SECURITIES AND EXCHANGE COMMISSION
 
 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 11-K

 

[ X ]

ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended: December 31, 2002

 

Or

   

[    ]

TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to ________________

 
 

Commission File Number 0-7275

 
 

      A. Full title of the plan and the address of the plan, if different from that of the issuer named below:

   

THE 401(k) STOCK PURCHASE PLAN
FOR EMPLOYEES OF CULLEN/FROST
BANKERS, INC. AND ITS AFFILIATES

 

      B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:

 
 

CULLEN/FROST BANKERS, INC.

100 W. Houston Street

San Antonio, TX 78205

 

Telephone Number: (210) 220-4011

 
 
 
 
 

The 401(k) Stock Purchase Plan for Employees of

Cullen/Frost Bankers, Inc. and Its Affiliates

 

Financial Statements

and Supplemental Schedule

 
 

Years Ended December 31, 2002 and 2001

 
 
 
 

Contents

 
   

Report of Independent Auditors

1

   
   

Audited Financial Statements

 
   

Statements of Net Assets Available for Benefits

2

Statements of Changes in Net Assets Available for Benefits

3

Notes to Financial Statements

4

   
   

Supplemental Schedule

 
   
   

Schedule H, Line 4i - Schedule of Assets (Held at End of Year)

10

   
   
   
 
 
 

Report of Independent Auditors

 
 

Compensation and Benefits Committee of the

  The 401(k) Stock Purchase Plan for 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 Employees of Cullen/Frost Bankers, Inc. and Its Affiliates as of December 31, 2002 and 2001, 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 auditing standards generally accepted in the United States. 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, 2002 and 2001, and the changes in its net assets available for benefits for the years then ended, in conformity with accounting principles generally accepted in the United States.

 

Our audits were made for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2002 is presented for purposes of additional analysis and is not a required part of the financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan's management. The supplemental schedule has been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole.

 

/s/ Ernst & Young, LLP

 

San Antonio, Texas

June 24, 2003

 
 
 

 

The 401(k) Stock Purchase Plan for Employees of

Cullen/Frost Bankers, Inc. and Its Affiliates

 

Statements of Net Assets Available for Benefits

 

 

   

December 31

   

2002

   

2001

           

Assets

         

Participant-directed investments, at fair value

$

156,381,865

 

$

157,746,380

Receivables:

         

  Employer contributions

 

195,525

   

268,394

  Participants' contributions

 

250,087

   

337,745

           

Net assets available for benefits

$

156,827,477

 

$

158,352,519

           
           
           

See accompanying notes.

         

 

 

The 401(k) Stock Purchase Plan for Employees of

Cullen/Frost Bankers, Inc. and Its Affiliates

 

Statements of Changes in Net Assets Available for Benefits

 

   

Year Ended December 31

   

2002

   

2001

           
             

Additions to net assets attributed to:

           

  Investment income:

           

    Interest

$

610,937

 

$

1,007,707

 

    Dividends

 

2,744,231

   

1,520,055

 

   

3,355,168

   

2,527,762

 
             

  Contributions:

           

    Employer

 

5,908,639

   

6,244,537

 

    Participants

 

8,033,848

   

8,857,529

 

   

13,942,487

   

15,102,066

 

Total additions

 

17,297,655

   

17,629,828

 
             

Deductions from net assets attributed to:

           

  Net depreciation in fair value of investments

 

1,008,781

   

35,954,506

 

  Benefits paid to participants

 

17,726,082

   

8,185,119

 

  Administrative fees

 

87,834

   

53,299

 

Total deductions

 

18,822,697

   

44,192,924

 

Net decrease

 

(1,525,042

)

 

(26,563,096

)

             

Net assets available for benefits:

           

  Beginning of year

 

158,352,519

   

184,915,615

 

  End of year

$

156,827,477

 

$

158,352,519

 

             
             

See accompanying notes.

           

 

 

The 401(k) Stock Purchase Plan for Employees of

Cullen/Frost Bankers, Inc. and Its Affiliates

 

Notes to Financial Statements

 

December 31, 2002 and 2001

 

1. Significant Accounting Policies

 

The accounting records of The 401(k) Stock Purchase Plan for Employees of Cullen/Frost Bankers, Inc. and Its Affiliates (the Plan) are maintained on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States.

 

The Plan's investments are composed of common stock of Cullen/Frost Bankers, Inc. (CFBI) and various mutual funds, which are stated at fair value based on quoted market prices on the valuation date. Investments in common collective trusts are stated at fair value as determined by the issuer. 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 and loans to participants are valued at cost, which approximates fair value.

 

Purchases and sales of securities are recorded on a trade-date basis. Dividends are recorded on the ex-dividend date. Interest is recorded on the accrual basis.

 

Certain administrative expenses of the Plan are paid by CFBI.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates 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.

 
 
 
 
 

 

 

The 401(k) Stock Purchase Plan for Employees of

Cullen/Frost Bankers, Inc. and Its Affiliates

 

Notes to Financial Statements (continued)

 

December 31, 2002 and 2001

 

2. Description of the Plan (continued)

 

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 consecutive days of service and part-time employees who complete 90 consecutive 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).

 

Contributions and Investment Options

 

Participants may contribute an amount not less than 2% and not exceeding 20% of their compensation, limited by 401(k) regulations, and may direct investments of their accounts into various investment options offered by the Plan. 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 initially invested in the common stock of CFBI. Each participant may elect to direct the investment of the matching contributions into other allowed investment options by electing to make investment transfers after such contributions are allocated to his (her) account.

 

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. Effective January 1, 1999, participants are fully vested in all contributions in their participant accounts. Participants who terminated employment prior to January 1, 1999 are subject to a five-years-of-service requirement for 100% vesting.

 

The 401(k) Stock Purchase Plan for Employees of

Cullen/Frost Bankers, Inc. and Its Affiliates

 

Notes to Financial Statements (continued)

 

December 31, 2002 and 2001

 

2. Description of the Plan (continued)

 

Participant Loans and Withdrawals

 

Participants may borrow from their fund accounts a minimum of $500 up to a maximum of $50,000, reduced by the highest amount of any loan outstanding within the previous twelve months, or 50% of their vested account balance. Loan terms range from 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.

 

Payment of Benefits

 

In the event of death, disability, or retirement, a participant will receive a lump-sum payment equal to the amount of his (her) account in the Plan and all amounts that have been allocated to his (her) plan account. In the event of termination of employment for any other reason, the participant is entitled to the vested portion of his (her) account in the Plan and all vested amounts that have been allocated to his (her) plan account. Terminated participants are required to take a distribution upon reaching normal retirement age (currently 65). Active participants have the option at age 70 1/2 as to whether or not they wish to begin minimum required distributions.

 

Plan Termination

 

Although it has not expressed any present 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 the Plan's termination, participants will become 100% vested in their accounts.

 

The 401(k) Stock Purchase Plan for Employees of

Cullen/Frost Bankers, Inc. and Its Affiliates

 

Notes to Financial Statements (continued)

 

December 31, 2002 and 2001

 

3. Form 5500

 

The following is a reconciliation of the Plan's net assets available for benefits per the financial statements to the amount reported in the Form 5500:

   

December 31

   

2002

   

2001

 

             

Net assets available for benefits per the financial
  statements


$


156,827,477

 


$


158,352,519


Amounts allocated to withdrawing participants

 

(6,689

)

 

(34,781

)

Net assets available for benefits per the Form 5500

$

156,820,788

 

$

158,317,738

 

             
 

The following is a reconciliation of benefits paid to participants per the financial statements to the amount reported in the Form 5500:

 

   

Year Ended December 31

   

2002

   

2001

 

             

Benefits paid to participants per the financial
  statements


$


17,726,082

 


$


8,185,119


Add: Amounts allocated to withdrawing
  participants at the end of the year

 


6,689

   


34,781

 

Less: Amounts allocated to withdrawing
  participants at the end of the prior year

 


(34,781


)

 


(5,021


)

Benefits paid to participants per the Form 5500

$

17,697,990

 

$

8,214,879

 

             
 

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.

 

 

The 401(k) Stock Purchase Plan for Employees of

Cullen/Frost Bankers, Inc. and Its Affiliates

 

Notes to Financial Statements (continued)

 

December 31, 2002 and 2001

 

4. Income Tax Status

 

The Plan has received a determination letter from the IRS dated October 26, 1996, stating that the Plan is qualified under Section 401(a) of the IRC and, therefore, the related trust is exempt from taxation. Subsequent to the issuance of this determination letter, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan administrator believes the Plan is being operated in compliance with the applicable requirements of the IRC and, therefore, believes the Plan, as amended, is qualified and the related trust is tax-exempt.

 

5. Investments

 

The following presents individual investments that represent 5% or more of the Plan's net assets:

   

December 31

   

2002

   

2001

 

             

Cullen/Frost Bankers, Inc. common stock,
  2,975,203 shares and 3,105,713 shares,
  respectively



$



97,325,896

 



$



95,904,490


AIM Liquid Assets Fund (Money Market)

 

11,944,602

   

-

 

Cash Reserves Fund

 

-

   

12,762,182

 

Frost EB Large Cap Core Fund

 

8,385,282

   

10,569,267

 
 
 

The Plan's investments (including gains and losses on investments bought and sold, as well as held during the year) depreciated in value, as follows:

 

   

Year Ended December 31

   

2002

   

2001

 

             

Common collective trusts

$

(6,053,335

)

$

(1,333,858

)

Mutual funds

 

(1,186,642

)

 

(2,180,783

)

Common stock

 

6,231,196

   

(32,439,865

)

             
 

$

(1,008,781

)

$

(35,954,506

)

             

 

The 401(k) Stock Purchase Plan for Employees of

Cullen/Frost Bankers, Inc. and Its Affiliates

 

Notes to Financial Statements (continued)

 

December 31, 2002 and 2001

 

6. Party-In-Interest Transactions

 

Parties-in-interest are defined under Department of Labor regulations as any fiduciary of the Plan, any party rendering services to the Plan, the employer, and certain others. Accordingly, transactions conducted by the Trustee, Frost National Bank, and the Plan administrator, AMVESCAP National Trust Company's retirement services division, and CFBI and its Affiliates, qualify as party-in-interest transactions.

 

Plan assets are held and managed by the Trustee. The Trustee invests cash received, interest and dividend income as directed by the participants of the Plan. The Trustee also makes distributions to participants.

 

Certain administrative functions are performed by employees of CFBI or its Affiliates; however, no such employees receive compensation from the Plan. Certain other administrative expenses are paid directly by CFBI.

 

7. Risk and Uncertainties

 

The Plan provides for various investments in common stock, mutual funds, common collective trusts, and short-term investments. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risk. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of net assets available for benefits and participant account balances.

 

 

 

 

 

 

Supplemental Schedule

 
 
 
 
 
 

The 401(k) Stock Purchase Plan for Employees of

Cullen/Frost Bankers, Inc. and Its Affiliates

EIN: 74-1751768     Plan No.: 003

 

Schedule H, Line 4i - Schedule of Assets (Held at End of Year)

 

December 31, 2002

 


Identity of Issue,
Borrower, Lessor,
or Similar Party

Description of Investment, Including Maturity Date,
Rate of Interest, Collateral,
Par, or Maturity Date

 



Current
Value

       

Common Stock

     

*Cullen/Frost Bankers, Inc.

2,975,203 shares

$

97,325,896

       

*Participant Loans

Interest rates ranging from
4.25% - 9.50%; varying
maturity dates

 



9,711,110

       

Common/Collective Trusts

     

  Inveco Conservative Asset
    Allocation Trust1


5,712 shares

 


110,406

  Invesco Moderate Asset
    Allocation Trust


221,561 shares

 


4,098,887

  Invesco Aggressive Asset
    Allocation Trust


123,987 shares

 


2,082,980

  Invesco 500 Index Trust

226,960 shares

 

4,934,117

*Frost EB Low Duration Fund

26,316 shares

 

530,001

*Frost EB Kempner Deep Value Fund

109,821 shares

 

1,464,425

*Frost EB Fixed Income Fund

378,299 shares

 

4,771,341

*Frost EB Large Cap Core Stock Fund

253,151 shares

 

8,385,282

*Frost EB Small Cap Value Fund

103,437 shares

 

1,228,567

*Frost EB International Stock Fund

543,820 shares

 

3,751,608

     

31,357,614

       
       

 

 

 

The 401(k) Stock Purchase Plan for Employees of

Cullen/Frost Bankers, Inc. and Its Affiliates

EIN: 74-1751768     Plan No.: 003

 

Schedule H, Line 4i - Schedule of Assets (Held at End of Year) (continued)

 

December 31, 2002

 


Identity of Issue,
Borrower, Lessor,
or Similar Party

Description of Investment, Including Maturity Date,
Rate of Interest, Collateral,
Par, or Maturity Date

 



Current
Value

       

Mutual Funds

     

Invesco Dynamics Fund

27,564 shares

$

293,837

AIM Liquid Assets Fund
   (Money Market)


11,944,602 shares

 


11,944,602

American Balanced Fund

53,098 shares

 

765,668

AIM Basic Value Fund

119,265 shares

 

2,607,141

AIM Mid-Cap Core Equity Fund

99,476 shares

 

2,106,906

American AMCAP Fund

20,699 shares

 

269,091

     

17,987,245

       
   

$

156,381,865

       

* Denotes party-in-interest.

     

 

Signatures

 

The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned, hereunto duly authorized.

 
 
 

The 401(k) Stock Purchase Plan for Employees of

 

Cullen/Frost Bankers, Inc. and Its Affiliates

   
   

Date:

June 24, 2003

By:

  /s/ James A. Eckel

 

  Plan Administrator, Plan Chief Executive

  Officer and Plan Chief Financial Officer

 

(Duly Authorized Officer)

 
     
     

 

 

EXHIBIT INDEX

 
 
 
 

Exhibit

Number

Description

   

   23.1

Consent of Independent Auditors

   

   99.1

Section 1350 Certifications