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Capital and Regulatory Matters | 9 Months Ended
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Sep. 30, 2020
Banking Regulation, Common Equity Tier One Risk-Based Capital [Abstract] |
Capital and Regulatory Matters | Capital and Regulatory Matters Banks and bank holding companies are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors. Cullen/Frost’s and Frost Bank’s Common Equity Tier 1 capital includes common stock and related paid-in capital, net of treasury stock, and retained earnings. In connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include most components of accumulated other comprehensive income in Common Equity Tier 1. We also elected to exclude, for a five-year transitional period, the effects of credit loss accounting under CECL from Common Equity Tier 1, as further discussed below. Common Equity Tier 1 for both Cullen/Frost and Frost Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities. Frost Bank's Common Equity Tier 1 is also reduced by its equity investment in its financial subsidiary, Frost Insurance Agency (“FIA”). Tier 1 capital includes Common Equity Tier 1 capital and additional Tier 1 capital. Cullen/Frost and Frost Bank did not have any additional Tier 1 capital beyond Common Equity Tier 1 at September 30, 2020. For Cullen/Frost, additional Tier 1 capital included $144.5 million of preferred stock at December 31, 2019, the details of which are further discussed below. Frost Bank did not have any additional Tier 1 capital beyond Common Equity Tier 1 at December 31, 2019. Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital for both Cullen/Frost and Frost Bank includes a permissible portion of the allowances for credit losses on securities, loans and off-balance-sheet credit exposures. Tier 2 capital for Cullen/Frost also includes $100.0 million of qualified subordinated debt and $133.0 million of trust preferred securities at both September 30, 2020 and December 31, 2019. As discussed in Note 1 - Significant Accounting Policies, in connection with the adoption of ASC 326, we recognized an after-tax cumulative effect reduction to retained earnings totaling $29.3 million. In February 2019, the federal bank regulatory agencies issued a final rule (the “2019 CECL Rule”) that revised certain capital regulations to account for changes to credit loss accounting under U.S. GAAP. The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year period, the day-one adverse effects of CECL on their regulatory capital ratios (three-year transition option). In March 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three-year transition option of the 2019 CECL Rule and also provides banking organizations that were required under U.S. GAAP (as of January 2020) to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). We elected to adopt the five-year transition option. Accordingly, a CECL transitional amount totaling $63.7 million has been added back to CET1 as of September 30, 2020. The CECL transitional amount includes $29.3 million related to cumulative effect of adopting CECL and $34.4 million related to the estimated incremental effect of CECL since adoption. In April 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA. Federal bank regulatory agencies have issued an interim final rule that permits banks to neutralize the regulatory capital effects of participating in the Paycheck Protection Program Lending Facility (the “PPP Facility”) and clarify that PPP loans have a zero percent risk weight under applicable risk-based capital rules. Specifically, a bank may exclude all PPP loans pledged as collateral to the PPP Facility from its average total consolidated assets for the purposes of calculating its leverage ratio, while PPP loans that are not pledged as collateral to the PPP Facility will be included. Our PPP loans are included in the calculation of our leverage ratio as of September 30, 2020 as we did not utilize the PPP Facility for funding purposes. The following table presents actual and required capital ratios as of September 30, 2020 and December 31, 2019 for Cullen/Frost and Frost Bank under the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. See the 2019 Form 10-K for a more detailed discussion of the Basel III Capital Rules. After a review of risk-weight classifications during the first quarter of 2019, risk-weightings for certain loans were reclassified. Amounts reported as of December 31, 2019 have been revised to reflect these reclassifications.
| Actual |  | Minimum Capital Required - Basel III |  | Required to be Considered Well Capitalized
| Capital Amount |  | Ratio |  | Capital Amount |  | Ratio |  | Capital Amount |  | Ratio
September 30, 2020 |  |  |  |  |  |  |  |  |  |  |
Common Equity Tier 1 to Risk-Weighted Assets |  |  |  |  |  |  |  |  |  |  |
Cullen/Frost | $ | 3,003,029 |  |  | 12.71 | % |  | $ | 1,654,073 |  |  | 7.00 | % |  | $ | 1,535,925 |  |  | 6.50 | %
Frost Bank | 3,010,290 |  |  | 12.76 |  |  | 1,651,191 |  |  | 7.00 |  |  | 1,533,249 |  |  | 6.50 |
Tier 1 Capital to Risk-Weighted Assets |  |  |  |  |  |  |  |  |  |  |
Cullen/Frost | 3,003,029 |  |  | 12.71 |  |  | 2,008,517 |  |  | 8.50 |  |  | 1,890,369 |  |  | 8.00 |
Frost Bank | 3,010,290 |  |  | 12.76 |  |  | 2,005,018 |  |  | 8.50 |  |  | 1,887,076 |  |  | 8.00 |
Total Capital to Risk-Weighted Assets |  |  |  |  |  |  |  |  |  |  |
Cullen/Frost | 3,471,898 |  |  | 14.69 |  |  | 2,481,109 |  |  | 10.50 |  |  | 2,362,961 |  |  | 10.00 |
Frost Bank | 3,246,159 |  |  | 13.76 |  |  | 2,476,787 |  |  | 10.50 |  |  | 2,358,845 |  |  | 10.00 |
Leverage Ratio |  |  |  |  |  |  |  |  |  |  |
Cullen/Frost | 3,003,029 |  |  | 7.85 |  |  | 1,530,584 |  |  | 4.00 |  |  | 1,913,230 |  |  | 5.00 |
Frost Bank | 3,010,290 |  |  | 7.87 |  |  | 1,530,076 |  |  | 4.00 |  |  | 1,912,596 |  |  | 5.00 |
December 31, 2019 |  |  |  |  |  |  |  |  |  |  |
Common Equity Tier 1 to Risk-Weighted Assets |  |  |  |  |  |  |  |  |  |  |
Cullen/Frost | $ | 2,857,250 |  |  | 12.36 | % |  | $ | 1,617,886 |  |  | 7.00 | % |  | $ | 1,502,323 |  |  | 6.50 | %
Frost Bank | 2,958,326 |  |  | 12.82 |  |  | 1,615,206 |  |  | 7.00 |  |  | 1,499,834 |  |  | 6.50 |
Tier 1 Capital to Risk-Weighted Assets |  |  |  |  |  |  |  |  |  |  |
Cullen/Frost | 3,001,736 |  |  | 12.99 |  |  | 1,964,576 |  |  | 8.50 |  |  | 1,849,013 |  |  | 8.00 |
Frost Bank | 2,958,326 |  |  | 12.82 |  |  | 1,961,322 |  |  | 8.50 |  |  | 1,845,950 |  |  | 8.00 |
Total Capital to Risk-Weighted Assets |  |  |  |  |  |  |  |  |  |  |
Cullen/Frost | 3,367,403 |  |  | 14.57 |  |  | 2,426,829 |  |  | 10.50 |  |  | 2,311,266 |  |  | 10.00 |
Frost Bank | 3,090,993 |  |  | 13.40 |  |  | 2,422,809 |  |  | 10.50 |  |  | 2,307,438 |  |  | 10.00 |
Leverage Ratio |  |  |  |  |  |  |  |  |  |  |
Cullen/Frost | 3,001,736 |  |  | 9.28 |  |  | 1,293,188 |  |  | 4.00 |  |  | 1,616,485 |  |  | 5.00 |
Frost Bank | 2,958,326 |  |  | 9.15 |  |  | 1,292,743 |  |  | 4.00 |  |  | 1,615,929 |  |  | 5.00 |
As of September 30, 2020, capital levels at Cullen/Frost and Frost Bank exceed all capital adequacy requirements under the Basel III Capital Rules. Based on the ratios presented above, capital levels as of September 30, 2020 at Cullen/Frost and Frost Bank exceed the minimum levels necessary to be considered “well capitalized.” Cullen/Frost and Frost Bank are subject to the regulatory capital requirements administered by the Federal Reserve Board and, for Frost Bank, the Federal Deposit Insurance Corporation (“FDIC”). Regulatory authorities can initiate certain mandatory actions if Cullen/Frost or Frost Bank fail to meet the minimum capital requirements, which could have a direct material effect on our financial statements. Management believes, as of September 30, 2020, that Cullen/Frost and Frost Bank meet all capital adequacy requirements to which they are subject. Preferred Stock. On March 16, 2020, we redeemed all 6,000,000 shares of our 5.375% Non-Cumulative Perpetual Preferred Stock, Series A, (“Series A Preferred Stock”) at a redemption price of $25 per share, or an aggregate redemption of $150.0 million. When issued, the net proceeds of the Series A Preferred Stock totaled $144.5 million after deducting $5.5 million of issuance costs including the underwriting discount and professional service fees, among other things. Upon redemption, these issuance costs were reclassified to retained earnings and reported as a reduction of net income available to common shareholders. Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. On July 24, 2019, our board of directors authorized a $100.0 million stock repurchase program, allowing us to repurchase shares of our common stock over a one-year period from time to time at various prices in the open market or through private transactions. Under this plan, we repurchased 177,834 shares at a total cost of $13.7 million during the first quarter of 2020 and 202,724 shares at a total cost of $17.2 million during the third quarter of 2019. Under the Basel III Capital Rules, Cullen/Frost may not repurchase or redeem any of its subordinated notes and, in some cases, its common stock without the prior approval of the Federal Reserve Board. Dividend Restrictions. In the ordinary course of business, Cullen/Frost is dependent upon dividends from Frost Bank to provide funds for the payment of dividends to shareholders and to provide for other cash requirements, including to repurchase its common stock. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of Frost Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years. Under the foregoing dividend restrictions and while maintaining its “well capitalized” status, at September 30, 2020, Frost Bank could pay aggregate dividends of up to $482.1 million to Cullen/Frost without prior regulatory approval. Under the terms of the junior subordinated deferrable interest debentures that Cullen/Frost has issued to Cullen/Frost Capital Trust II and WNB Capital Trust I, Cullen/Frost has the right at any time during the term of the debentures to defer the payment of interest at any time or from time to time for an extension period not exceeding 20 consecutive quarterly periods with respect to each extension period. In the event that we have elected to defer interest on the debentures, we may not, with certain exceptions, declare or pay any dividends or distributions on our capital stock or purchase or acquire any of our capital stock.

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