Good morning. My name is Bobby-Joe and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Cullen/Frost Bankers Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the conference over to Mr. Greg Parker, Executive Vice President and Director of Investor Relations. Sir, you may begin.

Thank you. This morning's conference call will be led by Dick Evans, Chairman and CEO and Phil Green, Group Executive Vice President and CFO. Before I turn the call over to Dick and Phil, I need to take a moment to address the Safe Harbor provisions. Some of the remarks made today will constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, as amended. We intend such statements to be covered by the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, as amended. Please see the last page of the text in this morning's earnings release for additional information about the risk factors associated with these forward-looking statements. If needed, a copy of the release is available at our website or by calling the Investor Relations department at 210-220-5632. At this time, I'll turn the call over to Dick Evans.

Thank you, Greg. It is a pleasure to report earnings for our company of $0.93 per diluted common share, a 10.7% increase over the fourth quarter of last year. Return on average assets was 1.65%. Return on equity, 15.18%. Annual earnings for 2007 were $212.1 million or $3.55 per diluted common share, or 9.5% increase over ’06. We are particularly pleased with these results considering Texas aggressive competition during 2007, in loan pricing and structure. Cullen/Frost worked hard to stay true to our standards. We have learned through experiences of over a 140 year history. Today, we have the same management team we had in the 1980s. As we navigate, this current banking environment, our performance affirms the benefits of several strategic decisions that we have, have positioned us well. In 2000 we decided to exit the residential mortgage business. It was our opinion that the industry had lost its relationship focus and become a commoditized business with insufficient profitability. For the same reasons in the past we also exited the in direct lending and credit card businesses. Additionally, last quarter, we moved our company to a more interest rate neutral position, entering into a seven year, $1.2 billion interest rate swap. One strategic focus that remains constant is our commitment to the Frost philosophy, that our outstanding staff practices and who made these strong results for 2007 possible. I thank them for their dedication to taking good care of our customers and by working as a team across all lines of businesses. There were many positive accomplishments in 2007 and I bring your attention to the following. Average loans reached $7.5 billion, an all time high and on a linked quarter period end basis, loans increased $309 million from September of ’07 after a period of flat loan growth.…

Thank you, Phil. We're now happy to entertain any questions you may have. Question and Answer

[Operator Instructions]. And your first question comes from the line of John Pancari.

Hello John. John, we can't hear you, maybe you don’t have your button on or something. Operator, are you there?

Sir, your line is open.

Hi, can you hear me now?

I can hear you now.

Okay. Great. Wanted to see if you can give us a little bit more color on loan growth, specifically by products. Certainly we're seeing this rebound, this quarter off of the sluggishness over the past couple of quarters. So, just give us an idea of where you saw that growth and then how your pipeline looks?

That’s a great question. Let me give you just some feel for it. About $50 million was to municipal utilities. There was, just to give you a whole random, $7 million to a leasing company; there was $2 million… $10 million to an old grocery operation that we have been financing for years; $10 million to a blood bank; $6 million to a hospital; we had about $10 million increased to insurance companies which we have a specialty in financing. We had another couple of about $15 million into municipalities. The municipalities are in our public finance area. We had about $8 million to a fuel additive company. We also had $91 million to permanent mortgage increase, which we are pleased with. Again, remember this is an owner-occupied part of the portfolio. We had about $11 million to a 100-year old company in the agricultural business and $6 million to a technology company. And we did have, those tech companies and that Ag were in shared national credits. They did increase $50 million. And the balance, the majority of it is in the energy, oil and gas, production credits. Our shared national credits did go up to $411 million. We still are running, about 63% of those credits are in energy credits. We have found, as you would expect with these high energy prices, it takes a lot more dollars to just finance the same kind of borrowers.

And what was the shared national credit balance last quarter?

We are up about… let’s see here. Phillip D. Green - Group Executive Vice President & Chief Financial Officer: Last quarter it was period-end, $363 million.

Okay. So it’s increased $363 million to $411 million? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: Yes.

Okay.

And let me just make one other comment and let Phil comment on that, for the year I think one of the things that our construction loans, this for the year, decreased $89 million. We did see a good increase of a little over $200 million in permanent mortgages which has been a focus of our company. Again, we think that is the best place to be, is to finance the working capital for our company as well as the building. And we have worked diligently on land loans throughout the year, and in fact had about $10 million decrease in that overall portfolio. Phil, you have something--? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: Yes, John I’ll just give a little bit of a summary and then maybe a little more granularity in terms of the location of the loans. On a linked quarter basis period-end, commercial and industrial loans were up $221 million. So that’s where the lion’s share of it came. Real estate loans were up by $86 million, but included in that commercial real estate mortgages were up by $91 million. So I think you can get a feel for where the growth was in the portfolio. Construction loans were actually down $32 million in the quarter. If you look at where the growth came from by market, we had a couple of markets that were flat for the quarter. Our Valley region was flat, Fort Worth market was flat. But if you look at the other markets, Austin was up 5%, Corpus Christi up 6%, Dallas up 7.5%, Houston was up 8%, San Antonio up 7%. I think you can see we had pretty good growth across the board in terms of our markets loan portfolio.

John, just to add one other comment on shared national credits, of the $49 million increase, $37 million was energy and $5 million was in the spirits business which is typical that that increases at year end, around the holiday season. So that will come back down.

Okay. Alright, great. And just a little bit on your pipeline?

Overall our pipeline, really looks good. For a year, our calls were up 14%, our pipeline is up 22% for the year. We booked new loan commitments, they were up 29% or $814 million compared to the previous year. And in the fourth quarter, our new commitments were over $1 billion, it’s a new record for us in that regard. And that is in this competitive market. As I have shared with you before, for the year, we lost $661 million due to pricing, we lost $477 million due to structure. That’s over $1 billion. But we stayed strong about keeping our standards related to pricing and structure. And I would you that it’s harder to take prospects away from competition. For those companies that we were trying to take, we lost… $332 million stayed with the incumbent [ph]. And so, while we’re out hustling, it’s still harder. That’s one of the reasons why I think it’s so important that the processes that I talked about in the 25,000 plus prospects, are focusing on customers that again appreciate Frost relationship style banking. That is the way that we have addressed this very competitive market and again stand by our standards at keeping quality strong in the structure of loans.

And then just around the loan growth, just given that you compete directly with some of the larger money center players that have exposure outside of the States, are you seeing an opportunity to add to your lending share as some of these larger players kind of turn off the spigot as credit begins to really hit their income statements across the US?

I hope that will happen in 2008. As of recently, it’s still competitive but certainly logically, we should have some opportunities, which is typical. As you properly said, the larger banks have a tendency to open the spigot wide open or shut it off whereas our focus is always on quality relationships and is built around the people rather than the particular area.

Okay. All right, thank you very much.

Thanks John.

Your next question comes from the line of Brent Christ.

Good morning, guys. Phillip D. Green - Group Executive Vice President & Chief Financial Officer: Good morning.

A couple of questions. I appreciate the color on the home construction and retail strip center portfolios. Could you give us a little bit of a sense of kind of some of the underlying trends you are seeing, whether it be vacancy or rental rates in the strip center portfolio or just on new home starts or absorption rates in the construction portfolio, in terms of kind of, early indicators from a credit prospective?

Let me take the last part. I think the key word in regarding strip centers is what I said about watching. We really haven’t seen the deterioration there. We are focused to be sure they have anchored tenants. And as you drive around the country, and as I drive around the state and look, it’s the centers that don’t have a big anchor that we have stayed away from, and that’s where I think the biggest risk is going to be. As far as any specifics, we haven’t seen, thank goodness, any problems in that regard, and as I told you, we do require pre-leasing and guarantee. So I just think it’s an area that you’ve got to watch. Now moving to home builders, we have really scrubbed our portfolio from one end to the other. And just to give some specifics, our total non-performers were up from $26.3 million in the third quarter to $29.8 million in the fourth quarter. $4.4 million of that was to home builders, was an increase, non-performers were home builders, that’s less than 1% of our exposure. So we are sliced in the cheese pretty thin. But I think it’s important to watch that. And as we look at our potential problems, they increased from $14 million to $30 million. And there were $7 million to builders in that group, and $1.4 million to developers. But over 50%, 51% was to CAN. So, I think we're early in the cycle to start trying to identify a trend, but we want to be early in the cycle of identifying these problems and working them early. We did foreclose on, I think it’s about $2 million of a builder on January the 1. That happened to be the first Tuesday and we sold a couple of…

Got you. And kind of, in light of that backdrop, I mean it certainly sounds better than what we are hearing from banks and other markets, you guys have been matching your provision with charge-offs over the past couple of quarters, I think excluding the student lending relationship last quarter and have seen your…

Don’t worry, that isn’t there.

Right.

We have already provided, it was a dormitory [ph]…

And then seeing the reserve come down a little bit, how are you guys kind of thinking about the provisioning relative to charge-offs going forward with still kind of a relatively positive outlook for credit quality?

Well, as you know that’s driven by formula, and we forget about where our reserve is today, our allowance and as you have watched our history of providing… if we got a problem, we are going to address it. And so I think you have got to just look at it each quarter and see where you are. Let me make one correction on the inventories of existing home sales. Texas has 6 months, not 8 months and the US is a little over 10 months. This is the latest statistics I have.

Well, thanks a lot. I will let some others hop on.

Thank you.

Your next question comes from the line of Andrea Jao. Andrea Jao – Lehman Brothers: Good morning, everyone.

Good morning, Andrea. Andrea Jao – Lehman Brothers: I was hoping to talk a bit more of the margin drivers. So I imagine the portion in your loan book that isn’t hedged, the yields are coming down. And are they coming down faster than that same market funding. What does it imply for 2008? I imagine low cost deposits are still migrating to higher cost deposits. Do you see that growing into 2008, and again what does it imply? And do you have the ability to reinvest cash flows from your securities book at higher yield? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: Well, Andrea, this is Phil, you kind of laid a relative broad spectrum out there. I would just say that… well how do I do this… I think that you asked in one part of your question about other things equal not considering the interest rate swap position. And yes, without that swap, we would be in the same position we would be in, which would be, we’ll fight reductions in interest rates really with four different weapons. And those weapons are… would loan continue to be there or would it not be there in the economy, because higher loan growth can help your margin? Two, is there any pricing power in your deposit portfolio? Are you such compared to the different competitors in the marketplace that you will be more able to recognize reductions that happened in the general market through the fed in your deposit pricing portfolio? The third thing is, are you able to add duration to your balance sheet because of any liquidity that you’ve got built up in there and dry powder that you have? And then the fourth thing would be sort of a non-interest related…

Andrea, I’ll just add one intangible. Through our history, we have been fortunate to be a flight to quality. And people that understand the weakness in the financial organizations and understand why they have to pay a higher price, appreciate the quality of our organization and that is a benefit to us. Obviously, an intangible and hard to measure. Andrea Jao – Lehman Brothers: Great. And then, if I may just follow-up with questions on seasonality in terms of fee income and expenses. So insurance should be seasonally strong in the first quarter and service charges pull in. Is that something that we can expect? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: I would say service… definitely insurance should be seasonally strong. That is our strongest quarter, as I recall. And the… on the service charges, I think you should see some growth there as earnings credit rates go down. If there was a negative in there, I think you typically see overdrafts reduce a little bit after the end of the year. So, that might be a little bit of a… out a little pressure on it, but that’s a seasonal factor. Andrea Jao – Lehman Brothers: Okay. And how much of a seasonal do you expect on the expense side? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: I would say that the thing that you typically see is a big jump up in the benefits costs area for us because we've got to meet that FICO level for payroll taxes and those typically bump up. We had such great experience this year with the medical costs and workmen’s compensation, it’s hard to predict that would still be there at the same level next year. And so I think you’ll see some increase there as well, maybe over and above what you typically might see, I’m just talking off the top of my head here but I think you could probably see that trend. I think another thing to keep in mind next year is that, is the FDIC assessment is kicking in for banks, and our credit will last through the first two quarters of next year, I think we estimate. And then we’ll see that cost on FDIC kick in. So that is not going to be transparent in the third or fourth quarter. So that would be a factor that you would need to be aware of. Andrea Jao – Lehman Brothers: Okay. But that’s not until the first half of ’09? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: No, that’s in the second half of ’08. Andrea Jao – Lehman Brothers: ’08. Okay. Perfect. Thank you so much. Phillip D. Green - Group Executive Vice President & Chief Financial Officer: Welcome.

[Operator Instructions]. Your next question comes from the line of Martin J. Martin, your line is open.

Hello. Phillip D. Green - Group Executive Vice President & Chief Financial Officer: Hello, hello.

Hi. Sorry about that. My question is on the swap. I just wonder… we have this cut 75 basis points coming up, maybe a little bit more, a little bit less. I just wonder what the swap structure where the structure… I mean, the swap itself will commanded this type of a shock in terms of the movement of the rate? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: Okay. Well it’s a fairly straightforward math really. Under the swap structure we pay… we pay floating rate prime and we receive 7.559%. And so that’s the fixed side of it. So anytime the rates go down… and the swap is $1.2 billion.

Right. Phillip D. Green - Group Executive Vice President & Chief Financial Officer: So, anytime you see prime go down, you could look at the difference, you can basically compute that difference on $1.2 billion position.

I see. So, the size of each cut doesn’t really matter? Phillip D. Green - Group Executive Vice President & Chief Financial Officer: No. I mean it is very linear.

I see. Okay. Thanks.

And your next question comes from the line of Jefferson Harralson. Jefferson Harralson - Keefe, Bruyette & Woods: Hi. Thanks guys. When does the swap expire?

It’s a seven year position. It started on October 23rd. So I think it is three months old today. Jefferson Harralson - Keefe, Bruyette & Woods: All right. Thanks a lot.

[Operator Instructions]. And at this time there are no further questions.

Okay. Thank you for your continued support and we will continue to work hard to produce good results and continue to grow this company. We stand adjourned.

That does conclude today’s Cullen/Frost Bankers fourth quarter earnings call. You may now disconnect.