Bill PerottiGroup Executive Vice President, Chief Risk Officer & Chief Credit OfficerFrost March 26, 2009

What Is On Your Banker’s Mind?

OrHas Your Banker Lost His Mind?

Cullen/Frost Bankers, Inc. is a financial holding company, Cullen/Frost Bankers, Inc. is a financial holding company, headquartered in San Antonio, with assets in excess of $15 headquartered in San Antonio, with assets in excess of $15 billion at December 31, 2008. Frost operates more than 100 billion at December 31, 2008. Frost operates more than 100 financial centers across Texas. The corporation provides a full financial centers across Texas. The corporation provides a full range of business and consumer banking products, investment range of business and consumer banking products, investment and brokerage services, insurance products and investment and brokerage services, insurance products and investment banking services.banking services.

Founded in 1868, Frost Bank is the largest independent bank Founded in 1868, Frost Bank is the largest independent bank in Texas, helping Texans with their financial needs during in Texas, helping Texans with their financial needs during three centuries. Cullen/Frost Bankers' stock is traded on the three centuries. Cullen/Frost Bankers' stock is traded on the New York Stock Exchange under the symbol CFRNew York Stock Exchange under the symbol CFR..

BBanking Todayanking Today

BBankers Concernsankers Concerns

WWhat Do Bankers Want to Know?hat Do Bankers Want to Know?

Credit Requests:Credit Requests: What to ExpectWhat to Expect

WWhat Can You Do?hat Can You Do?

AAttributes of a Desirable Relationshipttributes of a Desirable Relationship

BBanking Todayanking Today

BBankers Concernsankers Concerns

WWhat Do Bankers Want to Know?hat Do Bankers Want to Know?

Credit Requests:Credit Requests: What To ExpectWhat To Expect

WWhat Can You Do?hat Can You Do?

AAttributes of a Desirable Relationshipttributes of a Desirable Relationship

Regulated Banking:

"Three 6 Three Banking""Three 6 Three Banking"

Deregulated Banking:

"Life In The Fast Lane"

Deregulated Banking:

"Life In The Fast Lane"

"Take It Easy"

Deregulated Banking:

"Life In The Fast Lane"

"Get Over It"

"Take It Easy"

Deregulated Banking:

"Life In The Fast Lane"

"Get Over It"

"Take It Easy"

"Take It To The Limit"

Capitalism on Steroids:

No

Verifications

No

Testing

No

Blueprints

No Proto-Types

Capitalism on Steroids:

No Comprehensive

Oversight

No

Verifications

No

Testing

No

Blueprints

No Proto-Types

What Happened:

● Perverse Reward Structure

What Happened:

● Perverse Reward Structure ● Business Development without Balance● Focus on Things, not People● Stock Market Allegiance● Not Enough Questioning

What is a Bank?

bank:bank: 1. A monetary institution used to 1. A monetary institution used to receive, exchange, lend receive, exchange, lend and safeguard assets.and safeguard assets.

What is a Bank?

bank:bank: 2. A long pile or heap.2. A long pile or heap.

MorganStanley

LEHMAN BROTHERS

What is a Bank?

Three Types of Bankers have Emerged:

● Community/Regional Bankers

Three Types of Bankers have Emerged:

● Community/Regional Bankers● Mega Bankers

Three Types of Bankers have Emerged:

● Community/Regional Bankers● Mega Bankers● Investment Bankers

Industry Focus Today

Return to Basics

Industry Focus TodayP

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Return to Basics

Industry Focus Today

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Industry Focus Today

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Industry Focus Today

Gov

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Rep

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Sta

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Pro

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Industry Focus Today

Gov

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Rep

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Return to Basics

Confidence

Industry Goal Today

● Bring Back the Fundamentals and

Restore Balance

Industry Goal

● Restore Balance

Meet CustomerNeeds

Industry Goal

● Restore Balance

Meet CustomerNeeds

Protect Depositors

Industry Goal

● Restore Balance

Meet CustomerNeeds

Provide a FairReturn

Protect Depositors

Industry Goal

● Restore Balance

Protect Depositors

Meet CustomerNeeds

Provide a FairReturn

Support LocalCommunities

BBanking Todayanking Today

BBankers Concernsankers Concerns

WWhat Do Bankers Want to Know?hat Do Bankers Want to Know?

Credit Requests:Credit Requests: What to ExpectWhat to Expect

WWhat Can You Do?hat Can You Do?

AAttributes of a Desirable Relationshipttributes of a Desirable Relationship

Bankers Concerns● Unknowns● High Debt Levels

Bankers Concerns● Unknowns● High Debt Levels● Management Team’s Depth and

Experience

Bankers Concerns● Unknowns● High Debt Levels● Management Team’s Depth and

Experience● High Execution Risk● Lack of Alternative

Sources/Contingency Plans

BBanking Todayanking Today

BBankers Concernsankers Concerns

WWhat Do Bankers Want to Know?hat Do Bankers Want to Know?

Credit Requests:Credit Requests: What to ExpectWhat to Expect

WWhat Can You Do?hat Can You Do?

AAttributes of a Desirable Relationshipttributes of a Desirable Relationship

What Do Bankers Want to Know?1. Where Do You Want to Go?

1. Business Plan

What Do Bankers Want to Know?

2. How Are You Going to Get There?

1. Where Do You Want to Go?

2. Specific Purpose

1. Business Plan

What Do Bankers Want to Know?

2. How Are You Going to Get There?

1. Where Do You Want to Go?

3. What Keeps You Up at Night?

2. Specific Purpose

1. Business Plan

What Do Bankers Want to Know?

2. How Are You Going to Get There?

1. Where Do You Want to Go?

3. What Keeps You Up at Night?

2. Specific Purpose

1. Business Plan

3. Outlook for Company

What Do Bankers Want to Know?

4. What Do You Monitor/Inspect?

2. How Are You Going to Get There?

1. Where Do You Want to Go?

3. What Keeps You Up at Night?

4. Detailed Financial Information

2. Specific Purpose

1. Business Plan

3. Outlook for Company

What Do Bankers Want to Know?

4. What Do You Monitor/Inspect?

2. How Are You Going to Get There?

1. Where Do You Want to Go?

5. Can A Relationship Be Developed?

3. What Keeps You Up at Night?

4. Detailed Financial Information

2. Specific Purpose

1. Business Plan

3. Outlook for Company

What Do Bankers Want to Know?

4. What Do You Monitor/Inspect?

2. How Are You Going to Get There?

1. Where Do You Want to Go?

5. Can A Relationship Be Developed?

3. What Keeps You Up at Night?

4. Detailed Financial Information

2. Specific Purpose

1. Business Plan

5. Looking for a Partner ora “Rate Shopper”

3. Outlook for Company

BBanking Todayanking Today

BBankers Concernsankers Concerns

WWhat Do Bankers Want to Know?hat Do Bankers Want to Know?

Credit Requests:Credit Requests: What to ExpectWhat to Expect

WWhat Can You Do?hat Can You Do?

AAttributes of a Desirable Relationshipttributes of a Desirable Relationship

Credit Requests: What to ExpectCredit Requests: What to Expect

● Equity● Guarantees/Strong Supportive

Sponsor

Credit Requests: What to ExpectCredit Requests: What to Expect

● Equity● Guarantees/Strong Supportive

Sponsor● Appraisals● Interest Rates - Fair Return● More Questions

BBanking Todayanking Today

BBankers Concernsankers Concerns

WWhat Do Bankers Want to Know?hat Do Bankers Want to Know?

Credit Requests:Credit Requests: What to ExpectWhat to Expect

WWhat Can You Do?hat Can You Do?

AAttributes of a Desirable Relationshipttributes of a Desirable Relationship

What Can You Do?What Can You Do?● Educate the Banker● Ensure That Surprises Are Kept to a

Minimum● Provide Prompt and Accurate Financial

Information

What Can You Do?What Can You Do?● Educate the Banker● Ensure That Surprises Are Kept to a

Minimum● Provide Prompt and Accurate Financial

Information● Communicate Regularly

What Can You Do?What Can You Do?● Educate the Banker● Ensure That Surprises Are Kept to a

Minimum● Provide Prompt and Accurate Financial

Information● Communicate Regularly● Understand Your Banker’s Organization

What Can You Do?What Can You Do?● Educate the Banker● Ensure That Surprises Are Kept to a

Minimum● Provide Prompt and Accurate Financial

Information● Communicate Regularly● Understand Your Banker’s Organization● Make Sure the Decision Makers Are

Involved

BBanking Todayanking Today

BBankers Concernsankers Concerns

WWhat Do Bankers Want to Know?hat Do Bankers Want to Know?

Credit Requests:Credit Requests: What to ExpectWhat to Expect

WWhat Can You Do?hat Can You Do?

AAttributes of a Desirable Relationshipttributes of a Desirable Relationship

Top Ten Attributes of aDesirable Relationship

1. Do What Is Right

2. Realize That It Takes Time and Effort to Develop a Relationship

3. Keep All Channels of Communication Open

4. Deliver Bad News Face to Face

5. Make Deliberate Efforts to Understand Needs and Values

6. Give Timely and Well-Considered Responses

7. Provide Continuity Through the Longevity of Management

8. Strive to Exceed Expectations

9. Refer Additional Business

10. Remain Committed to a Relationship When Difficulties Occur

Top Ten Attributes of aDesirable Relationship

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