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Employee Benefit Plans
 12 Months Ended
Dec. 31, 2021
Retirement Benefits [Abstract]  
Employee Benefit Plans Employee Benefit Plans
Retirement Plans
Profit Sharing Plan. 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. 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 was not significant during 2021, 2020 and 2019.
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.
We use a December 31 measurement date for our defined benefit plans. Combined activity in our defined benefit pension plans was as follows:
202120202019
Change in plan assets:
Fair value of plan assets at beginning of year$182,088 $174,173 $152,820 
Actual return on plan assets24,908 16,599 29,945 
Employer contributions1,236 1,201 1,163 
Benefits paid(10,485)(9,885)(9,755)
Fair value of plan assets at end of year197,747 182,088 174,173 
Change in benefit obligation:
Benefit obligation at beginning of year197,593 186,641 167,107 
Interest cost3,341 5,010 6,472 
Actuarial (gain) loss(4,524)15,827 22,817 
Benefits paid(10,485)(9,885)(9,755)
Benefit obligation at end of year185,925 197,593 186,641 
Funded status of the plan at end of year and accrued benefit (liability) recognized
$11,822 $(15,505)$(12,468)
Accumulated benefit obligation at end of year$185,925 $197,593 $186,641 
Certain disaggregated information related to our defined benefit pension plans as of year-end was as follows:
Retirement PlanRestoration Plan
2021202020212020
Projected benefit obligation$170,389 $180,986 $15,536 $16,607 
Accumulated benefit obligation170,389 180,986 15,536 16,607 
Fair value of plan assets197,747 182,088 — — 
Funded status of the plan at end of year and accrued benefit (liability) recognized
27,358 1,102 (15,536)(16,607)
The components of the combined net periodic cost (benefit) for our defined benefit pension plans are presented in the table below.
202120202019
Expected return on plan assets, net of expenses$(12,839)$(12,289)$(10,772)
Interest cost on projected benefit obligation3,341 5,010 6,472 
Net amortization and deferral6,116 5,319 5,623 
Net periodic expense (benefit)$(3,382)$(1,960)$1,323 
Amounts related to our defined benefit pension plans recognized as a component of other comprehensive income were as follows:
202120202019
Net actuarial gain (loss)$22,709 $(6,199)$1,979 
Deferred tax (expense) benefit(4,769)1,302 (416)
Other comprehensive income (loss), net of tax$17,940 $(4,897)$1,563 
Amounts recognized as a component of accumulated other comprehensive loss as of year-end that have not been recognized as a component of the combined net periodic benefit cost of our defined benefit pension plans are presented in the following table.
20212020
Net actuarial loss$(41,634)$(64,343)
Deferred tax benefit8,743 13,512 
Amounts included in accumulated other comprehensive income/loss, net of tax(32,891)(50,831)
The weighted-average assumptions used to determine the benefit obligations as of the end of the years indicated and the net periodic benefit cost for the years indicated are presented in the table below. Because the plans were frozen, increases in compensation are not considered after 2001.
202120202019
Benefit obligations:
Discount rate2.79 %2.43 %3.20 %
Net periodic benefit cost:
Discount rate2.43 %3.20 %4.36 %
Expected return on plan assets7.25 7.25 7.25 
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, 2021, 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 62% invested in equity securities, approximately 36% 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.
20212020
Level 1:
Mutual funds$195,452 $180,693 
Cash and cash equivalents2,295 1,395 
Total fair value of plan assets$197,747 $182,088 
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, 2021. 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. 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 2021. 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.
As of December 31, 2021, expected future benefit payments related to our defined benefit plans were as follows:
2022$11,592 
202311,805 
202411,975 
202511,982 
202612,018 
2027 through 203156,494 
$115,866 
We expect to contribute $1.2 million to the defined benefit plans during 2022.
Savings Plans
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 common stock of Cullen/Frost. 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. We may also make discretionary profit sharing contributions to eligible participants.
All profit contributions to the plan are made at our discretion and may be made without regard to current or accumulated profits. Contributions are generally allocated to eligible participants uniformly, based upon compensation, age and/or 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 $23.8 million in 2021, $17.9 million in 2020 and $28.9 million in 2019.
We maintain a thrift incentive stock purchase plan to offer certain employees whose participation in the 401(k) plan is limited an alternative means of receiving comparable benefits. Expense related to this plan was not significant during 2021, 2020 and 2019.
Stock Compensation Plans
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 of Cullen/Frost and, in the case of awards granted under the 2015 Plan, subsequent termination resulting from the 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 2021, 2020 and 2019 was 30,723, 48,409 and 34,317, respectively. As of December 31, 2021, there were 777,687 shares remaining available for grant for future awards.
Director Deferred
Stock Units
Outstanding		Non-Vested Stock
Awards/Stock Units
Outstanding		Performance Stock Units OutstandingStock Options
Outstanding
Number of UnitsWeighted-
Average
Fair Value
at Grant		Number
of Shares/Units		Weighted-
Average
Fair Value
at Grant		Number of UnitsWeighted-
Average
Fair Value
at Grant		Number
of Shares		Weighted-
Average
Exercise
Price
January 1, 201948,910 $71.14 383,797 $85.59 125,809 $82.55 2,352,008 $63.55 
Granted7,592 102.70 127,091 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, 201955,370 74.76 440,647 90.22 177,288 83.48 1,980,866 64.60 
Granted10,428 73.84 151,038 66.79 72,618 57.89 — — 
Exercised/vested(12,938)71.09 (117,990)76.07 (41,755)69.70 (235,880)53.23 
Forfeited/expired— — (3,336)91.07 (6,894)81.33 (5,427)75.74 
December 31, 202052,860 75.47 470,359 86.24 201,257 77.18 1,739,559 66.11 
Granted5,940 117.90 95,258 130.36 46,086 121.46 — — 
Exercised/vested(2,499)92.03 (88,250)98.90 (35,131)92.27 (861,878)63.14 
Forfeited/expired— — (28,030)87.08 (9,752)75.70 — — 
December 31, 202156,301 79.21 449,337 93.05 202,460 84.71 877,681 69.02 
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 three-year-cliff vesting period for awards granted in 2021 and a four-year-cliff vesting period for awards granted prior to 2021. 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. For performance stock units granted in 2021, issuance is based upon the measure of our achievement of growth in adjusted net revenue, averaged over the three-year performance period, compared to the 2021 base-year amount. Adjusted net revenue for the three-year performance period is calculated as the sum of taxable-equivalent net interest income (excluding the effects of PPP lending) and non-interest income, reduced by non-interest expense (excluding the effects of PPP lending) and net charge-offs. The 2021 base-year adjusted net revenue amount of approximately $426.6 million was calculated as the sum of taxable-equivalent net interest income (excluding the effects of PPP lending) and non-interest income, reduced by non-interest expense (excluding the effects of PPP lending) and the product of average total loans (excluding PPP loans) and 0.30%. 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 amount by which adjusted net revenue, averaged over a three-year performance period, exceeds the 2021 base-year amount, stated as an average growth percentage. The award payout percentages by level of achievement are as follows: (i) less than 13% average growth pays out at 0% of target, (ii) 13% average growth pays out at 50% of target, (iii) 19% average growth pays out at 100% of target and (iv) 25% average growth or more pays out at 150% of target. Achievement between the aforementioned average growth percentages will result in an award payout percentage determined based on straight-line interpolation between the percentages.
For performance stock units granted prior to 2021, 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.
Other information regarding options outstanding and exercisable as of December 31, 2021 is as follows:
Options OutstandingOptions 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
$50.01 to$55.00 123,314 $54.56 0.81123,314 $54.56 
65.01 to70.00 319,081 65.11 3.72319,081 65.11 
70.01 to75.00 169,726 71.39 1.78169,726 71.39 
75.01 to80.00 265,560 78.92 2.75265,560 78.92 
Total877,681 69.02 2.64877,681 69.02 
Total intrinsic value$50,070 $50,070 
Shares issued in connection with stock compensation awards are issued from available treasury shares. If no treasury shares are available, new shares are issued from available authorized shares. Shares issued in connection with stock compensation awards along with other related information were as follows:
202120202019
Shares issued from available treasury stock987,758 408,563 399,224 
Proceeds from stock option exercises$54,417 $12,557 $20,770 
Intrinsic value of stock options exercised43,904 5,365 13,713 
Fair value of stock awards/units vested15,751 12,773 5,192 
Stock-based Compensation Expense. Stock-based compensation expense is recognized ratably over the requisite service period for all awards. For most stock option awards, the service period generally matches the vesting period. For stock options granted to certain executive officers and for non-vested stock units granted to all participants, the service period does not extend past the date the participant reaches 65 years of age. Deferred stock units granted to non-employee directors generally have immediate vesting and the related expense is fully recognized on the date of grant. For performance stock units, the service period generally matches the three-year performance period specified by the award, however, the service period does not extend past the date the participant reaches 65 years of age. Expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued.
Stock-based compensation expense and the related income tax benefit is presented in the following table. The service period for performance stock units granted each year begins on January 1 of the following year.
202120202019
Stock options$— $— $1,185 
Non-vested stock awards/stock units9,977 10,240 9,339 
Deferred stock-units700 770 780 
Performance stock units2,076 2,908 4,642 
Total$12,753 $13,918 $15,946 
Income tax benefit$1,713 $2,142 $2,359 
Unrecognized stock-based compensation expense and the weighted-average period over which the expense is expected to be recognized at December 31, 2021 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.
Unrecognized ExpenseWeighted-Average Number of Years for Expense Recognition
Non-vested stock awards/stock units$18,431 2.07
Performance stock units9,818 2.16
Total$28,249 
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 $0.75, $0.72 and $0.71 in 2021, 2020, and 2019, respectively, discounted at a weighted-average risk-free rate of 0.77%, 0.19% and 1.65% in 2021, 2020, and 2019, respectively.
The fair value of employee stock options granted is estimated on the measurement date, which, for us, is the date of grant. The fair value of stock options is estimated using a binomial lattice-based valuation model that takes into account employee exercise patterns based on changes in our stock price and other variables, and allows for the use of dynamic assumptions about interest rates and expected volatility. No stock options have been granted since 2015.