UPDATE 2-Cullen/Frost Q2 profit falls 2 pct

(Recasts, adds details, updates share movement)

July 23 (Reuters) - Cullen/Frost Bankers Inc (CFR.N), a financial holding company, reported a 2 percent drop in quarterly profit, weighed down by a patent litigation settlement expense and higher provision for loan losses, sending its shares down as much as 5 percent.

The San Antonio, Texas-based company said second-quarter net income was $52.5 million, or 89 cents a share, compared with $53.6 million, or 89 cents a share, in the year-ago period.

Analysts expected the company to earn 89 cents a share, according to Reuters Estimates.

The company said it benefited from the strong economy in Texas, where it operates.

"We are mindful of the challenges of the current business environment, as we saw an increase in the provision for possible loan losses from the same quarter a year ago," Chief Executive Dick Evans said.

Provision for loan losses more than doubled to $6.3 million, while net interest income, on a taxable-equivalent basis, rose 2 percent to $136.2 million in the quarter.

Expense related to the litigation settlement was $700,000.

Shares of the company were down 3 percent at $52.40 in afternoon trade on the New York Stock Exchange. The stock had touched a low of $51.26 earlier. (Reporting by Sweta Singh in Bangalore; Editing by Deepak Kannan)