CULLEN / FROST BANKERS,INC. One of the key factors in the stability and strength of our company is a high level of liquidity in comparison to our peer banks. This is a safe place for depositors, and we have money to lend. Our asset quality is strong, with net charge-offs averaging a low 0.20 percent of average loans in 2004. Credit quality has also improved, as non-performing assets dropped 25.9 percent from 2003, resulting in lower credit costs. Over the past few years, we’ve seen a number of banks expand operations into the state and jump on the Texas bandwagon, and we welcome the challenge com- petition brings. It’s been interesting to see other banks come to understand what we have always known—that this is a great state in which to do business. With a pop- ulation of 21.3 million, Texas ranks second among U.S. states. In fact, from 1990 to 2000, our population grew 22.8 percent, compared to U.S. population growth of 13.2 percent. We have chosen to operate in Texas markets that represent 70 percent of the state’s popu- lation, including three of the 10 largest cities in the U.S. The Texas economy, which would rank 8th in the world if it were a separate nation, is expected to once again outpace the nation, and the future looks bright. It’s not our style to boast, but since this annual letter gives me a forum for sharing my thoughts, I would like to tell you what makes Cullen/Frost special.  This is a company with a strong sense of where we’ve been, and also a clear vision of where we’re going. What started out as a small storefront business in down- town San Antonio in 1868 has grown into a $10 billion financial services corporation that’s not only survived, but prospered, for 137 years. Through the centuries, we have never lost touch with the values and philosophy And to you, our loyal shareholders, I say thank you for the continued confidence and faith you place in our company. We have some of the best customers any company could want—individuals and businesses who see us as financial partners in their journey—and we are committed to adding value to these relationships. Now more than ever, our Board of Directors has been outstanding as we navigate the new regulatory environment. Their insight and support have been invaluable to me personally, and to the company.  exceptional staff, whose dedication, focus and belief in the values that built this company are an inspiration. They bring the Frost Philosophy to life every day and make our success possible.  that brought us this far. With these values as a founda- tion, we have built a company with a clear sense of both history and purpose.  I continue to be moved and impressed by the quiet strengths of our people—living our philosophy, embody- ing our core values of integrity, caring and excellence, and sharing the value of relationship banking with our customers. I extend my deepest appreciation to our DICK EVANS CHAIRMAN AND CHIEF EXECUTIVE OFFICER PAGE 4 Lick, Eo Sincerely, “This is a company with a strong sense of where we’ve been, and also a clear vision of where we’re going.”