The 401(k) Stock Purchase Plan Summary Plan Description

Transcription

1 The 401(k) Stock Purchase Plan Summary Plan Description Cullen/Frost Bankers, Inc. Plan Year 2014 This material constitutes part of a prospectus covering securities that have been registered under the Securities Act of 1933

2 Table of Contents Plan Highlights 1 Participating in The 401(k) Stock Purchase Plan 3 Eligibility 3 Enrolling in the Plan 3 Accessing the Plan 3 Naming a Beneficiary 4 Trust Fund 5 Vesting 6 Severance from Service 6 Forfeitures 6 Contributions to Your Account 8 Age 50 Catch-Up Contributions 8 Safe Harbor Provision 8 Safe Harbor Contribution Formula 8 Your Employee Contributions 8 Company Matching Contributions 9 Changing Your Employee Contributions 10 Limits on Contributions 10 Effect on Other Benefits 11 Advantages of Before-Tax Contributions 12 Before-Tax Savings Versus After-Tax Savings 12 About Investing 13 Changing or Transferring Your Investments 13 Diversification Opportunity Cullen Frost 401(k) SPD (Final).docx i

3 Your Investment Choices 15 How Your Account Is Valued 15 Quarterly Statements 15 Loans 16 How Much You Can Borrow 16 Value of Employer Stock 17 Applying for a Loan 17 Repaying Your Loan 17 Loan Default 17 If Your Employment Ends 17 Restriction on Loans 18 Withdrawals 19 Withdrawal of Traditional After-Tax and Rollover Contributions 19 Withdrawal of Before-Tax and Roth 401(k) Contributions 19 Applying for a Withdrawal 20 Payment When You Leave Frost 21 Payment If You Become Disabled 21 If You Have a Loan 22 CFBI Common Stock Dividends 22 Tax Considerations 23 Taxation of Cullen/Frost Bankers, Inc. Stock 23 20% Withholding 23 Direct Rollover 23 Roth 401(k) Rollovers 24 10% Penalty Tax 24 Ten-year Averaging Cullen Frost 401(k) SPD (Final).docx ii

4 Applying to Receive Your Account Balance 26 How Your Account Is Paid 26 Payment of Small Accounts 26 Situations Affecting Your Benefit 27 Accurate Information 27 Annual Contributions 27 If the Plan Becomes Top-Heavy 27 If the Plan Is Ended or Modified 27 Assignment of Benefits 27 Mergers, Consolidations, or Transfers 27 Implied Promises 28 Employees of Acquired Companies 28 Special Plan Provisions for Employees Returning from Military Service 28 Your Rights under the Law 29 Receive Information About Your Plan and Benefits 29 Prudent Actions by Plan Fiduciaries 29 Enforce Your Rights 29 Assistance With Your Questions 30 Claims And Appeals Procedures 31 General Information about Claims 31 Time Period for Responding to Initial Claim 31 Information Provided if Initial Claim is Denied 32 Appeal Procedure if Initial Claim is Denied 32 Information Provided if Appeal is Denied 33 Legal Proceedings 33 Securities and Exchange Commission Information Cullen Frost 401(k) SPD (Final).docx iii

5 Administrative Information 35 Plan Name and Plan Number 35 Plan Sponsor and Administrator 35 Plan Trustee 35 Plan Year 35 Agent for Service of Legal Process 35 Plan Type 36 Participating Employers Cullen Frost 401(k) SPD (Final).docx iv

6 Plan Highlights Cullen/Frost Bankers, Inc. ( Company or Frost ) provides you the opportunity to save for retirement with tax-deferred or Roth 401(k) contributions to The 401(k) Stock Purchase Plan. The 401(k) Stock Purchase Plan for Employees of Cullen/Frost Bankers, Inc. and its Affiliates ( The 401(k) Stock Purchase Plan or Plan ) is an employee stock ownership plan ( ESOP ). The Plan allows you to save for retirement by having contributions deducted from your pay before federal income taxes are withheld or on an after-tax basis, either through traditional after-tax contributions or after-tax Roth 401(k) contributions. The Plan is intended as a long-term investment program to help you prepare financially for the future. Plan features include: Tax savings. You can lower your income taxes today by making your employee contributions on a before-tax basis. This means your Plan contributions will be deducted from your pay before federal income taxes are withheld. Roth 401(k) contributions. You can also choose to contribute after-tax Roth 401(k) deferrals. Since you pay taxes on your after-tax Roth 401(k) contributions at the time you make them, you will not have to pay taxes on these contributions when you take a distribution from your Roth 401(k) account. Unlike traditional after-tax contributions, taxes are not due on earnings with your Roth 401(k) contribution account if the withdrawal is a qualified distribution. Flexibility. You choose how much you want to contribute to the Plan from 2% to 50% of your pay and whether you want to make before-tax contributions, after-tax Roth 401(k) contributions or traditional after-tax contributions, or a combination of all contribution types. You also select the investment options for your employee contributions. You can make changes to your employee contributions when desired. Matching contributions. When you save in the Plan, the Company adds to your savings by matching a portion of your employee contributions. Loans. You may borrow from your account and pay yourself back with interest. Convenience. Your employee contributions are deducted automatically from your paycheck. This booklet (called a Summary Plan Description or SPD ) is a brief description of the Plan and your rights, obligations, and benefits under the Plan. It is not meant to interpret, extend, or change the provisions of the Plan in any way. A copy of this SPD is also posted on MassMutual s website at This material is a plain-language description of the Plan and a prospectus. It is based on legal documents which establish the Plan. Every attempt has been made to accurately summarize the Plan provisions in these documents. In the event of any discrepancy between this Summary Plan Description and the actual provisions of the Plan, however, the Plan document shall govern. While the Plan is intended to continue indefinitely, it can be changed or terminated at any time by the Company without the consent of participants Cullen Frost 401(k) SPD (Final).docx 1

7 A copy of the Plan document is on file at the Cullen/Frost Corporate Employee Benefits Office and may be read by you, your beneficiaries, or your legal counsel at any reasonable time. If you have any questions about either the Plan or this Summary Plan Description, you should contact the Corporate Employee Benefits Office Cullen Frost 401(k) SPD (Final).docx 2

8 Participating in The 401(k) Stock Purchase Plan You may begin participating in the Plan after you meet the eligibility requirements. As an employee of the Company, you may begin participating in The 401(k) Stock Purchase Plan after you meet the eligibility requirements. Once you are eligible, it s easy to enroll. Eligibility You may begin participating in the Plan on the entry date coincident with or following the date you meet one of the following eligibility requirements: Eligible full-time employees: You complete 90 days of service with the Company. Eligible part-time employees: You complete 90 days of service with the Company and are scheduled to complete at least 1,000 hours of service during the next 12 consecutive months. You are not eligible to participate in the Plan if: You re a part-time employee scheduled to work less than 1,000 hours per year (and you do not in fact work 1,000 hours or more in a year); You re a leased employee (meaning that you are not an employee of the Company but services are contracted through another employer for a specific amount of time); or You re covered under the terms of a collective bargaining agreement (unless the agreement specifically provides for your participation). Enrolling in the Plan MassMutual Retirement Services ( MassMutual ) will mail an enrollment kit to you approximately one or two weeks prior to your eligibility date. To enroll: Log on to Call MassMutual's telephone voice response unit (VRU) at ; or you may transfer from the automated phone system and speak to a Retirement Plan Information representative. To make contributions to the Plan, submit your request directly to MassMutual. Your employee contributions will generally start the first payroll period that occurs on or after the Plan s next entry date, provided your enrollment request is received by MassMutual at least 10 days in advance of the start of such payroll period. Accessing the Plan You may make information inquiries and changes to your account through MassMutual s 24-hour Retirement Plan Information Line and website. By calling the toll-free 800 number or visiting the website and logging in, you can access complete account information. The website offers a wide array of informative articles and interactive tools to help you make informed decisions about your participation 2014 Cullen Frost 401(k) SPD (Final).docx 3

9 in the Plan. You may also transfer from the automated phone system and speak to a representative (during the hours of 7:00 a.m. until 7:00 p.m., Central Time, Monday Friday) for help with your account. You can use these services to: Enroll Obtain current account balance information Access Morningstar Retirement Manager Check current investment prices and performance View your personalized rate of return Change your investment elections Transfer (exchange) balances between funds Request a loan, withdrawal, or distribution (when applicable) Model a new loan or obtain outstanding loan information Obtain rollover information and forms Change your personal identification number (PIN) available by phone only Change your contribution percentages, including Age 50 Catch-Up contributions Change the type of your future contributions (Roth, before-tax, or traditional after-tax) Naming a Beneficiary When you enroll in The 401(k) Stock Purchase Plan, you will be asked to name a beneficiary someone who receives the Plan benefits if you die. If you re married, your spouse is automatically the beneficiary of your benefits. If you want to name someone other than your spouse, your spouse must give consent in writing in the presence of a Plan representative or notary public. Without your spouse s consent, any beneficiary election other than your spouse is invalid. Beneficiary changes can be made at any time online at However, again, if you re married under applicable state law (or under the laws of a foreign jurisdiction) and you want to change your beneficiary to someone other than your spouse, your spouse must approve the change. If you marry after you have made a written beneficiary designation, that designation is automatically cancelled, and your spouse becomes your beneficiary, unless you designate someone else with your spouse s consent. In the event of your death, the full value of your account (less any outstanding loan balances) will be paid to your beneficiary. If you re married and haven t named a beneficiary, the value of your account will be paid to your surviving spouse. If your spouse or other beneficiary is not alive when you die or if you fail to designate a beneficiary and you are not married, the value of your account will be paid to your estate Cullen Frost 401(k) SPD (Final).docx 4

10 Trust Fund Assets of the Plan are held in trust. Once a contribution is made to your Plan account, the money is placed in the trust fund. Certain administrative costs associated with the Plan may be paid from the assets of the trust Cullen Frost 401(k) SPD (Final).docx 5

11 Vesting To be vested in a benefit means that you have a nonforfeitable interest in your account under the Plan. You always have a fully vested interest in your employee contributions and any related earnings. If you have been actively employed by the Company and covered by this Plan at any time since January 1, 1999 you are fully vested in your entire Plan account. Participants who terminated employment prior to January 1, 1999, are vested according to the vesting schedule shown below with respect to the portion of their account that includes Company contributions: Completed Years of Vesting Service Vesting Percentage Less than 1 year 0% 1 year 20% 2 years 40% 3 years 60% 4 years 80% 5 years or more 100% When you are 100% vested, you have a nonforfeitable interest in the Company contributions and related earnings in your account. If you are 20% vested, you only have a 20% nonforfeitable interest in the Company contributions and related earnings in your account, and 80% of these amounts are subject to forfeiture. Again, remember that you are always 100% vested in the portion of your account with your employee contributions, and the above schedule only applies to you if you terminated employment with the Company prior to Severance from Service You stop earning vesting service on the earlier of: The date you quit, are discharged, retire, or die; or The first anniversary of the first day of absence if you don t return to work after vacation, sickness, leave of absence, layoff, maternity or paternity leave, or military service (unless you return to work under laws governing veterans reemployment rights). The date you stop earning vesting service is called a severance from service. If you have a severance from service and don t perform an hour of service within 12 months from the date of such break, you have a one-year period of severance. Forfeitures If you left the Company before January 1, 1999, before you were 100% vested in Company contributions and related earnings in your account, you forfeit the portion which is not vested. However, if you return to work for the Company before you incur five consecutive one-year periods of severance the amount you previously forfeited will be restored to your account Cullen Frost 401(k) SPD (Final).docx 6

12 The amount restored will be subject to the Plan s then applicable vesting rules. Amounts forfeited may be used to: Restore the accounts of participants who return to work for the Company and are entitled to their forfeited account balance; Pay the administrative costs of the Plan; or Make Company contributions Cullen Frost 401(k) SPD (Final).docx 7

13 Contributions to Your Account You can contribute between 2% and 50% of your compensation on a before-tax, Roth 401(k) and/or after-tax basis. Frost matches a portion of your employee contributions. You may contribute to The 401(k) Stock Purchase Plan through convenient payroll deductions on a before-tax, Roth 401(k) and/or after-tax basis. You can save from 2% to 50% of your compensation in 1% increments. Your contribution is based on the amount of compensation you receive each pay period. If your compensation changes during the year, the amount of your employee contributions automatically changes. Compensation is equal to your base pay, generally including overtime (including straight time and double time), shift differentials, commissions, referrals, bonuses, incentive and ATM pay. The Internal Revenue Code limits the amount of compensation that can be considered by The 401(k) Stock Purchase Plan. For 2014 this limit is $260,000. For purposes of determining this limit, the Plan recognizes contributions made on the first $260,000 of compensation. Age 50 Catch-Up Contributions If you are age 50 or older, or will reach age 50 by the end of the Plan year (the Plan year is the calendar year), you may make additional pre-tax or Roth 401(k) catch-up contributions. These catch up contributions can only be made after you have reached either the IRS before-tax contribution limit (which also applies to Roth contributions) for the Plan year ($17,500 in 2014) or the Plan limit of 50% of compensation. The most you can contribute in 2014 as a catch-up is an additional $5,500. Safe Harbor Provision The Plan includes provisions intended to meet certain safe harbor contribution and vesting requirements, as permitted under the Small Business Job Protection Act of 1996 ( SBJPA ). In general, plans making certain non-elective or matching contributions in accordance with one of the permissible safe harbor contribution formulas allowed by the SBJPA do not need to perform the annual nondiscrimination testing requirements generally required of similar plans. Safe Harbor Contribution Formula The Company will make a matching contribution dollar-for-dollar on amounts you defer up to 6% of your eligible compensation, on a per payroll basis. Additionally, in order to ensure that you maximize the Company contributions you receive, Frost also performs an annual true-up on your matching contributions even though it is not obligated to do so under the SBJPA safe harbor. You always are 100% vested in your contributions. You are also 100% vested in the Company matching contributions unless you terminated employment prior to Your Employee Contributions You may make before-tax, after-tax, and Roth 401(k) contributions to the Plan. You may contribute between 2% and 50% of your compensation on a before-tax and/or after-tax basis, up to the Plan limits and as described in more detail immediately below Cullen Frost 401(k) SPD (Final).docx 8

14 Before-tax Contributions Before-tax contributions are deducted automatically from your eligible compensation before federal income taxes are withheld. This lowers your taxable income and allows you to save money on your current taxes. You don t pay federal income taxes on this money until it is paid out of your account. After-tax Contributions Traditional after-tax contributions are deducted automatically from your eligible compensation after federal income taxes are withheld. Since you have paid taxes on these after-tax contributions, you will not have to pay taxes on these contributions when you receive them from your account. However, a portion of any after-tax withdrawal must include a proportional amount of earnings on your traditional after-tax contributions. You are taxed on these earnings. Traditional after-tax contributions are not subject to the annual dollar limit on contributions ($17,500 in 2014). Roth 401(k) Contribution After-tax contributions are deducted automatically from your eligible compensation after federal income taxes are withheld. Since you have paid taxes on these after-tax contributions, you will not have to pay taxes on these contributions when you receive them from your account. Importantly, when you make Roth contributions, taxes are also not due on earnings, provided the withdrawal is made in a qualified distribution. A qualified distribution is a distribution following the expiration of a five-taxable-year period, referred to as the non-exclusion period, that is made after you (1) attain age 59½, or (2) become disabled. Should you die, a qualified distribution can be made payable to your beneficiary or, if none, to your estate. The five-year non-exclusion period is the five-taxable-year period beginning with the earlier of the tax year you first made a Roth contribution to the Plan or, if you made a rollover contribution to the Plan from a Roth account in another retirement plan, the tax year you first made a Roth contribution to that other retirement plan. For additional information on whether or not a distribution from your Roth 401(k) account is eligible for favorable tax treatment, please consult your tax adviser. To help you decide which type of contribution is right for you, you can create personalized what if scenarios comparing Roth 401(k) and traditional pre-tax contributions by logging into your 401(k) account at Select the Education and Tools link on the home page and then choose Calculators and Planners. Use the After-Tax -Roth 401(k) calculator to see if a Roth 401(k) is right for you. Rollover Contributions If, before joining the Company, you participated in another qualified retirement plan, you may be eligible to roll your distribution over into this Plan, even if you are not yet eligible to make contributions from your pay into this Plan. The rollover must be made within 60 days after you receive payment from the qualified plan, or you may make the rollover directly from the qualified plan, subject to certain administrative requirements for rollovers. The minimum amount you can roll over into the Plan is $200. Company Matching Contributions To help increase the value of your savings and to encourage you to save for retirement, Frost matches your combined before- and after-tax contributions, including Roth 401(k) contributions, dollar-for-dollar on amounts you defer up to 6% of your eligible compensation, on a per payroll basis. Employer matching contributions stop when your deferrals stop. However, the maximum matching contribution to be made on your behalf is six percent of your eligible compensation for the entire Plan year Cullen Frost 401(k) SPD (Final).docx 9

15 The Company matching contribution is invested in the Cullen/Frost Stock Fund and is added to your account after each pay period. The stock may then be transferred to other investment funds at any time pursuant to your investment direction. You re not taxed on the value of these matching contributions when the money is added to your account. Income taxes are deferred until it is paid out of your account. Changing Your Employee Contributions During the year, you may want to change the amount you are contributing to the Plan. You can increase or decrease your employee contributions by submitting your request to MassMutual. You must submit your election to change your contribution percentage at least 10 business days before the first day of the pay period in which you want the change to be effective. You can stop your employee contributions to the Plan by submitting your request to MassMutual at least 10 business days before the first day of the next pay period. You can resume your employee contributions to the Plan by submitting your request to MassMutual at least 10 business days before the first day of the next payroll period in which you want the enrollment to be effective. Limits on Contributions Each year the IRS sets a maximum on the amount of before-tax and/or Roth 401(k) contributions that participants can save in 401(k) plans. In 2014, the annual limit on before-tax and/or Roth 401(k) contributions is $17,500. This limit is adjusted periodically for inflation (in $500 increments). If you reach this limit under The 401(k) Stock Purchase Plan, your employee contributions will be stopped automatically; or, if necessary, returned with earnings as taxable income. Your employee contributions will resume automatically at the same level at the beginning of the next year unless you change your employee contribution elections. While you cannot continue to make before-tax or Roth 401(k) contributions for that Plan year after you meet this limit; you may be able to contribute on an after-tax basis, up to Plan specified limits. If you exceed the annual before-tax and Roth 401(k) contribution limit based on contributions that you made to this Plan and another employer s plan, you have until March 31 of the following year to request a distribution from The 401(k) Stock Purchase Plan of the excess amount plus any related earnings. For example, if you re a newly-hired employee who participated in a 401(k) plan at your previous employer, you should consider any contributions to that plan in calculating whether you contributed an amount in excess of the annual before-tax contribution limit. In addition to the annual limit on before-tax and Roth 401(k) contributions, there is also an annual legal limit on the total contributions (employer and employee) that may be made to plans of this kind. The limit is the lesser of $52,000 (or such adjusted amount as may be prescribed under the Internal Revenue Code); or 100% of your total annual compensation for the Plan year. These limits are sometimes referred to as the limits on annual additions or the Code Section 415 Limits. The Internal Revenue Code also imposes other limitations and restrictions on some participants contributions. For example, after-tax contributions by certain highly compensated employees may be limited by some of these rules. If you are affected by any of these limits, you will be notified Cullen Frost 401(k) SPD (Final).docx 10

16 Effect on Other Benefits When aggregated together, your employee and the employer contributions in this Plan plus the employer contributions made on your behalf by Frost into the Cullen/Frost Profit Sharing Plan, could reach the Code Section 415 Limits. This may limit the amount that you would be eligible to receive in employer contributions under the Profit Sharing Plan Cullen Frost 401(k) SPD (Final).docx 11

17 Advantages of Before-Tax Contributions You reduce the amount of federal income taxes you currently pay when you make before-tax contributions to your account. In the Plan, you can save with before-tax contributions and after-tax contributions. With before-tax savings, your employee contributions are deducted from your pay before federal income taxes are withheld which results in reduced taxes and higher take-home pay at the time the contributions are made. (Note: You still pay Social Security taxes on your employee before-tax contributions.) As long as the contributions stay in your Plan account, you will not have to pay federal income taxes on your before-tax contributions, Company contributions, or investment earnings. When you receive payment from the Plan, you will be subject to federal income taxes and possibly a penalty tax, depending on when the payment is received. (For more information, see section entitled Tax Considerations. ) Before-Tax Savings Versus After-Tax Savings Here s how the before-tax savings works. Suppose you earn $40,000 a year, are married, have two dependent children, and file a joint federal income tax return. You plan to save 6% of your compensation a year ($2,400). The following example shows the potential increase in spendable pay available by saving with before-tax contributions instead of saving with after-tax contributions. For a comparison of how before-tax contributions relate to Roth 401(k) contributions, use the Roth 401(k) Calculator by logging into your 401(k) account at and select the Education and Tools link on the home page and then select Calculators and Planners. After-tax contributions Before-tax contributions Annual pay $40,000 $40,000 Before-tax contributions ($0) ($2,400) Taxable pay $40,000 $37,600 Estimated federal income and Social Security ($6,126) ($5,766) taxes Net pay $33,875 $31,835 After-tax contributions ($2,400) ($0) Take-home pay $31,475 $31,835 Tax savings $0 $360 In this example, you contribute $2,400 whether you make after-tax or before-tax contributions. But, by making before-tax contributions, your spendable income in the year of contribution would increase by $360. That s your current tax savings. This example assumes a 15% federal income tax bracket. Your savings on current taxes will depend on your personal financial situation. If after-tax contributions are made as traditional after-tax contributions, the contributions will not be taxed when distributed to you, but the earnings on those after-tax contributions will be taxed. If after-tax contributions are made as Roth after-tax contributions, neither the contributions nor the earnings on them will be taxed when distributed to you (provided, as described earlier, that the distribution is a qualified distribution ) Cullen Frost 401(k) SPD (Final).docx 12

18 About Investing All Company contributions are used to purchase Cullen/Frost Bankers, Inc., common stock through investments in the Cullen/Frost Stock Fund. Your employee contributions, including any rollover contributions, may be used to invest in additional Cullen/Frost Bankers, Inc. common stock held within the Cullen/Frost Stock Fund or any of the other investment funds. All contributions made to your account are invested. In this way, your account can build over time through the earnings on the investments. Currently, you have a variety of investment opportunities. The Prospectuses and Fund Fact Sheets are available at It is important for you to understand that past performance of any fund is not a guarantee that the fund will continue to perform at the same level or offer the same yield in the future. Please understand that all investment funds have some associated level of risk and that you will be solely responsible for the investment risks associated with your investment election. Changing or Transferring Your Investments You can change how your future contributions to your account are invested; you can reallocate the way your existing balance is invested; and you can transfer amounts in the investment options from one to the other. Changes are in whole percentage increments, except that transfers from one Plan investment to another may be made in dollars or percentages. Changes can be made as of any business day. You can make these changes by logging on to You may also make these changes through the 401(k) telephone Voice Response Unit (VRU) at Many funds have policies designed to prevent frequent trading by fund shareholders. Some fund companies (or fund managers) limit the number of transfers or exchanges a shareholder may make within its funds. Your trading activity within the Plan may be subject to any such limit imposed by a fund or fund company. In addition, some funds impose a short-term redemption fee on fund shares held for less than a specified time period. Your trading activity within the Plan may be subject to any trading limit imposed by a fund or fund company. If a fund within the Plan imposes a short-term redemption fee, your trading activity within the Plan may be subject to that fee. For additional information regarding the policies that limit transfers or exchanges or charge redemption fees, refer to the current prospectus for each mutual fund or the informational materials for the other investment options in the Plan. Fact Sheets and Prospectuses, if applicable, can be located at The Committee may restrict, delay, or prohibit any transfer of funds that might have a negative impact on any investment fund s performance results. Diversification Opportunity To help you achieve long-term retirement security; you should give consideration to the benefits of a welldiversified portfolio. Spreading your assets among different types of investments can help you achieve a favorable rate of return, while minimizing your overall risk of losing money. This is because market or other economic conditions that cause one category of assets, or one particular security to perform very well often cause another asset category, or another particular security, to perform poorly. If you invest more than 20% of your retirement savings in any one company or industry, your savings may not be 2014 Cullen Frost 401(k) SPD (Final).docx 13

19 properly diversified. Although diversification is not a guarantee against loss, it is an effective strategy to help you manage investment risk. In deciding how to invest your retirement savings, you should take into account all of your assets, including any retirement savings outside of the Plan. No single approach is right for everyone because, among other factors, individuals have different financial goals, different time horizons for meeting their goals, and different tolerances for risk. It is also important to periodically review your investment portfolio, your investment objectives, and the investment options under the Plan to help ensure that your retirement savings will meet your retirement goals. For additional information, please visit the Department of Labor website at You can direct how your employee contributions are invested, and also how your existing account is allocated, among the various funds of the 401(k) Stock Purchase Plan. However, you may not direct the investment of Company contributions until the contributions have been placed into your account. Company contributions will always be invested in the Cullen/Frost Stock Fund. You may transfer these contributions into other investment funds after the stock is purchased. The current investment election opportunities satisfy the diversification requirements for an ESOP Cullen Frost 401(k) SPD (Final).docx 14

20 Your Investment Choices All contributions made to your account are invested. In this way, your account can build over time through the earnings on your investments. Currently, there are a variety of investment choices available to you. Each available investment has its own specific investment objectives and different risk and return characteristics so that you can choose the mix of investment options that best fits your personal investment goals. The Prospectuses and Fund Fact Sheets for each investment offered by the Plan are available at How Your Account Is Valued The value of your account is calculated each business day. The value of your account may vary from day to day because it is based on the price of the Cullen/Frost Stock Fund and mutual fund shares in your account. Any earnings/losses on your investments are posted to your account each business day. Quarterly Statements To help you keep track of the value of your account, you will receive a statement each quarter. This statement has your beginning and ending balance for the quarter, your employee contributions, Company contributions, investment earnings (or losses), withdrawals, and loans. You can get current account balance and detailed information on your account balances (vested, source, and fund) at or through the 401(k) telephone VRU at Cullen Frost 401(k) SPD (Final).docx 15

21 Loans The 401(k) Stock Purchase Plan includes provisions that allow you to borrow from your account. You may take a loan from your account. A loan offers the following advantages: When you repay your loan, the interest you pay goes into your account. You repay your loan through convenient payroll deductions. You pay no taxes or penalties on the amount you borrow unless you default on the loan. A loan, however, will reduce your take-home pay. If you stop working for Frost with an outstanding loan, you can pay the outstanding loan balance at the time of termination or no later than the end of the quarter after the quarter in which the last payment was received. If you default on the loan, the remaining interest and principal will be considered a distribution. You ll be subject to tax and a possible 10% penalty on the unpaid principal and interest for the year in which you default on a plan loan. How Much You Can Borrow The minimum loan amount is $500. The maximum total loan amount is the lesser of: $50,000 minus the highest outstanding loan balance in the previous 12 months (even if that loan is fully repaid); or 50% of your vested account balance. To determine your vested account balance, the value of your entire account is considered. Your vested account balance includes: Your before-tax contributions; Your Roth 401(k) contributions; Your after-tax contributions; Any rollover contributions; The vested portion of your Company contributions; and The vested portion of earnings on any of these amounts. You may borrow from the contributions you made to the Plan, any rollover contributions, your vested Company contributions, and any earnings Cullen Frost 401(k) SPD (Final).docx 16

22 Value of Employer Stock When you take a loan, the value of your stock used to determine the available loan amount is the market value of the stock fund as of the market close on the date the loan is requested. You may have only two loans outstanding at any time. Applying for a Loan You may request a general purpose loan from the Plan for any reason. You may also request a residential mortgage loan from the Plan. You may have no more than two Plan loans outstanding at one point in time. Log on to the website at or call the 401(k) telephone VRU at The system will process your application. MassMutual will mail your loan check, which constitutes your promissory note as soon as administratively possible after receiving your request. If approved, loans requested through the VRU/Web/RRC by 3:00 p.m. CST will be processed on that business day. Loan checks are generally mailed the following business day after the request is processed. A $100 loan application fee will be accessed to each new loan that is requested. The fee will be added to the loan amount and the total of the loan amount plus the fee will be liquidated from your current assets. For example, if you request a loan for $5,000, $5,100 will be liquidated from your account and you will receive a check for $5,000. Repaying Your Loan When you take a general-purpose loan, you agree to a repayment period of up to five years. If the loan is for your primary residence and is approved, the repayment period can be up to 30 years. Loan repayments and interest are reinvested in your account. You may repay your total outstanding loan balance at any time with no prepayment penalty. To pay off your loan in a lump sum, mail a certified check, money order, or cashiers check payable to CFBI 401(k) Plan FBO your name to: MassMutual Retirement Services P. O. Box 1583 Hartford, CT Loan Default If you default on your loan, the outstanding loan balance and accrued interest will be considered a Plan distribution and you will be required to pay federal income taxes and a possible penalty tax on the outstanding balance. A default of your loan could result in foreclosure on a portion of your account and may prohibit you from obtaining additional loans in the future. If Your Employment Ends If your employment ends because of termination (voluntary or involuntary), retirement, or death, your loan will become due and will be payable. You can repay the outstanding loan balance at that time or no later than the end of the quarter after the quarter in which the last payment was received. If you do not pay off the loan, any outstanding loan balance will be subtracted from the assets of your account before you (or your beneficiary) receive payment. In that case, taxation and early withdrawal tax rules may apply Cullen Frost 401(k) SPD (Final).docx 17

23 Restriction on Loans Loans may not be renegotiated. The Plan committee may limit loans, deny loans, or stop the granting of loans at any time Cullen Frost 401(k) SPD (Final).docx 18

24 Withdrawals You may withdraw part of your account balance under certain conditions. The main purpose of the Plan is to provide funds for your retirement. You are encouraged to keep your money in the Plan so it can grow in value for the future. Withdrawal of Traditional After-Tax and Rollover Contributions You can request a withdrawal at any time of all or any part of the value of your: Traditional after-tax contributions and earnings; and Rollover contributions and earnings. By law, a withdrawal of traditional after-tax contributions must include a proportional amount of related earnings. You don t pay taxes on after-tax money you withdraw. However, you will pay taxes and a possible 10% penalty tax on withdrawals of earnings and rollover contributions. You should consult your tax adviser to find out how the tax laws will affect your situation. Withdrawal of Before-Tax and Roth 401(k) Contributions Because of the special tax advantages offered by before-tax and Roth 401(k) contributions, you may only withdraw your before-tax and Roth 401(k) contributions under the following conditions: Withdrawal After Age 59½ When you reach age 59½, your total before-tax and Roth 401(k) contribution accounts are available for withdrawal. You ll pay taxes on your before-tax withdrawal, but there is no penalty tax. Your Roth 401(k) contributions will not be subject to tax. Additionally, the earnings on your Roth 401(k) contributions will not be subject to tax if this is a qualified distribution. Finally, you can continue saving in the Plan even though you ve withdrawn money from the Plan. Financial Hardship Withdrawal You can withdraw your before-tax and Roth 401(k) contributions (excluding earnings on these contributions) and your available ESOP account balance if you have a financial hardship an immediate and heavy financial need that cannot be met from other sources. Your available ESOP account balance is limited to the amount of your vested interest in the Company matching contributions less any previous withdrawals from your ESOP account. Federal law allows hardship withdrawals for these specific conditions: Uninsured medical expenses, including amounts needed to get medical care, for you, your eligible dependents, or designated primary beneficiaries; The purchase of your principal residence (excluding mortgage payments); 2014 Cullen Frost 401(k) SPD (Final).docx 19

25 Post-secondary tuition, including related educational fees (such as books), for the next 12 months for you, your spouse, eligible dependents, or designated primary beneficiaries; Expenses to prevent eviction from or foreclosure on your principal residence; Funeral expenses for a participant s deceased parent, spouse, children, eligible dependents, or designated primary beneficiaries; Casualty repair expenses for the participant s principal residence; or Other situations that may be allowed by the Internal Revenue Code from time to time. If you make a hardship withdrawal: You must take all distributions and loans currently available under this Plan and any other tax qualified Company retirement plans before applying for a hardship withdrawal; and You will not be allowed to make employee contributions to the Plan for 6 months after you receive the hardship withdrawal. If you meet the requirements for a hardship withdrawal, including determining first if you are eligible for a loan from the Plan and if the loan can satisfy your financial need, you can withdraw the amount needed for the hardship, including amounts necessary to satisfy your anticipated tax liability for taking the hardship withdrawal, from your before-tax contributions (excluding earnings) and available ESOP account balance. However, you cannot withdraw more than the amount available for withdrawal. The minimum withdrawal that you may take is $500. See the section entitled Tax Considerations for more information. Applying for a Withdrawal You may request a withdrawal from the Plan at or through MassMutual s VRU or Retirement Plan Information Line Cullen Frost 401(k) SPD (Final).docx 20

26 Payment When You Leave Frost You or your beneficiary is entitled to the value of your account when you retire, die, or stop working for the Company for any reason. The primary objective of the Plan is to help you accumulate savings for retirement. When you leave the Company for any reason, you receive the full value of your employee contributions (after-tax and before-tax) and rollover contributions plus (or minus) investment income (or losses). You will also receive the vested portion of Company matching contributions and ESOP contributions made to your account, plus (or minus) investment income (or losses). You have several options for receiving payment of your account. You may: Receive all or part of your account balance in cash. Receive stock for all or part of your account balance, which was invested in Cullen/Frost Stock Fund and the cash value of partial shares of Cullen/Frost Stock Fund account balance in all other funds is distributed in cash. Transfer all or part of the taxable portion of your account directly into another employer s qualified plan or into an IRA, if the direct transfer is greater than $200. For more information on direct transfers, see the section entitled Tax Considerations. Defer payment of your vested account balance (including contributions you made to the account and earnings). This option is available only if your vested account balance is $1,000 or greater and you have not reached age 65. If you choose to defer your payment, you may request a final distribution at any time before the later of the date you terminate from employment with the Company or the year in which you attain age 70½. If your vested balance is less than $1,000 and you do not return an election form regarding the method of payment, your distribution (less 20% withholding for federal income taxes) will be paid directly to you in cash. In the case of an automatic distribution of your account, such distribution will be made entirely in cash for the part of your account balance invested in Cullen Frost Stock and other investment options. A distribution in cash only might also occur if you re age 65 and the Plan administrator makes a distribution. Payment If You Become Disabled If the Plan administrator determines that you have experienced a qualifying Disability (i.e., because the Company s long-term disability carrier or the Social Security Administration has made a determination that you are disabled), you will be entitled to take a distribution of your vested account balance. You will be entitled to a Disability distribution even if your employment relationship with the Company has not yet been terminated Cullen Frost 401(k) SPD (Final).docx 21

27 If You Have a Loan If you have an outstanding loan, you may repay it before you receive a distribution. Otherwise, the outstanding loan balance will be deducted from your distribution. In that case, you will be required to pay federal income taxes and a possible penalty tax on the outstanding balance. CFBI Common Stock Dividends You are entitled to receive dividends on the number of shares of CFBI stock in your account. Dividends will be reinvested back into the Plan or you or your beneficiary may choose to have the dividend paid directly to you. Please contact MassMutual at if you would like to have your dividends passed through and paid to you via check or ACH credit. You can change your election by contacting MassMutual as long as there is time before the next payment date. Dividends will be paid as soon as administratively possible, but no later than 90 days after the end of the Plan year in which the Trustee received the dividends Cullen Frost 401(k) SPD (Final).docx 22

28 Tax Considerations Tax laws are complex and change frequently. Before you receive a distribution or take a withdrawal from the Plan, you should consult a tax expert for information on how your payment will be taxed. When you receive payment of your account, a mandatory 20% federal income tax withholding will be deducted from your payment. In some cases, an additional 10% penalty tax may apply to a distribution you receive before retirement or age 59½. This section provides the general tax guidelines to help you understand the tax treatment of withdrawals and distributions. The information provided here is based on current laws and is subject to change. Taxation of Cullen/Frost Bankers, Inc. Stock You may be eligible to use a special rule when the payment you are receiving from your account includes Cullen/Frost Bankers, Inc. stock. To use this special rule, the payment must qualify as a single payment (or would qualify except that you do not have five years of participation in the Plan), or the Cullen/Frost Bankers, Inc. stock included in the payment must be attributable to after-tax employee contributions, if any. Under this special rule, you have the option of not paying tax on the net unrealized appreciation of the stock until you sell the stock. Net unrealized appreciation generally is the increase in the value of the stock while it was held by the Plan in your account. You may elect not to have this rule apply to the net unrealized appreciation. In this case, your unrealized appreciation will be taxed normally in the year you receive the stock. You may defer paying taxes on the stock (including any net unrealized appreciation) by making a direct transfer or rollover into an IRA or another employer s qualified plan. 20% Withholding The IRS requires Frost to withhold 20% of the taxable portion of withdrawals and distributions you receive from the Plan, unless you arrange a direct rollover transfer. Withholding is required on withdrawals and distributions paid to you even if you later decide to roll over part or all of your distribution to an IRA. The 20% withholding is not required if you arrange a direct transfer (direct rollover) of your distribution from the Plan into an IRA or another employer s retirement plan that accepts direct transfers. You are not required to sell Company stock in order to satisfy the 20% withholding requirement. Direct Rollover For taxable distributions greater than $200, you may choose to have the Plan transfer all or part of the taxable portion of your account payment directly into an IRA, individual retirement annuity, or another employer s qualified plan. (Direct rollovers of part of the taxable portion of your account are available only for taxable amounts of $200 or more.) You will not be required to pay taxes on amounts that are directly transferred until you actually receive payment. If you choose to receive a cash payment of all or part of your payment, a 20% mandatory federal income tax withholding will be deducted from the taxable portion of your payment. However, the taxable portion of your payment is still eligible to be rolled over to an IRA within 60 days from the date you receive the payment, allowing you to defer federal taxation on the amount rolled over. You have two rollover options: 2014 Cullen Frost 401(k) SPD (Final).docx 23