Operating Segments

12 Months Ended

Dec. 31, 2015

Segment Reporting [Abstract]

Operating Segments

Operating Segments

We are managed under a matrix organizational structure whereby our two primary operating segments, Banking and Frost Wealth Advisors, overlap a regional reporting structure. The regions are primarily based upon geographic location and include Austin, Corpus Christi, Dallas, Fort Worth, Houston, Permian Basin, Rio Grande Valley, San Antonio and Statewide. We are primarily managed based on the line of business structure. In that regard, all regions have the same lines of business, which have the same product and service offerings, have similar types and classes of customers and utilize similar service delivery methods. Pricing guidelines for products and services are the same across all regions. The regional reporting structure is primarily a means to scale the lines of business to provide a local, community focus for customer relations and business development.

Banking and Frost Wealth Advisors are delineated by the products and services that each segment offers. The Banking operating segment includes both commercial and consumer banking services, Frost Insurance Agency and Frost Securities. Commercial banking services are provided to corporations and other business clients and include a wide array of lending and cash management products. Consumer banking services include direct lending and depository services. Frost Insurance Agency provides insurance brokerage services to individuals and businesses covering corporate and personal property and casualty products, as well as group health and life insurance products and human resources consulting services. Prior to June 30, 2015, Frost Securities, Inc. provided advisory and private equity services to middle market companies. The operations of Frost Securities were discontinued and the entity was closed effective June 30, 2015. The Frost Wealth Advisors operating segment includes fee-based services within private trust, retirement services, and financial management services, including personal wealth management and securities brokerage services. A third operating segment, Non-Banks, is for the most part the parent holding company, as well as certain other insignificant non-bank subsidiaries of the parent that, for the most part, have little or no activity. The parent company’s principal activities include the direct and indirect ownership of our banking and non-banking subsidiaries and the issuance of debt and equity. Our principal source of revenue is dividends from our subsidiaries.

The accounting policies of each reportable segment are the same as those of our consolidated entity except for the following items, which impact the Banking and Frost Wealth Advisors segments: (i) expenses for consolidated back-office operations and general overhead-type expenses such as executive administration, accounting and internal audit are allocated to operating segments based on estimated uses of those services, (ii) income tax expense for the individual segments is calculated essentially at the statutory rate, and (iii) the parent company records the tax expense or benefit necessary to reconcile to the consolidated total.

We use a match-funded transfer pricing process to assess operating segment performance. The process helps us to (i) identify the cost or opportunity value of funds within each business segment, (ii) measure the profitability of a particular business segment by relating appropriate costs to revenues, (iii) evaluate each business segment in a manner consistent with its economic impact on consolidated earnings, and (iv) enhance asset and liability pricing decisions.

Financial results by operating segment are detailed below. Certain prior period amounts have been reclassified to conform to the current presentation.

	Banking		Frost Wealth Advisors			Non-Banks			Consolidated
2015
Net interest income (expense)	$	732,671	$	7,634		$	(3,673	)	$	736,632
Provision for loan losses	51,848		(3		)	—			51,845
Non-interest income	205,606		121,489			1,635			328,730
Non-interest expense	589,394		98,405			5,919			693,718
Income (loss) before income taxes	297,035		30,721			(7,957		)	319,799
Income tax expense (benefit)	34,997		10,753			(5,279		)	40,471
Net income (loss)	262,038		19,968			(2,678		)	279,328
Preferred stock dividends	—		—			8,063			8,063
Net income (loss) available to common shareholders	$	262,038	$	19,968		$	(10,741	)	$	271,265
Revenues from (expenses to) external customers	$	938,277	$	129,123		$	(2,038	)	$	1,065,362
Average assets (in millions)(1)	$	28,024	$	36		$	2		$	28,062
2014
Net interest income (expense)	$	683,579	$	6,734		$	(3,379	)	$	686,934
Provision for loan losses	16,312		2			—			16,314
Non-interest income	193,883		122,261			4,000			320,144
Non-interest expense	549,812		96,330			8,598			654,740
Income (loss) before income taxes	311,338		32,663			(7,977		)	336,024
Income tax expense (benefit)	51,881		11,431			(5,265		)	58,047
Net income (loss)	259,457		21,232			(2,712		)	277,977
Preferred stock dividends	—		—			8,063			8,063
Net income (loss) available to common shareholders	$	259,457	$	21,232		$	(10,775	)	$	269,914
Revenues from (expenses to) external customers	$	877,462	$	128,995		$	621		$	1,007,078
Average assets (in millions)(1)	$	25,734	$	32		$	2		$	25,768
2013
Net interest income (expense)	$	621,333	$	6,586		$	(7,364	)	$	620,555
Provision for loan losses	20,585		(3		)	—			20,582
Non-interest income	190,767		107,759			4,292			302,818
Non-interest expense	513,909		90,132			7,869			611,910
Income (loss) before income taxes	277,606		24,216			(10,941		)	290,881
Income tax expense (benefit)	50,823		8,563			(6,371		)	53,015
Net income (loss)	$	226,783	$	15,653		$	(4,570	)	$	237,866
Preferred stock dividends	$	—	$	—		$	6,719		$	6,719
Net income (loss) available to common shareholders	$	226,783	$	15,653		$	(11,289	)	$	231,147
Revenues from (expenses to) external customers	$	812,100	$	114,345		$	(3,072	)	$	923,373
Average assets (in millions)(1)	$	22,709	$	31		$	12		$	22,752

(1) Frost Wealth Advisors excludes off balance sheet managed and custody assets with a total fair value of $30.7 billion, $30.5 billion and $29.0 billion at December 31, 2015, 2014 and 2013.