For Cullen/Frost Bankers Inc., mere survival is no longer enough.

The $3.5 billion-asset holding company became well-known as the only large commercial bank in Texas to remain independent. It has weathered an environment that devastated its local competition, opening the door for larger, superregional rivals.

Cullen/Frost, once again in the black, now must butt heads with an army of out-of-state giants, including Chemical Banking Corp., NationsBank Corp., Banc One Corp., and Bank- America Corp.

But the San Antonio-based company has some cards left to play. Correspondent banking is one. Working primarily through its lead bank, Frost National Bank, it is the dominant provider of correspondent services to community banks in southwest Texas. It processes an average of 20 million to 30 million checks monthly for more than 300 institutions.

When vying for correspondent business in Texas, "the fact that we're still here bodes us well," said Cliff McCauley, a senior vice president at Frost. "We've had continuity."

That stability has kept Frost in the middle of the banking food chain, focused on providing check processing, cash management, and credit services to its clients, while maintaining upstream relationships with banks in New York, Philadelphia, and Chicago.

Now Cullen/Frost is attempting to increase its correspondent business, beginning with efforts to leverage a presence it has had in Dallas for more than a decade. "North of Austin and Waco, items tend to flow towards Dallas," said Mr. McCauley. "So we're expanding the item processing operation, with the emphasis on correspondent banking."

The Frost back office in Dallas is in a prime location that has become a major check processing hub. The bank's check processing center is across the street from the clearing house and two blocks from the Federal Reserve Bank of Dallas, which handles an average of 4.5 million items daily. It also is a short drive from the Love Field airport, making it convenient for air-courier service.

At the same time, though, Cullen/Frost is leaving the Dallas consumer banking market, having swapped its $164 million-asset unit there for a Corpus Christi bank owned by Texas Commerce Bank, a unit of Chemical.

The lack of a banking presence in Dallas and other markets it is attempting to penetrate actually may work to Cullen/Frost's advantage. Community bankers typically are loath to engage in a correspondent relationship with a potential competitor.

From the operations center it will retain in Dallas, Cullen/ Frost likely will be bumping up against those large banks more frequently, as it concentrates on its correspondent services. There are a number of other players involved in various portions of the business as well, including the Federal Reserve, the Federal Home Loan Bank System, and nonbank, third-party providers.

The influx of new blood in Texas banking also brought some changes to correspondent banking business in the state. Previously, "we were still coming out of a unit banking environment," noted Fred Redeker, president and chief executive of the Dallas-based Clearing House Association of the Southwest.

The clearing house was formed in January 1992, superseding a number of smaller organizations.

The new clearing house arrangement offered Frost the opportunity to expand its range of services and extend its geographic reach even farther.

Banks outside the 11th Federal Reserve District, for example, can now send clearing house members checks drawn on any member bank and receive immediate credit.

Frost was the first to market the service after the clearing house was operational. Now, "all of our member banks offer it," said Mr. Redeker. "It's a neat product to mention to prospective customers."

Over the past year, the number of correspondent checks Frost processes in Dallas has grown from a monthly average of 1.2 million to 3 million. Pricing for the check processing services is tiered based on the level of service provided and the overall extent of the correspondent relationship.

Another unforeseen benefit was last year's demise of Houston-based First City Bancorp. Cullen/Frost acquired First City's Austin bank, and along with it, additional correspondent business.

Frost also hired Jerry Crutsinger, who headed correspondent banking at First City, to manage the Dallas operations. He has overseen the addition of correspondent relationships in Louisiana, New Mexico, and Oklahoma.

And, with two International Business Machines Corp. 3890 reader/sorters installed in Dallas, there is capacity to boost the check processing business further still.

Nor has Cullen/Frost given new types of check processing technology short shrift. It offers statement imaging to its own retail customers - the bank is weighing whether to offer it as a correspondent service - and has experimented with other technologies, such as proof-of-deposit imaging and electronic check presentment.

"Dallas is the clearing hub of the Southwest, so we have to compete pricewise, servicewise, and availabilitywise," Mr. McCauley said. Keeping current with the technology, he added, is part of remaining competitive.

But, said Mr. Crutsinger, "we're not going after the business as a wholesale provider of check processing services," but as a component of a broader correspondent relationship.

In that regard, Cullen/Frost's relatively small size and geographic proximity offers some benefits to its correspondent banks. Typically, Mr. McCauley said, a single Frost relationship manager oversees all aspects of a relationship.

"When you look at the competition, they're driven by a corporate headquarters," he said. "And they're so large, if there's a special request, they have to hand the ball off to a specialist somewhere else within the corporation."

Mr. McCauley likens Cullen/ Frost's offerings to "a tailor-made product," including safekeeping, letters of credit, and whatever transaction-oriented services are needed.

So far, this relationship-driven philosophy seems to be winning customers in the Lone Star State and beyond. It also is an indication that Frost has little intention of resting on its reputation as a survivor.

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