12.31.14 11-K 401K Plan


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 11-K
 
 
 
ý
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2014
Or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 001-13221
 
 
 
A.
Full title of the plan and the address of the plan, if different from that of the issuer named below:
THE 401(k) STOCK PURCHASE PLAN
FOR EMPLOYEES OF CULLEN/FROST
BANKERS, INC. AND ITS AFFILIATES
 
B.
Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:
CULLEN/FROST BANKERS, INC.
100 W. Houston Street
San Antonio, TX 78205
Telephone Number: (210) 220-4011







The 401(k) Stock Purchase Plan for Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
Financial Statements
and Supplemental Schedule
As of December 31, 2014 and 2013 and for the year ended December 31, 2014

Contents
 
 
 
Financial Statements
 
 
 
Report of Independent Registered Public Accounting Firm
Statements of Net Assets Available for Benefits
Statement of Changes in Net Assets Available for Benefits
Notes to Financial Statements
 
 
Supplemental Schedule
 
 
 
Schedule H, Line 4i—Schedule of Assets (Held at End of Year)


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Report of Independent Registered Public Accounting Firm
Compensation and Benefits Committee of
Cullen/Frost Bankers, Inc.
We have audited the accompanying statements of net assets available for benefits of The 401(k) Stock Purchase Plan for Employees of Cullen/Frost Bankers, Inc. and Its Affiliates as of December 31, 2014 and 2013, and the related statement of changes in net assets available for benefits for the year ended December 31, 2014. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Plan's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of The 401(k) Stock Purchase Plan for Employees of Cullen/Frost Bankers, Inc. and Its Affiliates at December 31, 2014 and 2013, and the changes in its net assets available for benefits for the year ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2014, has been subjected to audit procedures performed in conjunction with the audit of The 401(k) Stock Purchase Plan for Employees of Cullen/Frost Bankers, Inc. and Its Affiliates’ financial statements. The information in the supplemental schedule is the responsibility of the Plan’s management. Our audit procedures included determining whether the information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedules. In forming our opinion on the information, we evaluated whether such information, including its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole.
/s/ Ernst & Young LLP
San Antonio, TX
June 25, 2015



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The 401(k) Stock Purchase Plan for Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
Statements of Net Assets Available for Benefits
 
 
 
December 31,
 
 
2014
 
2013
Assets
 
 
 
 
Participant-directed investments, at fair value
 
$
500,195,007

 
$
494,607,824

Receivables:
 
 
 
 
Employer contributions
 
748,819

 
679,376

Participant contributions
 
544,466

 
522,530

Notes receivable from participants
 
12,916,769

 
12,953,861

Net assets available for benefits
 
$
514,405,061


$
508,763,591

See accompanying Notes to Financial Statements.


4



The 401(k) Stock Purchase Plan for Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2014
 
 
 
Additions:
 
Interest income on notes receivable from participants
$
452,261

Dividend income on investments
22,433,792

Contributions:
 
Employer - cash
12,766,645

Participant
17,912,564

Participant roll-overs
3,580,233

 
 
Total additions
57,145,495

Deductions:
 
Benefits paid to participants
41,046,697

Administrative fees
175,270

Net depreciation in fair value of investments
10,282,058

 
 
Total deductions
51,504,025

 
 
Net change
5,641,470

Net assets available for benefits:
 
Beginning of year
508,763,591

 
 
End of year
$
514,405,061

 
 
See accompanying Notes to Financial Statements.


5



The 401(k) Stock Purchase Plan for Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates

Notes to Financial Statements
December 31, 2014 and 2013
1. Significant Accounting Policies
Basis of Presentation. The accounting records of The 401(k) Stock Purchase Plan for Employees of Cullen/Frost Bankers, Inc. and Its Affiliates (the Plan) are maintained on the accrual basis of accounting.
Investments. The Plan’s investments are composed of common stock of Cullen/Frost Bankers, Inc. (CFBI) and mutual funds. Investments in CFBI common stock and mutual funds are stated at fair value based on quoted market prices on the valuation date. Changes in fair value and gains and losses on the sale of investment securities are reflected in the statements of changes in net assets available for benefits as net appreciation or depreciation in fair value of investments.
Purchases and sales of securities are recorded on the trade-date basis. Dividends are recorded on the ex-dividend date. Interest is recorded on the accrual basis.
Notes Receivable from Participants. Notes receivable from participants are reported at the unpaid principal balance plus accrued interest on the loan. Interest income on notes receivable from participants is recorded when it is earned. Related fees are recorded as administrative expenses and are expensed when they are incurred. No allowance for credit losses has been recorded as of December 31, 2014 or 2013. If a participant ceases to make loan repayments and the Plan administrator deems the participant loan to be a distribution, the participant loan balance is reduced and a benefit payment is recorded.
Administrative Expenses. Certain administrative expenses of the Plan are paid by CFBI.
Use of Estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
2. Description of the Plan
The following is a general description of the Plan. Participants should refer to the online summary of the Plan for a more complete description of the Plan’s provisions.
General. The Plan is a defined contribution plan qualified under Section 401(a) of the Internal Revenue Code (IRC) and covers full-time employees who complete 90 consecutive days of service and part-time employees who complete 90 consecutive days of service and are scheduled to work more than 1,000 hours in a year. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) as amended.
Contributions and Investment Options. Participants may contribute an amount not less than 2% and not exceeding 50% of their compensation, limited by 401(k) regulations, and may direct investments of their accounts into various investment options offered by the Plan. Participants are able to invest their contributions in these funds in 1% increments. Participants must contribute to the Plan to receive a CFBI matching contribution. CFBI matches 100% of each participant’s contributions up to 6% of each participant’s annual compensation. The match is initially invested in the common stock of CFBI. Each participant may elect to direct the investment of the matching contributions into other allowed investment options by electing to make investment transfers after the CFBI common stock contributions are allocated to the participant’s account.
Participant Accounts. Each participant’s account is credited with the participant’s contributions and allocations of (i) CFBI’s contributions and (ii) Plan earnings and charged with applicable expenses. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s account.
Vesting. Participants are immediately vested in all contributions (both those made by the participant and by CFBI) plus actual earnings thereon.
Participant Loans and Withdrawals. Participants may borrow from their fund accounts a minimum of $500 up to a maximum of $50,000, reduced by the highest amount of any loan outstanding within the previous twelve months, or 50% of their vested account balance. Loan terms range from 1 to 5 years or up to 30 years for the purchase of a primary residence. The loans are secured by the balance in the participant’s account and bear interest at a rate commensurate with local prevailing rates. Principal and interest are paid ratably through semimonthly payroll deductions. Subject to Internal Revenue Service (IRS) limitations,

6



participants may make hardship withdrawals from a portion of their 401(k) contributions to pay for an immediate and heavy financial need.
Payment of Benefits. In the event of termination of employment, disability, retirement or death, the participant’s account will be distributed to the participant or the participant’s beneficiary, in the event of death, according to Plan terms. The payment shall equal the amount of the participant’s vested account in the Plan.
Plan Termination. Although it has not expressed any present intent to do so, CFBI has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA.
3. Reconciliation of Financial Statements to the Form 5500
The following is a reconciliation of net assets available for benefits as reported in the accompanying financial statements to net assets as reported in the Plan’s Form 5500 as of December 31, 2014 and 2013:
 
 
 
December 31,
 
 
2014
 
2013
Net assets available for benefits
 
$
514,405,061

 
$
508,763,591

Less: Employer contributions receivable
 
(748,819
)
 
(679,376
)
Less: Participant contributions receivable
 
(544,466
)
 
(522,530
)
Net assets as reported on Form 5500
 
$
513,111,776

 
$
507,561,685

The following is a reconciliation of net increase in net assets available for benefits as reported in the accompanying financial statements to net income as reported in the Plan’s annual report Form 5500 for the year ended December 31, 2014:
 
 
 
Net increase in net assets available for benefits
$
5,641,470

Less: Employer contributions receivable at December 31, 2014
(748,819
)
Less: Participant contributions receivable at December 31, 2014
(544,466
)
Plus: Employer contributions receivable at December 31, 2013
679,376

Plus: Participant contributions receivable at December 31, 2013
522,530

 
 
Net income as reported on Form 5500
$
5,550,091

 
 
4. Income Tax Status
The Plan has received a determination letter from the IRS dated June 27, 2014, stating that the Plan is qualified under Section 401(a) of the IRC and, therefore, the related trust is exempt from taxation. Subsequent to this determination by the IRS the Plan was amended and restated. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualified status. The Plan administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and therefore believes the Plan, as amended and restated, is qualified and related trust is tax-exempt.
U.S. generally accepted accounting principles require Plan management to evaluate uncertain tax positions taken by the Plan. The financial statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. The Plan administrator has analyzed the tax positions taken by the Plan and has concluded that, as of December 31, 2014, there are no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan administrator believes it is no longer subject to income tax examinations for years prior to 2011.


7



5. Investments
The following presents individual investments that represent 5% or more of the Plan’s net assets at year end:
 
 
 
December 31,
 
 
2014
 
2013
Cullen/Frost Bankers, Inc. common stock
 
$
228,895,640

 
$
242,319,146

AIM STIT Liquid Assets Fund
 
28,577,568

 
30,461,656

The Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated/(depreciated) in value during 2014, as follows:
 
 
 
Mutual funds
1,213,580

Common stock
(11,495,638
)
 
$
(10,282,058
)
 
 
6. Party-In-Interest Transactions
Parties-in-interest are defined under Department of Labor regulations as any fiduciary of the Plan, any party rendering services to the Plan, the employer, and certain others. Accordingly, transactions conducted by the trustee, Frost Bank; sub-custodian, Reliance Trust Company; the record-keeper, Massachusetts Mutual Life Insurance Company; and CFBI and its Affiliates, qualify as party-in-interest transactions.
Plan assets are held and managed by the sub-custodian and the Plan administrator. The sub-custodian invests cash received, interest and dividend income as directed by the participants of the Plan. The Plan administrator also makes distributions to participants.
Certain administrative functions are performed by employees of CFBI or its Affiliates; however, no such employees receive compensation from the Plan. Certain other administrative expenses are paid directly by CFBI.
7. Risks and Uncertainties
The Plan provides for various investments in common stock and mutual funds. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility risk. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of net assets available for benefits and participant account balances.
8. Fair Value Measurements
Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy under ASC Topic 820 are described below. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the Plan has the ability to access at measurement date.
Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect assumptions that market participants would use in pricing the assets or liabilities.

8



Common stocks are valued at the closing price reported on the active market on which the individual securities are traded. Mutual funds are valued at the net asset value, based on a quoted market price, of shares held by the Plan at year end.
These methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The table below summarizes Plan investments measured at fair value as of December 31, 2014 and 2013. All of Plan’s investments were measured at fair value utilizing Level 1 valuation inputs at both December 31, 2014 and 2013.
 
 
December 31,
2014
 
December 31,
2013
Common stock
 
$
228,895,640

 
$
242,319,146

Mutual funds:
 
 
 
 
Equity Funds:
 
 
 
 
Aggressive allocation
 
7,382,519

 
6,596,863

Conservative allocation
 
8,853,046

 
7,196,568

Diversified emerging markets
 
2,269,333

 
1,242,842

Foreign large growth
 
15,702,008

 
18,136,802

Large blend
 
21,238,659

 
17,846,737

Large growth
 
42,775,085

 
35,449,601

Large value
 
27,161,258

 
27,366,892

Mid-cap growth
 
13,462,089

 
12,035,392

Mid-cap value
 
15,720,237

 
13,264,374

Moderate allocation
 
30,114,467

 
27,086,917

Real estate
 
6,158,291

 
4,354,046

Small blend
 
9,931,646

 
8,964,157

Small growth
 
 
 

Small value
 
4,009,195

 
3,989,000

Fixed Income:
 
 
 
 
Inflation protected bond
 
4,539,020

 
4,745,788

Intermediate term bond
 

 
16,677,677

Short term bond
 
26,692,015

 
8,459,849

Money Market Funds
 
35,290,499

 
38,875,173

 
 
$
500,195,007

 
$
494,607,824



9



Supplemental Schedule

The 401(k) Stock Purchase Plan for Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
EIN: 74-1751768 Plan No.: 003

Schedule H, Line 4i—Schedule of Assets (Held at End of Year)
December 31, 2014
 
 
 
 
 
 
 
Identity of Issue,
Borrower, Lessor,
or Similar Party
Description of Investment, Including
Maturity Date,
Rate of Interest, Collateral,
Par, or Maturity Value
 
Current
Value
Common Stock
 
*Cullen/Frost Bankers, Inc.
3,240,312
 
shares
 
$
228,895,640

Mutual Funds
 
 
 
 
 
Aberdeen Emerging Markets Fund
168,223
 
shares
 
2,269,333

AIM STIT Liquid Assets Fund
28,577,568
 
shares
 
28,577,568

AIM STIT Treasury Fund
6,712,931
 
shares
 
6,712,931

American Funds AMCAP R6
799,681
 
shares
 
22,495,021

American Funds American Balanced R6
661,257
 
shares
 
16,372,738

Goldman Sachs Mid Cap Value Inst Fund
378,072
 
shares
 
15,720,237

Hartford Equity Income Y Fund
471,850
 
shares
 
8,946,291

Invesco Real Estate R6 Fund
232,916
 
shares
 
6,158,291

MFS Conservative Asset Allocation R4 Fund
601,842
 
shares
 
8,853,046

MFS Growth Allocation R4 Fund
403,637
 
shares
 
7,382,519

MFS Moderate Allocation Fund
826,322
 
shares
 
13,741,729

MFS Value R5 Fund
521,321
 
shares
 
18,214,967

PIMCO Real Return Fund
415,661
 
shares
 
4,539,020

T Rowe Price Mid-Cap Growth Fund
178,448
 
shares
 
13,462,089

Vanguard Institutional Index
112,570
 
shares
 
21,238,659

Vanguard Small Cap Index Admiral
177,763
 
shares
 
9,931,646

Victory Sycamore Small Company Opp I
101,576
 
shares
 
4,009,195

*Frost Growth Equity Fund
1,407,360
 
shares
 
20,280,064

*Frost International Equity Fund
2,282,269
 
shares
 
15,702,008

*Frost Low Duration Bond Fund
764,162
 
shares
 
7,863,222

*Frost Total Return Bond Fund
1,764,648
 
shares
 
18,828,793

 
 
 
 
 
271,299,367

 
 
 
 
 
 
Total investments
 
 
 
 
$
500,195,007

 
 
 
 
 
 
*Participant Loans
Interest rates ranging from
3.25% to 8.75%; varying
maturity dates
 
$
12,916,769

 
*Denotes party-in-interest


10




Signatures
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned, hereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
The 401(k) Stock Purchase Plan for Employees of
Cullen/Frost Bankers, Inc. and Its Affiliates
 
 
 
 
Date: June 25, 2015
 
 
 
By:
/s/ Emily Skillman
 
 
 
 
 
Plan Administrator, Plan Chief Executive
Officer and Plan Chief Financial Officer
(Duly Authorized Officer)


11



EXHIBIT INDEX
 
 
 
 
Exhibit Number
  
Description
 
 
23.1
  
Consent of Independent Registered Public Accounting Firm
 
 
32.1
  
Section 1350 Certification


12