Profit Sharing Plans. Prior to 2019, we maintained a qualified defined contribution profit sharing plan that covered employees who had completed at least one year of service and were age 21 or older. The Plan was merged with and into our 401(k) plan effective January 1, 2019, as further discussed below. Expense related to this plan totaled $11.9 million in 2018 and $11.6 million in 2017.

We continue to maintain a separate non-qualified profit sharing plan for certain employees whose participation in the qualified profit sharing plan was limited. The plan offers such employees an alternative means of receiving comparable benefits. Expense related to this plan totaled $930 thousand in 2019, $568 thousand in 2018 and $1.1 million in 2017.

Retirement Plan and Restoration Plan. We maintain a non-contributory defined benefit plan (the “Retirement Plan”) that was frozen as of December 31, 2001. The plan provides pension and death benefits to substantially all employees who were at least 21 years of age and had completed at least one year of service prior to December 31, 2001. Defined benefits are provided based on an employee’s final average compensation and years of service at the time the plan was frozen and age at retirement. The freezing of the plan provides that future salary increases will not be considered. Our funding policy is to contribute yearly, at least the amount necessary to satisfy the funding standards of the Employee Retirement Income Security Act (“ERISA”).

Our Restoration of Retirement Income Plan (the “Restoration Plan”) provides benefits for eligible employees that are in excess of the limits under Section 415 of the Internal Revenue Code of 1986, as amended, that apply to the Retirement Plan. The Restoration Plan is designed to comply with the requirements of ERISA. The entire cost of the plan, which was also frozen as of December 31, 2001, is supported by our contributions.



	2019			2018			2017
Change in plan assets:
Fair value of plan assets at beginning of year	$	152,820		$	168,450		$	157,214
Actual return on plan assets	29,945			(7,739		)	23,518
Employer contributions	1,163			1,077			1,049
Benefits paid	(9,755		)	(8,968		)	(13,331		)
Fair value of plan assets at end of year	174,173			152,820			168,450
Change in benefit obligation:
Benefit obligation at beginning of year	167,107			182,607			176,751
Interest cost	6,472			5,898			6,189
Actuarial (gain) loss	22,817			(12,430		)	12,998
Benefits paid	(9,755		)	(8,968		)	(13,331		)
Benefit obligation at end of year	186,641			167,107			182,607
Funded status of the plan at end of year and accrued benefit (liability) recognized	$	(12,468	)	$	(14,287	)	$	(14,157	)
Accumulated benefit obligation at end of year	$	186,641		$	167,107		$	182,607



	Retirement Plan				Restoration Plan
	2019		2018		2019			2018
Projected benefit obligation	$	170,541	$	152,035	$	16,100		$	15,072
Accumulated benefit obligation	170,541		152,035		16,100			15,072
Fair value of plan assets	174,173		152,820		—			—
Funded status of the plan at end of year and accrued benefit (liability) recognized	3,632		785		(16,100		)	(15,072		)

Amounts recognized as a component of accumulated other comprehensive loss as of year-end that have not been recognized as a component of the combined net period benefit cost of our defined benefit pension plans are presented in the following table. We expect to recognize approximately $5.3 million of the net actuarial loss reported in the following table as of December 31, 2019 as a component of net periodic benefit cost during 2020.

Management uses an asset allocation optimization model to analyze the potential risks and rewards associated with various asset allocation strategies on a quarterly basis. As of December 31, 2019, management’s investment objective for our defined benefit plans is to achieve long-term growth. This strategy provides for a target asset allocation of approximately 64% invested in equity securities, approximately 32% invested in fixed income debt securities with any remainder invested in cash or short-term cash equivalents. The asset allocation optimization process provides portfolio allocations which best represent the potential risk associated with a given asset allocation over a full market cycle. This is used to help management determine an appropriate mix of assets in order to achieve the plan's long term investment goals. The plan assets are reviewed annually to determine if the obligations can be met with the current investment mix and funding strategy.

The major categories of assets in our Retirement Plan as of year-end are presented in the following table. Assets are segregated by the level of the valuation inputs within the fair value hierarchy established by ASC Topic 820 “Fair Value Measurements and Disclosures,” utilized to measure fair value (see Note 17 - Fair Value Measurements). Our Restoration Plan is unfunded.

Mutual funds include various equity, fixed-income and blended funds with varying investment strategies. Approximately 68% of mutual fund investments consist of equity investments as of December 31, 2019. The investment objective of equity funds is long-term capital appreciation with current income. The remaining mutual fund investments consist of U.S. fixed-income securities, including investment-grade U.S. Treasury securities, U.S. government agency securities and mortgage-backed securities, corporate bonds and notes and collateralized mortgage obligations. The investment objective of fixed-income funds is to maximize investment return while preserving investment principal. U.S. government agency securities include obligations of Ginnie Mae. Our investment strategies prohibit selling assets short and the use of derivatives. Additionally, our defined benefit plans do not directly invest in real estate, commodities, or private investments.

The asset allocation optimization model is used to estimate the expected long-term rate of return for a given asset allocation strategy. Expectations of returns for each asset class are based on comprehensive reviews of historical data and economic/financial market theory. During periods with volatile interest rates and equity security prices, the model may call for changes in the allocation of plan investments to achieve desired returns. Management assumed a long-term rate of return of 7.25% in the determination of the net periodic benefit cost for 2019. The expected long-term rate of return on assets was selected from within the reasonable range of rates determined by historical real returns, net of inflation, for the asset classes covered by the plan’s investment policy and projections of inflation over the long-term period during which benefits are payable to plan participants.

401(k) Plan and Thrift Incentive Plan. We maintain a 401(k) stock purchase plan that permits each participant to make before-tax contributions in an amount not less than 2% and not exceeding 50% of eligible compensation and subject to dollar limits from Internal Revenue Service regulations. We match 100% of the employee’s contributions to the plan based on the amount of each participant’s contributions up to a maximum of 6% of eligible compensation. Eligible employees must complete 30 days of service in order to enroll and vest in our matching contributions immediately. Our matching contribution is initially invested in the Cullen/Frost common stock fund. However, employees may immediately reallocate our matching portion, as well as invest their individual contribution, to any of a variety of investment alternatives offered under the 401(k) Plan. In 2019, we merged our qualified profit sharing plan with and into the 401(k) plan. All profit contributions to the plan are made at our discretion and may be made without regard to current or accumulated profits. Contributions are allocated to eligible participants uniformly, based upon compensation, age and other factors. Plan participants self-direct the investment of allocated contributions by choosing from a menu of investment options. Profit sharing contributions are subject to withdrawal restrictions and participants vest in their allocated contributions after three years of service. Expense related to the plan totaled $28.9 million ($16.3 million matching contributions and $12.6 million profit sharing) in 2019, $15.0 million in 2018, and $14.3 million in 2017.

We have three active stock compensation plans (the 2005 Omnibus Incentive Plan, the 2007 Outside Directors Incentive Plan and the 2015 Omnibus Incentive Plan). All of the plans have been approved by our shareholders. During 2015, the 2015 Omnibus Incentive Plan (“2015 Plan”) was established to replace both the 2005 Omnibus Incentive Plan (“2005 Plan”) and the 2007 Outside Directors Incentive Plan (the “2007 Directors Plan”). All remaining shares authorized for grant under the superseded 2005 Plan and 2007 Directors Plan were transferred to the 2015 Plan. Our stock compensation plans were established to (i) motivate superior performance by means of performance-related incentives, (ii) encourage and provide for the acquisition of an ownership interest in our company by employees and non-employee directors and (iii) enable us to attract and retain qualified and competent persons as employees and to serve as members of our board of directors.

Under the 2015 Plan, we may grant, among other things, nonqualified stock options, incentive stock options, stock awards, stock appreciation rights, restricted stock units, performance share units or any combination thereof to certain employees and non-employee directors. Any of the authorized shares may be used for any type of award allowable under the Plan. The Compensation and Benefits Committee (“Committee”) of our Board of Directors has sole authority to (i) establish the awards to be issued, (ii) select the employees and non-employee directors to receive awards, and (iii) approve the terms and conditions of each award contract. Each award under the stock plans is evidenced by an award agreement that specifies the award price, the duration of the award, the number of shares to which the award pertains, and such other provisions as the Committee determines. For stock options, the option price for each grant is at least equal to the fair market value of a share of Cullen/Frost’s common stock on the date of grant. Options granted expire at such time as the Committee determines at the date of grant and in no event does the exercise period exceed a maximum of ten years. As defined in the plans, outstanding awards may immediately vest upon a change-in-control

A combined summary of activity in our active stock plans is presented in the table. Performance stock units outstanding are presented assuming attainment of the maximum payout rate as set forth by the performance criteria. The target award level for performance stock units granted in 2019, 2018 and 2017 was 34,317, 30,466 and 24,162, respectively. As of December 31, 2019, there were 1,105,616 shares remaining available for grant for future awards.



	Director Deferred Stock Units Outstanding				Non-Vested Stock Awards/Stock Units Outstanding				Performance Stock Units Outstanding			Stock Options Outstanding
	Number of Units		Weighted- Average Fair Value at Grant		Number of Shares/Units		Weighted- Average Fair Value at Grant		Number of Units	Weighted- Average Fair Value at Grant		Number of Shares		Weighted- Average Exercise Price
January 1, 2017	53,659		$	61.48	256,850		$	73.43	43,860	$	69.70	4,089,028		$	62.67
Authorized	—		—		—		—		—	—		—		—
Granted	5,447		95.37		99,833		98.90		36,246	92.27		—		—
Exercised/vested	(6,098	)	62.29		(39,740	)	71.59		—	—		(1,118,122	)	60.59
Forfeited/expired	—		—		(4,287	)	79.52		—	—		(53,764	)	69.78
December 31, 2017	53,008		64.87		312,656		81.71		80,106	79.91		2,917,142		63.34
Authorized	—		—		—		—		—	—		—		—
Granted	6,576		109.58		109,847		94.81		45,703	87.18		—		—
Exercised/vested	(10,674	)	63.68		(32,050	)	78.92		—	—		(513,134	)	61.68
Forfeited/expired	—		—		(6,656	)	87.60		—	—		(52,000	)	70.42
December 31, 2018	48,910		71.14		383,797		85.59		125,809	82.55		2,352,008		63.55
Authorized	—		—		—		—		—	—		—		—
Granted	7,592		102.70		127,091		93.46		51,479	85.74		—		—
Exercised/vested	(1,132	)	106.03		(53,990	)	65.11		—	—		(359,892	)	57.71
Forfeited/expired	—		—		(16,251	)	89.71		—	—		(11,250	)	65.11
December 31, 2019	55,370		$	74.76	440,647		$	90.22	177,288	$	83.48	1,980,866		$	64.60

Options awarded to employees generally have a ten-year life and vest in equal annual installments over a four-year period. Non-vested stock awards/stock units awarded to employees generally have a four-year-cliff vesting period. Deferred stock units awarded to non-employee directors generally have immediate vesting. Upon retirement from our board of directors, non-employee directors will receive one share of our common stock for each deferred stock unit held. Outstanding non-vested stock units and deferred stock units receive equivalent dividend payments as such dividends are declared on our common stock.

Performance stock units represent shares potentially issuable in the future. Issuance is based upon the measure of our achievement of relative return on assets over a three-year performance period compared to an identified peer group's achievement of relative return on assets over the same three-year performance period. The ultimate number of shares issuable under each performance award is the product of the award target and the award payout percentage for the given level of achievement. The level of achievement is measured as the percentile rank of relative return on assets among the peer group. The award payout percentages by level of achievement are as follows: (i) less than 25th percentile pays out at 0% of target, (ii) 25th percentile pays out at 50% of target, (iii) 50th percentile pays out at 100% of target and (iv) 75th percentile or more pays out at 150% of target. Achievement between the aforementioned percentiles will result in an award payout percentage determined based on straight-line interpolation between the percentiles. Performance stock units are eligible to receive equivalent dividend payments as such dividends are declared on our common stock during the performance period. Equivalent dividend payments are based upon the ultimate number of shares issued under each performance award and are deferred until such time that the units vest and shares are issued.



						Options Outstanding					Options Exercisable
Range of Exercise Prices						Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years	Number of Shares		Weighted- Average Exercise Price
$	45.01		to	$	50.00	238,055		$	48.00	1.82	238,055		$	48.00
50.01			to	55.00		464,009		53.75		2.04	464,009		53.75
65.01			to	70.00		526,096		65.11		5.67	526,096		65.11
70.01			to	75.00		275,654		71.39		3.80	275,654		71.39
75.01			to	80.00		477,052		78.95		4.71	477,052		78.95
		Total				1,980,866		64.60		3.87	1,980,866		64.60
		Total intrinsic value				$	65,725				$	65,725



	2019		2018		2017
New shares issued from available authorized shares	—		—		603,842
Issued from available treasury stock	399,224		548,238		547,078
Total	399,224		548,238		1,150,920
Proceeds from stock option exercises	$	20,770	$	31,647	$	67,746
Intrinsic value of stock options exercised	13,713		23,292		38,275
Fair value of stock awards/units vested	5,192		4,212		4,578

Stock-based Compensation Expense. Stock-based compensation expense is recognized ratably over the requisite service period for all awards. For most stock option awards, the service period generally matches the vesting period. For stock options granted to certain executive officers and for non-vested stock units granted to all participants, the service period does not extend past the date the participant reaches 65 years of age. Deferred stock units granted to non-employee directors generally have immediate vesting and the related expense is fully recognized on the date of grant. For performance stock units, the service period generally matches the three-year performance period specified by the award, however, the service period does not extend past the date the participant reaches 65 years of age. Expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued.

Unrecognized stock-based compensation expense and the weighted-average period over which the expense is expected to be recognized at December 31, 2019 is presented in the table below. Unrecognized stock-based compensation expense related to performance stock units is presented assuming attainment of the maximum payout rate as set forth by the performance criteria.

Valuation of Stock-Based Compensation. For the purposes of recognizing stock-based compensation expense, the fair value of non-vested stock awards/stock units and deferred stock units is generally the market price of the stock on the measurement date, which, for us, is the date of the award. The fair value of performance stock units is determined in a similar manner except that the market price of the stock on the measurement date is discounted by the present value of the dividends expected to be paid on our common stock during the service period of the award because dividend equivalent payments on performance stock units are deferred until such time that the units vest and shares are issued. In applying this discount to the market price of our stock on the measurement date, we assumed we would pay a flat quarterly dividend during the service period equal to our most recent dividend payment, which was $0.71, $0.67 and $0.57 in 2019, 2018, and 2017 respectively discounted at a weighted-average risk-free rate of 1.65%, 2.95% and 1.73% in 2019, 2018, and 2017 respectively.