ANNUAL REPORT 2004 family, as it reinforces our commitment to building a first-class, statewide insurance brokerage operation. We now offer a full range of insurance services in the major Texas markets. I’ve heard Cullen/Frost described as a company for the long term, and I agree with that assessment. Almost every major decision we make is evaluated and exam- ined not only for its impact on the short term, but how it will affect our company—and our brand—over an extended period of time. Historically, our company has found balance in managing expenses, while at the same time investing for future growth, and that was certainly the case in 2004. We continue to invest in opportunities that will help us make this company better and stronger. One of the investments we’ve made in the past few years is in building an infrastructure for delivering a high-quality online banking experience. During 2004, we brought our bill pay system in-house, which allows us to better take care of our customers. We have seen continued growth in both consumer and business cus- tomers wanting to do business with us through the As I mentioned earlier, loans reached their highest level ever in 2004, ending the year at $5.2 billion. On the business side, a combination of an improving economy and strong sales activity resulted in higher volumes, with commercial and industrial loans increas- ing 14.3 percent over 2003. More than 50 percent of Deposits grew to $8.1 billion for the year, in part because of the sales discipline and a strong sales effort. Also contributing to growth in deposits was the intro- duction, late in 2003, of a new consumer checking product line that included a free checking account.  As a result of the sales discipline we’ve introduced throughout our company, which I mentioned earlier, we saw good growth in both our deposits and in commercial and consumer loans last year.  few months of 2005, we will open a new state-of-the-art processing center in Houston that will double the size of our existing facility. It will also increase our capacity to provide lockbox and processing services to commercial clients and meet the needs of our correspondent banking clients in that part of the state.  Internet, with 47 percent of our checking account cus- tomers signing up for our online banking service. This service allows us to deepen and lengthen customer relation- ships, and we have seen a high level of both satisfaction and retention with our online banking customers, especially those who use bill pay.  During the year, we also invested in technology in preparation for Check 21, which will eventually change the way checks are processed for payment. We have an unusually strong item processing business—rare for a $10 billion bank—supported with processing operations in Dallas, Houston and San Antonio. Within the first We saw a 19.2 percent increase in core consumer lending—excluding indirect auto loans and mortgage loans for one- to four-family homes, which we no longer offer, as well as student loans, which are primarily origi- nated for resale. Home equity loans and lines of credit now represent one-third of our consumer loan portfolio, reflecting an outstanding sales and referral effort among our consumer bankers. At the same time, we realigned our loan operations area to allow for and support this growth. new loan commitments comes from our core relationship managers, whose focus and determined sales effort has resulted in outstanding performance for the year.  PAGE 3 “I’ve heard Cullen/Frost described as a company for the long term, and I agree with that assessment.”