Compensation Related Costs, Postemployment Benefits (Policies)

12 Months Ended

Dec. 31, 2024

Postemployment Benefits [Abstract]

Stock Based Compensation

Share-Based Payments. Compensation expense for stock options, non-vested stock awards/stock units and deferred stock units is based on the fair value of the award on the measurement date, which, for us, is the date of the grant and is recognized ratably over the service period of the award. Compensation expense for performance stock units is based on the fair value of the award on the measurement date, which, for us, is the date of the grant and is recognized over the service period of the award based upon the probable number of units expected to vest. The fair value of stock options is estimated using a binomial lattice-based valuation model. The fair value of non-vested stock awards/stock units and deferred stock units is generally the market price of our stock on the date of grant. The

fair value of performance stock units is generally the market price of our stock on the date of grant 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. The impact of forfeitures of share-based payment awards on compensation expense is recognized as forfeitures occur.

We have three active stock compensation plans (the 2007 Outside Directors Incentive Plan, the 2015 Omnibus Incentive Plan, and the 2024 Equity Incentive Plan). All of the plans have been approved by our shareholders. The 2024 Equity Incentive Plan (the “2024 Plan”) was approved by our shareholders on April 24, 2024 to replace the 2015 Omnibus Incentive Plan (the “2015 Plan”). Under the 2024 Plan, shareholders approved the issuance, pursuant to the plan, of 2,576,038 shares of our common stock. This amount included 2,350,000 newly authorized shares and the 226,038 shares remaining available for issuance under the superseded 2015 Plan. The 2015 Plan had previously superseded the 2007 Outside Directors Incentive Plan (the “2007 Directors Plan”) and the 2005 Omnibus Incentive Plan, which is no longer active. 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 2024 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 unvested awards may immediately vest upon a change-in-control of Cullen/Frost and subsequent termination resulting from the change in control.

Director deferred stock units granted 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 director deferred stock unit held. Non-vested restricted stock units granted to employees generally have a three-year-cliff vesting period although awards granted prior to 2021 generally had a four-year-cliff vesting period. Outstanding non-vested restricted stock units and director 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 2024, and years 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. For performance stock units granted in 2023, 2022, and 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 2023, 2022, and 2021 base-year amounts, respectively. Performance stock units are eligible to receive equivalent dividend payments based on declared dividends 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 granted to employees generally have a ten-year life and vest in equal annual installments over a four-year period. No stock options have been granted since 2015. At December 31, 2024, all outstanding options were fully exercisable at an exercise price of $65.11 per share and had a remaining contractual life of 0.82 years. The total intrinsic value of outstanding options was $12.7 million at December 31, 2024.

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 restricted stock units granted to all participants, the service period does not extend past the date the participant reaches 65 years of age. Director 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.

Valuation of Stock-Based Compensation. For the purposes of recognizing stock-based compensation expense, the fair value of non-vested restricted stock units and director 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 $0.95, $0.92 and $0.87 in 2024, 2023 and 2022, respectively, discounted at a weighted-average risk-free rate of 4.09%, 5.01% and 4.45% in 2024, 2023 and 2022, 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.