common Stock, $.01 par value, outstanding.

1

Part I. Financial Information
Item 1. Financial Statements (Unaudited)
  
Consolidated Statements of Income

(dollars in thousands, except per share amounts)

Three Months Ended
September 30

Nine Months Ended
September 30

2002

2001

2002

2001

Interest Income:

Loans, including fees

$

66,984

$

82,520

$

201,377

$

271,156

Securities:

Taxable

27,637

25,708

84,085

72,168

Tax-exempt

1,988

1,903

5,944

5,662

Total Securities

29,625

27,611

90,029

77,830

Time deposits

46

44

142

170

Federal funds sold and securities purchased under repurchase agreements

1,411

2,864

2,411

8,628

Total Interest Income

98,066

113,039

293,959

357,784

Interest Expense:

Deposits

13,881

26,830

43,068

98,792

Federal funds purchased and securities sold under repurchase agreements

1,485

2,840

3,982

10,619

Guaranteed preferred beneficial interests in the Corporation's junior

  subordinated deferrable interest debentures

2,118

2,118

6,356

6,356

Subordinated notes payable and other borrowings

1,579

2,039

5,101

3,077

Total Interest Expense

19,063

33,827

58,507

118,844

Net Interest Income

79,003

79,212

235,452

238,940

Provision for possible loan losses

5,850

20,000

18,046

36,031

Net Interest Income After Provision For Possible Loan Losses

73,153

59,212

217,406

202,909

Non-Interest Income:

Trust fees

11,666

12,464

35,854

37,307

Service charges on deposit accounts

19,720

17,769

57,712

52,320

Insurance commissions

7,250

4,977

18,393

12,470

Other service, collection and exchange charges, commissions and fees

4,176

4,236

13,013

12,261

Net gain on securities transactions

80

88

78

Other

7,621

7,273

25,971

22,623

Total Non-Interest Income

50,433

46,799

151,031

137,059

Non-Interest Expense:

Salaries and wages

35,888

34,477

104,396

103,326

Employee benefits

8,372

9,179

25,580

26,174

Net occupancy

7,202

7,582

21,875

22,018

Furniture and equipment

5,495

5,735

16,814

17,887

Intangible amortization

1,736

3,732

5,348

11,364

Other

19,351

19,594

58,713

59,145

Total Non-Interest Expense

78,044

80,299

232,726

239,914

Income From Continuing Operations Before Income Taxes and   Cumulative Effect of Accounting Change

45,542

25,712

135,711

100,054

Income taxes

14,760

8,447

43,632

33,498

Income from continuing operations

30,782

17,265

92,079

66,556

Loss from discontinued operations, net of tax (Note K)

(4,320

)

(615

)

(5,247

)

(1,715

)

Cumulative effect of change in accounting for derivatives, net of tax

3,010

Net Income

$

26,462

$

16,650

$

86,832

$

67,851

Basic per share:

Income from continuing operations

$

.60

$

.33

$

1.81

$

1.29

Net Income

.52

.32

1.70

1.32

Diluted per share:

Income from continuing operations

$

.59

$

.32

$

1.75

$

1.24

Net Income

.51

.31

1.65

1.27

Dividends per common share

$

.22

$

.215

$

.655

$

.625

See notes to consolidated financial statements.

2

Consolidated Balance Sheets
(dollars in thousands, except per share amounts)

September 30

December 31

September 30

2002

2001

2001

Assets

Cash and due from banks

$

1,044,076

$

994,622

$

866,342

Time deposits

6,570

6,530

3,267

Securities held to maturity

39,282

51,231

56,064

Securities available for sale

2,121,372

2,105,247

1,846,138

Trading account securities

374

118

6,906

Federal funds sold and securities purchased under resale agreements

516,250

129,550

307,525

Loans, net of unearned discount of $7,976 at September 30, 2002; $5,005    at December 31, 2001 and $7,349 at September 30, 2001

4,569,431

4,518,608

4,537,556

    Less: Allowance for possible loan losses

(81,500

)

(72,881

)

(80,188

)

      Net loans

4,487,931

4,445,727

4,457,368

Premises and equipment

172,154

148,871

148,968

Accrued interest and other assets

394,389

487,688

419,228

      Total Assets

$

8,782,398

$

8,369,584

$

8,111,806

Liabilities

Demand deposits (non-interest bearing):

  Commercial and individual

$

2,128,445

$

2,317,926

$

2,086,805

  Correspondent banks

749,104

298,055

246,978

  Public funds

74,024

53,848

50,154

    Total demand deposits

2,951,573

2,669,829

2,383,937

Time deposits (interest bearing):

  Savings and Interest-on-Checking

980,002

1,063,923

961,343

  Money market deposit accounts

1,892,349

1,804,796

1,837,416

  Time

1,139,558

1,202,246

1,258,238

  Public funds

336,863

357,213

284,519

    Total time deposits

4,348,772

4,428,178

4,341,516

    Total deposits

7,300,345

7,098,007

6,725,453

Federal funds purchased and securities sold under repurchase agreements

407,062

305,384

363,562

Accrued interest and other liabilities

140,295

120,499

139,325

Subordinated notes payable and other notes payable

149,411

152,152

152,123

Guaranteed preferred beneficial interest in the Corporation's junior   subordinated deferrable interest debentures, net

98,664

98,623

98,609

    Total Liabilities

8,095,777

7,774,665

7,479,072

Shareholders' Equity

Common stock, par value $.01 per share; Shares authorized: 90,000,000;   Shares issued: 53,561,616

536

536

536

Surplus

195,523

191,856

191,643

Retained earnings

532,352

478,432

476,084

Accumulated other comprehensive income (loss), net of tax

37,960

(14,005

)

21,198

Treasury stock (2,511,991; 2,206,381; 2,007,570 shares)

(79,750

)

(61,900

)

(56,727

)

      Total Shareholders' Equity

686,621

594,919

632,734

      Total Liabilities and Shareholders' Equity

$

8,782,398

$

8,369,584

$

8,111,806

See notes to consolidated financial statements.

3

Consolidated Statements of Changes in Shareholders' Equity

(dollars in thousands)

Accumulated Other Comprehensive Income / (Loss)
net of tax

Common Stock

Surplus

Retained Earnings

Treasury Stock

Total

Balance at January 1, 2001

$

536

$

187,673

$

448,006

$

(4,023

)

$

(59,166

)

$

573,026

Net Income for the twelve months ended
  December 31, 2001

80,916

80,916

Unrealized loss on securities available for
  sale of $4,672, net of tax and
  reclassification adjustment for after-tax
  gains included in net income of $51

(4,723

)

(4,723

)

Additional minimum pension liability, net
  of tax

(5,259

)

(5,259

)

    Total comprehensive income *

70,934

Transactions from employee stock
  purchase plan and options

(6,234

)

5,193

(1,041

)

Tax benefit related to exercise of stock
  options

3,475

3,475

Purchase of treasury stock

(10,424

)

(10,424

)

Issuance of restricted stock

708

2,497

3,205

Restricted stock plan deferred
  compensation, net

(960

)

(960

)

Cash dividend

(43,296

)

(43,296

)

Balance at December 31, 2001

536

191,856

478,432

(14,005

)