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Cullen/Frost Bankers(CFR) - 2024 Q4 - Annual Report
CFRCullen/Frost Bankers(CFR)2025-02-06 21:22

Financial Performance and Position - Cullen/Frost had consolidated total assets of 52.5billionasofDecember31,2024[17].−FrostBank,theprincipaloperatingsubsidiary,reportedtotaldepositsof52.5 billion as of December 31, 2024[17]. - Frost Bank, the principal operating subsidiary, reported total deposits of 43.1 billion at the same date[23]. - The estimated fair value of trust assets managed by Frost Bank was 51.4billion,includingmanagedassetsof51.4 billion, including managed assets of 26.2 billion and custody assets of 25.2billion[25].−ThetotalamountofstockdividendsreceivedfromtheFederalReservebyFrostBankwas25.2 billion[25]. - The total amount of stock dividends received from the Federal Reserve by Frost Bank was 1.5 million in 2024, 1.4millionin2023,and1.4 million in 2023, and 1.2 million in 2022[39]. - Cullen/Frost could pay aggregate dividends of approximately 1.2billiontoCullen/FrostwithoutobtainingaffirmativegovernmentalapprovalsatDecember31,2024[47].−AsofDecember31,2024,FrostBankwasclassifiedas"wellcapitalized"withatotalrisk−basedcapitalratioof10.01.2 billion to Cullen/Frost without obtaining affirmative governmental approvals at December 31, 2024[47]. - As of December 31, 2024, Frost Bank was classified as "well capitalized" with a total risk-based capital ratio of 10.0% or greater, a CET1 capital ratio of 6.5% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, and a leverage ratio of 5.0% or greater[67]. Regulatory Compliance and Risks - Cullen/Frost is subject to extensive regulation under federal and state laws, impacting its operational flexibility[35]. - Cullen/Frost and Frost Bank are required to maintain a minimum Common Equity Tier 1 (CET1) ratio of 7.0% to comply with Basel III Capital Rules[59]. - The Federal Reserve Board requires prior approval for any acquisition of more than 5.0% of the voting shares of a commercial bank by a bank holding company[46]. - Cullen/Frost must comply with liquidity requirements, including maintaining an adequate level of unencumbered high-quality liquid assets[62]. - The Federal Reserve Board may impose limitations on a financial holding company's activities if it fails to meet capital and management requirements[45]. - The Basel III Capital Rules require a minimum Tier 1 capital ratio of 8.5% when including the capital conservation buffer[59]. - The Federal Reserve Board's policy restricts bank holding companies from paying dividends that exceed net income available to common shareholders over the past year[48]. - The FDIC requires certain insured depository institutions with over 50 billion in assets, including Frost Bank, to submit periodic resolution plans, with new amendments effective October 1, 2024[76]. - The Dodd-Frank Act mandates enhanced prudential standards for systemically important financial institutions, requiring a risk committee for bank holding companies with total consolidated assets of 50billionormore[75].−TheFDIAprohibitsundercapitalizedinstitutionsfrommakingcapitaldistributionsorpayingmanagementfees,andrequiresthemtosubmitacapitalrestorationplan[65].−TheFDIChastheauthoritytoterminatedepositinsuranceifaninstitutionisfoundtobeinunsafeorunsoundcondition[72].−TheFDIC′sassessmentratesfordepositinsurancearebasedonaveragetotalassetsminusaveragetangibleequity,withlargerinstitutionssubjecttoperformanceandloss−severityscores[71].−TheVolckerRulerestrictsbanksfromengaginginproprietarytradingandinvestinginhedgefunds,butdoesnotsignificantlyimpactFrostBank′soperations[77].BusinessStrategyandGrowth−Cullen/Frostaimstogrowfee−basedincomeandexpandthroughbothorganicgrowthandpotentialacquisitions[20].−Thecompanyevaluatesmergerandacquisitionopportunitiestoenhanceprofitabilityandmarketpresence[20].−Thecompanyservesadiverserangeofindustries,includingenergy,healthcare,andtelecommunications,withoutdependenceonanysingleindustry[19].−Cullen/Frost′scommonstockislistedontheNewYorkStockExchangeunderthesymbol"CFR"[37].EmployeeandCommunityEngagement−AsofDecember31,2024,thecompanyemployed5,854full−timeequivalentemployees,withanaveragetenureof9.3years[105].−ThecompanywasrecognizedonForbesmagazine′sBestEmployerslistin2024,reflectingitscommitmenttoemployeerelationsandcorporateculture[106].−Thecompanyisdedicatedtoprovidingasupportiveworkplacefreeofdiscrimination,promotingequalopportunityforallemployees[107].−In2024,employeescontributedover24,000hourstocommunityserviceactivities,reflectingthecompany′scommitmenttocommunityengagement[108].−Thecompanyhasestablishedavoluntary,employee−ledteamfocusedonimprovingcommunitylives,enhancingemployeeengagementandsatisfaction[108].CreditandMarketRisks−AsofDecember31,2024,approximately82.950 billion or more[75]. - The FDIA prohibits undercapitalized institutions from making capital distributions or paying management fees, and requires them to submit a capital restoration plan[65]. - The FDIC has the authority to terminate deposit insurance if an institution is found to be in unsafe or unsound condition[72]. - The FDIC's assessment rates for deposit insurance are based on average total assets minus average tangible equity, with larger institutions subject to performance and loss-severity scores[71]. - The Volcker Rule restricts banks from engaging in proprietary trading and investing in hedge funds, but does not significantly impact Frost Bank's operations[77]. Business Strategy and Growth - Cullen/Frost aims to grow fee-based income and expand through both organic growth and potential acquisitions[20]. - The company evaluates merger and acquisition opportunities to enhance profitability and market presence[20]. - The company serves a diverse range of industries, including energy, healthcare, and telecommunications, without dependence on any single industry[19]. - Cullen/Frost's common stock is listed on the New York Stock Exchange under the symbol "CFR"[37]. Employee and Community Engagement - As of December 31, 2024, the company employed 5,854 full-time equivalent employees, with an average tenure of 9.3 years[105]. - The company was recognized on Forbes magazine's Best Employers list in 2024, reflecting its commitment to employee relations and corporate culture[106]. - The company is dedicated to providing a supportive workplace free of discrimination, promoting equal opportunity for all employees[107]. - In 2024, employees contributed over 24,000 hours to community service activities, reflecting the company's commitment to community engagement[108]. - The company has established a voluntary, employee-led team focused on improving community lives, enhancing employee engagement and satisfaction[108]. Credit and Market Risks - As of December 31, 2024, approximately 82.9% of the loan portfolio consisted of commercial and industrial, energy, construction, and commercial real estate mortgage loans, which are generally viewed as having a higher risk of default[117]. - Commercial real estate mortgage loans comprised approximately 34.5% of the loan portfolio as of December 31, 2024, indicating a significant exposure to credit risk in this sector[120]. - The company had 1.1 billion in energy loans, representing approximately 5.4% of the loan portfolio, highlighting potential volatility risks associated with crude oil prices[121]. - The company is subject to interest rate risk, which could adversely affect net interest income and overall earnings if interest rates on deposits rise faster than those on loans[114]. - The allowance for credit losses is subject to significant estimates and may require increases based on changing economic conditions, which could negatively impact net income[118]. - The company faces liquidity risk, which could be affected by downturns in the Texas economy or adverse regulatory actions[123]. - The company’s credit exposures are concentrated in industries susceptible to long-term risks from climate change and economic disruptions, which could adversely affect financial performance[116]. - As of December 31, 2024, approximately 54% of the company's deposits were uninsured, which poses a risk to liquidity[124]. - The company has experienced significant unrealized losses in its available-for-sale securities portfolio due to rising market interest rates, impacting book capital and tangible common equity[125]. Operational and Technological Risks - The company is subject to operational risks from potential failures in its analytical and forecasting models, which could lead to unexpected losses[126]. - The company has implemented a new residential mortgage product, but there are substantial risks and uncertainties associated with new product offerings[129]. - The financial services industry is undergoing rapid technological changes, and the company's success depends on its ability to adapt to these changes[130]. - Cybersecurity threats remain a significant concern, with potential breaches leading to operational disruptions and reputational damage[138]. - The company relies on external vendors for essential services, which introduces operational and cybersecurity risks[141]. - The company faces risks related to external vendors not performing according to service level agreements, which could disrupt operations and adversely affect financial condition[142]. - The company relies on accurate customer information for credit decisions, and reliance on misleading data could materially impact financial results[146]. Competitive and Economic Environment - Economic conditions in Texas significantly affect the company's profitability, with local market conditions impacting demand for products and customer repayment ability[147]. - The company operates in a highly competitive environment, facing competition from larger banks and fintechs, which may lead to pricing pressures[151]. - Regulatory scrutiny and compliance costs are increasing, potentially affecting profitability and operational flexibility[155]. - The repeal of federal prohibitions on interest payments on demand deposits could increase interest expenses and decrease net interest margins[157]. - Potential acquisitions may disrupt business operations and dilute shareholder value, with risks including exposure to unknown liabilities and asset quality issues[161]. - Regulatory approvals for acquisitions have become more difficult to obtain, which could impede strategic growth opportunities[163]. - The trading volume of the company's common stock is lower than that of larger financial services companies, which may lead to price volatility[165]. - The company has historically declared cash dividends on its common stock but is not obligated to continue doing so, which could negatively impact stock prices[166]. - The company's ability to declare dividends is subject to federal regulatory considerations, including capital adequacy guidelines[167]. - Economic conditions, including inflation and interest rates, are impacting profitability and could affect loan demand and credit quality[171]. - The U.S. government's budget deficit and potential political conflicts may increase the risk of default on government debt, affecting the company's investment securities[172]. - Climate change poses operational, credit, legal, and reputational risks that could adversely impact the company's business and financial condition[184]. - The company may need to raise additional capital in the future, which could be challenging depending on market conditions and financial health[175]. - Stock price volatility may hinder the ability to resell common stock at attractive prices, influenced by various market factors[178]. - Changes in accounting standards could materially impact the company's financial statements and reporting[180]. - The company faces intense competition for skilled personnel, which could affect its operational effectiveness and customer relationships[181].