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C2015-531 - 12/15/2015 - Approved
FROST BANK DEPOSITORY SERVICES AGREEMENT DO NOT PUBLICLY RELEASE WITHOUT CONSULTING W/ LEGAL DEPARTMENT CONTENTS INCLUDE SIGNATURES OF CITY EMPLOYEES AS WELL AS CONFIDENTIAL BANKING INFORMATION OF BOTH THE CITY OF CORPUS CHRISTI AND FROST BANK. CONTENTS ALSO INCLUDE PAGES COPYRIGHTED BY FROST BANK. 4/14/16 INDEXED = Frost -.1►Z Post Office Box 1600 San Antonio, Texas 78296-1600 May 9, 2016 Constance Sanchez Director of Financial Services City of Corpus Christi P.O. Box 9277 Corpus Christi, TX 78469-9277 Dear Mrs. Sanchez: Enclosed for your files is an original copy of the Bank Depository, Security Agreement and Pledgee Agreement between the City of Corpus Christi and Frost Bank. Also enclosed is an extract from the minutes of Frost Bank's Board of Directors meeting held April 28, 2016 approving these agreements. Sincerely, (-* Ana Maria Carpio Administrative Officer Enclosures 2015-531 12/15/15 Ord.030721 INDEXED Frost Bank Bankers,Inc.NYSE Symbol:CFR,a Texas financial services company offering banking,investments and insurance. EXTRACT FROM THE MINUTES OF FROST BANK BOARD OF DIRECTORS MEETING APRIL 28,2016 At a meeting of the Board of Directors of Frost Bank duly called and held on April 28, 2016, a quorum being present, the following resolution was approved: RESOLVED,that the Board of Directors approve Frost Bank entering into a Depository ServicesAgreement, a Security Agreement, and a Pledgee Agreement Form with the City of Corpus Christi. I, Stanley E. McCormick Jr., Executive Vice President and Secretary of Frost Bank Board of Directors, do certify that the above is a true copy from the minutes of a meeting of the Board of Directors of Frost Bank held on April 28, 2016. E,Y1ACAJA:"1/ Stanley E. cCormick, Jr. Executive Vice President and Secretary Board of Directors (CORPORATE SEAL) CITY OF CORPUS CHRISTI AND FROST BANK DEPOSITORY SERVICES AGREEMENT Whereas, the City of Corpus Christi ("City") requested and received applications for the provision of depository services for City funds from depositories doing business within the city limits of Corpus Christi, Texas; Whereas,the City Council considered and reviewed the specifications of each application received and determined which application was the most advantageous for the City; Whereas, on December 15, 2015 the City Council in Ordinance 030721 designated Frost Bank ("Depository")to be the depository for City funds and authorized the City Manager to execute this depository services agreement("Agreement")with Depository; NOW THEREFORE, in consideration of the mutual benefits to be derived from this Agreement, including representations,warranties, and covenants,the City and Depository agree as follows: ARTICLE 1 Definitions For purposes of implementing this Agreement,the terms listed below will have the following meanings: "Authorized City Representative": the City Manager or other persons designated to perform duties in accordance with this Agreement. The present Authorized City Representatives are specified in Exhibit A. "Account Transfers": written, electronic (wire/ACH), telephonic, facsimile or oral requests or orders issued by an Authorized City Representative for the transfer of City funds on deposit from City accounts maintained at the Depository for credit to accounts designated by the Authorized City Representative. "Deposits": include demand and time deposits. The City may withdraw demand deposits on demand. Time deposits are subject to a contract under which the City may not withdraw funds by check or other means until the expiration of a certain period following written notice. "City Funds": all accounts held by the Depository for the City. "Total City Balance": the sum of all ledger balances of all City accounts held by Depository. "Depository Services": all services required according to this Agreement "Other Financial Services": all services necessary in the administration, collection, investment, and transfer of city funds. ARTICLE 2 Provision of Depository Services 2.01 Depository Services and Fees. The Depository hereby agrees to provide depository and other services described in this Agreement for the City funds deposited at the Depository. The City agrees to pay a net monthly service fee to Depository,which will be calculated as described herein. For the duration of the initial term of this Agreement and any extension hereof,the Depository agrees to calculate the earnings credit rate as follows: based upon the previous month's average 91-day Treasury Bill auction discount rate plus 30 basis points. 1 For the duration of the initial term of this Agreement and any extension hereof,the Depository agrees to provide the City with endorsement stamps and deposit bags at no charge. 2.02 Guaranteed Service Fees. All service fees listed in Exhibit F incorporated for all purposes into this Agreement, are guaranteed for the entire term and any option year of the Agreement. The service fees will be used in calculating the net monthly service fee. 2.03 Calculation of Net Monthly Service Fee. The Depository shall mail a written invoice evidencing the services performed for the City by the 10th business day of the following month for each account. This invoice shall also contain a section summarizing the services provided and the fees for services for all accounts. The net monthly service fee is to be calculated as follows: The Depository will calculate total earnings credit for all City account balances grouped together and not for single account balances. The Depository will calculate the total monthly service fees for all accounts. If the total service fees are greater than the total earnings credits,then the difference between the two will be the net monthly service fee for that time period. The City shall remit payment to the Depository for the net monthly service fee. 2.04 Payment of Net Monthly Service Fee. The Depository will reimburse the City's depository account for any errors in fees charged to the City's account. 2.05 Representations of Depository. The Depository shall: (a) keep the City funds covered by this Agreement; (b) faithfully perform all duties and obligations imposed on the Depository by law and under this Agreement; (c) pay on presentation all checks drawn and properly payable on a demand deposit account with the Depository; (d) pay all transfers properly payable as directed by an Authorized City Representative; (e) provide and maintain security at the level required by the provisions of Chapter 2257, Government Code and this Agreement; and (f) account for the City funds as required by law. 2.06 Representations of City. The City represents, warrants, and promises that: (a) the City has complied with all applicable law governing the selection of a depository bank, that City has full power and authority to enter into this Agreement,the Agreement is a valid and binding agreement enforceable against the City pursuant to its terms, and does not and will not violate any statute or regulation applicable to the City; (b) all acts, conditions, and things required to exist, happen, or to be performed on the Depository's part precedent to and in the execution and delivery of this Agreement exist or have happened or have been performed; and (c) the City will comply with the terms of any other agreements it may have with the Depository in connection with this Agreement. 2.07 Electronic Cash Management Services. The Depository shall provide electronic cash management services.Using Internet access,the City,through an Authorized City Representative,shall be permitted to access and transmit a variety of balance and transaction information as required in this Depository Services Agreement. 2 2.08 Deposits. The Depository shall accept all deposits made by the City during the term of the Depository Services Agreement. The Depository shall accept City deposits for ledger credit until 3:00 p.m. Central Time (CT) each business day. The City reserves the right to exclude deposits made on behalf of the Corpus Christi Fire Fighters'Retirement System and any other special funds which are controlled by entities separate and apart from the City. 2.09 Items Deposited. All payments made directly to the City by customers will be sent to the Depository un-encoded. 2.10 Automated Information Reporting. Using Internet access, the City shall be permitted to access, for each City account, the previous day's ending ledger balance, collected balance, float, and debit/credit detail by 8:00 a.m. CT daily. By this same deadline, this information shall be combined to reflect totals for all City accounts taken together. 2.11 Items Processing Service. The Depository shall provide the following processing services for all items of checks and cash deposited by the City: encoding services, credit and debit advices to the City within three business days of the debit or credit, clearing returned items, and return of stamped duplicate deposit slips to the City within one business day of deposit. The information is also available on Cash Manager. The City intends to deposit all revenues directly to the Depository by courier. The deposits will be made in batches with a tape to be provided for each batch. If the Depository Item Processing Department discovers an error in the deposit,then the Depository shall prepare a credit or debit advice and mail it to the City immediately after the account has been adjusted. The Depository shall also mail the appropriate documentation attached to the debit or credit advice to justify the correction. Appropriate documentation is considered to be a copy of the City's tape with the item in question marked and a copy of the check in question. 2.12 Insufficient Funds (NSF)/Returned Items. A complete description shall be provided on all NSF/returned items deposited into City accounts. The description shall include the Payor's name, applicable City department, and reason for return. All NSF/returned items shall be charged back to the account to which the items were deposited provided that the City department is identified by endorsement stamp or other readily identifiable means on the item. The Depository will send the NSF/returned items to the City department or other business designated by an Authorized City Representative. 2.13 Stop payments. Stop payments shall remain in effect for six(6)months. By using Internet access,the City through an Authorized City Representative shall be able to initiate stop payments. Placement of stop payments through the Internet does not require follow-up written authorization. 2.14 Automatic payroll deposit services. Using Internet access, the City through an Authorized City Representative will electronically transmit City employee payroll data to the Depository. The Depository will receive the data and prepare an Automated Clearing House("ACH")debit. The Depository payroll account will be debited no sooner than the date of payroll. Exhibit B contains the 2016 Payroll Calendar. Procedures for processing the ACH debit are set out herein. 2.15 General Wire Transfer Services. Using Internet access, the City shall be able to initiate general wire transfer services including initiation of repetitive and non-repetitive wire transfers. The Depository shall act upon all electronic, written or verbal transfer requests within one hour from the time received from an Authorized City Representative, and use any means for the transmission of the funds the Depository may consider suitable up until 3:30 p.m. CT,provided there are collected funds in the account. The Depository shall record all telephonic instructions from the City received by the Depository's wire transfer department and retain the recordings for sixty-one (61) days (the period for City notification of discrepancies) following such requests. 3 In the event there is a loss of interest or use of funds as result of a Depository error for failure to execute a transfer request on the date received, or such other error within the Depository's control, compensation for loss shall be corrected by adjusting the aggregate ledger and collected balances of the City accounts to reflect properly the average balances of the amounts that would have resulted had no error occurred. 2.16 Account Reconciliation Services. All depository statements and paid items shall be on a monthly cycle and shall be cutoff on the last calendar day of the month. The City will pick up all Depository statements via electronic format(such as a compact disk—CD)no later than the fifth business day following the assigned cut-off date. The Depository may not mail the CD unless an Authorized City Representative approves such mailing. The Depository will provide the City access to cleared checks via the Internet. 2.17 Depository Reconcilements. Automated depository reconcilements with Internet access are required for the Vouchers Payable and Payroll accounts and other accounts as required by an Authorized City Representative as transaction volume increases. By using the Internet, the City will electronically transmit reconcilement data to the Depository. Reconcilements shall be available for pick up by the City by the ninth business day following the date the data was transmitted to the Depository. "Add/delete" adjustment forms will be provided by the Depository. The Depository will transmit reconcilement information to the administrators of the City's health care and worker's compensation accounts and others as designated by the City. 2.18 Checking with Interest Accounts. If designated by an Authorized City Representative, a demand deposit account will be set up as interest bearing and interest will be paid monthly as it accrues through the last day of each month. Interest rates will be those set for public fund interest bearing accounts. All such accounts shall be in the name of the City of Corpus Christi, or in the name of the City of Corpus Christi on behalf of the Corpus Christi Housing Finance Corporation, or in the name of the City of Corpus Christi on behalf of the Corpus Christi Community Improvement Corporation,with the designation of the fund or account in accordance with instructions of the City. 2.19 Controlled Disbursement Service. Specific accounts as designated by an Authorized City Representative will be controlled disbursement accounts. By 11:15 a.m. CT each day,the City shall be able to access same day information concerning controlled disbursement clearings using the interne. 2.20 Zero-Balance Accounts. Specific accounts as designated by an Authorized City Representative will be zero-balance checking accounts for ease in reconciling and record keeping. 2.21 Check Cashing. Depository shall pay on presentation all checks drawn and properly payable on a City demand deposit account at no charge to the payee or to the City. 2.22 Deposit Locations. The City will have the option to make Deposits at the Depository's main Corpus Christi office or at any of Depository's Corpus Christi branches. A deposit ticket will be presented to the Depository with each deposit. The Depository will route specified deposit ticket copies to the City on a daily basis. 2.23 Night Depository. The City will utilize the night depository facilities of the Depository for safekeeping purposes. The City will use special tamper-evident deposit bags in making deposits through the night depository facility.Each bag placed in the night depository facility will contain only currency,coin,and checks.If it appears that a bag has been tampered with,the Depository shall telephone an Authorized City Representative. 2.24 Overdrafts. The City does not intend to have an overdraft position on any of its depository accounts throughout the course of the depository services contract. If a check or checks are presented for payment on any City account where there exist insufficient funds available for payment, the Depository agrees to pay said 4 checks and promptly notify the City's Director of Financial Services or Authorized City Representative of the existence of the overdraft situation. The City agrees to cover the overdraft within one business day. 2.25 Authority of Authorized City Representative. During the Term of this Agreement, the City will, through appropriate action of its governing body, designate an Authorized City Representative or Authorized City Representatives, individually or jointly, will be authorized to represent and act on behalf of the City in any and all matters of every kind arising under this Agreement, including,but not limited to,taking such actions as: (a) executing and delivering to Depository an electronic fund or funds transfer agreement (and any addenda thereto); (b) appointing and designating, from time to time, a person or persons authorized to request withdrawals, orders for payment, or transfers on behalf of City in accordance with the electronic fund or funds transfer agreement and addenda; (c)making withdrawals or transfers by written instrument; and(d) delivering to Depository the City's collateral policy and evidence of approval by the City's governing body of(1) the collateral policy, (2) the Custodian, (3)this Agreement, and (4) the Security Agreement. An Authorized City Representative may request depository services as required to implement this Agreement. An Authorized City Representative may open a depository account. The Depository shall not require corporate resolutions or other documents to establish depository accounts at the request of an Authorized City Representative. 2.26 Investment Services. The City reserves the right to exclude from the terms of this Agreement, investment in certificates of deposits, government securities, fully collateralized repurchase agreements or similar instruments authorized by law. 2.27 Account Executive Service. The Depository agrees to assign one of its officers employed by the Depository in Corpus Christi,Texas to coordinate the depository relationship established under this Agreement. The assigned officer is responsible for responding to questions from an Authorized City Representative. The assigned officer shall perform necessary research to promptly respond to questions or concerns of the City regarding its accounts. The assigned officer of the Depository shall meet with the City at least once a month to evaluate the working relationship between the City and the Depository and to address any problems. 2.28 Reports. The Depository will provide quarterly reports of income/condition(required by the FDIC)by the 15th day following the reporting deadline for each calendar quarter. The statements are provided by posting to the Depository's website. 2.29 Direct Debit of Customers. The City shall electronically transmit data to the Depository regarding those City utility,marina and miscellaneous accounts receivable customers who have previously authorized the City to directly debit their demand deposit accounts for their City bills. Upon request by the City,the Depository shall provide this pre-authorized direct debit service. The Depository will receive the data and prepare an ACH debit in accordance with the operating rules of the South Western Automated Clearing House Association and the operating rules of the National Automated Clearing House Association and as provided herein. ARTICLE 3 Security for Deposits 3.01 Background. As security for the deposits of the City,the Depository shall pledge to the City securities equal to the largest total ledger balances the City maintains in the Depository, less the amount of coverage provided by the Federal Deposit Insurance Corporation. All funds deposited under the Depository Services Agreement shall be continuously secured in accordance with applicable federal laws and regulations as well as the laws of the State of Texas, including, but not limited to: the Public Funds Collateral Act,Vernon's Texas Government Code Section 2257.001 et. seq. and Subchapter C Security for Funds Held by Depository of Vernon's Texas Local Government Code. 5 3.02 Qualification as Depository. The Depository shall, no later than five days before the commencement of the term of this Depository Services Agreement, pledge security for the funds to be deposited by the City at the Depository as provided by Subchapter C, Security for Funds Held by Depository of Chapter 105, Depositories for Municipal Funds of the Texas Local Government Code,Chapter 2257, Public Funds Collateral Act, Government Code, and this Depository Services Agreement. 3.03 Collateral Provision of Financial Institution Reform,Recovery and Enforcement Act(FIRREA). The Depository shall provide certification that the Depository has complied with all requirements of the Financial Institution Reform,Recovery and Enforcement Act(FIRREA)and FDIC policies which may apply to the City's security interests in the pledged collateral and shall specify the officers of the Depository who are authorized to sign agreements with the City.Prior to the initial pledge of securities under the Depository Services Agreement,the Depository shall: (a)execute a Security Agreement-Pledge and ancillary agreements necessary to effect the pledge of securities to collateralize all of the City's deposits in such form as is acceptable to the City(Exhibit E); (b) deliver to the City a certified copy of excerpts from the minutes of a meeting of the Loan Committee and/or Board of Directors of the Depository, properly authorizing the Depository to enter into a Security Agreement-Pledge, and to pledge assets of the Depository to secure all deposits made by the City with the Depository;and(c)deliver to the City certification that the Depository Agreement,the Security Agreement- Pledge, and the authorization of the Board of Directors and the Loan Committee of the Depository have been placed(and will continuously be maintained) in the official records of the Depository. 3.04 Permissible Security. Only the following types of securities are acceptable to the City to secure City deposits: (1) a treasury note of the United States or other evidence of indebtedness of the United States that is guaranteed as to principal and interest by the United States. (2) an obligation of an agency of the United States,provided that: (i)the market value can be readily established and (ii) the obligation has been approved by an Authorized City Representative. 3.05 Custodian of Pledged Securities. The securities pledged by the Depository as collateral for City deposits shall be deposited with the Federal Reserve Bank,("the Custodian"),in escrow in a safekeeping account held in the name of the City, ("the Custodian Account"). The Custodian Account shall require the authorization of both the Depository and an Authorized City Representative to release pledged collateral.The Custodian,upon receipt of pledged securities,shall promptly issue and deliver to the Authorized City Representative trust receipts for the securities pledged. The securities shall be held by the Custodian. The Custodian may not transfer or deposit the securities in another institution without the prior written authorization of an Authorized City Representative. City and Depository, by execution of this Agreement, designate the Federal Reserve Bank as the "Custodian," to hold collateral in an account maintained by Custodian in the name of the Depository and subject to the control of City, according to the terms and conditions of this Agreement, the Security Agreement, and any agreement required by the Custodian to document such relationship. 3.06 Amount of Collateral. Securities pledged by the Depository to secure City funds on deposit identified with federal taxpayer identification number 74-6000574 shall have a market value of at least thirty million dollars ($30,000,000) or as designated in writing by an Authorized City Representative. During the City's tax season, which occurs from October through March, the Depository shall provide additional collateral in accordance with this Agreement. Securities pledged by the Depository to secure City funds identified with federal taxpayer identification number 74-2442464 shall have a market value of at least four million dollars ($4,000,000) or as designated in writing by an Authorized City Representative. 6 3.07 Determination of Market Value. The Depository shall determine the market value of the pledged securities through its Bloomberg service. 3.08 Charges for Collateral. Charges for the collateral provided by the Depository are provided in the Applicant's response to Section 3.6, of the Request for Applications. 3.09 Federally Insured Deposits. The Depository is not required to provide security for the deposit of City funds to the extent deposits are insured under 12 U.S.C.A., Sections 1811-1835a. 3.10 Additional Security. The City will make it's best effort to notify the Depository before 3:00 PM of a large deposit, so that the Depository will be able to pledge the collateral the same day. The market value of the collateral securing City's funds will at all times equal or exceed 110%of the City's total deposits less the FDIC standard maximum deposit insurance amount("SMDIA"). When the need for collateral with the Depository is expected to increase on any given day or over a series of days,the City agrees to notify the Depository of such expected increase at least one(1)business day prior to the expected date the additional deposits are expected to be received, if the City can reasonably make such notification in advance. Additionally, if, for any reason,the total City balance on deposit with the Depository exceeds the market value of pledged security, the Depository shall take all reasonable efforts to pledge additional securities to the City. Any additional security pledged shall meet the requirements of this Depository Services Agreement and shall be approved by an Authorized City Representative. Prior to the pledge of additional securities under the Depository Services Agreement, the Depository shall: (a) execute a Security Agreement-Pledge and ancillary agreements necessary to effect the pledge of additional securities to collateralize all of the City's deposits in such form as is acceptable to the City; (b) deliver to the City a certified copy of excerpts from the minutes of a meeting of the Loan Committee and/or Board of Directors of the Depository,properly authorizing the Depository to enter into a Security Agreement-Pledge,and to pledge assets of the Depository to secure all deposits made by the City with the Depository; and(c)deliver to the City certification that the Depository Agreement,the Security Agreement-Pledge,and the authorization of the Board of Directors and the Loan Committee of the Depository have been placed(and will continuously be maintained) in the official records of the Depository. 3.11 Substitution of Securities. The Depository may, with prior written approval of the Authorized City Representative, substitute one security for another of the same market value and of the character authorized in this Depository Services Agreement, provided that at all times the aggregate amount of such collateral or substituted collateral deposited with the Custodian meets the collateral requirements contained herein. Prior to such substitution of securities, the Depository shall: (a) execute a Security Agreement- Pledge and ancillary agreements necessary to effect the pledge of securities to collateralize all of the City's deposits in such form as is acceptable to the City;(b)deliver to the City a certified copy of excerpts from the minutes of a meeting of the Loan Committee and/or Board of Directors of the Depository, properly authorizing the Depository to enter into a Security Agreement-Pledge, and to pledge assets of the Depository to secure all deposits made by the City with the Depository; and (c) deliver to the City certification that the Depository Agreement, the Security Agreement-Pledge, and the authorization of the Board of Directors and the Loan Committee of the Depository have been placed(and will continuously be maintained)in the official records of the Depository. 3.12 Release of Security. If at any time the securities pledged by the Depository have a market value in excess of the collateral requirements contained herein, an Authorized City Representative will authorize the release of the excess securities. Such release shall be approved in writing by an Authorized City Representative and such approval shall not be unreasonably withheld. All releases of securities pledged pursuant to this Depository Services Agreement shall be completed at the earliest time as is commercially reasonable. 3.13 Records and Audit. The Depository shall maintain separate, accurate, and complete records relating to the deposit of public funds, the pledged investment securities, and all transactions relating to the pledged 7 investment securities. The Custodian shall maintain separate, accurate, and complete records regarding the pledged investment securities. All such records shall be subject to any internal or external audit or regulatory examination of the Depository or Custodian. 3.14 Documentation to Be Provided to City. The Depository and Custodian shall provide documentation relating to the description of securities pledged as collateral, substitution of pledged securities, pledge of additional securities,and withdrawal of excess securities to the Authorized City Representative. The Depository shall provide a certificate as to the then-market value of securities pledged as security hereunder to the Authorized City Representative monthly. 3.15 Surrender of Interest on Securities. The Depository is entitled to interest and any other income on securities held by the Custodian. The Custodian may dispose of such interest and income as directed by the Depository, with approval of the City, if the remaining value of the securities pledged are adequate to meet the requirements of this Agreement. ARTICLE 4 Account Transfers 4.01 Electronic, Telephonic, Facsimile or Oral Requests for Account Transfers. The Depository is authorized to honor, execute and charge City accounts for electronic,telephonic, and facsimile or oral requests that fulfill the Depository's security requirements as outlined in any related service agreements: (a) for the transfer of funds from designated City accounts to any other City depository account,whether the account is with the Depository or another financial institution; or (b) for the transfer of funds from designated City accounts to the account of or the credit of a third party, whether the third party account is with the Depository or another financial institution. All requests shall be properly identified as being made by an Authorized City Representative in compliance with the Depository's transfer procedures. 4.02 Internal Transfers. An Authorized City Representative will periodically need to transfer funds from one City account to other City accounts. 4.03 Instructions for Transfer. The Depository shall act upon all electronic, written or verbal transfer requests within one hour from the time received from an Authorized City Representative,and use any means for the transmission of the funds the Depository may consider suitable up until 2:30 p.m. CT. 4.04 Immediate Credit.The Depository shall give both ledger and collected credit the day of the wire receipt, regardless of the time the Depository receives the transfer through the Fed wire System. Credit to City accounts for incoming wire transfers shall be immediate. 4.05 Daylight Overdraft Policy. The City actively invests in marketable securities. An outgoing wire transfer will be made in the morning for the reinvestment of funds expected by an incoming wire transfer. The Depository shall allow the City to reinvest and to wire funds out in anticipation of an incoming wire transfer later in the day. The Depository will not charge the City for daylight overdrafts. When a daylight overdraft is anticipated, an Authorized City Representative will notify the designated depository official of the situation. The amount of a daylight overdraft is to be a maximum of$20,000,000.00. Larger daylight overdrafts may be approved by the Depository. 4.06 Notification of Funds Transfers.Notification to the City of incoming wire transfers or problems with outgoing wire transfers shall be made within one hour of the transaction. The City allows two authorized employees to initiate repetitive transfers. All authorized employees will be issued a personal identification 8 number in order to initiate wire transactions. If the wire transfer is initiated over the telephone, the Depository shall telephone the City and specifically request to speak to an Authorized City Representative other than the person initiating the wire to verify that the wire is authorized prior to releasing the wire. 4.07 Records. The Depository shall record all telephonic instructions from the City received by the Depository's wire transfer department and retain the recordings for sixty-one (61) days (the period for City notification of discrepancies)following such requests. The City agrees to report any discrepancies between the City's records and the Depository statement to the Depository's wire transfer department in writing within sixty- one(61)days after the statement date. 4.08 Discrepancies/Loss of Interest/Error. In the event there is a loss of interest or use of funds as result of a Depository error for failure to execute a transfer request on the date received, or such other error within the Depository's control, the Depository agrees that compensation for loss shall be corrected by adjusting the aggregate ledger and collected balances of the City accounts to reflect properly the average balances of the amounts that would have resulted had no error occurred. 4.09 Designated Accounts. Account Transfers may be made from the other accounts as designated by an Authorized City Representative. ARTICLE 5 Other Financial Services 5.01 Bailor/Bailee Relationship. Until deposits are credited to the City as evidenced by validation of duplicate deposit slips, the relationship between the City and the Depository as to all contents shall be that of Bailor and Bailee. The Depository shall be responsible and liable to the City for use of that degree of care required under the laws of Texas for Bailees having custody of property of other persons. 5.02 Custody. Safekeeping of Governmental Agency Securities. The Depository agrees to handle all purchases and sales of securities on a delivery versus payment or payment versus delivery basis(i.e.for securities purchases,monies will not be released by the City's safekeeping bank until securities are received at the Federal Reserve Bank or further credit to the City's safekeeping bank. In the case of securities sales, monies will be received by the City's safekeeping bank via the Federal Reserve Bank as the securities are simultaneously released to the purchaser). In this manner, the City will always have possession of either the securities or its monies on a delivery versus payment basis. The cost of safekeeping securities, processing purchase/sale transactions, and coupon interest payments are listed in Exhibit D, which exhibit contains the Applicant's response to Section 3.6, Fees, A., and MONTHLY PRICING SUMMARY FORM. The City will send written instructions to the securities clearance department for each transaction.Most of these instructions will be sent by facsimile to assure the timeliness of the operation. It is specifically provided that when a City security matures, or when a City security is purchased, funds will be transferred from or to the Combined Operating account, the Bond Funds account, or another account as directed by an Authorized City Representative. The Depository shall give prompt notification to the City of any settlement problems,including securities delivered where the instructions do not match or where instructions have not been given to the Depository. All securities shall be perfected in the name of the City. All book entry securities owned by the City shall be evidenced by a safekeeping receipt issued to the City. The original safekeeping receipt for each transaction will be forwarded to the City. ARTICLE 6 General Provisions 9 6.01 Automated Clearing House ("ACH") Membership. The Depository shall be a participating depository in the Southwestern Automated Clearing House Association to be able to deliver debit and credit payments for the following transactions:City employee Payroll Account,Vouchers Payable Account,Combined Funds, and pre-authorized City utility, marina and miscellaneous accounts receivable customer debits. An Authorized City Representative shall establish use of additional ACH transactions in writing. The Depository warrants that it is a participating financial institution in the Southwestern Automated Clearing House Association ("SWACHA"), which provides facilities for the exchange of electronic funds transfers among its members, and other automated clearing house associations within the United States by utilizing the capacities of the National Automated Clearing House Association("NACHA"). The Depository acknowledges that it shall comply with the rules, as may be amended, for the notification, posting, or transfer of funds by means of electronic credit transfer facilities. The Depository is required to comply with the procedures of the SWACHA and NACHA including, but not limited to, matters such as input format, data acceptance criteria, return item handling, adjusting entries,and dishonored entries. 6.02 Charging of Fees. The Depository is authorized to charge City accounts for: (a) charge backs on correction of mathematical errors,and (b) bank service fees owed to Depository, including Deficient Balances Before Services. Deficient Balances Before Services will be reviewed by the City's Treasurer on a quarterly basis for fee assessment. The Depository or the City will not change the schedule of fees as listed in Applicant's response to Section 3.6, Fees, of the Request for Applications and Frost Bank's Public Fund Schedule of Fees as of November 2015 during the initial term of this Agreement or during any option year. 6.03 Confidentiality, Audits and Inspections. All information assembled by the Depository under this Agreement is to be kept confidential and not be made available to any individual or organization without the prior written approval of the City. At reasonable times during regular business hours,the Depository will make available for examination by the City, its duly authorized agent, accountant, or legal representative, pertinent copies of statements and debit and credit items supporting such statements, relating to the City's accounts. 6.04 Recalls,Debit Adjustments and Other Adjustments. The Depository is required to process recall or adjustment requests upon verbal authorization by an Authorized City Representative followed by written confirmation by the City, if possible,no later than four(4)business days after the request. 6.05 Compliance with Law. The Depository represents to have the expertise and personnel required and necessary to perform the services under this Agreement. The Depository acknowledges that it is fully qualified, authorized, and willing to comply under federal, state and local law to perform the services described in this Agreement. 6.06 Liability of the Parties. The Depositor's and City's duties and responsibilities to each other are limited as set forth in this Agreement, except with respect to any provisions of the law which cannot be waived by agreement. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, NEITHER DEPOSITORY NOR THE CITY WILL BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, EXEMPLARY, SPECIAL OR PUNITIVE DAMAGES (INCLUDING WITHOUT LIMITATION,LOSS OF REVENUE OR ANTICIPATED PROFITS)OR FOR ANY INDIRECT LOSS THAT THE OTHER PARTY MAY INCUR OR SUFFER IN CONNECTION WITH THE SERVICES PROVIDED HEREUNDER(EVEN IF SUCH PARTY HAS BEEN INFORMED OF THE POSSIBILITY OF SUCH DAMAGES),INCLUDING ASSOCIATED ATTORNEY'S FEES. 6.07 Term; Termination. City designates Depository as a depository for the period beginning January 1, 2016 and continuing until this Agreement has been canceled in accordance with the provisions hereof, for certain accounts in the name of the City, and such accounts shall be opened by the City designating the 10 accounts and making deposits therein and the Depository accepting said deposits. The term of this Agreement(the "Term") shall be three years as defined in the CITY OF CORPUS CHRISTI's Request for Application, unless the parties mutually agree to an extension of the Term of this Agreement. This Agreement may be extended for two additional one-year periods (each being an "Extended Term") in accordance with the same terms and conditions of the initial Term of this Agreement by mutual consent of the parties. If the parties agree to such an Extended Term on one or more occasions, then the parties shall execute an addendum to this Agreement or other written evidence stating that the parties have agreed to an Extended Term, the statutory or other legal authority of such Extended Term and the date upon which Extended Term expires. Either party may terminate this Agreement prior to the expiration date by providing the other party with at least 90 days prior written notice of its election to terminate. The Agreement shall terminate 90 days after delivery of such written notice, provided that all provisions of this Agreement have been fulfilled. In addition to any other remedy that the City may have at law or in equity, if the Depository breaches this Agreement in any manner or defaults on its obligations hereunder and does not cure such breach or default within 30 days of the Depository receiving notice of such breach or default from the City, then after expiration of such 30 day cure period, the City may terminate this Agreement and withdraw its funds by giving the Depository written notice of termination and withdrawal. Both the Depository and the City agree that among other items constituting default under this Agreement is a failure to maintain adequate collateral or adequate capital ratios (if applicable). In the event that the City fails to comply with any of its promises in this Agreement, or if any of its representations are untrue or any of its warranties is breached, and the City does not cure such breach or default within 30 days of the City receiving notice of such breach or default from the Depository,then after expiration of such 30 day cure period, the Depository may terminate this Agreement by sending written notice to the City of the Depository's decision to terminate. Upon receipt of such notice, the City shall make provisions for the immediate withdrawal of the City's funds from the Depository. 6.08 Duties After Termination. All obligations of the parties made or incurred or existing under this Agreement as of the date of termination, with respect to transactions initiated prior to the effective date of termination, will survive such termination, including, but not limited to: Depository's obligation to retain duplicates of transaction receipts and credit slips and any continuing obligation of the Depository with respect to charge backs.Upon termination of this Depository Services Agreement,all finished or unfinished documents, data, studies, or reports prepared by the Depository under this Agreement, at the option of the City, will be delivered to the City and become the property of the City. Upon termination of this Agreement, and after Depository has properly paid out all deposits of the City, the City shall give the Custodian a certificate to that effect. Upon Custodian's receipt of such certificate, the Custodian shall deliver to the Depository all securities then in its possession belonging to Depository for the benefit of the City. 6.09 No Endorsement. The Depository is not authorized to advertise or publish the fact that the City has entered into this Agreement without the City's prior written consent. 6.10 Notices. Notices provided herein will be in writing and delivered to: On behalf of the City: City of Corpus Christi Constance Sanchez, Director of Financial Services P.O. Box 9277 Corpus Christi, TX 78469-9277 On behalf of the Depository: Frost Bank Tom Frost III, Senior Executive Vice President 11 P.O. Box 1600 San Antonio, TX 78296-1600 6.11 Assignment. The Depository agrees not to assign the Depository Agreement to a third party without the City's written consent except in the event of a merger, sale or acquisition. 6.12 Force Majeure. Neither party will be responsible for losses resulting if the fulfillment of any terms or provisions of this control of the party whose performance is interfered with, and which, by the exercise of reasonable diligence, said party is unable to prevent. 6.13 Conflicts of Interest. The Depository agrees to maintain current, updated disclosure of information on file with the City's Director of Financial Services throughout the term of this Agreement as may be required by the City Code of Ordinances or the City Charter. 6.14 Equal Employment Opportunity. The Depository agrees that during the performance of this Agreement, it will: (a) treat all applicants and employees without discrimination as to race, color,religion, sex, national origin, marital status, age, or handicap, and (b) identify itself as an "Equal Opportunity Employer" in employment advertising or requests. The Depository will be advised of any complaints filed with the City alleging that the Depository is not an Equal Opportunity Employer. The City reserves the right to consider its reports from the Human Relations Administrator in response to such complaints. 6.15 Entire Agreement. This Agreement and all amendments hereto, as may be updated, constitute the entire agreement between the parties and will supersede all previous negotiations, commitments, and contracts. 6.16 Governing Law and Venue. To the extent this Agreement is not governed by applicable federal laws and regulations, this Agreement will be governed by and construed in accordance with laws of the State of Texas. Any suit brought in connection with this Agreement shall be tried in Nueces County, Texas. 6.17 Notification of Changes in Depository Laws. The Depository shall notify the City in writing within ten(10) days of any changes in federal or state regulations or laws that would thereafter affect the Depository Services Contract. The Depository shall also notify the City of any new services which become available to the City throughout the contract period. 6.18 Monthly Reports. The Depository shall provide to the City each quarterly CALL report(Schedule RC only)as well as any public information concerning changes in the ownership,management or financial position of the Depository or its parent company. 6.19 Corporate Resolutions Not Required.The Depository shall not require corporate resolutions when an Authorized City Representative opens an account. 6.20 Precedence of Contract Documents. In case of a conflict in the contract documents, first precedence shall be given to the fully executed contract, as amended; second precedence shall be given to the Request For Application(Exhibit C), including addenda, and third precedence shall be given to the application (Exhibit D), as clarified. 6.21 Terms During Extension Year. During any extended term of the agreement, all terms,conditions and pricing shall remain the same as those in the agreement applicable to the primary term. 12 AGREED TO BY: CITY OF CO;'US ' 'RIST ) DEPOSITORY i BY: l Imo. i4& _ BY: NAME: Ro ' . Olson NAME: Tom Frost III TITLE: City Manager TITLE: Senior Executive Vice President DATE: DATE: (- 7.0- 140 ATTEST: ReiQe4ce...-1-4-LtiAtel Rebecca Huerta, City Secretary Approved as to form this th- day of April 20 /(p 40/ - j/�,, By: LI i.. -L4ktik - izabeth Hundley, Assistant City Attorney For: Mile/sley, City .ttorney Incorporated by Reference: Exhibit A—Authorization for Depository Accounts Exhibit B—2016 Payroll Calendar Exhibit C—Request for Applications Event No.: 87 Exhibit D—Applicant's/Depository's Response to Request for Applications Event No.: 87 Exhibit E—Security Agreement Exhibit F—Frost Bank Service Fees it d - OD IV L.ILS. ff cSaNcu.........�... .L I, SECRETA 13 EXHIBIT A Attached to and made a part of the City of Corpus Christi Depository Services Agreement AUTHORIZATION FOR DEPOSITORY ACCOUNTS As the duly authorized City Manager of the City of Corpus Christi, I designate the officials listed below as the Authorized City Representatives of the City of Corpus Christi. The signatures below are the signatures of the Authorized City Representatives vested with full authority to sign and transact business for the City including, but not limited to, Account Transfers, open and close accounts, request reports, or authorize other signatories to specific bank accounts. The signatures of the officials subscribed below are true and genuine: Judy Villalon City Treasurer Alma Iris Casas Ofittak_ 140 ") Assistant Director of Financial Services Constance P. Sanchez Director of Financial Services L Judy Sandroussi Controller ��,,/� �l / Q� 1 4111° This Authorization for Depository Accounts is entered into in addition to and will not amend, modify, waive, or revoke any of the terms of the City of Corpus Christi Depository Agreement except as expressly provided herein. This authorization is entered into to facilitate the electronic transfer of funds or administration of the services to be provided pursuant to the City of Corpus Christi Depository Agreement. It is not intended to empower Authorized City Representatives to approve or accept amendments, waivers, or new provisions or terms to the Depository Agreement on behalf of the City of Corpus Christi. Authorized City Representatives remain authorized until the Depository receives written notification revoking authorization. THS AUT ORIZATION FOR DEPOSITORY ACCOUNTS is effective this dfl th day of , 2016 and revokes all previous authorizations. ATTEST: CITY OF CORPU CHRISTI By Q LQ .'A LQA4L By iii, _ 14 EXHIBIT B 2016 PAYROLL CALENDAR PAY DATE • 01/15/16 01/29/16 02/12/16 02/26/16 03/11/16 03/25/15 04/08/16 04/22/16 05/06/16 05/20/16 06/03/16 06/17/16 07/01/16 07/15/16 07/29/15 08/12/16 08/26/16 09/09/16 09/23/16 10/07/16 10/21/16 11/04/16 11/18/16 12/02/16 12/16/16 12/30/16 14 EXHIBIT C CITY OF CORPUS CHRISTI PURCHASING DIVISION orii A rr o co 1852 REQUEST FOR APPLICATIONS ("RFA") for DEPOSITORY SERVICES EVENT NO. 87 Release Date: October 24, 2015 Submission Due: November 16, 2015 15 Table of Contents Section 1.0 Notice of REQUEST FOR APPLICATIONS 1.1 Request for Applications 1.2 Submission of Application 1.3 Tentative Schedule Section 2.0 Conditions Governing the Procurement 2.1 Acceptance of General Requirements 2.2 RFA Notice Requirement 2.3 RFA Procedural and Content Questions 2.4 Basis for Application 2.5 Opening of Applications 2.6 Applicant Terms and Conditions 2.7 Disclosure of Application Contents 2.8 Late Applications 2.9 Signing of Applications 2.10 Cost of Application 2.11 Business Designation Form 2.12 Disclosure of Interest 2.13 Ownership of Applications 2.14 Disqualification or Rejection of Applications 2.15 Rejection of Applications 2.16 Right to Waive Irregularities 2.17 Withdrawal of Applications 2.18 Amending of Applications 2.19 Application Offer Firm 2.20 Applicant Qualifications 2.21 Exceptions to RFA Specifications 2.22 Consideration of Applications 2.23 Termination or Cancelation of RFA 2.24 Service Agreement 2.25 Precedence of Contract Documents 2.26 Governing Law 2.27 No Obligation 2.28 Contract Deviations 2.29 Sufficient Appropriation 2.30 Recommendation to City Council 2.31 Award of Contract 2.32 Execution of Contract 2.33 Disputes 2.34 Change in Consultant Representative 2.35 Term 2.36 Change Requests 2.37 Termination of Contract 2.38 Insurance Provisions 2.39 Right to Publish 2.40 Applicant's Ethical Behavior 2.41 Quantities 16 Section 3.0 Scope of Work 3.1 General Information 3.2 Mandatory Services Requirements 3.3 Technical Solution 3.4 Applicant's Profile and Qualifications 3.5 Local Presence 3.6 Fee Schedule Section 4.0 Application Format and Organization 4.1 General Instructions 4.2 Application Format 4.3 Transmittal Letter 4.4 Service Agreement Section 5.0 Application Evaluation 5.1 Evaluation Committee 5.2 Evaluation Criteria Attachments EXCEPTIONS FORM SAMPLE SERVICE AGREEMENT (Contract) EXHIBIT A- AUTHORIZATION FOR DEPOSITORY ACCOUNTS EXHIBIT B—2016 PAYROLL CALENDAR BUSINESS DESIGNATION FORM DISCLOSURE OF INTEREST 17 Section 1.0 Notice of Request for Applications 1.1 Request for Applications A. The City of Corpus Christi "City"hereby issues this REQUEST FOR APPLICATIONS "RFA". The City is seeking applications from qualified Applicants to provide DEPOSITORY SERVICES. The City shall enter into a contract resulting herefrom for a period of three years with an option to extend for up . to two additional one-year periods. B. The City of Corpus Christi is requesting submission of applications for Event No. 87, Depository Services RFA. The City Treasurer, Judy Villalon, is the designated officer to receive applications addressed and delivered as follows:Judy Villalon,City Treasurer,City of Corpus Christi, 1201 Leopard Street, 4th floor, Corpus Christi, Texas, 78401. Applications are due on or before 12:00 pm, Central Time, on November 16, 2015. The City Council will consider the selection of a depository at the City Council meeting on Tuesday, December 8, 2015 beginning at 11:30 am, at City Hall, 1201 Leopard Street, Corpus Christi, Texas 78401. C. The City hereby designates Judy Villalon the City Treasurer with overall responsibility for procurement of this service. Mrs. Villalon's information is as follows: Judy Villalon City Treasurer City of Corpus Christi 1201 Leopard Street, 4th Floor Corpus Christi, Texas 78401 All inquiries or requests regarding this RFA must be submitted to the City Treasurer indicated above, or her designee as specified in writing and online, via the City's Supplier Portal (http://www.cctexas.com/business/supplierportal) using the electronic question submission feature specific to this RFA. Such inquiries or requests must be submitted by the due date and time provided in Section 1.3 of this RFA. Other employees do not have the authority to respond for the City in writing and any attempt to question other employees regarding this RFA may result in the City disqualifying that Applicant. Only written responses from the City Treasurer or her designee will be binding with regard to inquiries requesting clarification or additional information. The City Treasurer's written responses will be released simultaneously to all prospective Applicants. D. A pre-application conference will be held at the date and time and in the location specified therefor in Section 1.3 of this RFA. 1. The purpose of the pre-application conference is to provide an opportunity for prospective Applicants to discuss,pose questions and obtain clarification from the City regarding this RFA. 2. The City shall provide written responses to all prospective Applicants in the form of written addenda, for any questions or request for clarification submitted at the pre-application conference if information is necessary to Applicants in submitting applications or if the lack of such information would be prejudicial to un-informed Applicants. Oral explanations or instructions provided by the City before the award of the contract shall not be binding upon the City. 1.2 Submission of Application A. APPLICANT SHALL SUBMIT ITS APPLICATION IN WRITING TO THE ADDRESS STATED IN SECTION 1.1.C. APPLICANT MAY, IF PREFERRED, SUBMIT ITS APPLICATION ELECTRONICALLY, AS INSTRUCTED HEREIN, VIA THE CITY'S SUPPLIER PORTAL. Applicant must select either a hard copy or an electronic submission but may not do both. All proposals must be complete and accurate and in the City-approved format specified herein. B. The City Treasurer will review and evaluate the written applications in response to this RFA. The City Treasurer may conduct additional interviews with selected Applicants for the purpose of further exploring and clarifying the Applicant's response. The City Treasurer will rank the Applicants based on the suggested evaluation criteria set forth in the Evaluation Model of this RFA and will present the specifications of each Applicant to the City Council for designation to provide City depository services. The City Council will select Applicant and will negotiate applicable terms and conditions with the selected Applicant. The City intends to award one contract to one Applicant. In the event contract negotiations are not successful with the Applicant initially selected, the City Council may end negotiations and select an alternate Applicant for possible award. The City reserves the right to not award a contract at all. Award will be made,based on the application most advantageous and providing the best value to the City. C. Applications will be evaluated to ascertain which Applicant's applications are most advantageous and provide the best value to the City. The City intends to utilize an Evaluation Model specifically designed for this analysis. The Evaluation and Selection process will be based on the following criteria: 1) Technical Solution, 2) Applicant's Profile and Qualifications, 3) Local Presence, 4) Fee Schedule and 5) Exceptions. The final weight assigned to each of these parameters will be determined by the Evaluation Committee. D. The City's Charter and the City's Electronic Procurement Policy require that all applications submitted be sealed, secret, unopened and time-locked through the DUE DATE FOR APPLICATIONS specified in this RFA. E. Applications will be received by hard copy or electronically, on or before the date and time specified in Section 1.3 of this RFA. Without exception, applications received after this deadline are late, shall be deemed non-responsive, and shall not be considered. F. Applicants shall comply with the additional detailed instructions regarding submission of applications found in Section 4.0 of this RFA. The following is a tentative schedule of evaluation and selection activities: Date Activity October 24, 2015 Request for Applications Issued Pre-application Conference at: November 2, 2015 3:30 p.m.—5:00 p.m. Central Time(CT) 6th Floor Conference Room City Hall. 1201 Leopard St. Corpus Christi, Texas 78401 November 9, 2015 Submission of written questions due by 5:00 p.m. CT November 16, 2015 Applications due by 12:00 p.m. CT November 18, 2015 Proposed Date for Finalists' Presentations (if necessary) December 8, 2015 Tentative Date for Recommendation of Award to City Council December 15, 2015 Alternate Tentative Date for Recommendation of Award to City Council Section 2.0 Conditions Governing the Procurement 2.1 Acceptance of General Requirements The Applicant must specifically accept all project requirements contained in Section 2, Conditions Governing the Procurement, and Section 3, Scope of Work, in the transmittal letter as set forth in Section 4.3 of this RFA. 2.2 RFA Notice Requirement Notice of the REQUEST FOR APPLICATIONS shall be published in the Corpus Christi Caller Times once a week for two consecutive weeks. The date of the first publication will occur not later than (21)days prior to the application due date. 2.3 RFA Procedural& Content Questions A. Any Applicant requiring further clarification of the REQUEST FOR APPLICATIONS procedures contained herein should submit specific questions in writing to the City Treasurer as described in Section 1.1, C of this RFA. B. During a review of this RFA and preparation of the application, certain errors, omissions or ambiguities may be discovered. If so, or if there are doubts or concerns about the meaning of any part of this RFA, written questions should be submitted to the City Treasurer as described in Section 1.1, C of this RFA no later than the date and time prescribed for same as provided in Section 1.3 of this RFA. This should allow sufficient time for the City to answer the written questions and distribute the written responses so that all prospective Applicants will have the benefit of the revised information. 2.4 Basis for Application Only the information contained in this RFA, amendments hereto and information supplied by the City in writing through the City Treasurer identified herein should be used in the preparation of the Applicant's application. 2.5 Opening of Applications A formal opening of the applications shall not take place. 2.6 Application Terms and Conditions The Applicant must submit, with each copy of the application, a complete set of any additional terms and conditions proposed for inclusion in the sample Service Agreement (also referred to herein as "Contract") enclosed herein. 2.7 Disclosure of Application Contents Applications will be opened in a manner that avoids disclosure of the contents to competing Applicants and keeps the applications secret during negotiations. All applications are open for public inspection after the contract(s)are awarded;however,trade secrets and confidential information in the applications are not open for public inspection. It is specifically provided, however, that each Applicant must identify any information contained in its application which it asserts is either a trade secret or confidential information. Such material must be conspicuously identified by marking each page containing such information as "confidential" or"proprietary". If such material is not conspicuously identified, then by submitting its application, an Applicant agrees that such material shall be considered public information. 2.8 Late Applications Without exception, applications must be submitted on or before the DUE DATE AND TIME FOR APPLICATIONS. Applications received after the time and date specified in Section 1.3 are late and shall not be considered. 2.9 Signing of Applications By submitting and signing an application, the Applicant indicates its intention to adhere to the provisions described in this RFA. Applications signed for a partnership shall be signed in the Applicant's name by at least one partner or in the Applicant's name by an attorney-in-fact. If signed by an attorney-in-fact,there should be attached to the application, a Power-of-Attorney evidencing authority to sign applications, dated the same date as the application, and executed in accordance with the legal requirements of the Applicant. Applications signed for a corporation shall have the correct corporate name thereon and shall bear the president's or vice-president's original signature with the name and title written below the corporate name. Any other signature must be accompanied by a resolution of the Board of Directors authorizing such signature to contract in the corporation's name. The title of the office held by the person signing for the corporation shall appear below the signature of the officer. 2.10 Cost of Application This RFA does not commit the City to pay any costs incurred by an Applicant for preparation and/or submission of an application or for procuring or contracting for the items to be furnished under this RFA. All costs directly or indirectly related to preparing and responding to this RFA, including all costs incurred for supplementary documentation, shall be borne solely by the Applicant. 2.11 Business Designation Form The City of Corpus Christi requires all persons or Applicants seeking to do business with the City to provide the Business Designation Form on the City-supplied form included herewith. Every question must be answered. If the question is not applicable, answer with N/A. 2.12 Disclosure of Interest The City of Corpus Christi Code of Ordinances, Section 2-349, as amended, requires all persons or Applicants seeking to do business with the City to provide the Disclosure of Interest information on the City-supplied form included herewith. Every question must be answered. If the question is not applicable, answer with N/A. Applicants are obligated to provide updated information concerning the disclosure of interest, as warranted, for the duration of time the applications are under consideration. 2.13 Ownership of Applications All documents submitted in response to this RFA shall become the property of the City of Corpus Christi. 2.14 Disqualification or Rejection of Applications Applicants may be disqualified for any of the following reasons: • There is reason to believe that collusion exists among the Applicants; • The Applicant is involved in any litigation against the City; • The Applicant is in arrears on an existing contract or has defaulted on previous contracts with the City; • The Applicant lacks financial stability; • The Applicant has failed to perform under previous or present contracts with the City; • The Applicant has failed to use the City's approved forms; • The Applicant has failed to adhere to one or more of the provisions established in this RFA; • The Applicant has failed to submit its application in the format specified herein; • The Applicant has failed to submit its application on or before the deadline established herein; • The Applicant has failed to adhere to generally accepted ethical and professional principles during the application process; or, • The Applicant has failed to provide a detailed cost summary in the application. 2.15 Rejection of Applications Applications may be rejected if they show any alteration of words or figures, additions not called for, conditional or uncalled-for alternate applications, incomplete applications, erasures or irregularities of any kind. Applications tendered or delivered after the official time designated for receipt of applications shall be deemed non-responsive and shall not be considered. 2.16 Right to Waive Irregularities Applications shall be considered "irregular" if they show any admissions, alterations of form, additions or conditions not called for, unauthorized alternate applications or irregularities of any kind. The City Treasurer reserves the right to waive minor irregularities and mandatory requirements, provided that all responsive applications failed to meet the same mandatory requirements and the failure to do so does not otherwise materially affect the procurement. This right shall be exercised at the sole discretion of the City Treasurer. 2.17 Withdrawal of Applications Applications may be withdrawn by written notice received by the City's Treasurer prior to the exact hour and date specified for receipt of applications. An application may be withdrawn by an Applicant or his/her duly authorized representative, provided his/her identity is made known and he/she signs a receipt for the application, but only if the withdrawal is made prior to the exact hour and date set for the receipt of applications. 2.18 Amending of Applications An Applicant may submit an amended application,however, such amended application must be received at or prior to the exact hour and date set for the receipt of applications; must be a complete replacement of a previously submitted application; and, such amended application must be clearly identified as such in the transmittal letter. The City will not merge, collate or assemble application materials for an Applicant. 2.19 Application Offer Firm By submission of its application,the Applicant affirms that its application and prices contained within such application are firm for 180 days after the due date for receipt of applications. 2.20 Applicant Qualifications The Evaluation Committee, as defined in Section 5.1 of this RFA, may make such investigations as necessary to determine the ability of the Applicant to adhere to the requirements specified herein. 2.21 Exceptions to RFA Specifications Although the specifications in the following sections represent the City's anticipated needs, there may be instances in which it is in the City's best interest to permit exceptions to specifications and evaluate alternatives. It is vital that the Applicant make very clear where exceptions are taken to the specifications and how the Applicant will provide alternatives. Therefore, exceptions, conditions or qualifications to the provisions of the City's specifications must be clearly identified as such, together with reasons for taking exception and inserted in the application at that point. In addition, the Applicant must provide responses on the "Exceptions"page to address any and all items found in all bid documents that the Applicant cannot meet or provide. If the Applicant does not make clear that an exception is being taken, the City will assume the Applicant is, in its application, responding to and will meet the specifications of this RFA. 2.22 Consideration of Applications Discussions may be conducted with responsible Applicants qualified to be selected for award for the purpose of clarification to assure full understanding of and responsiveness to the solicitation requirements. In discussions, there shall not be disclosure of any information derived from applications submitted by competing Applicants. Until award of the Contract is made by the City,the City reserves the right to reject any or all applications, to waive technicalities, to re-advertise for new applications or to proceed with the work in any manner as may be considered in the best interest of the City. Should the City require clarification from the Applicant, the City shall contact the individual named as the organization's contact person in the City's Supplier Portal. Evaluation of the application is the first step in a series of evaluation steps that will be conducted by the Committee. The City may elect to conduct post-submission reference checks or Applicant interviews with any Applicants that are not eliminated based on their application. 2.23 Termination or Cancelation of RFA The City reserves the right to terminate or cancel this RFA at any time for any reason whatsoever, as maybe determine in the sole discretion of the City. 2.24 Service Agreement The fully executed service agreement, as amended,the REQUEST FOR APPLICATIONS,as amended and the application constitute the agreement, in its entirety, between the City and the Contractor. Any other terms and conditions shall be null and void. 2.25 Precedence of Contract Documents In case of a conflict in the contract documents, first precedence shall be given to the fully executed contract, as amended; second precedence shall be given to the REQUEST FOR APPLICATION, including addenda: and third precedence shall be given to the applicants applications, as maybe clarified. 2.26 Governing Law The laws of the State of Texas will govern any Contract resulting herefrom. The Contract shall be executed in Nueces County, Texas. The applicable law for legal disputes arising out of the Contract resulting herefrom shall be the law of the State of Texas. 2.27 No Obligation This RFA, in no manner, obligates the City or any of its agencies to the eventual services offered until confirmed by an executed written Contract approved by the Corpus Christi City Council. 2.28 Contract Deviations Any additional terms or conditions,which may be the subject of negotiation,will be discussed only between the City and the qualified Applicants. 2.29 Sufficient Appropriation Any Contract awarded as a result of this RFA process may be terminated if sufficient appropriations or authorizations do not exist. Such termination will be effected by sending written notice to the Applicant. The City's decision as to whether sufficient appropriations and authorizations are available shall be accepted by the Applicant as final. 2.30 Recommendation to City Council The City Treasurer will present the specifications and may make a recommendation to the City Council that the award be made to the Applicant whose application is determined by the City to be the most advantageous and provide the best value to the City. 2.31 Award of Contract The City reserves the right to withhold final action on applications for a reasonable time not to exceed 180 days subsequent to the deadline for receipt of applications. The award of a Contract, if an award is made, will be to the most responsible and responsive Applicant whose the most advantages and provide the best value to the City and whose application meet the requirements and criteria set forth in this RFA. 2.32 Execution of Contract The City Council shall authorize award of the Contract to the successful Applicant and shall designate the successful Applicant ("Contractor") as the City's Provider(s). The City will require the Contractor to sign the documents necessary to enter into the required Contract with the City and to provide the necessary evidence of insurance as required in the Contract documents. No Contract for this project may be signed by the City without the authorization of the City Council, and no Contract shall be binding on the City unless and until it has been approved as to form by the City Attorney or his designee and executed as authorized by the City Council to do so. S-' In the case of any doubt or difference of opinion with regard to the items to be furnished by an Applicant or the interpretation of the provisions of this RFA, the decisions of the City shall be final and binding upon all parties. 2.34 Change in Applicant Representative The City reserves the right to negotiate a change in Applicant representatives if the assigned representatives are not, in the opinion of the City, adequately meeting the needs of the City. The Contract resulting herefrom will be for a term of three years with an option to extend for up to two additional one-year periods, subject to the approval of the parties. By submission of its application,prices must be guaranteed for the initial term of the Depository Services Agreement as well as any option years. Submission of an incomplete Monthly Pricing Summary Form shall be grounds for rejection of the entire application. 2.36 Change Requests Contract changes may only be made by an amendment to the Contract resulting herefrom and executed in writing by the City and the Contractor and approved by the City Council. 2.37 Termination of Contract The City Treasurer may terminate this Agreement for Contractor failure to perform the services specified in this RFA. Failure to keep all insurance policies in force for the entire term of this Agreement is grounds for termination. The Contract Administrator must give Contractor written notice of the breach and set out a reasonable opportunity to cure. If the Contractor has not cured within the cure period,the City Treasurer may terminate this Agreement immediately thereafter. Alternately, the City may terminate this Agreement with or without cause upon 20 days written notice to Contractor. However, City may terminate this Agreement on 24-hours written notice to Contractor for failure to pay or provide proof of payment of taxes as set out herein. If the City terminates its Contract under the foregoing paragraph, the City shall pay the Contractor for services actually performed prior to such termination, less such payments as have been previously made. Contractor shall not be entitled to any further compensation for work performed by the Contractor or anyone under its control or direction from the date of receipt of notice of cancellation including any and all costs related to the transferring of any files to another Contractor or any costs related to the electronic transfer of any information including, but not limited to, tape transfers, downloads, uploads, CD, etc. Upon termination of the Contract, the Contractor shall provide the City reproducible copies of all work completed or partially completed documents prepared under the Contract—all such documents thereinafter being the sole property of the City within thirty(30) days of such termination at the Contractor's expense. 2.38 Insurance Provisions INSURANCE REQUIREMENTS DEPOSITOR'S LIABILITY INSURANCE A. Depositor must not commence work under this contract until all insurance required has been obtained and such insurance has been approved by the City. Depositor must not allow any subcontractor, to commence work until all similar insurance required of any subcontractor has been obtained. B. Depositor must furnish to the City's Risk Manager and Director of Finance, one (1) copy of Certificates of Insurance with applicable policy endorsements showing the following minimum coverage by an insurance company(s) acceptable to the City's Risk Manager. The City must be listed as an additional insured on the General liability and Auto Liability policies,and a waiver of subrogation is required on all applicable policies. Endorsements must be provided with Certificate of Insurance. Project name and/or number must be listed in Description Box of Certificate of Insurance. TYPE OF INSURANCE MINIMUM INSURANCE COVERAGE 30-day advance written notice of Bodily Injury and Property Damage cancellation, non-renewal, material change Per occurrence- aggregate or termination required on all certificates and policies. Commercial General Liability including: $1,000,000 Per Occurrence 1. Commercial Broad Form 2. Premises—Operations 3. Products/ Completed Operations 4. Contractual Liability 5. Independent Contractors 6. Personal Injury- Advertising Injury AUTO LIABILITY(including) $500,000 Combined Single Limit 1. Owned 2. Hired and Non-Owned 3. Rented/Leased WORKERS'S COMPENSATION Statutory and complies with Part II of this (All States Endorsement if Company is not Exhibit. domiciled in Texas) Employer's Liability $500,000/$500,000/$500,000 BANKER'S PROFESSIONAL LIABILITY $1,000,000 per claim (Defense costs not included in policy limits of the policy) If claims made policy, retro date must be prior to inception of agreement,have extended reporting period provisions and identify any limitations regarding who is insured. C. In the event of accidents of any kind related to this contract, Depositor must furnish the Risk Manager with copies of all reports of any accidents within 10 days of the accident. II. ADDITIONAL REQUIREMENTS A. Applicable for paid employees, Depositor must obtain workers' compensation coverage through a licensed insurance company. The coverage must be written on a policy and endorsements approved by the Texas Department of Insurance. The workers' compensation coverage provided must be in statutory amounts according to the Texas Department of Insurance, Division of Workers' Compensation. An All States Endorsement shall be required if Depositor is not domiciled in the State of Texas. B. Depositor shall obtain and maintain in full force and effect for the duration of this Contract, and any extension hereof, at Depositor's sole expense, insurance coverage written on an occurrence basis by companies authorized and admitted to do business in the State of Texas and with an A.M. Best's rating of no less than A- VII. C. Depositor shall be required to submit renewal certificates of insurance throughout the term of this contract and any extensions within 10 days of the policy expiration dates. All notices under this Exhibit shall be given to City at the following address: City of Corpus Christi Attn: Risk Manager P.O. Box 9277 Corpus Christi, TX 78469-9277 D. Depositor agrees that, with respect to the above required insurance, all insurance policies are to contain or be endorsed to contain the following required provisions: • List the City and its officers, officials, employees, and volunteers, as additional insureds by endorsement with regard to operations, completed operations, and activities of or on behalf of the named insured performed under contract with the City, with the exception of the workers' compensation policy; • Provide for an endorsement that the "other insurance" clause shall not apply to the City of Corpus Christi where the City is an additional insured shown on the policy; • Workers' compensation and employers' liability policies will provide a waiver of subrogation in favor of the City; and • Provide thirty (30) calendar days advance written notice directly to City of any, cancellation, non- renewal,material change or termination in coverage and not less than ten(10)calendar days advance written notice for nonpayment of premium. E. Within five (5) calendar days of a cancellation, non-renewal, material change or termination of coverage, Depository shall provide a replacement Certificate of Insurance and applicable endorsements to City. City shall have the option to suspend Depositor's performance should there be a lapse in coverage at any time during this contract. Failure to provide and to maintain the required insurance shall constitute a material breach of this contract. F. In addition to any other remedies the City may have upon Depositor's failure to provide and maintain any insurance or policy endorsements to the extent and within the time herein required, the City shall have the right to order Depositor to stop work hereunder, and/or withhold any payment(s) which become due to Depositor hereunder until Depositor demonstrates compliance with the requirements hereof. G. Nothing herein contained shall be construed as limiting in any way the extent to which Depositor may be held responsible for payments of damages to persons or property resulting from Depositor's or its subcontractor's performance of the work covered under this contract. H. It is agreed that Depositor's insurance shall be deemed primary and non-contributory with respect to any insurance or self-insurance carried by the City of Corpus Christi for liability arising out of operations under this contract. I. It is understood and agreed that the insurance required is in addition to and separate from any other obligation contained in this contract. 2015 Insurance Requirements Finance Department Depository Services 10/21/2015 ds Risk Management 2.39 Right to Publish Throughout the duration of the procurement process and resulting Contract term, potential Applicants and Contractors must secure from the City written approval prior to the release of any information that pertains to the potential work or activities covered by the RFA or the resulting Contract. Failure to adhere to this requirement may result in disqualification of the Applicant's application or termination of the Contract. 2.40 Applicant's Ethical Behavior By submission of its application, the Applicant promises that Applicant's officers, employees, or agents will not attempt to lobby or influence a vote or recommendation related to the Applicant's application submitted in response to this RFA, directly or indirectly, through any contact with City Council members or other City officials between the deadline for submission of applications and the date a contract resulting herefrom is awarded by the City Council. Such behavior will be cause for rejection of the Applicant's application at the discretion of the City Council. Quantities described herein are estimates and do not obligate the City to order or accept more than the City's actual requirements during the term of any contract resulting herefrom. Nor do the estimates limit the City from ordering less than its actual needs during the term of any contract resulting herefrom, subject to availability of appropriated funds. Section 3.0 Scope of Work 3.1 General Information The City issues this RFA to eligible depository institutions to provide depository services for the City's funds. Only those depository institutions doing business within the city limits of Corpus Christi,Texas with full depository service capabilities as required in this RFA will be eligible to serve as the City's depository ("Depository").The City manages its own investment portfolio pursuant to its Investment Policy,therefore, the Depository will not provide any investment transaction activities other than safekeeping services such as receiving and delivering securities, coupon collections and maturity collections. 3.2 Mandatory Service Requirements This section identifies the mandatory requirements for the provision of depository services for the City's funds. Additional required services and estimated monthly volumes are listed Section 3.6, Fee, A., MONTHLY PRICING SUMMARY FORM, of this RFA. The depository must be able to provide the following required services and to maintain the following demand deposit accounts and any other accounts which the City may establish. A. CITY'S DEMAND DEPOSIT ACCOUNTS The term "demand deposit account"means a deposit of funds that may be withdrawn on the demand of the depositor. The City requires that the Depository provide depository services for the following demand deposit accounts (Note! These are the current demand deposit accounts. The City reserves the right to add or delete demand deposit accounts as and when required by its operational needs): The City currently maintains the following accounts: 1. CC Community Improvement Corp. Coll, Non-Interest Bearing 2._ City of Corpus Christi - Beach User Fees,Non-Interest Bearing 3. City of Corpus Christi -Airport PFC, Non-Interest Bearing 4. City of Corpus Christi - Combined Funds, Non-Interest Bearing 5. City of Corpus Christi - Home Project, Interest Bearing 6. CC Community Improvement Corp. Special, Interest Bearing 7. CC Community Improvement Corp., Interest Bearing 8. CC Housing Finance Corporation, Interest Bearing 9. City of Corpus Christi - Arena Operating,Non-Interest Bearing 10. City of Corpus Christi - Convention Center Operating Acct.,Non-Interest Bearing 11. City of Corpus Christi - Law Enforcement Special, Interest Bearing 12. City of Corpus Christi - Humana, Zero-Balance 13. City of Corpus Christi—Merchant Processing Account, Non-Interest Bearing 14. City of Corpus Christi - Payroll Fund, Zero-Balance 15. City of Corpus Christi - Vouchers Payable Account, Zero-Balance (Note: A voucher number is created when a vendor's invoice is processed through the City's Accounts Payable division. The voucher number is assigned to a check when the invoice is paid). The City processes about 1,600 vendor checks per month. 16. City of Corpus Christi - Workers' Compensation, Zero-Balance 17. Museum Joint Venture Revenue,Non-Interest Bearing 18. Museum Joint Venture Operations Support,Non-Interest Bearing 19. City of Corpus Christi—US Consent Decree May 2013, Non-Interest Bearing 20. City of Corpus Christi—Risk Management, Zero-Balance B. REQUIRED SERVICES 1. Internet Access Cash Management Services The City requires that the Depository provide cash management services to the City via the Internet. Any necessary software for these services, including, but not limited to: stop payments, wire transfers, account balance and transaction information, positive pay, lockbox, and transmission of ACH debit or credit transactions, will be furnished and be made available by the Depository at no cost to the City. 2. Deposits The Depository must accept all deposits made by the City during the term of the Depository Services Agreement for deposit in the City Demand Deposit Accounts identified herein. At a minimum, the City requires that the Depository accept City deposits for ledger credit until 3:00 p.m. Central Time (CT) each business day. The City reserves the right to exclude deposits made on behalf of the Corpus Christi Fire Fighters'Retirement System and any other special funds which are controlled by entities separate and apart from the City. 3. Items Deposited All payments made directly to the City by customers will be sent to the bank un-encoded. 4. Automated Information Reporting The City must be able to access via the Internet, for each City account, the previous day's ending ledger balance, collected balance, float, and debit/credit detail by 8:00 a.m. CT daily. Current-day balance and activity must be available by 12:00 noon CT. By this same deadline, this information must be combined to reflect totals for all City accounts taken together. 5. Items Processing Service The Depository must process all deposited items of checks and cash. Such processing services include encoding services, credit and debit advices given to the City within three business days of the debit or credit, clearing returned items, and return of stamped duplicate deposit slips to the City within one business day of deposit. The City intends to make deposits in person,by courier service, at night drop locations and at drive-thru locations. All deposits are safeguarded in tamper evident bags unless personally delivered. The deposits will be made in batches with a tape to be provided for each batch. If the Depository Item Processing Department discovers an error in the deposit, then the Depository shall prepare a credit or debit advice and mail it to the City immediately after the account has been adjusted with the appropriate documentation attached to justify the correction. Appropriate documentation is considered to be a copy of the City's tape with the item in question marked and a copy of the check in question. 6. Fine Sorting Required Accounts that have more than 400 checks must be fine-sorted in numerical order by the Depository. 7. Insufficient Funds (NSF)/Returned Items A complete description is to be provided on all NSF/returned items deposited into City accounts. The description should include the Payor's name, applicable City department, and reason for return. All NSF/returned items must be charged back to the account to which the items were deposited provided that the City department is identified by endorsement stamp or other readily identifiable means on the item. The Depository will send the NSF/returned items to the office designated by an Authorized City Representative. 8. Stop Payments Stop payments placed through the Internet must remain in effect for at least six (6) months. Placement of stop payments through the Internet does not require written authorization follow-up by the City. 9. Automatic Payroll Deposit Services By using a personal computer with Internet access, the City will electronically transmit City employee payroll data to the Depository. The Depository will receive the data and prepare an ACH debit so that the Depository payroll account will be debited no sooner than the date of payroll. The 2016 Payroll Calendar is Attached as Exhibit A to the Depository Services Agreement. 10. General Wire Transfer Services a. Using Internet access, the City must be able to initiate general wire transfer services including initiation of repetitive and non-repetitive wire transfers. b. The Depository must act upon all Internet, electronic,written or verbal transfer requests within one hour from the time received from an Authorized City Representative, and use any means for the transmission of the funds the Depository may consider suitable up until 3:30 p.m. CT. c. The Depository must record all telephonic instructions from the City received by the Depository's wire transfer depaitment and retain the recordings for sixty-one (61) days (the period for City notification of discrepancies) following such requests. d. In the event there is a loss of interest or use of funds as result of a Depository error for failure to execute a transfer request on the date received, or such other error within the Depository's control, compensation for loss must be corrected by adjusting the aggregate ledger and collected balances of the City accounts to reflect properly the average balances of the amounts that would have resulted had no error occurred. 11. Account Reconciliation Services a. All depository statements and paid items must be on a monthly cycle and must be cutoff on the last calendar day of the month. The depository statements must be available for pick-up via electronic format no later than the fifth working day following the assigned cut-off date. b. If a statement for a City depository account is not cut off as specified by the City, the City will require that the Depository reimburse the City for the costs incurred to reconcile the statement, including City employee overtime costs. c. The City also requires that copies of cleared checks be available via Depository's website and stored on a CD distributed to the City with the printed monthly statement. 12. Depository Reconcilements Automated depository reconcilements are required for the Vouchers Payable and Payroll accounts and other accounts as required by an Authorized City Representative as transaction volumes increase. By using Internet access, the City will electronically transmit reconcilement data to the Depository. Reconcilements must be available for pick up by the City by the ninth working day following the date the data was transmitted to the Depository. "Add/delete" adjustment forms will be provided by the Depository. The Depository will be required to transmit reconcilement information to the administrators of the City's health care and worker's compensation accounts and others as designated by the City. 13. Checking with Interest Accounts If designated by an Authorized City Representative, a demand deposit account will be set up as interest bearing and interest will be paid monthly. Interest rates will be those set for public fund interest bearing accounts. 14. Controlled Disbursement Service Specific accounts as designated by an Authorized City Representative will be controlled disbursement accounts. The City must be able to access same-day information concerning controlled disbursement clearings by 11:15 a.m. CT daily. 15. Zero-Balance Accounts As designated by an Authorized City Representative, specific demand deposit accounts will be zero-balance accounts for ease in reconciling and record keeping. 16. Check Cashing On presentation and at no charge to the payee or the City, the Depository will pay all checks drawn and properly payable on a City demand-deposit account. 17. Deposit Locations The City will have the option to make Deposits at the Depository's main Corpus Christi office or at any of Depository's Corpus Christi branches. A deposit ticket will be presented to the Depository with each deposit. The Depository will route specified deposit ticket copies to the City on a daily basis. The City processes between 80 and 120 individual deposits daily. These deposits originate from about 25 different departments located throughout the City. Deposits will be made in person, by courier service, at night-drop locations and at drive-thru locations. 18. Night Depository The Depository must be able to provide night depository facilities for safekeeping purposes. The City will use special tamper-evident deposit bags in making deposits through the night depository facility. Each bag placed in the night depository facility will contain only currency, coin, and checks. If it appears that a bag has been tampered with, the Depository must telephone an Authorized City Representative. The Depository will mail the deposit slip or it may be picked up by courier on a daily basis. 19. Escrow Accounts. Periodically during the term of the Agreement, the City may require that an escrow account be established at the Depository. The service fees charged for the escrow account must be the same as the service fees charged to the City for its demand deposit accounts. C. FUNDS TRANSFER REQUIREMENTS 1. Incoming wire transfers occur regularly. The Depository must give both ledger and collected credit the day of the wire receipt, regardless of the time the Depository receives the transfer through the Fed wire System. Credit to City accounts for incoming wire transfers must be immediate. 2. The City actively invests in marketable securities. An outgoing wire transfer will be made in the morning for the reinvestment of funds expected by an incoming wire transfer. The Depository must allow the City to reinvest and to wire funds out in anticipation of an incoming wire transfer later in the day. The anticipated amount of wire transfer is up to 20 million dollars. 3. The Depository must not charge the City for daylight overdrafts. When a daylight overdraft is anticipated, an Authorized City Representative will notify the designated depository official of the situation. 4. Notification to the City of incoming wire transfers or problems with outgoing wire transfers must be made within one hour of the transaction. The City allows two authorized employees to initiate repetitive transfers. All authorized employees must be issued a personal identification number in order to initiate wire transactions. If the wire transfer is initiated over the telephone, the City will require that the Depository telephone the City and specifically request to speak to an Authorized City Representative other than the person initiating the wire to verify that the wire is authorized prior to releasing it. D. OVERDRAFT PROCESSING REQUIREMENTS The City does not intend to have an overdraft position on any of its depository accounts throughout the course of the Depository Services Agreement. In the event a check or checks presented for payment on any City account where there exists insufficient funds available for payment, the City will require the Depository to pay said checks and promptly notify an Authorized City Representative of the existence of the overdraft situation. The City will cover the overdraft within one business day. E. REQUIREMENTS FOR SECURITIES CLEARANCE AND SAFEKEEPING OF CITY INVESTMENTS 1. Investment securities purchased by the City will be delivered by book entry to the Federal Reserve. The purchase and sale of all securities will be on a delivery versus payment or payment versus delivery basis (i.e. for securities purchases, monies will not be released by the City's safekeeping bank until securities are received at the Federal Reserve Bank or further credit to the City's safekeeping bank. In the case of securities sales,monies will be received by the City's safekeeping bank via the Federal Reserve Bank as the securities are simultaneously released to the purchaser). In this manner, the City will always have possession of either the securities or its monies. 2. The City will send written instructions to the securities clearance department for each transaction. When a City security matures, or when a City security is purchased, funds will be transferred from or to the Combined Operating account or another account as directed by an Authorized City Representative. Most of these instructions will be sent by facsimile to assure the timeliness of the operation. The City expects the Depository to give prompt notification of any settlement problems, including securities delivered where the instructions do not match or where instructions have not been given to the Depository. 3. All securities must be perfected in the name of the City. A safekeeping receipt issued to the City must evidence all book entry securities owned by the City. The original safekeeping receipt for each transaction will be forwarded to the City. 4. The following is the City's sample Investment Portfolio as of June 30,2015. The depository must use this data to calculate safekeeping fees on an annual basis. The depository must record the safekeeping fee calculation in the Safekeeping and Securities Clearance section of the MONTHLY PRICING SUMMARY FORM found in Section 3.6, Fee Schedule, A. of this RFA. CITY OF CORPUS CHRISTI CASH MANAGEMENT SECTION INVESTMENT PORTFOLIO AS OF 06/30/2015 Purchase Current Maturity Unrealized CUSIP Issuer Date Term Par Value Rate Date Market Value Book Value Gain(Loss TEXPOOL0035 Texpool 6/30/2015 1 129,824,359.55 0.058 7/112015 29,824,359.55 129,824,359.55 - TEXSTAR1340 Texstar 6/30/2015 1 1,301,272.24 0.072 7/62015 1,301,272.24 _1301272.24 - TEXSTAR1111 Texstar 6/30/2015 1 114,360,254.01 0.072 7/62015 114,360,254.01 114,360,254.01 - WFMM4816 Wells Fargo 6/30/2015 1 104,051,28144 0.050 7/62015 104,051,28144 104,051,281.44 - BNY1586 Bank of New York Mellon 6/30/2015 1 5,687,23929 0.000 7/1/2015 5,687,239.29 5,687,239.29 - BNY1609 Bank of New York Mellon 6/30/2015 1 1,500,000.00 0.000 7/62015 1,500,000.00 1,500,000.00 - 3133EDC59 Federal Farm Credit Bank 12/19/2013 608 10,000,000.00 0.250 08/19/2015 10,001,680.00 13,000,000.00 1,680.00 3133ED4A7 Federal Farm Credit Bank 10/07/2013 730 10,000,000.00 0.375 10/07/2015 13,006,180.00 13,000,000.00 6,180.00 3130A3ZB3 Federal Home Loan Bank 0628/2015 273 10,000,000.00 0.180 10/28/2015 '3,000,170.00 15,000,000.00 170.00 3133EDB84 Federal Farm Credit Bank 12/03/2013 730 10,000,000.00 0.300 12/03/2015 13,004,613.00 13,000,000.00 4,610.00 3130A24D5 Federal Home Loan Bank 05/29/2014 568 10,000,000.00 0230 12/18/2015 10,001,190.00 13,000,000.00 1,190.00 3130A3Z49 Federal Home Loan Bank 0627/2015 365 10,000,000.00 0250 0627/2016 10,001,400.00 9,999232.65 2,167.35 3130A3ZS6 Federal Home Loan Bank 01129/2015 365 10,000,000.00 0250 0629/2016 9,999,460.00 9,999,517.15 (57.15) 3130A5RD3 Federal Home Loan Bank 6/30/2015 216 9,000,000.00 0200 2/62016 8,996,760.00 9,000,000.00 (3,240.00) 3130A5CA5 Federal Home Loan Bank 5/7/2015 277 10,000,000.00 0.21) 2/8/2016 9296,530.00 13,000,000.00 (3,470.00) 3133EDMD1 Federal Farm Credit Bank 05/29/2014 638 13,000,000.00 0300 02/26/2016 9,998,530.00 9,998,500.80 2920 3130A3ZV9 Federal Home Loan Bank 02/04/2015 387 10,000,000.00 0.300 02/26/2016 9,998,230.00 13,000,000.00 (1,770.00) 3130A3ZV9 Federal Home Loan Bank 02/04/2015 387 10,000,000.00 0.300 02/26/2016 9298,230.00 13,000,000.00 (1,770.00) 3130A5AU3 Federal Home Loan Bank 5/15/205 350 . 10,000,000.00 0250 4/29/2016 9,994,180.00 9,995,867.85 (1,687.85) 3130A5EJ4 Federal Home Loan Bank 5/18/2015 366 10,000,000.00 0250 5/18/2016 9,986,020.00 9,994,728.92 (8,708.92) 3130A5F38 Federal Home Loan Bank 5/26/2015 359 13,000,000.00 0250 5/19/2016 9,989,800.00 9,995,592.77 (5,792.77) 3130A5FP9 Federal Home Loan Bank 5/26/2015 366 13,000,000.00 0250 5/26/2016 9,985,950.00 9,993,239.15 (7,289.19) 3130A5E47 Federal Home Loan Bank 5/29/2015 363 13,000,000.00 0.300 5/26/2016 9,993230.00 9,999,729.60 (6,499.60) 3133EDM66 Federal Farm Credit Bank 5/27/2014 731 13,000,000.00 0.390 5/27/2016 9,992,710.00 13,000,000.00 (7290.00) 3130A5CK3 Federal Home Loan Bank 5/27/2015 366 10,000,000.00 0.400 5/27/2016 9,998,500.00 13,000,000.00 (1,500.00) 3130A5K57 Federal Home Loan Bank 6/4/2015 392 13,000,000.00 0.330 6/30/2016 13,015,840.00 9,998,509.87 17,330.13 3130A5K57 Federal Home Loan Bank 6/4/2015 392 10,000,000.00 0.330 6/30/2016 13,015,840.00 9,999,007.05 16,832.95 3134G6AA1 Federal Home Loan Mtg Corp 0630/2015 731 13,000,000.00 0.700 0630/2017 9,999,920.00 9,998,024.31 1,895.69 3134G6AA1 Federal Home Loan Mtg Corp 0630/2015 731 13,000,000.00 0700 0630/2017 9,999,920.00 9,996,443.75 3,476.25 3134G6AA1 Federal Home Loan Mtg Corp 0630/2015 731 10,000,000.00 0.700 0630/2017 9,999,920.00 9,999,604.86 315.14 3134G6AA1 Federal Home Loan Mtg Corp 0630/2015 731 13,000,000.00 0.700 0630/2017 9,999,920.00 13,000,000.00 (80.00) 3134G6AN3 Federal Home Loan Mtg Corp 02/13/2015 731 10,000,000.00 0.750 02/13/2017 9,995,830.00 13000,000.00 (4,170.00) 3134G6B05 Federal Home Loan Mtg Corp 02/13/2015 731 13,000,000.00 0.750 02/13/2017 10,003,650.00 13,000,000.00 3,650.00 3334G6CJ0 Federal Home Loan Mtg Corp 02/13/2015 731 15,000,000.00 0.800 02/13/2017 13,006,810.00 13,000,000.00 6,810.00 3130A5GJ2 Federal Home Loan Bank 5/28/2015 701 10,000,000.00 0.720 4/28/2017 9,995,110.00 13,000,000.00 (4,890.00) 3134G6YQ0 Federal Home Loan Mtg Corp 5/26/2015 731 13,000,000.00 0.800 5/26/2017 13,002,190.00 13,000,000.00 2,190.00 3134G6E82 Federal Home Loan Mtg Corp 5/26/2015 731 13,000,000.00 0.850 5/26/2017 9,986,470.00 13,000,000.00 (13,530.00) 3134G6Q22 Federal Home Loan Mtg Corp 6/30/20'5 731 13,000,000.00 0.875 6/30/2017 13,005,810.00 13,000,000.00 5,813.00 3134G6X73 Federal Home Loan Mtg Corp 5/29/2015 728 '0,000,000.00 0.820 5/26/2017 9,988,440.00 10,000,000.00 (11,560.00) 3134G7AY7 Federal Home Loan Mtg Corp 6/29/2015 731 20,000,000.00 1.000 6/29/2017 20,007,480.00 20,000,000.00 7,480.00 3134G7DR9 Federal Home Loan Mtg Corp 6/30/2015 724 5,000,000.00 0.800 6/23/2017 4,998,600.00 5,000,000.00 (1,400.00) Total 710,724,406.53 710,689,516.53 710,692,405.30 (2,888.77) . COLLATERAL REQUIREMENTS 1. Background a. As security for the City's deposits, the Depository must pledge to the City securities equal to the largest total ledger balances the City maintains in the Depository, less the amount of coverage provided by the Federal Deposit Insurance Corporation. b. All funds deposited under the Depository Services Agreement must be continuously secured in • accordance with applicable federal laws and regulations as well as the laws of the State of Texas, including but not limited to Subchapter C, Security for Funds Held by Depository of Chapter 105, Depositories for Municipal Funds, of the Texas Local Government Code, Chapter 2257, Public Funds Collateral Act, Government Code, and this RFA. 2. Qualification as Depository The Depository will be required to, no later than five days before the commencement of the term of the Depository Services Agreement, pledge security for the funds to be deposited by the City at the Depository as provided in Subchapter C, Security for Funds Held by Depository of Chapter 105, Depositories for Municipal Funds of the Texas Local Government Code, Chapter 2257, Public Funds Collateral Act, Government Code, and this RFA. 3. Permissible security Only the following types of securities are acceptable to the City to secure City deposits: (a) A treasury note of the United States or other evidence of indebtedness of the United States that is guaranteed as to principal and interest by the United States. (b) An obligation of an agency of the United States, provided that (i) the market value can be readily established, and (ii) the obligation has been approved by an Authorized City Representative. 4. Custodian of Pledged Securities The securities pledged by the Depository as collateral must be deposited with a branch of the Federal Reserve Bank, ("the Custodian"), in escrow in a safekeeping account held in the name of the City. The custodian account must require the authorization of both the Depository and an Authorized City Representative to release pledged collateral. The Custodian, upon receipt of pledged securities, must promptly issue and deliver to the Authorized City Representative trust receipts for the securities pledged. The securities must be held by the Custodian and the Custodian may not transfer or deposit the securities in another institution. 5. Amount of Collateral 1. Securities pledged by the Depository to secure City funds on deposit identified with federal taxpayer identification number 74-6000574 must have a market value of at least Thirty million dollars ($30,000,000) or as designated in writing by an Authorized City Representative. During the City's tax season, which occurs from October through March, the Depository must provide additional collateral as required by an Authorized City Representative. 2. Securities pledged by the Depository to secure City funds identified with federal taxpayer identification number 74-2442464 must have a market value of at least four million dollars ($4,000,000) or as designated in writing by an Authorized City Representative. The market value of a security is to be determined by an Authorized City Representative from a third party source (e.g. Primary dealer, Wall Street Journal) and is binding on the Depository. 6. Federally Insured Deposits The Depository is not required to provide security for the deposit of City funds to the extent deposits are insured under 12 U.S.C.A., Sections 1811-1835a. 7. Additional Security An Authorized City Representative may, by written order, require the Depository to pledge additional collateral at any time it is determined to be advisable. If, for any reason, the total City balance on deposit with the Depository exceeds the market value of pledged security, the Depository must immediately pledge additional securities to the City. Any additional security pledged must meet the requirements of this RFA and must be approved by an Authorized City Representative. Failure to pledge additional securities on the day the Depository is provided written notice constitutes grounds for City Council to select a new depository as required by law and terminate the Depository Services Agreement. On the same day that notice to pledge additional securities is received by the Depository, the Depository must execute and deliver a Supplemental Pledge Agreement in form acceptable to the City to evidence any additions of collateral pledged to secure the deposits of the City. The Supplemental Pledge Agreement must also be placed and continuously maintained in the official records of the Depository. 8. Substitution of Securities The Depository may substitute one security for another provided that the security meets the requirements of this RFA and provided that an Authorized City Representative approves the substitution,in writing. Prior to such substitution, the Depository must execute and deliver a Supplemental Pledge Agreement in form acceptable to the City to evidence any substitutions of collateral pledged to secure the deposits of the City. The Supplemental Pledge Agreement must be placed and continuously maintained in the official records of the Depository. 9. Release of Security If the securities pledged by the Depository exceed the amount required under this RFA, an Authorized City Representative may authorize the release of the excess. An Authorized City Representative must approve such release in writing. 10. Records and Audit The Depository must maintain separate, accurate, and complete records relating to the deposit of public funds, the pledged investment securities, and all transactions relating to the pledged investment securities. The Custodian must maintain separate, accurate, and complete records regarding the pledged investment securities. All such records will be subject to any internal or external audit or regulatory examination of the Depository or Custodian, such audit or examination to ascertain whether the records and pledged investment securities are in compliance with the Public Funds Collateral Act, Chapter 2257, Government Code. 11.Documentation to be Provided to City The Depository and/or Custodian must provide documentation relating to the description of securities pledged as collateral, substitution of pledged securities, pledge of additional securities, and withdrawal of excess securities to the Authorized City Representative. A certificate as to the then market value of securities pledged as security hereunder must be provided to the Authorized City Representative at least monthly. 12. Collateral Provision of Financial Institution Reform, Recovery and Enforcement Act (FIRREA) The Depository must provide certification that the Depository has complied with all requirements of the Financial Institution Reform, Recovery and Enforcement Act (FIRREA) and FDIC policies which may apply to the City's security interests in the pledged collateral and must specify the officers of the Depository who are authorized to sign agreements with the City. Prior to the initial pledge of securities under the Depository Services Agreement,the City will require that the Depository: (a)execute a Security Agreement -Pledge and ancillary agreements necessary to effect the pledge of securities to collateralize all of the City's deposits in such form as is acceptable to the City; (b) deliver to the City a certified copy of excerpts from the minutes of a meeting of the Loan Committee and/or Board of Directors of the Depository, properly authorizing the Depository to enter into a Security Agreement-Pledge, and to pledge assets of the Depository to secure all deposits made by the City with the Depository; and (c) deliver to the City certification that the Depository Agreement, the Security Agreement - Pledge, and the authorization of the Board of Directors and/or the Loan Committee of the Depository have been placed (and will continuously be maintained) in the official records of the Depository. SERVICE FEE REQUIREMENTS 1. The City desires an equitable reimbursement arrangement for the depository services provided. A direct fee basis for services provided by the Depository with an offsetting earnings credit for available balances is the method required by the City. This process requires the monthly calculation of a net depository service cost. The Depository will calculate the total monthly service costs for all accounts and the total monthly earnings credit for all accounts on the account analysis statement. The net of total service costs and total earnings credits equals net banking service costs for the month. Earnings credit must be given to the City for all account balances grouped together and not for single account balances. 2. A written invoice evidencing the fees for services must be provided to the City at the end of each month for each account. This invoice must also contain a section summarizing the fees for services for all accounts. The City will have five working days to confirm the services performed prior to authorization of the debit advice(s). The Depository will not debit a City depository account for service fees until the Depository and the City agree that the fees are correct. Fees will be allocated among accounts as designated by an Authorized City Representative. For a listing of the current Authorized City Representatives, see Exhibit A to the Depository Services Agreement attached hereto. OTHER REQUIREMENTS 1. The Depository must notify the City in writing within ten (10) days of any changes in federal or state regulations or laws that would thereafter affect the Depository Services Agreement. The Depository must also notify the City of any services, which become available to the City throughout the Agreement period. 2. The Depository's records relating to the City's accounts must be open to review by either City staff members or City-appointed independent auditors during normal business hours. 3. The successful Depository must provide to the City each quarterly CALL report (Schedule RC only) as well as any public information concerning changes in the ownership, management or financial position of the Depository or its parent company. 4. To the extent that the Depository Services Agreement is not governed by applicable federal laws and regulations, the Depository Services Agreement will be governed by and construed in accordance with laws of the State of Texas. Any suit brought in connection with the Depository Services Agreement must be tried in Nueces County, Texas. 5. Until deposits are credited to the City as evidenced by validation of duplicate deposit slips,the relationship between the City and the Depository as to all contents must be that of Bailor and Bailee. The Depository will be responsible and liable to the City for that same degree of care required under the laws of Texas for Bailees having custody of property of other persons. 6. The Depository must be a participating bank in the Southwestern Automated Clearing House Association to be able to deliver debit and credit payments. 7. The Depository must assign one of its officers employed by the Depository in Corpus Christi to coordinate the depository relationship established under the Depository Services Agreement. The depository officer is responsible for responding to questions from an Authorized City Representative concerning the performance of depository services. The City may require a review meeting with the depository officer at least once every month to evaluate the working relationship between the City and the Depository and to address any problems. V - - 8. The City will provide the Depository with a Corporate Resolution at the commencement of the contract term. Thereafter,the Depository will not require additional corporate resolutions when an Authorized City Representative opens a new account. 9. Lockbox services. The Depository must provide lockbox services to process customer payments. This includes sorting and reading customer checks and payment coupons as well as creating an image electronically of the paper items. Additionally, the City requires the lockbox contractor to send an updated file of all payments received on accounts by 7:00 a.m. CT for review and validation of payment. City utility payments are processed through a lockbox. The payment envelope includes the check or money order along with a barcoded payment stub. The lockbox location will have to be able to read the barcode as well as scan the check information. The Depository will send a daily data file to the City's utility software and interface the payment information. Scanned information must be made available on the Depository's web site. 10. The City electronically transmits data to the Depository regarding those City Utility, Marina, and Misc. Accounts Receivable customers who have previously authorized the City to automatically debit their demand deposit accounts for their City bills. The Depository must be able to provide this direct debit service. 3.3 Technical Solution A. The City expects the best availability of funds provided to the Depository's institutional clients. Please attach the depository's availability schedule and an explanation of funds credit. The City recognizes that only collected funds may be used as available balances for investment purposes. The anticipated amount of balances the City will maintain in both non-interest and interest bearing accounts is up to 35 million dollars. List any ways the City could periodically improve availability of funds. List all time deadlines clearly. B. At a minimum, the City requires that the Depository accept City deposits for ledger credit until 3:00 p.m. CT each business day. List the cut-off time for accepting deposits for same-day credit. C. Please describe your depository's ability to sufficiently and continuously collateralize City deposits. Enumerate the types of securities, which you propose to pledge. Describe reporting methods and steps, if any, which would be employed to detect deficiencies in collateral position. D. Please describe your securities clearance and safekeeping procedures. Please explain the method your depository uses to calculate safekeeping and securities clearance fees. E. Please provide a detailed explanation of the depository's policy and methodology used in the setting of the earnings credit rate. Provide a schedule of the earnings credit rates offered by the depository since January 1,2015. F. Does the depository offer a fixed rate of interest if the City agrees to maintain a specified collected balance? If so,please provide the appropriate information. G. List minimum ledger and collected balances required to earn interest. H. List the interest rates currently paid on interest bearing accounts. I. What back-up arrangements for check processing exist in case of system failures? J. What is your contingency plan in case of a natural disaster? What provisions will be made for the City to continue operations after a disaster occurs (i.e., utilization of other branches in other cities, etc.)? K. In order to fund check presentments and manage the City's depository accounts and investments, controlled disbursement services are required. Please describe the controlled disbursement services available. Where are the disbursing depositories located? How much time delay should the City expect in utilizing this service? L. In order to fund check presentments and manage the City's depository accounts and investments, check presentment totals must be made known to the City no later than 11:15 a.m. CT. Notification after this time may result in the City not being able to adequately fund checks. If an overdraft occurs due to a late notification by the depository, the City will not be charged any overdraft charges. How many times has the depository missed notification deadlines and by how much within the one-year period ending December 31, 2014? (Note: This refers to Control Disbursement. All check presentments must be reported on a real-time basis.) M. Please describe the Account Reconcilement Service offered by the depository and attach a sample reconcilement statement. N. Does the depository have an established maximum dollar value limit, which may not be exceeded by an individual check or wire transfer? Are there any other restrictions regarding individual checking amounts? 0. The City requires that its Depository offer automated stop payment service. At a minimum, stop payments must remain in effect for at least six (6) months. How long are stop payment orders effective? When does the stop payment order take effect? P. Direct deposit of payroll is a service the City offers its employees. Approximately 2,917 employees or 99% are set up for automated payroll deposit. The City will require that the payroll transfers occur electronically, directly to the employee's depository account. Please provide cut-off times and other appropriate information. Q. Provide a sample depository statement for a demand deposit account. R. Provide information on positive pay. S. Provide an availability of funds schedule with a clear explanation of deadlines. T. Provide a sample monthly pledged collateral report. U. Provide an explanation of basis for money market rates. V. Provide a copy of your organization's most recent annual financial statement. W. Please describe the process by which service problems are to be resolved. What person or organizational unit is available for complaint or problem resolution? X. The City of Corpus Christi frequently initiates time sensitive wire transfers which must be received by the beneficiary by a certain time of day, such as 10:00 a.m. CT. Please describe the depository's daylight overdraft policy with respect to such transfers where the funding for the transfer has not yet been credited. What is the depository's internal review and approval process for releasing such transfers? Y. Describe any other cash management or depository services that could be offered to the City. List all charges, which would apply. Z. The City requires that the Depository have a successful history of providing electronic cash management services. What electronic cash management services are currently provided? How long has the depository provided each of these services? AA. Please specify days on which the disbursement depository would be closed or would not receive cash letters. BB. Describe CD-ROM or other media resources available to replace original canceled checks. CC. The City electronically transmits data via computer terminal to the Depository regarding those City Utility, Marina, and Misc. Accounts Receivable customers who have previously authorized the City to automatically debit their demand deposit accounts for City bills. Please state the procedure for this service and list appropriate cut-off times, which will apply. DD. The City currently uses a lockbox to process approximately 23,000 payments per month. Please list all charges associated with processing payments through a lockbox arrangement. EE. What type of services do you currently have in place to keep clients updated on new products and changes in banking legislation? FF. What is the physical location of the lockbox that will service the City's account? GG. What is the latest daily pick up time to retrieve utility payments from the lockbox as designated by the Applicant in Section 3.3, FF of this RFA? HH. What is the average mail time from Corpus Christi to the lockbox location? II. Please provide a bank calendar for 2016. JJ. What payment processing solutions do you have to handle billpay checks received without a remittance? 3.4 Applicant's Profile and Qualifications A. Official legal name, manner in which your organization is organized (e.g. sole proprietor, partnership, corporation, etc.) and a brief history of your organization including the date established. B. Detail the key personnel in your local office. State the location of the office from which the work is to be done and the key personnel in that office. Provide resumes for all key personnel listed. C. List the hours of operation and locations of all branches of the Depository located within the city limits of Corpus Christi, Texas. A vault within the city limits of Corpus Christi is required. D. Provide the location of all branches of the Depository, which can serve as the City's night depository facility. E. In the last five years, has the City terminated any agreement with your organization, either for or not for cause, breach or default? F. Has the Depository or its parent company had any problems noted by regulatory agencies in the past 24 months? If"yes", please explain. G. Is your organization currently involved in litigation with the City or, in the last five years, has your organization been involved in litigation with the City? If so, please provide cause numbers, dates and final disposition of each. H. What is the address, city and state where your organization is headquartered? I. The City requires a Depository that is fiscally strong. Thus each depository institution applying to become the City's Depository must complete the following Depository Credit Evaluation Form relative to your organization: DEPOSITORY CREDIT EVALUATION FORM ASSET QUALITY RATIOS YEAR ENDING YEAR-TO-DATE 2014 2015 Equity to asset ratio Reserves as % of total loans Non-performing loans to total loans Current loan loss to total loss Loan loss reserves to total loans CAPITAL ADEQUACY INDICATORS Total capital and surplus Capital to loans Capital to total assets PROFITABILITY INDICATORS Return on Assets Return on Equity Net Interest Margin LIQUIDITY RATIOS Loans to Deposits Gross loans to total assets Problem loans to primary capital Liquid assets to total assets J. Describe the qualifications, services or other information unique to your company for the delivery of services requested. K. Using the format outlined below, the Applicant should provide five current GOVERNMENTAL Client references in Corpus Christi, Texas (organizations to which you have provided services for at least one year) and three former GOVERNMENTAL client references in Corpus Christi, Texas. References should be relative to the Applicant's office that will provide DEPOSITORY SERVICES to the City. This information will be used to determine the extent to which the Applicant is able to provide DEPOSITORY SERVICES to an entity the size of the City of Corpus Christi as well as the level of customer service exhibited by the Applicant. CURRENT GOVERNMENTAL Client Reference 1 Organization name: Contact and title: Address: Phone number: Effective date of contract: Description of services provided: CURRENT GOVERNMENTAL Client Reference 2 Organization name: Contact and title: Address: Phone number: Effective date of contract: Description of services provided: CURRENT GOVERNMENTAL Client Reference 3 Organization name: Contact and title: Address: Phone number: Effective date of contract: Description of services provided: CURRENT GOVERNMENTAL Client Reference 4 Organization name: Contact and title: Address: Phone number: Effective date of contract: Description of services provided: CURRENT GOVERNMENTAL Client Reference 5 Organization name: Contact and title: Address: Phone number: Effective date of contract: Description of services provided: THIS SECTION INTENTIONALLY LEFT BLANK FORMER GOVERNMENTAL Client Reference 1 Organization name: Contact and title: Address: Phone number: Effective date of contract: Description of services provided: Reason for termination: FORMER GOVERNMENTAL Client Reference 2 Organization name: Contact and title: Address: Phone number: Effective date of contract: Description of services provided: Reason for termination: FORMER GOVERNMENTAL Client Reference 3 Organization name: Contact and title: Address: Phone number: Effective date of contract: Description of services provided: Reason for termination: FORMER GOVERNMENTAL Client Reference 4 Organization name: Contact and title: Address: Phone number: Effective date of contract: Description of services provided: Reason for termination: FORMER GOVERNMENTAL Client Reference 5 Organization name: Contact and title: Address: Phone number: Effective date of contract: Description of services provided: Reason for termination: 3.5 Local Presence Please provide addresses of locations within the City limits. 3.6 Fee Schedule The attached Excel file named Monthly Pricing Summary Form must be completed. By submission of its application, prices must be guaranteed for the initial term of the Depository Services Agreement as well as any option years. Submission of an Incomplete Monthly Pricing Summary Form shall be grounds for rejection of the entire application. Section 4.0 Application Format and Organization This section provides specific instructions on format and organization of the application to be submitted by the Applicant. Each Applicant may submit only one application in a totally self-supporting format without reference to any other application(s). 4.1 General Instructions A. To provide for ease and uniformity and to aid in the evaluation of applications, Applicants shall comply with the sequence outlined herein. IN NUMBERING APPLICATIONS, THE APPLICANT SHALL USE THE SAME SECTION NUMBERS AND TITLES AND SHALL PROVIDE ITS RESPONSES IN THE SAME ORDER AS EACH QUESTION IS NUMBERED AND ORDERED HEREIN. Failure to comply may result in rejection of the application. The application shall be completed in sections, which are described below. B. Applicant should be aware that all technical and operational specifications, equipment descriptions and marketing material submitted or made available will be incorporated by reference into any contract(s) resulting herefrom. The City discourages the inclusion of general marketing material or equipment manuals unless they are used to provide specific information or specifically requested by the City. 4.2 Application Format A. This section outlines the minimum requirements for preparation and presentation of an application. B. The Applicant shall define the capabilities of their organization to supply and maintain the services as requested in this RFA. The response should be specific and complete in every detail and prepared in a simple and straightforward manner. C. Applicants are expected to examine the entire RFA including all specifications, standard provisions, instructions and attachments. Failure to do so will be at the Applicant's risk. Applicants should provide their best pricing for each type of service set out herein. 4.3 Transmittal Letter A. The transmittal letter shall be the first item in your application and shall indicate the intention of the Applicant to adhere to the provisions described in the RFA. The transmittal letter MUST: 1. Be presented on company letterhead; 2. Identify the submitting organization; 3. Acknowledge receipt of any addenda to this RFA; 4. Identify, by name and title, and be signed by the person authorized by the organization to obligate the organization contractually B. The second item in the application must be a Table of Contents listing titles, sections and major sub-sections. All pages shall have a unique identifier and be numbered sequentially. C. The third item in the applications must be the City of Corpus Christi's Disclosure of Interest. D. The fourth item in the application must be the City of Corpus Christi's Business Designation Form. E. The fifth item in the application must be your actual proposal and associated documents, including the completed Excel file named Monthly Pricing Summary Form. 4.4 Service Agreement A sample SERVICE AGREEMENT is attached hereto that the successful Applicant will be required to sign. With the exception of certain terms and conditions which may be modified by mutual agreement between the City and the Applicant prior to final execution of the Contract, the final SERVICE AGREEMENT will conform to the SERVICE AGREEMENT included in this RFA. THIS SECTION INTENTIONALLY LEFT BLANK Section 5.0 Application Evaluation 5.1 Evaluation Committee An Evaluation Committee("Committee")will be established to assist the City Treasurer in the selection of a qualified Applicant. The Committee will determine the responsiveness and acceptability of each application. The Committee will then engage in a detailed review of each application to evaluate the response in relation to the five (5)major evaluation factors identified in Section 5.2. 5.2 Evaluation Criteria A. The application evaluation and selection process will be based on the following criteria: 1) Technical Solution,2)Applicant's Profile&Qualifications,3)Local Presence,4)Fee Schedule and 5)Exceptions. The final weight assigned to each of these parameters will be determined by the Evaluation Committee and will be within the ranges for each criterion as indicated below. Some of the criteria contained within this model may look similar to the following Proposed Evaluation Model. Each Applicant shall provide detailed responses including reference to any existing "in-house" procedures, policies, etc. as they reference all requirements of this RFA. In determining most advantageous and best value to the City, the Evaluation Committee will evaluate the entire application, including, but not limited to, the criteria enumerated in Sections 3.3, 3.4, 3.5 and 3.6 of this RFA and any exceptions taken. Technical Applicant's 1 Local !� Fee Exceptions Total Solution Profile& Presence Schedule Qualifications (Exceptions (Section 3.3) (Section 3.4) (Section 3.5) (Section 3.6) {t�_ Form) I 10-20% I 15-25 % 5-10% 40-50% 1 100% B. The Evaluation Committee shall determine the final percentage assigned to each proposed evaluation criterion. In no case shall the percentage assigned to each criterion be smaller or greater than the stated minimum or maximum,respectively. The sum of the final percentages for all criteria shall equal 100%. C. The Applicant's failure to provide information relative to the above criteria may result in the City deeming such application non-responsive and may, at the discretion of the Committee, as defined in the paragraphs above, result in elimination of said application from further consideration. The Committee reserves the right to conduct other evaluation and measurements of the applications as may be necessary to make an informed decision. EXCEPTIONS Applicant: Document Exceptions Applicant shall clearly state the exception and the reason for taking exception. Applicant shall describe each item and state clearly any price consequences. Important Note: The Applicant must complete this form. If the Applicant has no objection or exception,the Applicant must indicate"NONE"on this page. Applicant's Authorized Signature: Name of Applicant's Authorized Representative: (Print) Telephone Number(_ _ _)_ _ _ Date: / / SAMPLE DEPOSITORY SERVICES AGREEMENT Whereas, the City of Corpus Christi ("City") requested and received applications for the provision of depository services for City funds from depositories doing business within the city limits of Corpus Christi, Texas; Whereas, the City Council considered and reviewed the specifications of each application received and determined which application was the most advantageous for the City; Whereas, on the City Council in Motion designated ("Depository") to be the depository for City funds and authorized the City Manager to execute this depository services agreement("Agreement")with Depository; NOW THEREFORE, in consideration of the mutual benefits to be derived from this Agreement, including representations, warranties, and covenants,the City and Depository agree as follows: ARTICLE 1 Definitions For purposes of implementing this Agreement, the terms listed below will have the following meanings: "Authorized City Representative": the City Manager or other persons designated to perform duties in accordance with this Agreement. The present Authorized City Representatives are specified in Exhibit A. "Account Transfers": written, electronic (wire/ACH), telephonic, facsimile or oral requests or orders issued by an Authorized City Representative for the transfer of City funds on deposit from City accounts maintained at the Depository for credit to accounts designated by the Authorized City Representative. "Deposits": include demand and time deposits. The City may withdraw demand deposits on demand. Time deposits are subject to a contract under which the City may not withdraw funds by check or other means until the expiration of a certain period following written notice. "City Funds": all accounts held by the Depository for the City. "Total City Balance": the sum of all ledger balances of all City accounts held by Depository. "Depository Services": all services required according to this Agreement "Other Financial Services": all services necessary in the administration, collection, investment, and transfer of city funds. ARTICLE 2 Provision of Depository Services 2.01 Depository Services and Fees. The Depository hereby agrees to provide depository and other services described in this Agreement for the City funds deposited at the Depository. The City agrees to pay a net monthly service fee to Depository,which will be calculated as described herein. 2.02 Guaranteed Service Fees. All service fees listed in Applicant's response to Section 3.6, Fees, of the Request for Applications, are guaranteed for the entire term and any option year of the Agreement. The service fees will be used in calculating the net monthly service fee. 2.03 Calculation of Net Monthly Service Fee. A written invoice evidencing the services performed for the City by the Depository must be mailed to the City at the end of each month for each account. This invoice must also contain a section summarizing the services provided and the fees for services for all accounts. The City will have five working days to confirm the services performed. After the City has confirmed the services performed by the Depository, the City agrees to pay a monthly net service fee for the services provided by Depository. The monthly net service fee is to be calculated as follows: The Depository will calculate total earnings credit for all City account balances grouped together and not for single account balances. The Depository will calculate the total monthly service fees for all accounts. If the total service fees are greater than the total earnings credits, then the difference between the two will be the net depository service fee for the month. 2.04 Payment of Net Monthly Service Fee. The Depository will not debit a City depository account for the net monthly service fee until the Depository and the City agree that the net monthly depository service fee is correct. The net monthly service fee will be allocated among accounts as designated by an Authorized City Representative. 2.05 Representations of Depository. The Depository shall: (a) keep the City funds covered by this Agreement; (b) faithfully perform all duties and obligations imposed on the Depository by law and under this Agreement; (c) pay on presentation all checks drawn and properly payable on a demand deposit account with the Depository; (d) pay all transfers properly payable as directed by an Authorized City Representative; (e) provide and maintain security at the level required by the provisions of Chapter 2257, Government Code and this Agreement; and (0 account for the City funds as required by law. 2.06 Electronic Cash Management Services. The Depository must provide electronic cash management services. Using Internet access, the City through an Authorized City Representative must be able to access and transmit a variety of balance and transaction information as required in this Depository Services Agreement. Any necessary software to perform these services, including but not limited to, stop payments, wire transfers, account balance and transaction information, positive pay, lockbox, and transmission of Automated Clearing House ("ACH") debit or credit transactions, shall be made available by the Depository, at no charge to the City. 2.07 Deposits. The Depository shall accept all deposits made by the City during the term of the Depository Services Agreement. The Depository shall accept City deposits for ledger credit until 3:00 p.m. Central Time (CT) each business day. The City reserves the right to exclude deposits made on behalf of the Corpus Christi Fire Fighters' Retirement System and any other special funds which are controlled by entities separate and apart from the City. 2.08 Items Deposited. All payments made directly to the City by customers will be sent to the bank un- encoded. 2.09 Automated Information Reporting. Using Internet access, the City must be able to access, for each City account, the previous day's ending ledger balance, collected balance, float, and debit/credit detail by 8:00 a.m. CT daily. By this same deadline, this information shall be combined to reflect totals for all City accounts taken together. 2.10 Items Processing Service. The Depository shall provide the following processing services for all items of checks and cash deposited by the City, including, but no limited to: encoding services, credit and debit advices given to the City within three business days of the debit or credit, clearing returned items, and return of stamped duplicate deposit slips to the City within one business day of deposit. The City intends to deposit all revenues directly to the Depository by courier. The deposits will be made in batches with a tape to be provided for each batch. If the Depository Item Processing Department discovers an error in the deposit, then the Depository shall prepare a credit or debit advice and mail it to the City immediately after the account has been adjusted. The Depository shall also mail the appropriate documentation attached to the debit or credit advice to justify the correction. Appropriate documentation is considered to be a copy of the City's tape with the item in question marked and a copy of the check in question. 2.11 Check Sorting Requirements. Accounts that have more than 400 checks shall be fine-sorted in numerical order by the Depository. 2.12 Insufficient Funds (NSF)/Returned Items. A complete description shall be provided on all NSF/returned items deposited into City accounts. The description shall include the Payor's name, applicable City department, and reason for return. All NSF/returned items shall be charged back to the account to which the items were deposited provided that the City department is identified by endorsement stamp or other readily identifiable means on the item. The Depository will send the NSF/returned items to the City department or other business designated by an Authorized City Representative. 2.13 Stop payments. Stop payments shall remain in effect for at least six (6) months. By using Internet access, the City through an Authorized City Representative shall be able to initiate stop payments. Placement of stop payments through the Internet does not require follow-up written authorization. 2.14 Automatic payroll deposit services. Using Internet access, the City through an Authorized City Representative will electronically transmit City employee payroll data to the Depository. The Depository will receive the data and prepare an Automated Clearing House ("ACH") debit. The Depository payroll account will be debited no sooner than the date of payroll. Exhibit A contains the 2016 Payroll Calendar. Procedures for processing the ACH debit are set out herein. 2.15 General Wire Transfer Services. Using Internet access, the City shall be able to initiate general wire transfer services including initiation of repetitive and non-repetitive wire transfers. The Depository shall act upon all electronic, written or verbal transfer requests within one hour from the time received from an Authorized City Representative, and use any means for the transmission of the funds the Depository may consider suitable up until 3:30 p.m. CT. The Depository shall record all telephonic instructions from the City received by the Depository's wire transfer department and retain the recordings for sixty-one (61) days (the period for City notification of discrepancies) following such requests. In the event there is a loss of interest or use of funds as result of a Depository error for failure to execute a transfer request on the date received, or such other error within the Depository's control, compensation for loss shall be corrected by adjusting the aggregate ledger and collected balances of the City accounts to reflect properly the average balances of the amounts that would have resulted had no error occurred. 2.16 Account Reconciliation Services. All depository statements and paid items shall be on a monthly cycle and shall be cutoff on the last calendar day of the month. The City will pick up all Depository statements via electronic format (such as a compact disk— CD) no later than the fifth working day following the assigned cut-off date. The Depository may not mail the CD unless an Authorized City Representative approves such mailing. If a statement for a City depository account is not cut off as specified in this Agreement, the Depository shall reimburse the City for the costs incurred to reconcile the statement, including City employee overtime costs. The Depository will provide the City access to cleared checks via the Internet. 2.17 Depository Reconcilements. Automated depository reconcilements with Internet access are required for the Vouchers Payable and Payroll accounts and other accounts as required by an Authorized City Representative as transaction volume increases. By using the Internet, the City will electronically transmit reconcilement data to the Depository. Reconcilements shall be available for pick up by the City by the ninth working day following the date the data was transmitted to the Depository. "Add/delete" adjustment forms will be provided by the Depository. The Depository will transmit reconcilement information to the administrators of the City's health care and worker's compensation accounts and others as designated by the City. 2.18 Checking with Interest Accounts. If designated by an Authorized City Representative, a demand deposit account will be set up as interest bearing and interest will be paid monthly. Interest rates will be those set for public fund interest bearing accounts. 2.19 Controlled Disbursement Service. Specific accounts as designated by an Authorized City Representative will be controlled disbursement accounts. By 11:15 a.m. CT each day,the City shall be able to access same day information concerning controlled disbursement clearings using the internet. 2.20 Zero-Balance Accounts . Specific accounts as designated by an Authorized City Representative will be zero-balance checking accounts for ease in reconciling and record keeping. 2.21 Check Cashing. Depository shall pay on presentation all checks drawn and properly payable on a City demand deposit account at no charge to the payee or to the City. 2.22 Deposit Locations. The City will have the option to make Deposits at the Depository's main Corpus Christi office or at any of Depository's Corpus Christi branches. A deposit ticket will be presented to the Depository with each deposit. The Depository will route specified deposit ticket copies to the City on a daily basis. 2.23 Night Depository. The City will utilize the night depository facilities of the Depository for safekeeping purposes. The City will use special tamper-evident deposit bags in making deposits through the night depository facility. Each bag placed in the night depository facility will contain only currency, coin, and checks. If it appears that a bag has been tampered with, the Depository shall telephone an Authorized City Representative. 2.24 Overdrafts. The City does not intend to have an overdraft position on any of its depository accounts throughout the course of the depository services contract. If a check or checks are presented for payment on any City account where there exist insufficient funds available for payment, the Depository agrees to pay said checks and promptly notify the Finance Director or Authorized City Representative of the existence of the overdraft situation. The City agrees to cover the overdraft within one business day. The Depository will view all City accounts together for purposes of any charges on overdrawn collected balances. 2.25 Authority of Authorized City Representative. An Authorized City Representative may request depository services as required to implement this Agreement. An Authorized City Representative may open a depository account. The Depository shall not require corporate resolutions or other documents to establish depository accounts at the request of an Authorized City Representative. 2.26 Investment Services. The City reserves the right to exclude from the terms of this Agreement, investment in certificates of deposits, government securities, fully collateralized repurchase agreements or similar instruments authorized by law. 2.27 Account Executive Service. The Depository agrees to assign one of its officers employed by the Depository in Corpus Christi, Texas to coordinate the depository relationship established under this Agreement. The assigned officer is responsible for responding to questions from an Authorized City Representative. The assigned officer shall perform necessary research to promptly respond to questions or concerns of the City regarding its accounts. The assigned officer of the Depository shall meet with the City at least once a month to evaluate the working relationship between the City and the Depository and to address any problems. 2.28 Reports. The Depository will provide quarterly reports of income/condition (required by the FDIC) by the 15th day following the reporting deadline for each calendar quarter. 2.29 Direct Debit of Utility Customers. The City shall electronically transmit data to the Depository regarding those City Utility, Marina and Misc. Accounts Receivable customers who have previously authorized the City to directly debit their demand deposit accounts for their City bills. Upon request by the City, the Depository shall provide this pre-authorized direct debit service. The Depository will receive the data and prepare an ACH debit in accordance with the operating rules of the South Western Automated Clearing House Association and the operating rules of the National Automated Clearing House Association and as provided herein. ARTICLE 3 Security for Deposits 3.01 Background. As security for the deposits of the City, the Depository shall pledge to the City securities equal to the largest total ledger balances the City maintains in the Depository, less the amount of coverage provided by the Federal Deposit Insurance Corporation. All funds deposited under the Depository Services Agreement shall be continuously secured in accordance with applicable federal laws and regulations as well as the laws of the State of Texas, including, but not limited to: the Public Funds Collateral Act, Vernon's Texas Government Code Section 2257.001 et. seq. and Subchapter C Security for Funds Held by Depository of Vernon's Texas Local Government Code. 3.02 Qualification as Depository. The Depository shall, no later than five days before the commencement of the term of this Depository Services Agreement, pledge security for the funds to be deposited by the City at the Depository as provided by Subchapter C, Security for Funds Held by Depository of Chapter 105, Depositories for Municipal Funds of the Texas Local Government Code, Chapter 2257, Public Funds Collateral Act, Government Code, and this Depository Services Agreement. 3.03 Collateral Provision of Financial Institution Reform, Recovery and Enforcement Act (FIRREA). The Depository shall provide certification that the Depository has complied with all requirements of the Financial Institution Reform, Recovery and Enforcement Act (FIRREA) and FDIC policies which may apply to the City's security interests in the pledged collateral and shall specify the officers of the Depository who are authorized to sign agreements with the City. Prior to the initial pledge of securities under the Depository Services Agreement,the Depository shall: (a) execute a Security Agreement- Pledge and ancillary agreements necessary to effect the pledge of securities to collateralize all of the City's deposits in such form as is acceptable to the City; (b) deliver to the City a certified copy of excerpts from the minutes of a meeting of the Loan Committee and/or Board of Directors of the Depository, properly authorizing the Depository to enter into a Security Agreement-Pledge, and to pledge assets of the Depository to secure all deposits made by the City with the Depository; and (c) deliver to the City certification that the Depository Agreement, the Security Agreement-Pledge, and the authorization of the Board of Directors and the Loan Committee of the Depository have been placed (and will continuously be maintained) in the official records of the Depository. 3.04 Permissible Security. Only the following types of securities are acceptable to the City to secure City deposits: (1) a treasury note of the United States or other evidence of indebtedness of the United States that is guaranteed as to principal and interest by the United States. (2) an obligation of an agency of the United States, provided that: (i) the market value can be readily established and (ii) the obligation has been approved by an Authorized City Representative. 3.05 Custodian of Pledged Securities. The securities pledged by the Depository as collateral for City deposits shall be deposited with a Texas branch of the Federal Reserve Bank, ("the Custodian"), in escrow in a safekeeping account held in the name of the City, ("the Custodian Account"). The Custodian Account shall require the authorization of both the Depository and an Authorized City Representative to release pledged collateral. The Custodian, upon receipt of pledged securities, shall promptly issue and deliver to the Authorized City Representative trust receipts for the securities pledged. The securities shall be held by the Custodian. The Custodian may not transfer or deposit the securities in another institution without the prior written authorization of an Authorized City Representative. 3.06 Amount of Collateral. Securities pledged by the Depository to secure City funds on deposit identified with federal taxpayer identification number 74-6000574 shall have a market value of at least thirty million dollars ($30,000,000) or as designated in writing by an Authorized City Representative. During the City's tax season, which occurs from October through March, the Depository shall provide additional collateral in accordance with this Agreement. Securities pledged by the Depository to secure City funds identified with federal taxpayer identification number 74-2442464 shall have a market value of at least four million dollars ($4,000,000) or as designated in writing by an Authorized City Representative. 3.07 Determination of Market Value. The market value of a security is to be determined by an Authorized City Representative from a third party source (i.e. Primary dealer, Wall Street Journal) and is binding on the Depository. 3.08 Charges for Collateral. Charges for the collateral provided by the Depository are provided in the Applicant's response to Section 3.6, Fees, B. of the Request for Applications. 3.09 Federally Insured Deposits. The Depository is not required to provide security for the deposit of City funds to the extent deposits are insured under 12 U.S.C.A., Sections 1811-1835a. 3.10 Additional Security. An Authorized City Representative may, by written order, require the Depository to pledge additional collateral at any time it is determined to be advisable. Additionally, if, for any reason,the total City balance on deposit with the Depository exceeds the market value of pledged security, the Depository shall immediately pledge additional securities to the City. Any additional security pledged shall meet the requirements of this Depository Services Agreement and shall be approved by an Authorized City Representative. Failure to pledge additional securities on the day the Depository is provided notice constitutes grounds for City Council to select a new depository as required by law and terminate the Depository Services Agreement. Prior to the pledge of additional securities under the Depository Services Agreement,the Depository shall: (a) execute a Security Agreement-Pledge and ancillary agreements necessary to effect the pledge of additional securities to collateralize all of the City's deposits in such form as is acceptable to the City; (b) deliver to the City a certified copy of excerpts from the minutes of a meeting of the Loan Committee and/or Board of Directors of the Depository, properly authorizing the Depository to enter into a Security Agreement-Pledge, and to pledge assets of the Depository to secure all deposits made by the City with the Depository; and (c) deliver to the City certification that the Depository Agreement, the Security Agreement-Pledge, and the authorization of the Board of Directors and the Loan Committee of the Depository have been placed (and will continuously be maintained) in the official records of the Depository. 3.11 Substitution of Securities. The Depository may substitute one security for another provided that the security meets the requirements of this Depository Services Agreement; the substitution is approved, in writing, by an Authorized City Representative and the Depository. Prior to such substitution of securities, the Depository shall: (a) execute a Security Agreement- Pledge and ancillary agreements necessary to effect the pledge of securities to collateralize all of the City's deposits in such form as is acceptable to the City; (b) deliver to the City a certified copy of excerpts from the minutes of a meeting of the Loan Committee and/or Board of Directors of the Depository, properly authorizing the Depository to enter into a Security Agreement- Pledge, and to pledge assets of the Depository to secure all deposits made by the City with the Depository; and (c) deliver to the City certification that the Depository Agreement, the Security Agreement-Pledge, and the authorization of the Board of Directors and the Loan Committee of the Depository have been placed (and will continuously be maintained) in the official records of the Depository. 3.12 Release of Security. If the securities pledged by the Depository exceed the amount required under this Depository Services Agreement, an Authorized City Representative may authorize the release of the excess. Such release shall be approved in writing by an Authorized City Representative. 3.13 Records and Audit. The Depository shall maintain separate, accurate, and complete records relating to the deposit of public funds, the pledged investment securities, and all transactions relating to the pledged investment securities. The Custodian shall maintain separate, accurate, and complete records regarding the pledged investment securities. All such records shall be subject to any internal or external audit or regulatory examination of the Depository or Custodian. 3.14 Documentation to Be Provided to City. The Depository and Custodian shall provide documentation relating to the description of securities pledged as collateral, substitution of pledged securities, pledge of additional securities, and withdrawal of excess securities to the Authorized City Representative. A certificate as to the then-market value of securities pledged as security hereunder shall be provided to the Authorized City Representative at least monthly. 3.15 Surrender of Interest on Securities. Upon the request of the Depository, the City shall surrender, when due, interest coupons or other evidence of interest on securities if the remaining value of the securities pledged are adequate to meet the requirements of this Agreement. ARTICLE 4 Account Transfers 4.01 Electronic, Telephonic, Telegraphic or Oral Requests for Account Transfers. The Depository is authorized to honor, execute and charge City accounts for electronic,telephonic or oral requests: (a) for the transfer of funds from designated City accounts to any other City depository account,whether the account is with the Depository or another financial institution; or (b) for the transfer of funds from designated City accounts to the account of or the credit of a third party, whether the third party account is with the Depository or another financial institution. All requests shall be properly identified as being made by an Authorized City Representative in compliance with the Depository's transfer procedures. 4.02 Internal Transfers. An Authorized City Representative will periodically need to transfer funds from one City account to other City accounts. 4.03 Instructions for Transfer. The Depository shall act upon all electronic, written or verbal transfer requests within one hour from the time received from an Authorized City Representative, and use any means for the transmission of the funds the Depository may consider suitable up until 2:30 p.m. CT. 4.04 Immediate Credit. The Depository shall give both ledger and collected credit the day of the wire receipt, regardless of the time the Depository receives the transfer through the Fed wire System. Credit to City accounts for incoming wire transfers shall be immediate. 4.05 Daylight Overdraft Policy. The City actively invests in marketable securities. An outgoing wire transfer will be made in the morning for the reinvestment of funds expected by an incoming wire transfer. The Depository shall allow the City to reinvest and to wire funds out in anticipation of an incoming wire transfer later in the day. The Depository will not charge the City for daylight overdrafts. When a daylight overdraft is anticipated, an Authorized City Representative will notify the designated depository official of the situation. 4.06 Notification of Funds Transfers.Notification to the City of incoming wire transfers or problems with outgoing wire transfers shall be made within one hour of the transaction. The City allows two authorized employees to initiate repetitive transfers. All authorized employees will be issued a personal identification number in order to initiate wire transactions. If the wire transfer is initiated over the telephone, the Depository shall telephone the City and specifically request to speak to an Authorized City Representative other than the person initiating the wire to verify that the wire is authorized prior to releasing the wire. 4.07 Records. The Depository shall record all telephonic instructions from the City received by the Depository's wire transfer department and retain the recordings for sixty-one (61) days (the period for City notification of discrepancies) following such requests. The City agrees to report any discrepancies between the City's records and the Depository statement to the Depository's wire transfer department in writing within sixty-one (61)days after the statement date. 4.08 Discrepancies/Loss of Interest/Error. In the event there is a loss of interest or use of funds as result of a Depository error for failure to execute a transfer request on the date received, or such other error within the Depository's control, the Depository agrees that compensation for loss shall be corrected by adjusting the aggregate ledger and collected balances of the City accounts to reflect properly the average balances of the amounts that would have resulted had no error occurred. 4.09 Designated Accounts. Account Transfers may be made from the other accounts as designated by an Authorized City Representative. ARTICLE 5 Other Financial Services 5.01 Bailor/Bailee Relationship. Until deposits are credited to the City as evidenced by validation of duplicate deposit slips, the relationship between the City and the Depository as to all contents shall be that of Bailor and Bailee. The Depository shall be responsible and liable to the City for use of that degree of care required under the laws of Texas for Bailees having custody of property of other persons. 5.02 Custody, Safekeeping of Governmental Agency Securities. The Depository agrees to handle all purchases and sales of securities on a delivery versus payment or payment versus delivery basis (i.e. for securities purchases, monies will not be released by the City's safekeeping bank until securities are received at the Federal Reserve Bank or further credit to the City's safekeeping bank. In the case of securities sales, monies will be received by the City's safekeeping bank via the Federal Reserve Bank as the securities are simultaneously released to the purchaser). In this manner, the City will always have possession of either the securities or its monies on a delivery versus payment basis. The cost of safekeeping securities, processing purchase/sale transactions, and coupon interest payments are listed in the Applicant's response to Section 3.6, Fees, A., MONTHLYPRICING SUMMARY FORM. The City will send written instructions to the securities clearance department for each transaction. Most of these instructions will be sent by facsimile to assure the timeliness of the operation. It is specifically provided that when a City security matures, or when a City security is purchased, funds will be transferred from or to the Combined Operating account, the Bond Funds account, or another account as directed by an Authorized City Representative. The Depository shall give prompt notification to the City of any settlement problems, including securities delivered where the instructions do not match or where instructions have not been given to the Depository. All securities shall be perfected in the name of the City. All book entry securities owned by the City shall be evidenced by a safekeeping receipt issued to the City. The original safekeeping receipt for each transaction will be forwarded to the City. ARTICLE 6 General Provisions 6.01 Automated Clearing House ("ACH") Membership. The Depository shall be a participating depository in the Southwestern Automated Clearing House Association to be able to deliver debit and credit payments for the following transactions: City employee Payroll Account, Vouchers Payable Account, and pre- authorized City Utility, Marina and Misc. Accounts Receivable customer debits. An Authorized City Representative shall establish use of additional ACH transactions in writing. The Depository warrants that it is a participating financial institution in the Southwestern Automated Clearing House Association ("SWACHA"), which provides facilities for the exchange of electronic funds transfers among its members, and other automated clearing house associations within the United States by utilizing the capacities of the National Automated Clearing House Association("NACHA"). The Depository acknowledges that it shall comply with the rules, as may be amended, for the notification, posting, or transfer of funds by means of electronic credit transfer facilities. The Depository is required to comply with the procedures of the SWACHA and NACHA including, but not limited to, matters such as input format, data acceptance criteria, return item handling, adjusting entries, and dishonored entries. 6.02 Charging of Fees. The Depository is authorized to charge City accounts upon direct authorization by an Authorized City Representative for: (a) charge backs on correction of mathematical errors, and (b) bank service fees owed to Depository, including Deficient Balances Before Services. Deficient Balances Before Services will be reviewed by the City's Treasurer on a quarterly basis for fee assessment. The Depository or the City will not change the schedule of fees as listed in Applicant's response to Section 3.6, Fees, of the Request for Applications during the initial term of this Agreement or during any option year. 6.03 Confidentiality, Audits and Inspections. All information assembled by the Depository under this Agreement is to be kept confidential and not be made available to any individual or organization without the prior written approval of the City. At reasonable times during regular business hours, the Depository will make available for examination by the City, its duly authorized agent, accountant, or legal representative, pertinent copies of statements and debit and credit items supporting such statements, relating to the City's accounts. 6.04 Recalls,Debit Adjustments and Other Adjustments. The Depository is required to process recall or adjustment requests upon verbal authorization by an Authorized City Representative followed by written confirmation by the City, if possible, no later than four(4)working days after the request. 6.05 Compliance with Law. The Depository represents to have the expertise and personnel required and necessary to perform the services under this Agreement. The Depository acknowledges that it is fully qualified, authorized, and willing to comply under federal, state and local law to perform the services described in this Agreement. 6.06 Indemnification. The Depository fully indemnifies, saves, and holds harmless the City of Corpus Christi, its officers, employees, and agents against any and all liability, damage, account of personal injuries (including, without limitation on workers' compensation and death claims), or property loss or damage of any kind whatsoever, which arise out of or are in any manner connected with: (a) the Depository's failure to fulfill any of the terms and conditions of this Agreement; (b) any violation by Depository of any applicable federal or state law, rules, or regulation resulting from any act or omission of the Depository or its agents and employees which caused a direct loss to the City under this Agreement. The Depository must, at its own expense, investigate all claims and demands, attend to their settlement or other disposition, defend all actions, pay all charges of attorneys or other expenses of any kind arising from liability, damage, loss, claims, demands, and actions. This indemnification will not be construed to require indemnification of such injury, loss or damage which may be caused or arise from the negligence of the City, its officers, employees, and agents. 6.07 Term. This Agreement shall commence on the date following the date signed by the last signatory hereto and shall continue for a period of three years, or until a successor Depository is appointed and qualified. The City may, by 90 day written notice to Depository, terminate this Agreement during the remainder of the initial term and any option terms. Upon completion of the initial term, either party may elect to terminate any option term with 90 days prior written notice. Unless terminated, this Agreement will automatically renew for two additional one-year terms. Depository guarantees all service fees for the initial term of the Agreement and any option year. Upon termination or expiration of this Agreement,all finished or unfinished documents, data, studies, or reports prepared by the Depository, at the option of the City, will be delivered to the City and become the property of the City. 6.08 Duties After Termination. All obligations of the parties made or incurred or existing under this Agreement as of the date of termination, with respect to transactions initiated prior to the effective date of termination, will survive such termination, including, but not limited to: Depository's obligation to retain duplicates of transaction receipts and credit slips and any continuing obligation of the Depository with respect to charge backs. Upon termination of this Depository Services Agreement, all finished or unfinished documents, data, studies, or reports prepared by the Depository, at the option of the City, will be delivered to the City and become the property of the City. 6.09 No Endorsement. The Depository is not authorized to advertise or publish the fact that the City has entered into this Agreement without the City's prior written consent. 6.10 Notices. Notices provided herein will be in writing and delivered to: On behalf of the City: City of Corpus Christi Judy Villalon, City Treasurer P.O. Box 9277 Corpus Christi, TX 78469-9277 On behalf of the Depository: 6.11 Assignment. Any party may not assign this Agreement without the prior written consent of the other party. 6.12 Force Majeure. Neither party will be responsible for losses resulting if the fulfillment of any terms or provisions of this control of the party whose performance is interfered with, and which, by the exercise of reasonable diligence, said party is unable to prevent. 6.13 Conflicts of Interest. The Depository agrees to maintain current, updated disclosure of information on file with the Director of Finance throughout the term of this Agreement as may be required by the City Code of Ordinances or the City Charter. 6.14 Equal Employment Opportunity. The Depository agrees that during the performance of this Agreement, it will: (a) treat all applicants and employees without discrimination as to race, color, religion, sex, national origin, marital status, age, or handicap, and (b) identify itself as an "Equal Opportunity Employer" in employment advertising or requests. The Depository will be advised of any complaints filed with the City alleging that the Depository is not an Equal Opportunity Employer. The City reserves the right to consider its reports from the Human Relations Administrator in response to such complaints. 6.15 Entire Agreement. This Agreement and all amendments hereto, as may be updated, constitute the entire agreement between the parties and will supersede all previous negotiations, commitments, and contracts. 6.16 Governing Law and Venue. To the extent this Agreement is not governed by applicable federal laws and regulations, this Agreement will be governed by and construed in accordance with laws of the State of Texas. Any suit brought in connection with this Agreement shall be tried in Nueces County, Texas. 6.17 Notification of Changes in Depository Laws. The Depository shall notify the City in writing within ten (10) days of any changes in federal or state regulations or laws that would thereafter affect the Depository Services Contract. The Depository shall also notify the City of any services, which become available to the City throughout the contract period. 6.18 Monthly Reports. The Depository shall provide to the City each quarterly CALL report (Schedule RC only) as well as any public information concerning changes in the ownership, management or financial position of the Depository or its parent company. 6.19 Corporate Resolutions Not Required. The Depository shall not require corporate resolutions when an Authorized City Representative opens an account. 6.20 Precedence of Contract Documents. In case of a conflict in the contract documents, first precedence shall be given to the fully executed contract, as amended; second precedence shall be given to the REQUEST FOR APPLICATION, including addenda and third precedence shall be given to the application, as clarified. 6.21 Terms During Extension Year. During any extended term of the agreement, all terms, conditions and pricing shall remain the same as those in the agreement applicable to the primary term. EXHIBIT A Attached to and made a part of the City of Corpus Christi Depository Services Agreement AUTHORIZATION FOR DEPOSITORY ACCOUNTS As the duly appointed and authorized City Manager of the City of Corpus Christi, I designate the officers listed below as the Authorized City Representatives of the City of Corpus Christi. The signatures below are the signatures of the Authorized City Representatives vested with full authority to sign and transact business for the City including, but not limited to, Account Transfers, open and close accounts, request reports, or authorize other signatories to specific bank accounts. The signatures of the officers subscribed below are true and genuine: Judy Villalon, City Treasurer AIma Iris Casas,Assistant Director of Financial Services Constance P. Sanchez, Director of Financial Services Controller This Authorization for Depository Accounts is entered into in addition to and will not amend, modify, waive, or revoke any of the terms of the City of Corpus Christi Depository Agreement except as expressly provided herein. This authorization is entered into to facilitate the electronic transfer of funds or administration of the services to be provided pursuant to the City of Corpus Christi Depository Agreement. It is not intended to empower Authorized City Representatives to approve or accept amendments,waivers, or new provisions or terms to the Depository Agreement on behalf of the City of Corpus Christi. Authorized City Representatives remain authorized until the Depository receives written notification revoking authorization. THIS AUTHORIZATION FOR DEPOSITORY ACCOUNTS is effective this th day of ,2015 and revokes all previous authorizations. ATTEST: CITY OF CORPUS CHRISTI By By ©2015 Frost Bank EXHIBIT B 2016 PAYROLL CALENDAR PAY DATE 01/15/16 01/29/16 02/12/16 02/26/16 03/11/16 03/25/15 04/08/16 04/22/16 05/06/16 05/20/16 06/03/16 06/17/16 07/01/16 07/15/16 07/29/15 08/12/16 08/26/16 09/09/16 09/23/16 10/07/16 10/21/16 11/04/16 11/18/16 12/02/16 12/16/16 12/30/16 ©2015 Frost Bank CITY OF CORPUS CHRISTI PURCHASING DIVISION BUSINESS DESIGNATION FORM ENSURE THIS FORM IS SUBMITTED WITH YOUR BID RESPONSE PLEASE INDICATE WHETHER YOUR COMPANY IS ANY ONE OF THE FOLLOWING: ❑ YES ❑ NO - CERTIFIED HISTORICALLY UNDERUTILIZED BUSINESS (HUB) Select all that are appropriate: ❑ ASIAN PACIFIC ❑ BLACK ❑ HISPANIC ❑ NATIVE AMERICAN ❑ WOMAN Please visit the following website for information on becoming a Texas Certified HUB: http://www.window.state.tx.us/procurement/prog/hub/ ❑ YES ❑ NO - LOCAL SMALL BUSINESS (LSB) A for-profit entity employing less than 49 employees located within the City limits of Corpus Christi,Texas ❑ YES ❑ NO OTHER(PLEASE SPECIFY): ❑ THIS COMPANY IS NOT A CERTIFIED HUB or LSB THE INFORMATION REQUESTED IN THIS FORM IS FOR STATISTICAL REPORTING PURPOSES ONLY AND WILL NOT INFLUENCE AWARD DECISIONS OR THE AMOUNT OF MONIES EXPENDED WITH ANY GIVEN COMPANY. EVENT NO: 87 Firm Name: Telephone: - - Ext. Address: Fax: - - City: State: Zip: - E-mail: Date: Signature of Person Authorized to Sign Form Signer's Name: Title: (Please print or type) City of Corpu Christi SUPPLIER NUMBER TO BE ASSIGNED BY CITY PURCHASING DIVISION CITY OF CORPUS CHRISTI DISCLOSURE OF INTEREST Corpus Christi Code § 2-349, as amended, requires all persons or firms seeking to do business with the City to provide the following information. Every question must be answered. If the question is not applicable, answer with"NA". See next page for Filing Requirements, Certifications and Definitions. COMPANY NAME: P. O. BOX: STREET ADDRESS, CITY, STATE&ZIP FIRM IS: 1. Corporation B 2. Partnership = 3. Sole Owner El4. Association 5. Other DISCLOSURE QUESTIONS If additional space is necessary,please attach separate sheet. 1. State the names of each "employee" of the City of Corpus Christi having an "ownership interest" constituting 3%or more of the ownership in the above named"firm." Name Job Title and City Department(if known) 2. State the names of each "official" of the City of Corpus Christi having an "ownership interest" constituting 3% or more of the ownership in the above named"firm." Name Title 3. State the names of each "board member" of the City of Corpus Christi having an "ownership interest" constituting 3%or more of the ownership in the above named"firm." Name Board, Commission or Committee 4. State the names of each employee or officer of a"consultant" for the City of Corpus Christi who worked on any matter related to the subject of this contract and has an "ownership interest" constituting 3% or more of the ownership in the above named"firm." Name Consultant FILING REQUIREMENTS If a person who requests official action on a matter knows that the requested action will confer an economic benefit on any City official or employee that is distinguishable from the effect that the action will have on members of the public in general or a substantial segment thereof,you shall disclose that fact in a signed writing to the City official, employee or body that has been requested to act in the matter, unless the interest of the City official or employee in the matter is apparent. The disclosure shall also be made in a signed writing filed with the City Secretary. [Ethics Ordinance Section 2-349(d)] CERTIFICATION I certify that all information provided is true and correct as of the date of this statement, that I have not knowingly withheld disclosure of any information requested; and that supplemental statements will be promptly submitted to the City of Corpus Christi, Texas as changes occur. Certifying Person: Title: (Type or Print) Signature of Certifying Person: Date: DEFINITIONS a. "Board member." A member of any board, commission, or committee of the City, including the board of any corporation created by the City. b. "Economic benefit." An action that is likely to affect an economic interest if it is likely to have an effect on that interest that is distinguishable from its effect on members of the public in general or a substantial segment thereof. c. "Employee." Any person employed by the City, whether under civil service or not, including part-time employees and employees of any corporation created by the City. d. "Firm." Any entity operated for economic gain, whether professional, industrial or commercial, and whether established to produce or deal with a product or service, including but not limited to, entities operated in the form of sole proprietorship, as self-employed person, partnership, corporation, joint stock company, joint venture,receivership or trust, and entities which for purposes of taxation are treated as non-profit organizations. e. "Official." The Mayor, members of the City Council, City Manager, Deputy City Manager, Assistant City Managers, Department and Division Heads, and Municipal Court Judges of the City of Corpus Christi, Texas. f. "Ownership Interest." Legal or equitable interest, whether actually or constructively held, in a firm, including when such interest is held through an agent, trust, estate, or holding entity. "Constructively held" refers to holdings or control established through voting trusts, proxies, or special terms of venture or partnership agreements." g. "Consultant."Any person or firm, such as engineers and architects, hired by the City of Corpus Christi for the purpose of professional consultation and recommendation. EXHIBIT D APPLICANT'S/DEPOSITORY'S RESPONSE TO REQUEST FOR APPLICATIONS EVENT NO.: 87 EXTRACT FROM THE RECORDS OF FROST BANK GRANTING AUTHORITY TO EXECUTE INSTRUMENTS At a meeting of the Board of Directors of Frost Bank, duly called and held on the 29th day of January 2015,a quorum being present,the following resolution was duly adopted: BE IT RESOLVED, that each and any one of the following Officers of Frost Bank, namely the Chairman of the Board, Group Executive Vice President, Group Executive Vice President& Chief Credit Officer, Group Executive Vice President & Chief Financial Officer, Group Executive Vice President& Executive Trust Officer, Senior Executive Vice President, Executive Vice President, Executive Vice President and Auditor, President, Regional Chairman, Regional Vice Chairman, Regional President, Market President, Senior Vice President, Senior Vice President& Senior Trust Officer, Senior Vice President & Trust Officer, Vice President, Vice President and Trust Officer, Assistant Vice President, Administrative Officer, Appraisal Officer, Assistant Trust Officer, Assistant Trust Operations Officer, Audit Officer, Automation Officer, Central Credit Officer, Credit Administrative Officer, Engineering Officer, Investment Officer, Relationship Administrative Officer, Loss Prevention Officer, Marketing Officer, Compliance Officer, Special Assets Officer, Operations Officer, Business Banking Officer, Personal Banking Officer, Deposit Services Officer,International Private Banking Officer, Internet Banking Officer,Human Resources Officer, Relationship Banking Officer, Private Banking Officer, Teller Services Officer, Training Officer, Telephone Banking Officer, Telephone Customer Service Officer, Treasury Management Officer, Trust Officer, Trust Operations Officer be and hereby is authorized and empowered to execute, in the name and on behalf of the association any and all documents necessary to conduct the business of the association including,but not limited to,cashier's checks,contracts,assignments, endorsements, leases, releases, escrows or other instruments in writing assigning, conveying or otherwise affecting any real estate or personal property owned or held by said association in its own name or in the capacity of Trustee, Executor, Administrator, Guardian, Custodian, Agent or other fiduciary capacity, and to make and execute any oaths, bonds or court papers in the name and on behalf of said association in any such fiduciary capacity, all on such terms and considerations as such Officer, in his discretion,may deem sufficient or proper. I, Stanley E. McCormick Jr., Executive Vice President and Secretary to the Board of Directors of the above bank, do certify that the above is a true copy from the minutes of said meeting of the Board of Directors,and a true copy of the whole of said resolution,that said resolution is in full force and effect as of the date hereof, and that Traci Arellano is a Assistant Vice President of this bank, and that the said resolution does not conflict with the ByLaws of this bank. (,_$7 \. • 1 Executive'Vice President (3 Secretary Board of Directors Seal Dated: September 25, 2015 SECTION A TRANSMITTAL LETTER 411 TRANSMITTAL LETTER 7407 Frost November 16,2015 Post Office Drawer 749 Corpus Christi,Texas 78403-0749 Ms.Judy Villalon City Treasurer City of Corpus Christi 1201 Leopard Street,4th Floor Corpus Christi,Texas 78469-9277 Dear Ms.Villalon: Frost is offering to continue to provide banking services for services for the City of Corpus Christi,("the City"), for the period of three years with an option to extend for up to two additional one-year periods. This proposal will provide efficient and cost-effective financial solutions to the City. As requested, Frost affirms that its application is firm for one hundred eighty(180) days after the due date for receipt of applications. Frost is experienced in providing financial services to public sector clients across Texas. We offer innovative Treasury Management services and an experienced staff dedicated to helping your organization succeed. I will continue to manage the City's accounts and serve as your primary contact for all financial services. Jennifer Grove in our Treasury Management area will continue to assist in the management of the City's accounts. We welcome you to tour our facilities. Additionally,the City will receive superior customer service with the acceptance of this proposal. Good service is the best way to develop a partnership with each other. Our philosophy is to build long-term relationships based on top-quality service. The best results are produced by Texas-based institutions building the local economy together. We're from here. The Public Finance area within the bank is specifically tailored to meet your financial needs by offering the following products and services: • Depository serviceslFreasury Management • Tax-exempt lending/leases • Investments As an incentive to continue to use Frost as your Depository Bank,we are offering to provide endorsement stamps and deposit bags,through our vendor/supplier at no charge for the term of the contract. We greatly appreciate this opportunity to continue to be your depository bank. Please call should you have any questions after you have reviewed the proposal. Sincerely, Traci Arellano Assistant Vice President ®2015 Frost Bank • Frost Bank is a subsidiary of Cullen/Frost Bankers,Inc.NYSE Symbol:CFR,a Texas financial services company offering banking,investments and insurance. SECTIO,V B TABLE OF CONTENTS CITY OF CORPUS CHRISTI SECTION A TRANSMITTAL LETTER SECTION B TABLE OF CONTENTS SECTION C BUSINESS DESIGNATION FORM SECTION D DISCLOSURE OF INTEREST SECTION E REQ(LST FOR:-APPLICATION 1TT 4 CH,IIENTS: ATTACHMEr1=T 1 A VA/LABILITY SCHEDULE .4TTACH,1IENT 2 COLLATERAL AGREEMENT A TT 4 CHMENT 3 £4 FEKEEPI_\G/SEC(RI TIES CLE.I RA.\CE ATT 4 CHME;NT 4 HISTORY RATES ATTACHMENTS TREASURY MA NAGEMENT/FEES ATTACHMENT 6 SAMPLE ST.ATEMENTS • ANALYSIS • BANK ATT4CHMENT ' PARTL4L RECONCILIATION STATEMENT ATTACHMENT 8 SAMPLE COLLATERAL REPORT ATTACHMENT 9 F/NANCIAL I:'S"FOR MAT IO.N ATT4CHME.VT 10 HOLIDAYSCHEDI'LE ATTACHME;N"T 11 RELATIO\SHIP TEAM/BIOGRAPHIES A TTA CHMENT 12 BANKING CENTER/IA 1'L T LOCATIONS' SECTION C B tIS/NESS DESI G'S`A TION FORM CITY OF CORPUS CHRISTI PURCHASING DIVISION BUSINESS DESIGNATION FORM ENSURE THIS FORM IS SUBMITTED WITH YOUR BID RESPONSE PLEASE INDICATE WHETHER YOUR COMPANY IS ANY ONE OF THE FOLLOWING: ❑ YES ®NO - CERTIFIED HISTORICALLY UNDERUTILIZED BUSINESS (HUB) Select all that are appropriate: 0 ASIAN PACIFIC 0 BLACK 0 HISPANIC 0 NATIVE AMERICAN 0 WOMAN Please visit the following website for information on becoming a Texas Certified HUB: hup: wuwµindou Aare.ut.u>procuremenupn /huh,' 0 YES NO - LOCAL SMALL BUSINESS (LSB) A for-profit entity employing less than 49 employees located within the City limits of Corpus Christi,Texas ❑YES 0 NO OTHER(PLEASE SPECIFY): ® THIS COMPANY IS NOT A CERTIFIED HUB or LSB THE INFORMATION REQUESTED IN THIS FORM IS FOR STATISTICAL REPORTING PURPOSES ONLY AND WILL NOT INFLUENCE AWARD DECISIONS OR THE AMOUNT OF MONIES EXPENDED WITH ANY GIVEN COMPANY. EVENT NO: Firm Name: Frost Bank Telephone: 361-844-1160 Ext. Address: 802 N. Carancahua Street Fax: 361-844-1025 City: Corpus Christi State: TX Zip: 78401- E-mail: Iraci.arellano,ra`frostbank.com Date: September 25, 2015 Signature of Person Authorized to Sign Form Signer's Name: Traci Arellano Title: Assistant Vice President (Please print or type) ©2015 Frost Bank SECTION D DISCLOSURE OF INTEREST FORM at, City of Corpus Christi SUPPLIER NUMBER TO BE ASSIGNED BY CI1 PURCHASING DIVISION CITY OF CORPUS CHRISTI DISCLOSURE OF INTEREST Corpus Christi Code§2-349,as amended,requires all persons or firms seeking to do business with the City to provide the following information. Every question must be answered. If the question is not applicable,answer with"NA". See next page for Filing Requirements,Certifications and Definitions. COMPANY NAME: Frost Bank P.O. BOX: STREET ADDRESS, 802 N. Carancahua Street Corpus Christi Cexas 78401 CITY, STATE&ZIP FIRM IS: 1. Corporation ® 2. Partnership 3. Sole Owner E]4. Association 5. Other DISCLOSURE QUESTIONS If additional space is necessary,please attach separate sheet. 1. State the names of each"employee"of the City of Corpus Christi having an"ownership interest"constituting 3% or more of the ownership in the above named"firm."N.'A. Name Job Title and City Department(if known) 2. State the names of each"official"of the City of Corpus Christi having an"ownership interest"constituting 3%or more of the ownership in the above named"firm." NiA. Name Title 3. State the names of each"board member"of the City of Corpus Christi having an"ownership interest"constituting 3%or more of the ownership in the above named"firm." N/A. Name Board,Commission or Committee 4. State the names of each employee or officer of a"consultant"for the City of Corpus Christi who worked on any matter related to the subject of this contract and has an "ownership interest" constituting 3% or more of the ownership in the above named"firm."N/A. Name Consultant ©2015 Frost Bank FILING REQUIREMENTS If a person who requests official action on a matter knows that the requested action will confer an economic benefit on any City official or employee that is distinguishable from the effect that the action will have on members of the public in general or a substantial segment thereof,you shall disclose that fact in a signed writing to the City official, employee or body that has been requested to act in the matter,unless the interest of the City official or employee in the matter is apparent. The disclosure shall also be made in a signed writing filed with the City Secretary. [Ethics Ordinance Section 2-349(d)] CERTIFICATION I certify that all information provided is true and correct as of the date of this statement,that I have not knowingly withheld disclosure of any information requested; and that supplemental statements will be promptly submitted to the City of Corpus Christi,Texas as changes occur. Certifying Person: Traci Arellano Title: Assistant Vice President (Type or Print) Signature of Certifying Person: it 2 Date: September 25, 2015 ©2015 Frost Bank DEFINITIONS a. "Board member." A member of any board, commission,or committee of the City, including the board of any corporation created by the City. b. "Economic benefit." An action that is likely to affect an economic interest if it is likely to have an effect on that interest that is distinguishable from its effect on members of the public in general or a substantial segment thereof. c. "Employee." Any person employed by the City, whether under civil service or not, including part-time employees and employees of any corporation created by the City. d. "Firm." Any entity operated for economic gain, whether professional, industrial or commercial, and whether established to produce or deal with a product or service,including but not limited to,entities operated in the form of sole proprietorship, as self-employed person, partnership, corporation,joint stock company, joint venture, receivership or trust,and entities which for purposes of taxation are treated as non-profit organizations. e. "Official." The Mayor, members of the City Council, City Manager, Deputy City Manager, Assistant City Managers,Department and Division Heads,and Municipal Court Judges of the City of Corpus Christi,Texas. f. "Ownership Interest." Legal or equitable interest,whether actually or constructively held,in a firm,including when such interest is held through an agent, trust, estate, or holding entity. "Constructively held" refers to holdings or control established through voting trusts, proxies, or special terms of venture or partnership agreements." g. "Consultant."Any person or firm, such as engineers and architects, hired by the City of Corpus Christi for the purpose of professional consultation and recommendation. 2015 Frost Bank SECTION E REQUEST FOR APPLICATION REQUEST FOR APPLICATIONS ("RFA") for DEPOSITORY SERVICES EVENT NO. 87 PRESENTED TO: .11 D Y 11LLALO;V CITY TREASURER CITY OF CORPUS CHRIST! PRESENTED BY: TRACI ARELL.la'O :9SSISTANT 110E PRESIDENT 361.844.1160 802 N. CA RANCA HUA STREET CORPUS CHRIST!, TE. 9S 78401 "'=Frost BANKING INVESTMENTS INSURANCE NOVEMBER 16, 2015 Please note: All information contained in this proposal is confidential and proprietary. 2015 Frost Bank CITY OF CORPUS CHRISTI PURCHASING DIVISION o . c4, ( O -1 m , r 5 N e 52 4/ REQUEST FOR APPLICATIONS ("RFA") for DEPOSITORY SERVICES EVENT NO. 87 Release Date: October 24, 2015 Submission Due: November 16, 2015 ©2015 Frost Bank Table of Contents Section 1.0 Notice of REQUEST FOR APPLICATIONS 1.1 Request for Applications 1.2 Submission of Application 1.3 Tentative Schedule Section 2.0 Conditions Governing the Procurement 2.1 Acceptance of General Requirements 2.2 RFA Notice Requirement 2.3 RFA Procedural and Content Questions 2.4 Basis for Application 2.5 Opening of Applications 2.6 Applicant Terms and Conditions 2.7 Disclosure of Application Contents 2.8 Late Applications 2.9 Signing of Applications 2.10 Cost of Application 2.11 Business Designation Form 2.12 Disclosure of Interest 2.13 Ownership of Applications 2.14 Disqualification or Rejection of Applications 2.15 Rejection of Applications 2.16 Right to Waive Irregularities 2.17 Withdrawal of Applications 2.18 Amending of Applications 2.19 Application Offer Firm 2.20 Applicant Qualifications 2.21 Exceptions to RFA Specifications 2.22 Consideration of Applications 2.23 Termination or Cancelation of RFA 2.24 Service Agreement 2.25 Precedence of Contract Documents 2.26 Governing Law 2.27 No Obligation 2.28 Contract Deviations 2.29 Sufficient Appropriation 2.30 Recommendation to City Council 2.31 Award of Contract 2.32 Execution of Contract 2.33 Disputes 2.34 Change in Consultant Representative 2.35 Term 2.36 Change Requests 2.37 Termination of Contract 2.38 Insurance Provisions 2.39 Right to Publish 2.40 Applicant's Ethical Behavior 2.41 Quantities 0 2015 Frost Bank Section 3.0 Scope of Work 3.1 General Information 3.2 Mandatory Services Requirements 3.3 Technical Solution 3.4 Applicant's Profile and Qualifications 3.5 Local Presence 3.6 Fee Schedule Section 4.0 Application Format and Organization 4.1 General Instructions 4.2 Application Format 4.3 Transmittal Letter 4.4 Service Agreement Section 5.0 Application Evaluation 5.1 Evaluation Committee 5.2 Evaluation Criteria Attachments EXCEPTIONS FORM SAMPLE SERVICE AGREEMENT(Contract) EXHIBIT A-AUTHORIZATION FOR DEPOSITORY ACCOUNTS EXHIBIT B—2016 PAYROLL CALENDAR BUSINESS DESIGNATION FORM DISCLOSURE OF INTEREST 0 2015 Frost Bank Section 1.0 Notice of Request for Applications 1.1 Request for Applications A. The City of Corpus Christi "City" hereby issues this REQUEST FOR APPLICATIONS "RFA". The City is seeking applications from qualified Applicants to provide DEPOSITORY SERVICES. The City shall enter into a contract resulting herefrom for a period of three years with an option to extend for up to two additional one-year periods. B. The City of Corpus Christi is requesting submission of applications for Event No. 87, Depository Services RFA. The City Treasurer, Judy Villalon, is the designated officer to receive applications addressed and delivered as follows:Judy Villalon, City Treasurer,City of Corpus Christi, 1201 Leopard Street, 4th floor, Corpus Christi, Texas, 78401. Applications are due on or before 12:00 pm, Central Time, on November 16, 2015. The City Council will consider the selection of a depository at the City Council meeting on Tuesday, December 8, 2015 beginning at 11:30 am, at City Hall, 1201 Leopard Street,Corpus Christi,Texas 78401. C. The City hereby designates Judy Villalon the City Treasurer with overall responsibility for procurement of this service. Mrs. Villalon's information is as follows: Judy Villalon City Treasurer City of Corpus Christi 1201 Leopard Street,4th Floor Corpus Christi,Texas 78401 All inquiries or requests regarding this RFA must be submitted to the City Treasurer indicated above, or her designee as specified in writing and online, via the City's Supplier Portal (Imp./1 A \‘.cctexa .tu,u,l�u inessisupplie, octal) using the electronic question submission feature specific to this RFA. Such inquiries or requests must be submitted by the due date and time provided in Section 1.3 of this RFA. Other employees do not have the authority to respond for the City in writing and any attempt to question other employees regarding this RFA may result in the City disqualifying that Applicant. Only written responses from the City Treasurer or her designee will be binding with regard to inquiries requesting clarification or additional information. The City Treasurer's written responses will be released simultaneously to all prospective Applicants. D. A pre-application conference will be held at the date and time and in the location specified therefor in Section 1.3 of this RFA. 1. The purpose of the pre-application conference is to provide an opportunity for prospective Applicants to discuss,pose questions and obtain clarification from the City regarding this RFA. 2. The City shall provide written responses to all prospective Applicants in the form of written addenda, for any questions or request for clarification submitted at the pre-application ©2015 Frost Bank conference if information is necessary to Applicants in submitting applications or if the lack of such information would be prejudicial to un-informed Applicants. Oral explanations or instructions provided by the City before the award of the contract shall not be binding upon the City. ©2015 Frost Bank 1.2 Submission of Application A. APPLICANT SHALL SUBMIT ITS APPLICATION IN WRITING TO THE ADDRESS STATED IN SECTION 1.1.C. APPLICANT MAY. IF PREFERRED. SUBMIT ITS APPLICATION ELECTRONICALLY. AS INSTRUCTED HEREIN. VIA T HE CITY'S SUPPLIER PORTAL. Applicant must select either a hard copy or an electronic submission but may not do both. All proposals must be complete and accurate and in the City-approved format specified herein. B. The City Treasurer will review and evaluate the written applications in response to this RFA. The City Treasurer may conduct additional interviews with selected Applicants for the purpose of further exploring and clarifying the Applicant's response. The City Treasurer will rank the Applicants based on the suggested evaluation criteria set forth in the Evaluation Model of this RFA and will present the specifications of each Applicant to the City Council for designation to provide City depository services. The City Council will select Applicant and will negotiate applicable terms and conditions with the selected Applicant. The City intends to award one contract to one Applicant. In the event contract negotiations are not successful with the Applicant initially selected, the City Council may end negotiations and select an alternate Applicant for possible award. The City reserves the right to not award a contract at all. Award will be made,based on the application most advantageous and providing the best value to the City. C. Applications will be evaluated to ascertain which Applicant's applications are most advantageous and provide the best value to the City. The City intends to utilize an Evaluation Model specifically designed for this analysis. The Evaluation and Selection process will be based on the following criteria: 1) Technical Solution, 2)Applicant's Profile and Qualifications, 3) Local Presence, 4) Fee Schedule and 5) Exceptions. The final weight assigned to each of these parameters will be determined by the Evaluation Committee. D. The City's Charter and the City's Electronic Procurement Policy require that all applications submitted be sealed, secret, unopened and time-locked through the DUE DATE FOR APPLICATIONS specified in this RFA. E. Applications will be received by hard copy or electronically, on or before the date and time specified in Section 1.3 of this RFA. Without exception, applications received after this deadline are late, shall be deemed non-responsive, and shall not be considered. F. Applicants shall comply with the additional detailed instructions regarding submission of applications found in Section 4.0 of this RFA. CO 2015 Frost Bank 1.3 Tentative Schedule The following is a tentative schedule of evaluation and selection activities: Date Activity October 24,2015 Request for Applications Issued Pre-application Conference at: November 2,2015 3:30 p.m.—5:00 p.m. Central Time(CT) 6th Floor Conference Room City Hall 1201 Leopard St. Corpus Christi,Texas 78401 November 9, 2015 Submission of written questions due by 5:00 p.m. CT November 16, 2015 Applications due by 12:00 p.m. CT November 18, 2015 Proposed Date for Finalists' Presentations(if necessary) December 8,2015 Tentative Date for Recommendation of Award to City Council December 15,2015 Alternate Tentative Date for Recommendation of Award to City Council ©2015 Frost Bank Section 2.0 Conditions Governing the Procurement 2.1 Acceptance of General Requirements The Applicant must specifically accept all project requirements contained in Section 2, Conditions Governing the Procurement, and Section 3, Scope of Work, in the transmittal letter as set forth in Section 4.3 of this RFA. 2.2 RFA Notice Requirement Notice of the REQUEST FOR APPLICATIONS shall be published in the Corpus Christi Caller Times once a week for two consecutive weeks. The date of the first publication will occur not later than(21)days prior to the application due date. 2.3 RFA Procedural& Content Questions A. Any Applicant requiring further clarification of the REQUEST FOR APPLICATIONS procedures contained herein should submit specific questions in writing to the City Treasurer as described in Section 1.1, C of this RFA. B. During a review of this RFA and preparation of the application, certain errors, omissions or ambiguities may be discovered. If so,or if there are doubts or concerns about the meaning of any part of this RFA, written questions should be submitted to the City Treasurer as described in Section 1.1, C of this RFA no later than the date and time prescribed for same as provided in Section 1.3 of this RFA. This should allow sufficient time for the City to answer the written questions and distribute the written responses so that all prospective Applicants will have the benefit of the revised information. 2.4 Basis for Application Only the information contained in this RFA, amendments hereto and information supplied by the City in writing through the City Treasurer identified herein should be used in the preparation of the Applicant's application. 2.5 Opening of Applications A formal opening of the applications shall not take place. 2.6 Application Terms and Conditions The Applicant must submit, with each copy of the application, a complete set of any additional terms and conditions proposed for inclusion in the sample Service Agreement (also referred to herein as"Contract") enclosed herein. 2.7 Disclosure of Application Contents Applications will be opened in a manner that avoids disclosure of the contents to competing Applicants and keeps the applications secret during negotiations. All applications are open for public inspection after the contract(s)are awarded;however,trade secrets and confidential information in the applications are not open for public inspection. It is specifically provided, however, that each Applicant must identify any information contained in its application which it asserts is either a trade secret or confidential information. Such material must be conspicuously identified by marking each page containing such C 2015 Frost Bank information as "confidential"or"proprietary". If such material is not conspicuously identified, then by submitting its application, an Applicant agrees that such material shall be considered public information. 2.8 Late Applications Without exception, applications must be submitted on or before the DUE DATE AND TIME FOR APPLICATIONS. Applications received after the time and date specified in Section 1.3 are late and shall not be considered. 2.9 Signing of Applications By submitting and signing an application, the Applicant indicates its intention to adhere to the provisions described in this RFA. Applications signed for a partnership shall be signed in the Applicant's name by at least one partner or in the Applicant's name by an attorney-in-fact. If signed by an attorney-in-fact,there should be attached to the application, a Power-of-Attorney evidencing authority to sign applications, dated the same date as the application,and executed in accordance with the legal requirements of the Applicant. Applications signed for a corporation shall have the correct corporate name thereon and shall bear the president's or vice-president's original signature with the name and title written below the corporate name. Any other signature must be accompanied by a resolution of the Board of Directors authorizing such signature to contract in the corporation's name. The title of the office held by the person signing for the corporation shall appear below the signature of the officer. 2.10 Cost of Application This RFA does not commit the City to pay any costs incurred by an Applicant for preparation and/or submission of an application or for procuring or contracting for the items to be furnished under this RFA. All costs directly or indirectly related to preparing and responding to this RFA, including all costs incurred for supplementary documentation, shall be borne solely by the Applicant. 2.11 Business Designation Form The City of Corpus Christi requires all persons or Applicants seeking to do business with the City to provide the Business Designation Form on the City-supplied form included herewith. Every question must be answered. If the question is not applicable, answer with N/A. 2.12 Disclosure of Interest The City of Corpus Christi Code of Ordinances, Section 2-349, as amended, requires all persons or Applicants seeking to do business with the City to provide the Disclosure of Interest information on the City-supplied form included herewith. Every question must be answered. If the question is not applicable, answer with N/A. Applicants are obligated to provide updated information concerning the disclosure of interest, as warranted,for the duration of time the applications are under consideration. 2.13 Ownership of Applications All documents submitted in response to this RFA shall become the property of the City of Corpus Christi. 2.14 Disqualification or Rejection of Applications Applicants may be disqualified for any of the following reasons: • There is reason to believe that collusion exists among the Applicants; ©2015 Frost Bank • The Applicant is involved in any litigation against the City; • The Applicant is in arrears on an existing contract or has defaulted on previous contracts with the City, • The Applicant lacks fmancial stability; • The Applicant has failed to perform under previous or present contracts with the City; • The Applicant has failed to use the City's approved forms; • The Applicant has failed to adhere to one or more of the provisions established in this RFA; • The Applicant has failed to submit its application in the format specified herein; • The Applicant has failed to submit its application on or before the deadline established herein; • The Applicant has failed to adhere to generally accepted ethical and professional principles during the application process; or, • The Applicant has failed to provide a detailed cost summary in the application. 2.15 Rejection of Applications Applications may be rejected if they show any alteration of words or figures, additions not called for, conditional or uncalled-for alternate applications, incomplete applications, erasures or irregularities of any kind.Applications tendered or delivered after the official time designated for receipt of applications shall be deemed non-responsive and shall not be considered. 2.16 Right to Waive Irregularities Applications shall be considered "irregular"if they show any admissions, alterations of form, additions or conditions not called for, unauthorized alternate applications or irregularities of any kind. The City Treasurer reserves the right to waive minor irregularities and mandatory requirements, provided that all responsive applications failed to meet the same mandatory requirements and the failure to do so does not otherwise materially affect the procurement. This right shall be exercised at the sole discretion of the City Treasurer. 2.17 Withdrawal of Applications Applications may be withdrawn by written notice received by the City's Treasurer prior to the exact hour and date specified for receipt of applications. An application may be withdrawn by an Applicant or his/her duly authorized representative,provided his/her identity is made known and he/she signs a receipt for the application, but only if the withdrawal is made prior to the exact hour and date set for the receipt of applications. 2.18 Amending of Applications An Applicant may submit an amended application,however,such amended application must be received at or prior to the exact hour and date set for the receipt of applications; must be a complete replacement of a previously submitted application; and, such amended application must be clearly identified as such in the transmittal letter. The City will not merge, collate or assemble application materials for an Applicant. 2.19 Application Offer Firm By submission of its application,the Applicant affirms that its application and prices contained within such application are firm for 180 days after the due date for receipt of applications. 2.20 Applicant Qualifications The Evaluation Committee, as defined in Section 5.1 of this RFA, may make such investigations as necessary to determine the ability of the Applicant to adhere to the requirements specified herein. ©2015 Frost Bank 2.21 Exceptions to RFA Specifications Although the specifications in the following sections represent the City's anticipated needs, there may be instances in which it is in the City's best interest to permit exceptions to specifications and evaluate alternatives. It is vital that the Applicant make very clear where exceptions are taken to the specifications and how the Applicant will provide alternatives. Therefore,exceptions, conditions or qualifications to the provisions of the City's specifications must be clearly identified as such, together with reasons for taking exception and inserted in the application at that point In addition, the Applicant must provide responses on the "Exceptions"page to address any and all items found in all bid documents that the Applicant cannot meet or provide. If the Applicant does not make clear that an exception is being taken, the City will assume the Applicant is, in its application, responding to and will meet the specifications of this RFA. 2.22 Consideration of Applications Discussions may be conducted with responsible Applicants qualified to be selected for award for the purpose of clarification to assure full understanding of and responsiveness to the solicitation requirements. In discussions, there shall not be disclosure of any information derived from applications submitted by competing Applicants. Until award of the Contract is made by the City,the City reserves the right to reject any or all applications, to waive technicalities, to re-advertise for new applications or to proceed with the work in any manner as may be considered in the best interest of the City. Should the City require clarification from the Applicant, the City shall contact the individual named as the organization's contact person in the City's Supplier Portal. Evaluation of the application is the first step in a series of evaluation steps that will be conducted by the Committee. The City may elect to conduct post-submission reference checks or Applicant interviews with any Applicants that are not eliminated based on their application. 2.23 Termination or Cancelation of RFA The City reserves the right to terminate or cancel this RFA at any time for any reason whatsoever,as maybe determine in the sole discretion of the City. 2.24 Service Agreement The fully executed service agreement,as amended,the REQUEST FOR APPLICATIONS,as amended and the application constitute the agreement, in its entirety, between the City and the Contractor. Any other terms and conditions shall be null and void. 2.25 Precedence of Contract Documents In case of a conflict in the contract documents,first precedence shall be given to the fully executed contract, as amended; second precedence shall be given to the REQUEST FOR APPLICATION,including addenda: and third precedence shall be given to the applicants applications,as maybe clarified. 2.26 Governing Law The laws of the State of Texas will govern any Contract resulting herefrom.The Contract shall be executed in Nueces County, Texas. The applicable law for legal disputes arising out of the Contract resulting herefrom shall be the law of the State of Texas. 2.27 No Obligation 2015 Frost Bank This RFA, in no manner, obligates the City or any of its agencies to the eventual services offered until confirmed by an executed written Contract approved by the Corpus Christi City Council. 2.28 Contract Deviations Any additional terms or conditions,which may be the subject of negotiation,will be discussed only between the City and the qualified Applicants. 2.29 Sufficient Appropriation Any Contract awarded as a result of this RFA process may be terminated if sufficient appropriations or authorizations do not exist. Such termination will be effected by sending written notice to the Applicant. The City's decision as to whether sufficient appropriations and authorizations are available shall be accepted by the Applicant as final. 2.30 Recommendation to City Council The City Treasurer will present the specifications and may make a recommendation to the City Council that the award be made to the Applicant whose application is determined by the City to be the most advantageous and provide the best value to the City. 2.31 Award of Contract The City reserves the right to withhold final action on applications for a reasonable time not to exceed 180 days subsequent to the deadline for receipt of applications. The award of a Contract, if an award is made, will be to the most responsible and responsive Applicant whose the most advantages and provide the best value to the City and whose application meet the requirements and criteria set forth in this RFA. 2.32 Execution of Contract The City Council shall authorize award of the Contract to the successful Applicant and shall designate the successful Applicant ("Contractor") as the City's Provider(s). The City will require the Contractor to sign the documents necessary to enter into the required Contract with the City and to provide the necessary evidence of insurance as required in the Contract documents. No Contract for this project may be signed by the City without the authorization of the City Council, and no Contract shall be binding on the City unless and until it has been approved as to form by the City Attorney or his designee and executed as authorized by the City Council to do so. 2.33 Disputes In the case of any doubt or difference of opinion with regard to the items to be furnished by an Applicant or the interpretation of the provisions of this RFA, the decisions of the City shall be final and binding upon all parties. 2.34 Change in Applicant Representative The City reserves the right to negotiate a change in Applicant representatives if the assigned representatives are not, in the opinion of the City, adequately meeting the needs of the City. 2.35 Term The Contract resulting herefrom will be for a term of three years with an option to extend for up to two 2015 Frost Bank additional one-year periods, subject to the approval of the parties. By submission of its application, prices must be guaranteed for the initial term of the Depository Services Agreement as well as any option years. Submission of an incomplete Monthly Pricing Summary Form shall be grounds for rejection of the entire application. 2.36 Change Requests Contract changes may only be made by an amendment to the Contract resulting herefrom and executed in writing by the City and the Contractor and approved by the City Council. 2.37 Termination of Contract The City Treasurer may terminate this Agreement for Contractor failure to perform the services specified in this RFA. Failure to keep all insurance policies in force for the entire term of this Agreement is grounds for termination. The Contract Administrator must give Contractor written notice of the breach and set out a reasonable opportunity to cure. If the Contractor has not cured within the cure period, the City Treasurer may terminate this Agreement immediately thereafter. Alternately, the City may terminate this Agreement with or without cause upon 20 days written notice to Contractor. However, City may terminate this Agreement on 24-hours written notice to Contractor for failure to pay or provide proof of payment of taxes as set out herein. If the City terminates its Contract under the foregoing paragraph, the City shall pay the Contractor for services actually performed prior to such termination, less such payments as have been previously made. Contractor shall not be entitled to any further compensation for work performed by the Contractor or anyone under its control or direction from the date of receipt of notice of cancellation including any and all costs related to the transferring of any files to another Contractor or any costs related to the electronic transfer of any information including,but not limited to, tape transfers, downloads,uploads, CD, etc. Upon termination of the Contract, the Contractor shall provide the City reproducible copies of all work completed or partially completed documents prepared under the Contract—all such documents thereinafter being the sole property of the City within thirty(30)days of such termination at the Contractor's expense. Frost agrees to all of the above-noted City requirements. 0 2015 Frost Bank 2.38 Insurance Provisions INSURANCE REQUIREMENTS ©2015 Frost Bank DEPOSITOR'S LIABILITY INSURANCE A. Depositor must not commence work under this contract until all insurance required has been obtained and such insurance has been approved by the City. Depositor must not allow any subcontractor, to commence work until all similar insurance required of any subcontractor has been obtained. B. B. Depositor must furnish to the City's Risk Manager and Director of Finance, one (1) copy of Certificates of Insurance with applicable policy endorsements showing the following minimum coverage by an insurance company(s)acceptable to the City's Risk Manager. The City must be listed as an additional insured on the General liability and Auto Liability policies, and a waiver of subrogation is required on all applicable policies. Endorsements must be provided with Certificate of Insurance. Project name and/or number must be listed in Description Box of Certificate of Insurance. The coverage maintained by Frost is an umbrella, or blanket, policy and applies to all customers. This type of policy does not permit the naming of any additional insureds. Additionally. the coverage by Frost does not issue of a waiver of subrogation. TYPE OF INSURANCE MINIMUM INSURANCE COVERAGE 30-day advance written notice of Bodily Injury and Property Damage cancellation, non-renewal, material change Per occurrence- aggregate or termination required on all certificates and policies. The underwriter that Frost uses, and the policy that Frost carries do not enable compliance with this renuirement. Commercial General Liability including: $1,000,000 Per Occurrence 1. Commercial Broad Form 2. Premises—Operations 3. Products/Completed Operations 4. Contractual Liability 5. Independent Contractors 6. Personal Injury- Advertising Injury AUTO LIABILITY(including) $500,000 Combined Single Limit 1. Owned 2. Hired and Non-Owned 3. Rented/Leased WORKERS'S COMPENSATION Statutory and complies with Part II of this (All States Endorsement if Company is not Exhibit. domiciled in Texas) Employer's Liability 5500,000/$500,000/$500,000 0 2015 Frost Bank BANKER'S PROFESSIONAL LIABILITY $1,000,000 per claim l he professional Lability limits that I rost carries (Defense costs not included in policy limits meet the requirements of the City. of the policy) If claims made policy, retro date must be prior to inception of agreement,have extended reporting period provisions and identify any limitations regarding who is insured. C. In the event of accidents of any kind related to this contract, Depositor must furnish the Risk Manager with copies of all reports of any accidents within 10 days of the accident. II. ADDITIONAL REQUIREMENTS A. Applicable for paid employees, Depositor must obtain workers' compensation coverage through a licensed insurance company. The coverage must be written on a policy and endorsements approved by the Texas Department of Insurance. The workers' compensation coverage provided must be in statutory amounts according to the Texas Department of Insurance, Division of Workers' Compensation. An All States Endorsement shall be required if Depositor is not domiciled in the State of Texas. B. Depositor shall obtain and maintain in full force and effect for the duration of this Contract, and any extension hereof, at Depositor's sole expense, insurance coverage written on an occurrence basis by companies authorized and admitted to do business in the State of Texas and with an A.M. Best's rating of no less than A- VII. C. Depositor shall be required to submit renewal certificates of insurance throughout the term of this contract and any extensions within 10 days of the policy expiration dates. All notices under this Exhibit shall be given to City at the following address: City of Corpus Christi Attn: Risk Manager P.O. Box 9277 Corpus Christi, TX 78469-9277 D. Depositor agrees that, with respect to the above required insurance, all insurance policies are to contain or be endorsed to contain the following required provisions: • List the City and its officers, officials, employees, and volunteers, as additional insureds by endorsement with regard to operations, completed operations, and activities of or on behalf of the named insured performed under contract with the City, with the exception of the workers' compensation policy; The coverage maintained by Frost is an umbrella, or blanket, policy which applies to all customers, and as such does not permit the naming of additional insureds. • Provide for an endorsement that the "other insurance" clause shall not apply to the City of Corpus ©2015 Frost Bank Christi where the City is an additional insured shown on the policy;The coverage maintained by Frost does not permit the naming of additional insureds. • Workers' compensation and employers' liability policies will provide a waiver of subrogation in favor of the City; and The underwriter that Frost uses, and the policy that Frost carries do not enable compliance with this requirement. • Provide thirty(30) calendar days advance written notice directly to City of any, cancellation, non- renewal,material change or termination in coverage and not less than ten(10)calendar days advance written notice for nonpayment of premium. !he underwriter that Frost uses,and the policy that Frost c:ano.s do not oiabtc comps ancc with this requirement. E. Within five (5) calendar days of a cancellation, non-renewal, material change or termination of coverage, Depository shall provide a replacement Certificate of Insurance and applicable endorsements to City. City shall have the option to suspend Depositor's performance should there be a lapse in coverage at any time during this contract. Failure to provide and to maintain the required insurance shall constitute a material breach of this contract. Frost is able to provide a copy ofour Insurance Certificate as it is renewed each year. F. In addition to any other remedies the City may have upon Depositor's failure to provide and maintain any insurance or policy endorsements to the extent and within the time herein required, the City shall have the right to order Depositor to stop work hereunder, and/or withhold any payment(s) which become due to Depositor hereunder until Depositor demonstrates compliance with the requirements hereof. G. Nothing herein contained shall be construed as limiting in any way the extent to which Depositor may be held responsible for payments of damages to persons or property resulting from Depositor's or its subcontractor's performance of the work covered under this contract. Frost does not commit to this condition. H. It is agreed that Depositor's insurance shall be deemed primary and non-contributory with respect to any insurance or self-insurance carried by the City of Corpus Christi for liability arising out of operations under this contract. Frost does not commit to this condition, I. It is understood and agreed that the insurance required is in addition to and separate from any other obligation contained in this contract. 2015 Insurance Requirements Finance Department Depository Services 10/21/2015 ds Risk Management 2.39 Right to Publish Throughout the duration of the procurement process and resulting Contract term, potential Applicants and Contractors must secure from the City written approval prior to the release of any information that pertains to the potential work or activities covered by the RFA or the resulting Contract. Failure to adhere to this requirement may result in disqualification of the Applicant's application or termination of the Contract. ©2015 Frost Bank 2.40 Applicant's Ethical Behavior By submission of its application, the Applicant promises that Applicant's officers, employees, or agents will not attempt to lobby or influence a vote or recommendation related to the Applicant's application submitted in response to this RFA, directly or indirectly, through any contact with City Council members or other City officials between the deadline for submission of applications and the date a contract resulting herefrom is awarded by the City Council. Such behavior will be cause for rejection of the Applicant's application at the discretion of the City Council. 2.41 Quantities Quantities described herein are estimates and do not obligate the City to order or accept more than the City's actual requirements during the term of any contract resulting herefrom. Nor do the estimates limit the City from ordering less than its actual needs during the term of any contract resulting herefrom, subject to availability of appropriated funds. Frost agrees to all of the above-statcad conditions and requirements of the City, as conditionally noted. C 2015 Frost Bank Section 3.0 Scope of Work 3.1 General Information The City issues this RFA to eligible depository institutions to provide depository services for the City's funds. Only those depository institutions doing business within the city limits of Corpus Christi,Texas with full depository service capabilities as required in this RFA will be eligible to serve as the City's depository ("Depository").The City manages its own investment portfolio pursuant to its Investment Policy,therefore, the Depository will not provide any investment transaction activities other than safekeeping services such as receiving and delivering securities, coupon collections and maturity collections. 3.2 Mandatory Service Requirements This section identifies the mandatory requirements for the provision of depository services for the City's funds. Additional required services and estimated monthly volumes are listed Section 3.6, Fee, A., MONTHLY PRICING SUMMARY FORM, of this RFA. The depository must be able to provide the following required services and to maintain the following demand deposit accounts and any other accounts which the City may establish. A. CITY'S DEMAND DEPOSIT ACCOUNTS The term"demand deposit account"means a deposit of funds that may be withdrawn on the demand of the depositor. The City requires that the Depository provide depository services for the following demand deposit accounts(Note! These are the current demand deposit accounts. The City reserves the right to add or delete demand deposit accounts as and when required by its operational needs): The City currently maintains the following accounts: 1. CC Community Improvement Corp. Coll,Non-Interest Bearing 2. City of Corpus Christi- Beach User Fees, Non-Interest Bearing 3. City of Corpus Christi -Airport PFC,Non-Interest Bearing 4. City of Corpus Christi - Combined Funds,Non-Interest Bearing 5. City of Corpus Christi -Home Project, Interest Bearing 6. CC Community Improvement Corp. Special, Interest Bearing 7. CC Community Improvement Corp., Interest Bearing 8. CC Housing Finance Corporation, Interest Bearing 9. City of Corpus Christi -Arena Operating,Non-Interest Bearing 10. City of Corpus Christi- Convention Center Operating Acct.,Non-Interest Bearing 11. City of Corpus Christi - Law Enforcement Special, Interest Bearing 12. City of Corpus Christi-Humana, Zero-Balance 13. City of Corpus Christi—Merchant Processing Account,Non-Interest Bearing 14. City of Corpus Christi - Payroll Fund, Zero-Balance 15. City of Corpus Christi-Vouchers Payable Account, Zero-Balance (Note: A voucher number is created when a vendor's invoice is processed through the City's Accounts Payable division. The voucher number is assigned to a check when the invoice is paid). The City processes about 1,600 vendor checks per month. 16. City of Corpus Christi -Workers' Compensation,Zero-Balance ®2015 Frost Bank 17. Museum Joint Venture Revenue,Non-Interest Bearing 18. Museum Joint Venture Operations Support, Non-Interest Bearing 19. City of Corpus Christi—US Consent Decree May 2013, Non-Interest Bearing 20. City of Corpus Christi—Risk Management, Zero-Balance B. REQUIRED SERVICES 1. Internet Access Cash Management Services The City requires that the Depository provide cash management services to the City via the Internet. Any necessary software for these services, including, but not limited to: stop payments, wire transfers, account balance and transaction information, positive pay, lockbox, and transmission of ACH debit or credit transactions, will be furnished and be made available by the Depository at no cost to the City. Acknowledged. 2. Deposits The Depository must accept all deposits made by the City during the term of the Depository Services Agreement for deposit in the City Demand Deposit Accounts identified herein. At a minimum, the City requires that the Depository accept City deposits for ledger credit until 3:00 p.m. Central Time(CT) each business day. The City reserves the right to exclude deposits made on behalf of the Corpus Christi Fire Fighters' Retirement System and any other special funds which are controlled by entities separate and apart from the City. Acknowledged. All transactions received during business hours, Monday- Friday,receive same-day posting. Cut-off time for same day ledger credit in the lobby is 5:00 PM. Monday through Thursday. Friday 9:00 AM to 6:00 PM. Motor Bank hours are 7:30 AM to 6:00 PM Monday through Friday. Saturday banking hours are 9:00 AM to 2:00 PM,and these deposits are considered to be included in the business activity of the following Monday(or Tuesday if Monday is a federal holiday). The eut-off for Remote Capture Deposits is 9:00 PM. 3. Items Deposited All payments made directly to the City by customers will be sent to the bank un-encoded. Acknowledged. 4. Automated Information Reporting The City must be able to access via the Internet, for each City account, the previous day's ending ledger balance, collected balance, float, and debit/credit detail by 8:00 a.m. CT daily. Current-day balance and activity must be available by 12:00 noon CT. By this same deadline, this information must be combined to reflect totals for all City accounts taken together. Acknowledged. 5. Items Processing Service The Depository must process all deposited items of checks and cash. Such processing services include encoding services, credit and debit advices given to the City within three business days of the debit or credit, clearing returned items, and return of stamped duplicate deposit slips to the City within one business day of deposit. The City intends to make deposits in person,by courier service, ©2015 Frost Bank at night drop locations and at drive-thru locations. All deposits are safeguarded in tamper evident bags unless personally delivered. The deposits will be made in batches with a tape to be provided for each batch. If the Depository Item Processing Department discovers an error in the deposit, then the Depository shall prepare a credit or debit advice and mail it to the City immediately after the account has been adjusted with the appropriate documentation attached to justify the correction. Appropriate documentation is considered to be a copy of the City's tape with the item in question marked and a copy of the check in question. Acknowledged. 6. Fine Sorting Required Accounts that have more than 400 checks must be fine-sorted in numerical order by the Depository. Please note that the industry-wide electronic clearing of check images (rather than physical paper items) results in serial sorting (check number sequencing) being done with service application software rather than by Bank equipment. In this context, sorting can be pertbrmed by the City"on- demand"with each search or query. 7. Insufficient Funds (NSF)/Returned Items A complete description is to be provided on all NSF/returned items deposited into City accounts. The description should include the Payor's name,applicable City department,and reason for return. All NSF/returned items must be charged back to the account to which the items were deposited provided that the City department is identified by endorsement stamp or other readily identifiable means on the item. The Depository will send the NSF/returned items to the office designated by an Authorized City Representative. Acknowledged. 8. Stop Payments Stop payments placed through the Internet must remain in effect for at least six (6) months. Placement of stop payments through the Internet does not require written authorization follow-up by the City. Acknowledged. Please note that use of Positive Pay services may enable the City to avoid billable Stop Payment services. 9. Automatic Payroll Deposit Services By using a personal computer with Internet access, the City will electronically transmit City employee payroll data to the Depository. The Depository will receive the data and prepare an ACH debit so that the Depository payroll account will be debited no sooner than the date of payroll. The 2016 Payroll Calendar is Attached as Exhibit A to the Depository Services Agreement. Acknowledged. 10. General Wire Transfer Services a. Using Internet access, the City must be able to initiate general wire transfer services including initiation of repetitive and non-repetitive wire transfers. �cknowledued, b. The Depository must act upon all Internet,electronic,written or verbal transfer requests within one hour from the time received from an Authorized City Representative,and use any means for the transmission of the funds the Depository may consider suitable up until 3:30 p.m. CT. Acknowledged. c. The Depository must record all telephonic instructions from the City received by the Depository's wire transfer department and retain the recordings for sixty-one (61) days (the period for City notification of discrepancies) following such requests. ,,\cknowledged. ©2015 Frost Bank d. In the event there is a loss of interest or use of funds as result of a Depository error for failure to execute a transfer request on the date received, or such other error within the Depository's control, compensation for loss must be corrected by adjusting the aggregate ledger and collected balances of the City accounts to reflect properly the average balances of the amounts that would have resulted had no error occurred. Acknowledged. 11. Account Reconciliation Services a. All depository statements and paid items must be on a monthly cycle and must be cutoff on the last calendar day of the month. The depository statements must be available for pick-up via electronic format no later than the fifth working day following the assigned cut-off date. Acknowledged. Please note that billable Account Reconciliation services may not be necessary since Cash Manager enables on- demand downloading of transaction records in various formats for internal reconciliation at no additional charge. b. If a statement for a City depository account is not cut off as specified by the City,the City will require that the Depository reimburse the City for the costs incurred to reconcile the statement, including City employee overtime costs. Acknowledged. Please note that billable Account Reconciliation services may not be necessary since Cash Manager enables on-demand downloading of transaction records in various fi r hats for internal reconciliation at no additional charge. c. The City also requires that copies of cleared checks be available via Depository's website and stored on a CD distributed to the City with the printed monthly statement. Acknowledged. 12. Depository Reconcilements Automated depository reconcilements are required for the Vouchers Payable and Payroll accounts and other accounts as required by an Authorized City Representative as transaction volumes increase. By using Internet access, the City will electronically transmit reconcilement data to the Depository. Reconcilements must be available for pick up by the City by the ninth working day following the date the data was transmitted to the Depository. "Add/delete" adjustment forms will be provided by the Depository. The Depository will be required to transmit reconcilement information to the administrators of the City's health care and worker's compensation accounts and others as designated by the City. AcknoNA ledged. Please note that billable Account Reconciliation services may not be necessary since Cash Manager enables on-demand downloading of transaction records in various formats for internal reconciliation at no additional charge. 13. Checking with Interest Accounts If designated by an Authorized City Representative, a demand deposit account will be set up as interest bearing and interest will be paid monthly. Interest rates will be those set for public fund interest bearing accounts. Acknowledged. 14. Controlled Disbursement Service Specific accounts as designated by an Authorized City Representative will be controlled disbursement accounts. The City must be able to access same-day information concerning controlled disbursement clearings by 11:15 a.m. CT daily. Acknowledged. First presentments are reported by 9:30 a.m. and the second presentment is typically reported by 12:00 Noon. Frost's experience is that ©2015 Frost Bank the majority of checks are reported in the first presentment. "Late" items will be held over and included in the next day's first presentment. 15. Zero-Balance Accounts As designated by an Authorized City Representative, specific demand deposit accounts will be zero- balance accounts for ease in reconciling and record keeping. Acknowledged. 16. Check Cashing On presentation and at no charge to the payee or the City, the Depository will pay all checks drawn and properly payable on a City demand-deposit account. Acknowledged. 17. Deposit Locations The City will have the option to make Deposits at the Depository's main Corpus Christi office or at any of Depository's Corpus Christi branches. A deposit ticket will be presented to the Depository with each deposit. The Depository will route specified deposit ticket copies to the City on a daily basis.The City processes between 80 and 120 individual deposits daily.These deposits originate from about 25 different departments located throughout the City. Deposits will be made in person, by courier service, at night-drop locations and at drive-thru locations. . cknoN ledged. 18. Night Depository The Depository must be able to provide night depository facilities for safekeeping purposes. The City will use special tamper-evident deposit bags in making deposits through the night depository facility. Each bag placed in the night depository facility will contain only currency, coin, and checks. If it appears that a bag has been tampered with, the Depository must telephone an Authorized City Representative. The Depository will mail the deposit slip or it may be picked up by courier on a daily basis. Frost has night depository facilities at all Corpus Christi Banking Centers, with the exception of the Downtown location. A complete listing of Banking Centers is contained in Attachment 12. 19. Escrow Accounts. Periodically during the term of the Agreement, the City may require that an escrow account be established at the Depository. The service fees charged for the escrow account must be the same as the service fees charged to the City for its demand deposit accounts. Acknowledged. although the actual fees associated with these accounts may be dependent upon the type and nature of"escrow" services requested and required. C. FUNDS TRANSFER REQUIREMENTS 1. Incoming wire transfers occur regularly. The Depository must give both ledger and collected credit the day of the wire receipt, regardless of the time the Depository receives the transfer through the Fed wire System. Credit to City accounts for incoming wire transfers must be immediate. Acknowledged. 2. The City actively invests in marketable securities. An outgoing wire transfer will be made in the morning for the reinvestment of funds expected by an incoming wire transfer. The Depository must 4 2015 Frost Bank allow the City to reinvest and to wire funds out in anticipation of an incoming wire transfer later in the day. The anticipated amount of wire transfer is up to 20 million dollars. Outgoing wire transfers are automatically released as there are "good" funds in the account to cover the transaction. But the situation described in this paragraph could potentially result in a balance position commonly referred to as a "daylight overdraft". Frost does not encourage the use of daylight overdrafts as a regular or recurring business practice. In that context, Frost will consider payment of daylight overdrafts subject to verification of the daylight overdraft amount (Le. exposure), and confirmation of the timing and source of collected funds to cover the overdraft. 3. The Depository must not charge the City for daylight overdrafts. When a daylight overdraft is anticipated, an Authorized City Representative will notify the designated depository official of the situation. Acknowledged. Daylight overdrafts are not encouraged as a routine business practice,and therefore,are expected to be a rare and infrequent event. In that context, Frost generally approves daylight overdrafts at no charge as the amount of the extension along with the source and timing of a covering deposit are confirmed. 4. Notification to the City of incoming wire transfers or problems with outgoing wire transfers must be made within one hour of the transaction. The City allows two authorized employees to initiate repetitive transfers. All authorized employees must be issued a personal identification number in order to initiate wire transactions. If the wire transfer is initiated over the telephone, the City will require that the Depository telephone the City and specifically request to speak to an Authorized City Representative other than the person initiating the wire to verify that the wire is authorized prior to releasing it. Acknowledged. D. OVERDRAFT PROCESSING REQUIREMENTS The City does not intend to have an overdraft position on any of its depository accounts throughout the course of the Depository Services Agreement. In the event a check or checks presented for payment on any City account where there exists insufficient funds available for payment, the City will require the Depository to pay said checks and promptly notify an Authorized City Representative of the existence of the overdraft situation. The City will cover the overdraft within one business day. Acknowledged. E. REQUIREMENTS FOR SECURITIES CLEARANCE AND SAFEKEEPING OF CITY INVESTMENTS 1. Investment securities purchased by the City will be delivered by book entry to the Federal Reserve. The purchase and sale of all securities will be on a delivery versus payment or payment versus delivery basis (i.e. for securities purchases, monies will not be released by the City's safekeeping bank until securities are received at the Federal Reserve Bank or further credit to the City's safekeeping bank. In the case of securities sales, monies will be received by the City's safekeeping bank via the Federal Reserve Bank as the securities are simultaneously released to the purchaser). In this manner,the City will always have possession of either the securities or its monies. 2. The City will send written instructions to the securities clearance department for each transaction. ©2015 Frost Bank When a City security matures, or when a City security is purchased, funds will be transferred from or to the Combined Operating account or another account as directed by an Authorized City Representative. Most of these instructions will be sent by facsimile to assure the timeliness of the operation. The City expects the Depository to give prompt notification of any settlement problems, including securities delivered where the instructions do not match or where instructions have not been given to the Depository. 3. All securities must be perfected in the name of the City. A safekeeping receipt issued to the City must evidence all book entry securities owned by the City. The original safekeeping receipt for each transaction will be forwarded to the City. 4. The following is the City's sample Investment Portfolio as of June 30, 2015. The depository must use this data to calculate safekeeping fees on an annual basis. The depository must record the safekeeping fee calculation in the Safekeeping and Securities Clearance section of the MONTHLY PRICING SUMMARY FORM found in Section 3.6, Fee Schedule,A. of this RFA. Frost has included Safekeeping(Custody Scrvi,.-cs fee schedules in this proposal,and considers them to be part of the Proposal Form, and are considered to be part of Fee Schedule A and are contained in Attachment 5 of the actual RFP. Any requested services not referenced in listings will be implemented at terms which are mutually agreeable to both parties. Frost can comply with the City's Securities Clearance and Safekeeping requirements. ©2015 Frost Bank CITY OF CORPUS CHRISTI CASH MANAGEMENT SECTION INVESTMENT PORTFOLIO AS OF 06/30/2015 CUSIP issuer Purchase Term Par Value Current Maturity Market Value Book Value Unrealized Date Rate Date Gain(Loss TEXPOOL0035 Terrool 6/30/205 1 129,824.35955 0.058 7112015 129624,35955 29,824,35955 - TEXSTARO40 Terstar 6/30/2015 1 1301,27224 0472 7/92015 1301272.24 130127224 - TEXSTAR17h Temtar 6/30/206 1 114.360254.01 0.072 7/12015 114360,254.0' 114.360,254.01 - WFMM4816 Wells Fargo 6/30/2015 1 13405128144 0.050 7/12015 04,051,28144 174,051,28144 - 8NY886 Bank of NewYork Mellon 6/30(2015 1 5,68723929 0.000 7112015 5,687,23929 5,68723929 - BNY7609 Bank of New York Mellon 8/30/2015 1 1500,000.00 0.000 7/1200 1500.000.00 1500,00000 - 313300059 Federal Farm Credit Bank 12/19/209 608 0,000,00000 0.250 08/19/208 0401680.00 10,000.000.00 168000 3133ED4A7 Federal Farm Credit Bank 0/07/200 730 0,000,00000 0.375 10/07/200 0,006,5000 0000,000.00 6,160.00 3130A3283 Federal Home Loan Bank 012812015 273 0,000,000.00 0.00 0/28/200 10,000,170.00 0000,00000 170.00 3133E0884 Federal Farm Credit Bank 12703/2011 730 0,000,00000 0.300 12/03/208 0404,60.00 0.000400.00 4,60.00 3130A2405 Federal Home Loan Bank 05129/2014 568 10,000,000.00 0.230 473/2015 0,0010000 10.000,000.00 12040 3130A3249 Federal Home Loan Bank 0127/2015 365 0,000,000.00 0.250 0327/20'6 0.001400.00 9,999232.65 2,37.35 3130A3ZS6 Federal Home Loan Bank 0129/208 365 0,000,00040 0.250 0129/205 9999.46000 9.999,517.8 (57.15) 3130A5RD3 Federal Home Loan Bank 6//30/2015 2'6 9,000,000.00 0200 2/1203 8,996,76000 9,000,00000 (324040) 300A5CA5 Federal Home Loan Bank 5/7/2015 277 13000,000.00 020 218/200 9.996,53000 0.000,000.00 (3,470.00) 3133E0M 01 Federal Farm Credit Bank 05/29/2014 638 0,000.00000 0.300 02/26/2016 9.998,530.00 9.998500.80 29.20 300A3ZV9 Federal Home Loan Bank 02/04/200 387 0.000400.00 0.300 02/26/208 9.99823000 0.00000040 (177000) 3130A32V9 Federal Home Lo an Bank 02/04/208 387 0,000,000.00 0.300 02/26/200 9,998230.00 0.000,000.00 (1.770.00) 3t)0A5AU3 Federal Home Lo an Bank 5/15/208 350 0,000,000.00 0250 4/29/203 9,994,30.00 9,995,86795 (1687.55) 350A5EJ4 Federal Home Loan Bank 5718/2016 366 0,000,000.00 0250 5/3/200 9986,020.00 9,994,72892 (8.708.92) 3130A5F38 Federal Ho me Loan Bank 5126/2015 359 10,000,000.00 0.250 5/0/208 9,989,800.00 9,995.592.77 (5,792.77) 3130A5FP9 Federal Home Loan Bank 5/26/205 366 0,000,000.00 0.250 5/26/2016 9,985.950.00 9.993239.3 (7,289./3) 350A5E47 Federal Home Loan Bank 5/291208 363 0,000,000.00 0300 5/26/20'6 9,993230.00 9,999.729.60 (6,499.60) 31)3E0M66 Federal Farm Credit Bank 5/27/2014 731 0,000400.00 0.390 5/2712016 9,992,70.00 10,000400.00 (7,290.00) 3110A5CI(3 Federal Home Loan Bank 5127/208 366 0.000.000.00 0A00 5/27/200 9,998,50040 0.000,000.00 (1,50030) 350A51(57 Federal Home Loan Bank 614/2015 392 0400,000.00 0.330 6/30/200 0,06.840.00 9,998,50987 17,330.13 3130A51157 Federal Home Loan Bank 6/4/208 392 0,000,00040 0.330 6/30/203 0,08,840.00 9,999,007.05 3,832.95 304G6AA1 Federal Home Loan Mtg Corp 0130/208 731 10,000,000.00 0.700 0130/2017 9999.920.00 9,998,02431 189589 3134G6AA1 Federal Home Loan Mtg Corp 0130/208 731 0,000,00000 0.700 0130/2017 9,999,92030 9,996,443.75 3,47625 3134G6AA1 Federal Home Loan Mtg Corp 0130/208 731 0,000,000.00 0.700 0130/2017 9,999,920.00 9,999,604.86 315.14 3134G6AA1 Federal Home Loan Mtg Corp 0130/2015 731 0,00000000 0.700 0130/2017 9.999,920.00 0,000.000.00 (80.00) 3134G6AN3 Federal Home Loan M tg Corp 02/13/208 731 10,000400.00 0.750 02/73/2017 9,995,83030 0,000000.00 (4,17000) 31.34(36805 Federal Home Loan MIg Corp 02/13/2015 731 0,000400.00 0.750 02/0/201 0,003,650.00 10000,00000 3650.00 3134G6C20 Federal Home Loan Mtg Corp 02/13/208 731 0,000,000.00 0.800 02/13/2017 0,008,80.00 13000000.00 8,8030 3130A 56J2 Federal Home Loan Bank 5/28/2015 701 0,000,000.00 0.720 4/28/2017 9,995,1000 0,000,000.00 (4,890.00) 3134G6Y00 Federal Home Loan MtgCorp 5/26/20'6 731 0,000000.00 0.800 5/26/2017 0,002,190.00 0,000,00000 2,00.00 31.34(36082 Federal Home LoanMtgCorp 5/26/2015 731 0,000,00000 0.850 5/26/209 9,986.47000 0.000.000.00 (13.530.00) 3134G6022 Federal Home LoanMtgCorp 6/30/208 731 0,000,000.00 0.875 6/30/209 0,005,80.00 0.000,000.00 5,80.00 3134G6X73 Federal Home LoanMfg Corp 5/29/208 728 0,000400.00 0.820 5/26/2017 9.988,44000 0,000900.00 (11560.00) 3134G7AY7 Federal Home Loan Mtg Corp 6/29/208 731 20,000400.00 1400 6/29/201 20,007,480.00 20,000,000.00 7,480.00 3134G7DR9 Federal Home LoanMtgCorp 6130/200 724 5,000.00040 0.800 6/23/2017 4.998.600.00 5.000400.00 (140000) Total 710,724,406.53 710,689,50.53 70,692,405.30 (2,868.77) 0 2015 Frost Bank F. COLLATERAL REQUIREMENTS 1. Background a. As security for the City's deposits,the Depository must pledge to the City securities equal to the largest total ledger balances the City maintains in the Depository, less the amount of coverage provided by the Federal Deposit Insurance Corporation. Acknowledged. b. All funds deposited under the Depository Services Agreement must be continuously secured in accordance with applicable federal laws and regulations as well as the laws of the State of Texas, including but not limited to Subchapter C, Security for Funds Held by Depository of Chapter 105, Depositories for Municipal Funds,of the Texas Local Government Code, Chapter 2257, Public Funds Collateral Act, Government Code, and this RFA. Frost proposes to collateralize deposits with securities from our existing portfolio of securities maintained with the Federal Reserve Bank or the Federal Home Loan Bank that comply the requirements of Chapter 2257 of the Government Code(a.k.a. the Public Funds Collateral Act; or PFCA) without further restrictions at no charge. 2. Qualification as Depository The Depository will be required to,no later than five days before the commencement of the term of the Depository Services Agreement, pledge security for the funds to be deposited by the City at the Depository as provided in Subchapter C, Security for Funds Held by Depository of Chapter 105, Depositories for Municipal Funds of the Texas Local Government Code,Chapter 2257, Public Funds Collateral Act,Government Code,and this RFA. An excerpt of the Board minutes acknowledging the pledging of Bank assets to the City will be provided following the next meeting after award of the contract and execution of the Depository and Security agreements. These meetings occur quarterly. 3. Permissible security Only the following types of securities are acceptable to the City to secure City deposits: (a) A treasury note of the United States or other evidence of indebtedness of the United States that is guaranteed as to principal and interest by the United States. (b)An obligation of an agency of the United States, provided that(i)the market value can be readily established, and (ii) the obligation has been approved by an Authorized City Representative. Acknowledged. 4. Custodian of Pledged Securities The securities pledged by the Depository as collateral must be deposited with a branch of the Federal Reserve Bank, ("the Custodian"), in escrow in a safekeeping account held in the name of the City. The custodian account must require the authorization of both the ©2015 Frost Bank Depository and an Authorized City Representative to release pledged collateral. The Custodian,upon receipt of pledged securities, must promptly issue and deliver to the Authorized City Representative trust receipts for the securities pledged. The securities must be held by the Custodian and the Custodian may not transfer or deposit the securities in another institution. :Ackncw led2,ed. 5. Amount of Collateral 1. Securities pledged by the Depository to secure City funds on deposit identified with federal taxpayer identification number 74-6000574 must have a market value of at least Thirty million dollars ($30,000,000)or as designated in writing by an Authorized City Representative. During the City's tax season, which occurs from October through March, the Depository must provide additional collateral as required by an Authorized City Representative. AckWIdt�cd. 2. Securities pledged by the Depository to secure City funds identified with federal taxpayer identification number 74-2442464 must have a market value of at least four million dollars ($4,000,000)or as designated in writing by an Authorized City Representative. The market value of a security is to be determined by an Authorized City Representative from a third party source (e.g. Primary dealer, Wall Street Journal) and is binding on the Depository. Acknowledged 6. Federally Insured Deposits The Depository is not required to provide security for the deposit of City funds to the extent deposits are insured under 12 U.S.C.A., Sections 1811-1835a. 7. Additional Security An Authorized City Representative may, by written order, require the Depository to pledge additional collateral at any time it is determined to be advisable. If, for any reason, the total City balance on deposit with the Depository exceeds the market value of pledged security,the Depository must immediately pledge additional securities to the City. Any additional security pledged must meet the requirements of this RFA and must be approved by an Authorized City Representative. Failure to pledge additional securities on the day the Depository is provided written notice constitutes grounds for City Council to select a new depository as required by law and terminate the Depository Services Agreement. On the same day that notice to pledge additional securities is received by the Depository, the Depository must execute and deliver a Supplemental Pledge Agreement in form acceptable to the City to evidence any additions of collateral pledged to secure the deposits of the City. The Supplemental Pledge Agreement must also be placed and continuously maintained in the official records of the Depository. Acknowledged. 8. Substitution of Securities The Depository may substitute one security for another provided that the security meets the requirements of this RFA and provided that an Authorized City Representative approves the substitution,in writing. Prior to such substitution, the Depository must execute and deliver a Supplemental Pledge Agreement in form acceptable to the City to evidence any substitutions of collateral pledged to secure the deposits of the City. The Supplemental Pledge Agreement must be placed and continuously maintained in the official records of the Depository. Acknowledged. Frost does not release or substitute any securities pledged as collateral ©2015 Frost Bank without prior written authorization from the public entity. 9. Release of Security If the securities pledged by the Depository exceed the amount required under this RFA, an Authorized City Representative may authorize the release of the excess. An Authorized City Representative must approve such release in writing. Acknowledged. Frost does not release any securities pledged as collateral without prior written authorization from the public entity. 10. Records and Audit The Depository must maintain separate, accurate, and complete records relating to the deposit of public funds, the pledged investment securities, and all transactions relating to the pledged investment securities. The Custodian must maintain separate, accurate, and complete records regarding the pledged investment securities. All such records will be subject to any internal or external audit or regulatory examination of the Depository or Custodian, such audit or examination to ascertain whether the records and pledged investment securities are in compliance with the Public Funds Collateral Act,Chapter 2257, Government Code. Acknowledged. 11. Documentation to be Provided to City The Depository and/or Custodian must provide documentation relating to the description of securities pledged as collateral, substitution of pledged securities, pledge of additional securities,and withdrawal of excess securities to the Authorized City Representative. A certificate as to the then market value of securities pledged as security hereunder must be provided to the Authorized City Representative at least monthly. Acknowledged. Frost generates a monthly Pledged Collateral Report. The Federal Reserve Bank also generates a monthly Collateral Report and mails it directly to the collateralized party. This report should match the one from Frost. Collateral pledged through the Federal Home Loan Bank (those not acceptable to the FRB), the Federal Home Loan Bank does NOT generate or send out monthly statements. Frost generates a monthly pledged collateral report. 12.Collateral Provision of Financial Institution Reform.Recovery and Enforcement Act IFIRREA) The Depository must provide certification that the Depository has complied with all requirements of the Financial Institution Reform, Recovery and Enforcement Act (FIRREA) and FDIC policies which may apply to the City's security interests in the pledged collateral and must specify the officers of the Depository who are authorized to sign agreements with the City. Prior to the initial pledge of securities under the Depository Services Agreement, the City will require that the Depository: (a) execute a Security Agreement - Pledge and ancillary agreements necessary to effect the pledge of securities to collateralize all of the City's deposits in such form as is acceptable to the City; (b) deliver to the City a certified copy of excerpts from the minutes of a meeting of the Loan Committee and/or Board of Directors of the Depository, properly authorizing the Depository to enter into a Security Agreement-Pledge, and to pledge assets of the Depository to secure all deposits made by the City with the Depository; and (c) deliver to the City certification that the Depository Agreement,the Security Agreement - Pledge, and the authorization of the Board ©2015 Frost Bank of Directors and/or the Loan Committee of the Depository have been placed (and will continuously be maintained) in the official records of the Depository. An excerpt of the Board minutes acknowledging the pledging of Bank assets to the City will be provided following the next meeting after award of the contract and execution of the Depository and Security agreements. These meetings occur quarterly. G. SERVICE FEE REQUIREMENTS I. The City desires an equitable reimbursement arrangement for the depository services provided. A direct fee basis for services provided by the Depository with an offsetting earnings credit for available balances is the method required by the City. This process requires the monthly calculation of a net depository service cost. The Depository will calculate the total monthly service costs for all accounts and the total monthly earnings credit for all accounts on the account analysis statement. The net of total service costs and total earnings credits equals net banking service costs for the month. Earnings credit must be given to the City for all account balances grouped together and not for single account balances. Acknowledged. 2. A written invoice evidencing the fees for services must be provided to the City at the end of each month for each account. This invoice must also contain a section summarizing the fees for services for all accounts. The City will have five working days to confirm the services performed prior to authorization of the debit advice(s). The Depository will not debit a City depository account for service fees until the Depository and the City agree that the fees are correct. Fees will be allocated among accounts as designated by an Authorized City Representative. For a listing of the current Authorized City Representatives, see Exhibit A to the Depository Services Agreement attached hereto. Acknowledged. Frost has included a Sample Account Analysis Statement in Attachment 6. H. OTHER REQUIREMENTS 1. The Depository must notify the City in writing within ten (10) days of any changes in federal or state regulations or laws that would thereafter affect the Depository Services Agreement. The Depository must also notify the City of any services,which become available to the City throughout the Agreement period. 2. The Depository's records relating to the City's accounts must be open to review by either City staff members or City-appointed independent auditors during normal business hours. Acknowledged. 3. The successful Depository must provide to the City each quarterly CALL report (Schedule RC only) as well as any public information concerning changes in the ownership,management or financial position of the Depository or its parent company. Acknowledged. Frost's Financial infonnation is available on the Frost Bank website(www.FrostBank.com)and the most recent reporting infonnation is contained in Attachment 9. 4. To the extent that the Depository Services Agreement is not governed by applicable federal laws and regulations, the Depository Services Agreement will be governed by and construed in accordance with laws of the State of Texas. Any suit brought in connection with the Depository Services Agreement must be tried in Nueces County, Texas. Acknowledged. ®2015 Frost Bank 5. Until deposits are credited to the City as evidenced by validation of duplicate deposit slips,the relationship between the City and the Depository as to all contents must be that of Bailor and Bailee. The Depository will be responsible and liable to the City for that same degree of care required under the laws of Texas for Bailees having custody of property of other persons. Acknowledged 6. The Depository must be a participating bank in the Southwestern Automated Clearing House Association to be able to deliver debit and credit payments. Acknowledged. 7. The Depository must assign one of its officers employed by the Depository in Corpus Christi to coordinate the depository relationship established under the Depository Services Agreement. The depository officer is responsible for responding to questions from an Authorized City Representative concerning the performance of depository services.The City may require a review meeting with the depository officer at least once every month to evaluate the working relationship between the City and the Depository and to address any problems. Acknowledged. Please refer to Relationship "beam/Biographies contained in Attachment 12. 8. The City will provide the Depository with a Corporate Resolution at the commencement of the contract term. Thereafter,the Depository will not require additional corporate resolutions when an Authorized City Representative opens a new account. Acknowledged. 9. Lockbox services. The Depository must provide lockbox services to process customer payments. This includes sorting and reading customer checks and payment coupons as well as creating an image electronically of the paper items. Additionally, the City requires the lockbox contractor to send an updated file of all payments received on accounts by 7:00 a.m. CT for review and validation of payment. City utility payments are processed through a lockbox. The payment envelope includes the check or money order along with a barcoded payment stub. The lockbox location will have to be able to read the barcode as well as scan the check information. The Depository will send a daily data file to the City's utility software and interface the payment information. Scanned information must be made available on the Depository's web site. Acknowledged. 10. The City electronically transmits data to the Depository regarding those City Utility, Marina, and Misc. Accounts Receivable customers who have previously authorized the City to automatically debit their demand deposit accounts for their City bills. The Depository must be able to provide this direct debit service. Acknowledged. 3.3 Technical Solution A. The City expects the best availability of funds provided to the Depository's institutional clients. Please attach the depository's availability schedule and an explanation of funds credit. The City recognizes that only collected funds may be used as available balances for investment purposes.The anticipated amount of balances the City will maintain in both non- interest and interest bearing accounts is up to 35 million dollars. List any ways the City could periodically improve availability of funds. List all time deadlines clearly. Please refer to Frost's Availability Schedule contained in Attachment I of this proposal. Deadlines are based on encoded deposits at the time of receipt at our processing center. All lockbox deposits receive encoded item credit at our processing center; obviously the best collection ©2015 Frost Bank method. B. At a minimum, the City requires that the Depository accept City deposits for ledger credit until 3:00 p.m. CT each business day. List the cut-off time for accepting deposits for same- day credit. All transactions received during business hours, Monday - Friday, receive same-day posting. Cut-off time for same day ledger credit in the lobby is 5:00 PM,Monday through Thursday. Friday 9:00 AM to 6:00 PM. Motor Bank hours are 7:30 AM to 6:00 PM Monday through Friday. Saturday banking hours are 9:00 AM to 2:00 PM, and these deposits are considered to be included in the business activity of the following Monday(or Tuesday if Monday is a federal holiday). The cut-off for Remote Capture Deposits is 9:00 PM. Please refer to a complete listing of Banking Center/Vault Locations contained in Attachment 13. C. Please describe your depository's ability to sufficiently and continuously collateralize City deposits. Enumerate the types of securities,which you propose to pledge. Describe reporting methods and steps, if any, which would be employed to detect deficiencies in collateral position._I he Bank monitors collateral on a daily basis. Securities used for collateral are allowed under FIB 2257 and the City's Investment Policy. A monthly report is sent outlining the collateral and its values. Any deficiencies are addressed immediately with additional collateral. D. Please describe your securities clearance and safekeeping procedures. Please explain the method your depository uses to calculate safekeeping and securities clearance fees. Our procedures are described in detail in the Safekeeping and Securities Clearance section of this bid. All charges are placed on analysis. The Bank does not charge for fees for securities through our Capital Markets division. E. Please provide a detailed explanation of the depository's policy and methodology used in the setting of the earnings credit rate. Provide a schedule of the earnings credit rates offered by the depository since January 1, 2015. The ECR is based upon the previous month's a%erage 91-day T-Bill auction discount rate plus 30 basis points. A history of earnings credits rates is contained in this proposal. F. Does the depository offer a fixed rate of interest if the City agrees to maintain a specified collected balance? Frost does not offer a fixed rate of interest at this time. If so,please provide the appropriate information. N/A. G. List minimum ledger and collected balances required to earn interest. None exist. H. List the interest rates currently paid on interest bearing accounts. Interest rates paid on Frost deposit accounts are based off of the auction discount rate of the 13-week Treasury Bill, as reported on the Treasury's website at www.TreasuryDirect.gov. ©2015 Frost Bank Interest on Checking Accounts (IOC's) earn interest with a rate based upon the previous month's average 13-week T-Bill auction discount rate minus 35 basis points(for a minimum rate of 0.01%) Money Market Savings Accounts (MMSA's) will earn interest with a rate based upon the previous month's average 13-week T-Bill auction discount rate minus 25 basis points(for a minimum rate of 0.01%). Frost Certificates of Deposit (CD's) will earn interest with a rate based upon that week's 13-week T-Bill auction discount minus 4 basis points or plus 1 basis point, depending upon the CD term (tbr a minimum rate of 0.02%). Frost Capital Markets offers access to a broad array of invest options that comply with the requirements of Chapter 2256 of the Government Code(a.k.a. the Public Funds investment Act, or PFIA). Frost is also a participant in the Certificate of Deposit Account Registry Service(CDARS) administered through the Promontory lntertinancial Network. This program enables funds to placed with various participating financial institutions in amounts within the FDIC coverage limits, but to also be reported and tracked on a single consolidated statement from Frost. Rates on these instruments are set by Promontory each week. I. What back-up arrangements for check processing exist in case of system failures? The Bank has extensive backup systems and procedures. Our lockbox sites include Dallas, Houston and San Antonio. All three sites serve as backup sites in case of system failure. The Bank has three cheek processing centers in Texas which also serve as backup systems. J. What is your contingency plan in case of a natural disaster? What provisions will be made for the City to continue operations after a disaster occurs(i.e.,utilization of other branches in other cities, etc.)? Our back-up sites are in three different geographic locations, thus protecting against a natural disaster. Processing can be switched between sites for continued operations. These procedures are tested regularly. We have multiple branches in Corpus Christi and throughout the State. K. In order to fund check presentments and manage the City's depository accounts and investments, controlled disbursement services are required. Please describe the controlled disbursement services available.A Frost Controlled Disbursement account helps you take the guesswork out of planning when your payments w ill clear the bank. The account enables you to better control outgoing cash flow and eliminate overdraft charges by covering your check- clearing totals. You know exactly how much money you need in your disbursement account every business day. With this accurate assessment of your daily cash position, you can maximize overnight investments or minimize short-term borrowings. To use controlled disbursement, you open a special account (in addition to your regular Frost funding account)with checks that bear a specific transit-routing number. Then, each morning you view daily check presentment totals online through Cash Manager, Frost's online commercial banking service and treasury management service, Frost receives two presentments each banking day from the Federal Reserve. The first presentment is reported by 9:30 a.m. Central time, and the second presentment is typically reported by 12 Noon Central time. Our experience is that the majority of checks are reported in the first presentment. Once the exact amount required to fund your disbursements is known,you can make sure you have sufficient cash in your Frost funding account to cover the checks presented ©2015 Frost Bank against your disbursement account. Funds in an amount equal to your total disbursements automatically transfer from your funding account at Frost to the controlled disbursement account, Where are the disbursing depositories located? Frost offers controlled disbursement services through our Parkdale location in Corpus Christi and the Mansfield location. How much time delay should the City expect in utilizing this service?There should be no delay in utilizing this service. L. In order to fund check presentments and manage the City's depository accounts and investments, check presentment totals must be made known to the City no later than 11:15 a.m.CT. Notification after this time may result in the City not being able to adequately fund checks. If an overdraft occurs due to a late notification by the depository, the City will not be charged any overdraft charges. Acknowledged. How many times has the depository missed notification deadlines and by how much within the one-year period ending December 31, 2014? (Note: This refers to Control Disbursement. All check presentments must be reported on a real-time basis.) The only time that deadlines are missed are when the Fed's cash letter is presented late. To the best of our knowledge deadlines have not been missed in the past year. M. Please describe the Account Reconcilement Service offered by the depository and attach a sample reconcilement statement. Manager. The City can download transactions on a periodic basis and avoid the additional cost of the reconciliation services. Positive Pay services are provided at no charge with the exception of rejected items. Please refer Attachment 7 of this bid for details. N. Does the depository have an established maximum dollar value limit, which may not be exceeded by an individual check or wire transfer? No. Are there any other restrictions regarding individual checking amounts? Checks may be limited on a per item basis. The maximum amount of a wire is specified in service implementation paperwork prepared from City instructions. Otherwise, Cash Manager has a transaction maximum amount of $99,999,999.99. A check is limited by the encoding field in the MICR line. 0. The City requires that its Depository offer automated stop payment service. At a minimum, stop payments must remain in effect for at least six (6)months. How long are stop payment orders effective? Frost offers both automated and manual (telephone initiated)stop payments. A manual stop payment is valid for 6 months, an automated(Cash Manager)stop payment is valid for 12 months. Please note that this billable service may not be necessary for accounts on Positive Pay. When does the stop payment order take effect? Stop payments take effect immediately. The deadline for same day acceptance of stop pay requests is 4:00 PM on banking days (manual stop pay). Stops entered via Cash Manager(automated stop pay) may be entered until 6:00 PM on banking days. P. Direct deposit of payroll is a service the City offers its employees. Approximately 2,917 employees or 99% are set up for automated payroll deposit. The City will require that the payroll transfers occur electronically, directly to the employee's depository account. Please provide cut-off times and other appropriate information. Frost recommends that ACH direct deposit of payroll transmissions be received by us no later than 6 p.m. Central time, two banking days before the effective date of the payroll. For example, if Friday were the pay date, the direct deposit file should be received at Frost no later than 6 p.m. the previous 2015 Frost Bank Wednesday to meet the deadline. Please note that the ACH network does not use Saturday, Sunday or any holiday in the calculation of processing dates. The two-day recommendation complies with NACHA rules designed to ensure ample time to process a file through the ACH network so the payroll amount is memo-posted to the employee's account at the receiving financial institution and available for withdrawal at the opening of business on the pay date, Frost will still accept ACH credit files one banking day before the payroll effective date, though the one-day process does not allow sufficient time for us to guarantee an 8 a.m. memo-posting on the effective date. Instead, funds will post to the employee's account at the receiving financial institution before close of business that day. Q. Provide a sample depository statement for a demand deposit account. Contained in Attachment 6. R. Provide information on positive pay. Contained in Attachment 5 -- Treasury Management. S. Provide an availability of funds schedule with a clear explanation of deadlines. Contained in Attachment I. T. Provide a sample monthly pledged collateral report. Contained in Attachment 8. U. Provide an explanation of basis for money market rates. Contained in Attachment 4 — Historical Rates. V. Provide a copy of your organization's most recent annual financial statement. Annual reports and SEC filings are available on the Frost Bank website at www.FrostBank.com. Also, a pdf. file of Frost's Annual Report has been downloaded as a separate file to the City's portal. W. Please describe the process by which service problems are to be resolved. What person or organizational unit is available for complaint or problem resolution? You want a financial services provider that will be with you , 11. and Frost wants to build and maintain an enduring and satisfying relationship with you. We make that a reality by working hard to create products that meet your unique needs and delivering them with an exceptional level of service that meets your expectations. As an integral part of the client care and responsiveness that sets Frost apart from others in the marketplace, we take action on service issues in a timely, positive and creative manner. Because we are relationship hankers, we work as a team, led by me, your local relationship manager. I am your first resource for answers to questions and resolution for problems that may occur. As part of the process, staff members in diverse areas of the organization may also work with you to create the best possible solution. The team includes other results- oriented professionals who will serve as backup to your relationship manager, and Jennifer Grove,Treasury Management Services, who may participate in problem resolution on an as- needed basis. Supporting you and your Frost relationship team for day-to-day service issues is Frost's Treasury Management customer service team. Because thousands of organizations across the state have Frost's Treasury Management products, our customer service representatives ©2015 Frost Bank must be prepared to answer a wide range of client calls, from simple information requests to complicated operational or technical issues. Calls may be as straightforward as a request to reset a password and as complex as a request to help build an Automated Clearing House (ACM) fiile or set up a remote deposit capture station. With their significant product and service training and technical backgrounds, Frost Treasury Management customer service representatives are well qualified to meet any service challenge from clients in many different organizations. X. The City of Corpus Christi frequently initiates time sensitive wire transfers which must be received by the beneficiary by a certain time of day, such as 10:00 a.m. CT. Please describe the depository's daylight overdraft policy with respect to such transfers where the funding for the transfer has not yet been credited. What is the depository's internal review and approval process for releasing such transfers? Daylight overdrafts are not encouraged as a routine business practice, and therefore, are expected to be a rare and infrequent event. In that context, Frost generally approves daylight overdrafts at no charge as the amount of the extension along with the source and timing of a covering deposit are confirmed. Y. Describe any other cash management or depository services that could be offered to the City. List all charges,which would apply. For a complete list of services, options and fees, please refer to the Treasury 'Management Product descriptions/Public Fund Fee Schedule included in Attachment 5. Z. The City requires that the Depository have a successful history of providing electronic cash management services. What electronic cash management services are currently provided? How long has the depository provided each of these services?Our electronic services are consolidated through our Cash Manager system. We have provided electronic banking services for over 25 years. Our systems are all web-based. Please refer to the Treasury Management section for details. AA. Please specify days on which the disbursement depository would be closed or would not receive cash letters. Please refer to Holiday Schedule contained in Attachment i i). BB. Describe CD-ROM or other media resources available to replace original canceled checks. Frost offers both CD-ROM and on-line retrieval of items through Cash Manager. Software for viewing items on the CDs is provided at no charge. CC. The City electronically transmits data via computer terminal to the Depository regarding those City Utility, Marina, and Misc. Accounts Receivable customers who have previously authorized the City to automatically debit their demand deposit accounts for City bills. Please state the procedure for this service and list appropriate cut-off times,which will apply. These transactions are one-day settlement items. The Bank requests that files are transmitted by 6:00pm one banking day prior to the effective date. DD. The City currently uses a lockbox to process approximately 23,000 payments per month. Please list all charges associated with processing payments through a lockbox arrangement. Frost has included Retail Lockbox and Wholesale Lockbox fee schedules in this proposal - Treasury Management/Fee Schedules—Attachment 5. ©2015 Frost Bank EE. What type of services do you currently have in place to keep clients updated on new products and changes in banking legislation?Your Relationship Manager,Traci Arellano and Treasury Management Officer, Jennifer Grove, will keep the City updated on all new products and changes in banking regulations pertaining to public funds. The Bank attends and invites customers to industry-specific conferences, etc., that discuss trends in the banking industry, legislation and treasury management services. FF. What is the physical location of the lockbox that will service the City's account? The City would utilize Frost's primary lockbox processing facility which is located in San Antonio. One Frost 3838 Rogers Road San Antonio,Texas 78251-3662 Ga What is the latest daily pick up time to retrieve utility payments from the lockbox as designated by the Applicant in Section 3.3, FF of this RFA? Mail pickups for the San Antonio area on Monday through Friday. except for banking holidays. are at the following locations and times: Perrin Beitel Post Office–4:45 a.m., 8 a.m. and 10 a.m. San Antonio Downtown Post Office–8 a.m. and 10 a.m. Mail pickups for the San Antonio area on Saturday are at the following locations and times: Perrin Beitel Post Office–8 a.m. San Antonio Downtown Post Office–8:30 a.m. and 10 a.m. HH. What is the average mail time from Corpus Christi to the lockbox location? Standard mail bine iS I day II. Please provide a bank calendar for 2016. Please refer to Holiday Schedule contained in Attachment 10. JJ. What payment processing solutions do you have to handle billpay checks received without a remittance? When Frost receives retail lockbox checks without remittance coupons, we review checks in the same way that we examine wholesale lockbox checks—handling those items in accordance with City instructions for Lockbox receipts, ensuring correct payee and/or box number and a signature on the check. Frost also offers the Bill Payment Presentment Service(BPPS)as an option to electronically receive remittances from national "bill pay" services. In this way, remittances are received with accompanying information electronically for automated importing to the City's Accounts Receivable system. 3.4 Applicant's Profile an d Qualifications A. Official legal name, manner in which your organization is organized (e.g. sole proprietor, partnership,corporation, etc.)and a brief history of your organization including the date established, Founded in 1868, Frost is the banking subsidiary of Cullen/Frost Bankers, Inc., a financial holding company headquartered in San Antonio,Texas with assets of$28.3 billion as of December 31, 2014. (NYSE: CFR) ©2015 Frost Bank Frost is primarily engaged in commercial and consumer banking through more than 110 financial centers across Texas in the Austin,Corpus Christi, Dallas, Fort Worth, Houston, Permian Basin,the Rio Grande Valley and San Antonio regions and currently employs over 4,000 employees. B. Detail the key personnel in your local office. A local, dedicated Public Finance team consisting of Traci Arellano, Relationship Manager,Jennifer Grove,Treasury Management expert. and Michelle Holcomb, customer service and relationship support. will be assigned to the City. State the location of the office from which the work is to be done and the key personnel in that office. 802 N. Carancahua Street. Please see response to key personnel above. Provide resumes for all key personnel listed. Please refer to Relationship Team and Biographies contained in Attachment 1 I, C. List the hours of operation and locations of all branches of the Depository located within the city limits of Corpus Christi, Texas. A vault within the city limits of Corpus Christi is required. Please refer to Banking Center/Vault Locations contained in Attachment 12. D. Provide the location of all branches of the Depository,which can serve as the City's night depository facility. Frost has night depository facilities at all Corpus Christi Banking Centers,with the exception of the Downtown location. A complete listing of Banking Centers is contained in Attachment 12. E. In the last five years,has the City terminated any agreement with your organization,either for or not for cause, breach or default? No. F. Has the Depository or its parent company had any problems noted by regulatory agencies in the past 24 months? If"yes", please explain. No, G. Is your organization currently involved in litigation with the City or, in the last five years, has your organization been involved in litigation with the City? No. If so,please provide cause numbers,dates and final disposition of each. N/A. H. What is the address, city and state where your organization is headquartered? Frost is headquartered in San Antonio. Our address is 100 W. Houston Street, San Antonio. Texas 78205. I. The City requires a Depository that is fiscally strong. Thus each depository institution applying to become the City's Depository must complete the following Depository Credit Evaluation Form relative to your organization: DEPOSITORY CREDIT EVALUATION FORM PLEASE REFER TO RATIOS FOR 2o13 & 2014 IN "THE. FINANCIAL SECTION OF THIS BID. PLEASE NOTE THAT RATIOS FOR Y/E 2015 HAVE NOT BEEN PRODUCED. ASSET QUALITY RATIOS YEAR ENDING YEAR-TO-DATE 2014 2015 Equity to asset ratio Reserves as%of total loans Non-performing loans to total loans Current loan loss to total loss Loan loss reserves to total loans ©2015 Frost Bank CAPITAL ADEQUACY INDICATORS Total capital and surplus Capital to loans Capital to total assets PROFITABILITY INDICATORS Return on Assets Return on Equity Net Interest Margin LIQUIDITY RATIOS Loans to Deposits Gross loans to total assets Problem loans to primary capital Liquid assets to total assets J. Describe the qualifications,services or other information unique to your company for the delivery of services requested. You want a financial services provider that will be with you for the long term, and Frost wants to build and maintain an enduring and satisfying relationship with you. We make that a reality by working hard to create products that meet your unique needs and delivering them with an exceptional level of service that meets your expectations. As an integral part of the client care and responsiveness that sets Frost apart from others in the marketplace, we take action on service issues in a timely, positive and creative manner. Because we are relationship bankers, we work as a team, led by your local relationship manager, Traci Arellano. I am your first resource for answers to questions and resolution for problems that may occur. As part of the process, staff members in diverse areas of the organization may also work with you to create the best possible solution. The team includes other results-oriented professionals who will serve as backup to your relationship manager, and Jennifer Grove, Treasury Management Services. who may participate in problem resolution on an as-needed basis. Supporting you and your Frost relationship team for day-to-day service issues is Frost's Treasury Management customer service team. Because thousands of organizations across the state have Frost's Treasury Management products, our customer service representatives must be prepared to answer a wide range of client calls, from simple information requests to complicated operational or technical issues. Calls may be as straightforward as a request to reset a password and as complex as a request to help build an Automated Clearing House(ACH) file or set up a remote deposit capture station. With their significant product and service training and technical backgrounds, Frost Treasury Management customer service representatives are well qualified to meet any service challenge from clients in many different organizations. K. Using the format outlined below, the Applicant should provide five current GOVERNMENTAL Client references in Corpus Christi,Texas(organizations to which you have provided services for at ©2015 Frost Bank least one year) and three former GOVERNMENTAL client references in Corpus Christi, Texas. References should be relative to the Applicant's office that will provide DEPOSITORY SERVICES to the City. This information will be used to determine the extent to which the Applicant is able to provide DEPOSITORY SERVICES to an entity the size of the City of Corpus Christi as well as the level of customer service exhibited by the Applicant. CURRENT GOVERNMENTAL Client Reference 1 Organization name: Contact and title: Nucce.;C ,:slit` Kara Sands - Nueces County Clerk Address: Phone number: 901 Leopard St.,Suite 201 361-888-0580 Corpus Christi,TX 78401-3697 Effective date of contract: Description of services provided: )(07 Depository/I rcdCt r\ 1'18R3e nieiit CURRENT GOVERNMENTAL Client Reference 2 Organization name: Contact and title: San Patricio County Courtenay Dugat -County Treasurer Address: Phone number: 400 W.Sinton, Suite 8-7 361-3664-9335 Sinton,TX 78387 Effective date of contract: Description of services provided: 094 Depository/Treasury Management CURRENT GOVERNMENTAL Client Reference 3 Organization name: Contact and title: Corpus Christi Independent School District Xavier Gonzalez-CFO Address: Phone number: SO i Leopard St. 361-695-7360 Corpus Christi,Texas 78403 Effective date of contract: Description of services provided: 1"-09 Depository/Treasury Management ©2015 Frost Bank CURRENT GOVERNMENTAL Client Reference 4 Organization name: Contact and title: City of Galveston Tama,}° Y Asst, Director of Finance Address: Phone number: 823 Rosenberg )7 40)-7 - c � 3Sb;' Galveston,Texas 77553 Effective date of contract: Description of services provided: `'} DepositoryrTreasury Management CURRENT GOVERNMENTAL Client Reference 5 Organization name: Contact and title: City of San Antonio Troy Elliott - Director of Finance Address: Phone number: 1 1 1 Soledad,5'Floor 210-207-5734 San Antonio,Texas 78205 Effective date of contract: Description of services provided: `tt,4 Depository/f reatiury Managen]cnt THIS SECTION INTENTIONALLY LEFT BLANK ©2015 Frost Bank Frost does not generally disclose contacts on ,Jorrner governmental entities, partly because the contact information may not still be current. It should be noted that the number of governmental relationships and the amount of those deposits has steadily and consistently increased since Frost established the Public Finance line of business in 2005. Additionally, many of the Depository Service contracts awarded from Frost to other financial institutions continue to maintain service contracts with Frost for performance of specific services(i.e. lockbox and safekeeping services) which may not be handled or customizable, by the awarded financial institutions. FORMER GOVERNMENTAL Client Reference 1 Organization name: Contact and title: Address: Phone number: Effective date of contract: Description of services provided: Reason for termination: FORMER GOVERNMENTAL Client Reference 2 Organization name: Contact and title: Address: Phone number: Effective date of contract: Description of services provided: Reason for termination: ©2015 Frost Bank FORMER GOVERNMENTAL Client Reference 3 Organization name: Contact and title: Address: Phone number: Effective date of contract: Description of services provided: Reason for termination: FORMER GOVERNMENTAL Client Reference 4 Organization name: Contact and title: Address: Phone number: Effective date of contract: Description of services provided: Reason for termination: FORMER GOVERNMENTAL Client Reference 5 Organization name: Contact and title: Address: Phone number: Effective date of contract: ©2015 Frost Bank 3.5 Local Presence Please provide addresses of locations within the City limits. Please refer to Banking Center Locations contained in Attachment 12. Frost has several locations within the City limits. 3.6 Fee Schedule The attached Excel file named Monthly Pricing Summary Form must be completed. By submission of its application, prices must be guaranteed for the initial term of the Depository Services Agreement as well as any option years. Submission of an Incomplete Monthly Pricing Summary Form shall be grounds for rejection of the entire application. Frost has included Commercial and Treasury Management. Safekeeping (Custody Services), Retail Lockbox and Wholesale Lockbox fee schedules in this proposal, and considers them to be part of the Proposal Form. These fee schedules include the most commonly used services, along with their options and pricing and are considered to be part of the City's Monthly Pricing Form and are contained in Attachment 5 of the actual RFP. Any requested services not referenced in listings will be implemented at terms which are mutually agreeable to both parties. • 0 2015 Frost Bank NOTE: If there are any variances from the amounts typed on to this form and the published fee schedules included with this proposal package, the published fee schedules represent the official and intended price quotes for services. Frost A. Provide Monthly Pricing Summary Form Account Services Volume Unit Price Total Price Comments Checking Services Account Maintenance 13 10.000 130.00 Account Maintenance II(Monthly Service charges per account) 3 10.000 30.00 Statements Rendered 20 0.000 - No charge Credits Posted 1,856 0.500 928.00 ACH Incoming Credits 607 0.080 48.56 Debits Posted 4,537 0.100 453.70 ACH Incoming Debits 42 0.080 3.36 Items Deposited(from Retail Lockbox) 22,801 0.045 1,026.05 On Us Deposited Items 3,889 0.020 - Deposited Items 4 0.045 - Local City Deposited Items 409 0.045 Local RCPC Deposited Items 6,209 0.045 - Local Statewode Clearing Dep Items 2,733 0.045 - Other 11th Fed City Dep Items 91 0.045 - Other 11th Fed RCPC Dep Items 1,905 0.045 - 11th Fed Country Deposited Items 479 0.045 - Transit Clearing Deposited items 14,503 0.045 ICL Items Deposited-On Us(estimated volume) 1,113 0.020 22.26 ICL Items Deposited-Frost Partners(estimated volume) 1,855 0.040 74.20 ICL Items Deposited-Premium(estimated volume) 4,453 0.060 267.18 Special Signature Requirement 14 3.000 42.00 Special Sign Requirement Items 1,966 0.100 196.60 Return Items 54 5.000 270.00 Remote Capture Fees(see note below)--per scanner $50-$200 Scanner Maintenance or Support Total Checking Services 3,491.91 Wholesale Lockbox Services Wholesale Cash processing 1 1.000 1.00 Total Wholesale Lockbox Services 1.00 Retail Lockbox Services Retail Items 21,310 0.220 4,688.20 Retail Check Only 1,491 0.350 521.85 Retail Multiples(checks and/or coupons) 0.280 - Retail Unprocessable 93 0.250 23.25 CD-ROM Disk(Monthly) 1 25.000 25.00 Retail Image Capture-Check 22,801 0.008 171.01 Retail Image Capture-Coupon 22,354 0.008 167.66 Total Retail Lockbox Services 5,596.96 Lockbox Services Credit Posted-Lockbox 44 0.500 22.00 Postage Actual Postage fees from USPS Total Lockbox Services 22.00 Bill Payment Presentment Services Remote Processing and Presentment 1 25.000 25.00 RPPS Transactions 7,843 0.050 392.15 Total Bill Payment Presentment Services 417.15 Page 1 of 3 Account Services Volume Unit Price Total Price Comments Vault Services Currency Deposit Processing(per 1000) 629 0.400 251.60 Currency Processing per 1000 1,631 0.400 652.40 Currency Dep Processing I(Fees per each individual bill deposited) 549 N/A Tiers 1,2,3 no longer used Currency Dep Processing Il(Fees per each individual bill deposited) 6,046 N/A Tiers 1,2,3 no longer used Currency Dep Processing III(Fees per each individual bill deposited) 19,471 N/A Tiers 1,2,3 no longer used Partial Bag of Loose Coin Deposits 73 4.000 292.00 Strapped Currency Furnished 33 0.550 18.15 Rolled Coin Furnished 336 0.090 30.24 Minimum Change Order 7 5.500 38.50 No longer charged;Removed Deposit Corrections 1 0.000 - from Published Fee Schedule Total Vault Services 1,282.89 Controlled Disbursement Controlled Disbursement Activity 88 N/A Controlled Disbursement Activity 4 120.000 480.00 Per account per month Total Controlled Disbursement 480.00 Account Reconciliation Services Full Account Reconciliation Accounts 1 75.000 75.00 Full Account Reconciliation Items 1,561 0.040 62.44 Total Account Reconciliation Services 137.44 Positive Pay Services Positive Pay Posted Checks 3,738 0.000 - No charge Payee Review Accounts 20.000 - Payee Review Items 0.050 - Positive Pay Rejected Items 4 0.000 - No charge Paid Reject Item-Checks 4 5.000 20.00 Total Positive Pay Services 20.00 ACH Origination Services ACH Origination 1 30.000 30.00 ACH Origination Items 15,740 0.080 1,259.20 Return Items ACH 20 3.000 60.00 Total ACH Origination Services 1,349.20 Wire Services Incoming Wire Transfers 12 8.000 96.00 Depository Website Intrabank Transfers 9 3.000 27.00 Book transfer initiation Depository Website Wire Transfers 23 10.000 230.00 Cash Manager Wire Transfer Statement 13 5.000 65.00 Daily Wire Statement Total Wire Services 418.00 Depository Website Services Previous Day Reporting 1 50.000 50.00 Previous Day Reporting Accounts 1 0.000 - Prey Day fee assessed only once Previous Day Reporting Detail Items 7,084 0.050 354.20 Current Day Reporting 13 0.000 - Current Day fee assessed only once Depository Website Transfers 9 0.500 4.50 Depository Website Images 383 0.000 - No charge Depository Website Stop Payments 19 8.000 152.00 Financial EDI Items 904 0.060 54.24 Total Depository Website Services 614.94 BAI2 Services BAI2 Previous Day Reporting 19 15.000 285.00 BAI2 Intraday Reporting 19 35.000 665.00 Page 2 of 3 Account Services Volume Unit Price Total Price Comments Total BAI2 Services 950.00 CD Rom Image Achive Services Image Archive Discs 4 25.000 100.00 Image Archive Items 5,895 0.050 294.75 Total CD Rom Image Achive Services 394.75 Safekeeping Services Clearance-Called Bonds 8 10.000 80.00 Clearance-Fed Non-ABS/MBS 6 20.000 120.00 Custody-Monthly Maintenance 1 10.000 10.00 Custody-Assets Per$10M 35,400 0.010 354.00 Custody-Fixed Income Receipts 38 0.600 22.80 Custody-Interest Payments 13 1.000 13.00 Custody-Maturity Payments 1 10.000 10.00 Total Safekeeping Services 609.80 ZBA Services Zero Balance Accounting 5 25.000 125.00 No charge for primary account Zero Balance Accounting Transfers 106 0.000 - No charge Total ZBA Services 125.00 Balance Related Expenses Interest Expense Amount of interest paid Total Balance Related Expenses - Total Activity Charges 15,911.04 Note: The City is not currently using Remote Capture services but would like to implement this process during the 2016 Fiscal Year as part of the Central Cashiering software conversion. B. Provide fees and explain how you calculate charges for the collateral provided by the depository. Frost does not generally charge any collateral fees for securities pledged against deposits. Furthermore,Frost proposes to pledge securities from our existing portfolio of securities maintained with the Federal Reserve Bank or the Federal Home Loan Bank that comply with Chapter 2257 of the Government Code(a.k.a.the Public Funds Collateral Act,or PFCA)without further restrictions at no charge. Page 3 of 3 Section 4.0 Application Format and Organization This section provides specific instructions on format and organization of the application to be submitted by the Applicant. Each Applicant may submit only one application in a totally self-supporting format without reference to any other application(s). 4.1 General Instructions A. To provide for ease and uniformity and to aid in the evaluation of applications,Applicants shall comply with the sequence outlined herein. IN NUMBERING APPLICATIONS, THE APPLICANT SHALL USE THE SAME SECTION NUMBERS AND TITLES AND SHALL PROVIDE ITS RESPONSES IN THE SAME ORDER AS EACH QUESTION IS NUMBERED AND ORDERED HEREIN. Failure to comply may result in rejection of the application. The application shall be completed in sections, which are described below. B. Applicants should be aware that all technical and operational specifications,equipment descriptions and marketing material submitted or made available will be incorporated by reference into any contract(s) resulting herefrom. The City discourages the inclusion of general marketing material or equipment manuals unless they are used to provide specific information or specifically requested by the City. C. The Applicant shall provide one electronic copy, via the electronic submission feature on the Supplier Portal, as specified below,before the DUE DATE FOR APPLICATIONS: 4.2 Application Format A. This section outlines the minimum requirements for preparation and presentation of an application. B. The Applicant shall define the capabilities of their organization to supply and maintain the services as requested in this RFA. The response should be specified and complete in every detail and prepared in a simple and straightforward manner. C. Applicants are expected to examine the entire RFA including all specifications, standard provisions, instructions and attachments. Failure to do so will be at the Applicant's risk.Applicants should provide their best pricing for each type of service set out herein. 4.3 Transmittal Letter A. The transmittal letter shall be the first item in your application and shall indicate the intention of the Applicant to adhere to the provisions described in the RFA. The transmittal letter SHALL: 1. Be presented on company letterhead; 2. Identify the submitting organization; 3. Acknowledge receipt of any addenda to this RFA; 4. Identify, by name and title, and be signed by the person authorized by the organization to obligate the organization contractually C 2015 Frost Bank B. The second item in your application shall be a Table of Contents listing titles,sections and major sub-sections. All pages shall have a unique identifier and be numbered sequentially. C. The third item in your proposal shall be the City of Corpus Christi's Disclosure of Interest. D. The fourth item in your proposal shall be the City of Corpus Christi's Business Designation Form. E. The fifth item in your proposal shall be your actual proposal and associated documents,including the completed Excel file named Monthly Pricing Summary Form. 4,4 Service Agreement A sample SERVICE AGREEMENT is attached hereto that the successful Proposer will be required to sign. With the exception of certain terms and conditions which may be modified by mutual agreement between the City and the Proposer prior to final execution of the Contract, the final SERVICE AGREEMENT will conform to the SERVICE AGREEMENT included in this RFA. THIS SECTION INTENTIONALLY LEFT BLANK C)2015 Frost Bank Section 5.0 Application Evaluation The City of Corpus Christi will conduct a comprehensive, fair and impartial evaluation of all applications received in response to this RFA. Each application will first be analyzed to determine overall responsiveness and completeness as defined in Section 4 Application Format and Organization,and Section 5.2 Evaluation Criteria. Failure to comply with the instructions or submission of an application that does not satisfy Sections 4 and 5.2 may result in the application being deemed non-responsive and may, at the discretion of the Committee,as defined in Section 5.1 below,result in the application being eliminated from further consideration. 5.1 Evaluation Committee An Evaluation Committee("Committee")will be established to assist the City in the selection of a qualified Applicant. The Committee is comprised of representatives from various using departments. The Committee will determine the responsiveness and acceptability of each application. The Committee will then engage in a detailed review of each application to evaluate the response in relation to the four(4)major evaluation factors identified in Section 5.2. 5.2 Evaluation Criteria A. The application evaluation and selection process will be based on the following criteria: 1)Technical Solution, 2) Applicant's Profile & Qualifications, 3) Local Presence, 4) Fees and 5) Exceptions. The final weight assigned to each of these parameters will be determined by the Evaluation Committee and will be within the ranges for each criterion as indicated below. Some of the criteria contained within this model may look similar to the following Proposed Evaluation Model. Each Applicant shall provide detailed responses including reference to any existing "in-house" procedures, policies, etc. as they reference all requirements of this RFA. In determining"Best Value",the Evaluation Committee will evaluate the entire application, including, but not limited to, the criteria enumerated Sections 33,3.4,3.5 and 3.6 of this RFA and any exceptions taken. Technical Applicant's Local Fee Exceptions Total Solution Profile& Presence Schedule Qualifications (Exceptions (Section 3.3) (Section 3.4) (Section 3.5) (Section 3.6) Form) 10-20% 15-25 % 5-10% 40-50% 5-10% 100% B. The Evaluation Committee shall determine the final percentage assigned to each proposed evaluation criterion. In no case shall the percentage assigned to each criterion be smaller or greater than the stated minimum or maximum,respectively. The sum of the final percentages for all criteria shall equal 100%. C. The Applicant's failure to provide information relative to the above criteria may result in the City deeming such application non-responsive and may, at the discretion of the Committee,as defined in the paragraphs above, result in elimination of said application from further consideration. The Committee reserves the right to conduct other evaluation and measurements of the applications as may be necessary to make an informed decision. 0 2015 Frost Bank EXCEPTIONS Applicant: Frost Bank Document Exceptions Applicant shall clearly state the exception and the reason for taking exception. Applicant shall describe each item and state clearly any price consequences. All responses and comments by Frost are noted in blue font throughout this proposal. Key exceptions are associated with (l) Insurance requirements and (2) the potential use of daylight overdrafts for outgoing wire transfers. The insurance requirements of the City appear to be more oriented toward construction, maintenance,or materials handling contracts rather than for financial services. As such, some of the requirements and related verbiage are not applicable for the type and scope of work to be performed. The insurance coverage by Frost is an umbrella,or blanket,policy that applies to all customers—which does not permit the naming of any additional insureds. Additionally, the contracted carriers and underwriters do not issue waivers of subrogation. There are no pricing consequences associated with this exception. Frost does not encourage the use of daylight overdrafts as a regular business practice. As a result,outgoing wire transfers are automatically released as they are covered by sufficient collected balances. Because the occurrences of daylight overdrafts are expected to be rare and infrequent, there are no charges when approvals are issued. Also, Frost does not engage legal counsel in the process of responding to RFA's,so the Sample Depository Services Agreement has not been reviewed for compatibility with current processes and operations, This will be reviewed upon award of contract to Frost. Important Note: The Applicant must complete this form. If the Applicant has no objection or exception,the Applicant should indicate"NONE"on this page. Applicant's Authorized Signature: c9 ZLt e—c- Name of Applicant's Authorized Representative: _Traci Arellano (Print) Telephone Number(361)844- 1160 Date:_9j_25_/ 2()1 5_ 2015 Frost Bank CITY OF CORPUS CHRISTI SAMPLE DEPOSITORY SERVICES AGREEMENT Whereas, the City of Corpus Christi ("City") requested and received applications for the provision of depository services for City funds from depositories doing business within the city limits of Corpus Christi, Texas; Whereas,the City Council considered and reviewed the specifications of each application received and determined which application was the most advantageous for the City; Whereas, on, the City Council in Motion designated ("Depository") to be the depository for City funds and authorized the City Manager to execute this depository services agreement("Agreement")with Depository; NOW THEREFORE, in consideration of the mutual benefits to be derived from this Agreement, including representations,warranties, and covenants,the City and Depository agree as follows: ARTICLE 1 Definitions For purposes of implementing this Agreement,the terms listed below will have the following meanings: "Authorized City Representative": the City Manager or other persons designated to perform duties in accordance with this Agreement. The present Authorized City Representatives are specified in Exhibit A. "Account Transfers": written, electronic (wire/ACH), telephonic, facsimile or oral requests or orders issued by an Authorized City Representative for the transfer of City funds on deposit from City accounts maintained at the Depository for credit to accounts designated by the Authorized City Representative. "Deposits": include demand and time deposits. The City may withdraw demand deposits on demand. Time deposits are subject to a contract under which the City may not withdraw funds by check or other means until the expiration of a certain period following written notice. "City Funds": all accounts held by the Depository for the City. "Total City Balance": the sum of all ledger balances of all City accounts held by Depository. "Depository Services": all services required according to this Agreement "Other Financial Services": all services necessary in the administration, collection, investment, and transfer of city funds. ARTICLE 2 Provision of Depository Services 2.01 Depository Services and Fees. The Depository hereby agrees to provide depository and other services described in this Agreement for the City funds deposited at the Depository. The City agrees to pay a net monthly service fee to Depository,which will be calculated as described herein. 2.02 Guaranteed Service Fees. All service fees listed in Applicant's response to Section 3.6, Fees, of the Request for Applications,are guaranteed for the entire term and any option year of the Agreement. The service fees will be used in calculating the net monthly service fee. 0 2015 Frost Bank 2.03 Calculation of Net Monthly Service Fee.A written invoice evidencing the services performed for the City by the Depository must be mailed to the City at the end of each month for each account.This invoice must also contain a section summarizing the services provided and the fees for services for all accounts. The City will have five working days to confirm the services performed. After the City has confirmed the services performed by the Depository, the City agrees to pay a monthly net service fee for the services provided by Depository. The monthly net service fee is to be calculated as follows: The Depository will calculate total earnings credit for all City account balances grouped together and not for single account balances. The Depository will calculate the total monthly service fees for all accounts. If the total service fees are greater than the total earnings credits,then the difference between the two will be the net depository service fee for the month. 2.04 Payment of Net Monthly Service Fee.The Depository will not debit a City depository account for the net monthly service fee until the Depository and the City agree that the net monthly depository service fee is correct. The net monthly service fee will be allocated among accounts as designated by an Authorized City Representative. 2.05 Representations of Depository. The Depository shall: (a) keep the City funds covered by this Agreement; (b) faithfully perform all duties and obligations imposed on the Depository by Iaw and under this Agreement; (c) pay on presentation all checks drawn and properly payable on a demand deposit account with the Depository; (d) pay all transfers properly payable as directed by an Authorized City Representative; (e) provide and maintain security at the level required by the provisions of Chapter 2257, Government Code and this Agreement; and (t) account for the City funds as required by law. 2.06 Electronic Cash Management Services. The Depository must provide electronic cash management services. Using Internet access, the City through an Authorized City Representative must be able to access and transmit a variety of balance and transaction information as required in this Depository Services Agreement. Any necessary software to perform these services, including but not limited to, stop payments, wire transfers, account balance and transaction information, positive pay, lockbox, and transmission of Automated Clearing House("ACH")debit or credit transactions,shall be made available by the Depository, at no charge to the City. 2.07 Deposits. The Depository shall accept all deposits made by the City during the term of the Depository Services Agreement. The Depository shall accept City deposits for ledger credit until 3:00 p.m. Central Time (CT)each business day. The City reserves the right to exclude deposits made on behalf of the Corpus Christi Fire Fighters'Retirement System and any other special funds which are controlled by entities separate and apart from the City. 2.08 Items Deposited. All payments made directly to the City by customers will be sent to the bank un- encoded. 2.09 Automated Information Reporting. Using Internet access, the City must be able to access, for each City account,the previous day's ending ledger balance,collected balance, float, and debit/credit detail by 8:00 a.m.CT daily. By this same deadline,this information shall be combined to reflect totals for all City accounts taken together. 2.10 Items Processing Service. The Depository shall provide the following processing services for all items of checks and cash deposited by the City, including,but no limited to: encoding services,credit and debit ©2015 Frost Bank M advices given to the City within three business days of the debit or credit,clearing returned items,and return of stamped duplicate deposit slips to the City within one business day of deposit. The City intends to deposit all revenues directly to the Depository by courier. The deposits will be made in batches with a tape to be provided for each batch. If the Depository Item Processing Department discovers an error in the deposit,then the Depository shall prepare a credit or debit advice and mail it to the City immediately after the account has been adjusted. The Depository shall also mail the appropriate documentation attached to the debit or credit advice to justify the correction. Appropriate documentation is considered to be a copy of the City's tape with the item in question marked and a copy of the check in question. 2.11 Check Sorting Requirements. Any account that has more than 400 checks shall be fine-sorted in numerical order by the Depository. 2.12 Insufficient Funds (NSF)/Returned Items. A complete description shall be provided on all NSF/returned items deposited into City accounts. The description shall include the Payor's name, applicable City department, and reason for return. All NSF/returned items shall be charged back to the account to which the items were deposited provided that the City department is identified by endorsement stamp or other readily identifiable means on the item. The Depository will send the NSF/returned items to the City department or other business designated by an Authorized City Representative. 2.13 Stop payments. Stop payments shall remain in effect for at least six(6) months. By using Internet access,the City through an Authorized City Representative shall be able to initiate stop payments.Placement of stop payments through the Internet does not require follow-up written authorization. 2.14 Automatic payroll deposit services. Using Internet access, the City through an Authorized City Representative will electronically transmit City employee payroll data to the Depository. The Depository will receive the data and prepare an Automated Clearing House("ACH")debit.The Depository payroll account will be debited no sooner than the date of payroll. Exhibit A contains the 2016 Payroll Calendar. Procedures for processing the ACH debit are set out herein. 2.15 General Wire Transfer Services. Using Internet access, the City shall be able to initiate general wire transfer services including initiation of repetitive and non-repetitive wire transfers. The Depository shall act upon all electronic, written or verbal transfer requests within one hour from the time received from an Authorized City Representative, and use any means for the transmission of the funds the Depository may consider suitable up until 3:30 p.m. CT. The Depository shall record all telephonic instructions from the City received by the Depository's wire transfer department and retain the recordings for sixty-one(61) days (the period for City notification of discrepancies) following such requests. In the event there is a loss of interest or use of funds as result of a Depository error for failure to execute a transfer request on the date received,or such other error within the Depository's control,compensation for loss shall be corrected by adjusting the aggregate ledger and collected balances of the City accounts to reflect properly the average balances of the amounts that would have resulted had no error occurred. 2.16 Account Reconciliation Services. All depository statements and paid items shall be on a monthly cycle and shall be cutoff on the last calendar day of the month. The City will pick up all Depository statements via electronic format(such as a compact disk—CD)no later than the fifth working day following the assigned cut-off date. The Depository may not mail the CD unless an Authorized City Representative approves such mailing. C 2015 Frost Bank If a statement for a City depository account is not cut off as specified in this Agreement, the Depository shall reimburse the City for the costs incurred to reconcile the statement, including City employee overtime costs. The Depository will provide the City access to cleared checks via the Internet. 2.17 Depository Reconcilements. Automated depository reconcilements with Internet access are required for the Vouchers Payable and Payroll accounts and other accounts as required by an Authorized City Representative as transaction volume increases. By using the Internet, the City will electronically transmit reconcilement data to the Depository. Reconcilements shall be available for pick up by the City by the ninth working day following the date the data was transmitted to the Depository. "Add/delete" adjustment forms will be provided by the Depository.The Depository will transmit reconcilement information to the administrators of the City's health care and worker's compensation accounts and others as designated by the City. 2.18 Checking with Interest Accounts. If designated by an Authorized City Representative, a demand deposit account will be set up as interest bearing and interest will be paid monthly. Interest rates will be those set for public fund interest bearing accounts. 2.19 Controlled Disbursement Service. Specific accounts as designated by an Authorized City Representative will be controlled disbursement accounts. By 11:15 a.m. CT each day,the City shall be able to access same day information concerning controlled disbursement clearings using the internet. 2.20 Zero-Balance Accounts . Specific accounts as designated by an Authorized City Representative will be zero-balance checking accounts for ease in reconciling and record keeping. 2.21 Check Cashing. Depository shall pay on presentation all checks drawn and properly payable on a City demand deposit account at no charge to the payee or to the City. 2.22 Deposit Locations. The City will have the option to make Deposits at the Depository's main Corpus Christi office or at any of Depository's Corpus Christi branches. A deposit ticket will be presented to the Depository with each deposit. The Depository will route specified deposit ticket copies to the City on a daily basis. 2.23 Night Depository. The City will utilize the night depository facilities of the Depository for safekeeping purposes. The City will use special tamper-evident deposit bags in making deposits through the night depository facility. Each bag placed in the night depository facility will contain only currency, coin, and checks. If it appears that a bag has been tampered with,the Depository shall telephone an Authorized City Representative. 2.24 Overdrafts. The City does not intend to have an overdraft position on any of its depository accounts throughout the course of the depository services contract. If a check or checks are presented for payment on any City account where there exist insufficient funds available for payment, the Depository agrees to pay said checks and promptly notify the Finance Director or Authorized City Representative of the existence of the overdraft situation. The City agrees to cover the overdraft within one business day. The Depository will view all City accounts together for purposes of any charges on overdrawn collected balances. 2.25 Authority of Authorized City Representative. An Authorized City Representative may request depository services as required to implement this Agreement. An Authorized City Representative may open a depository account. The Depository shall not require corporate resolutions or other documents to establish depository accounts at the request of an Authorized City Representative. 2.26 Investment Services. The City reserves the right to exclude from the terms of this Agreement, investment in certificates of deposits, government securities, fully collateralized repurchase agreements or similar instruments authorized by law. ©2015 Frost Bank 2.27 Account Executive Service. The Depository agrees to assign one of its officers employed by the Depository in Corpus Christi,Texas to coordinate the depository relationship established under this Agreement. The assigned officer is responsible for responding to questions from an Authorized City Representative. The assigned officer shall perform necessary research to promptly respond to questions or concerns of the City regarding its accounts.The assigned officer of the Depository shall meet with the City at least once a month to evaluate the working relationship between the City and the Depository and to address any problems. 2.28 Reports, The Depository will provide quarterly reports of income/condition(required by the FDIC)by the 15th day following the reporting deadline for each calendar quarter. 2.29 Direct Debit of Utility Customers. The City shall electronically transmit data to the Depository regarding those City Utility, Marina and Misc.Accounts Receivable customers who have previously authorized the City to directly debit their demand deposit accounts for their City bills. Upon request by the City, the Depository shall provide this pre-authorized direct debit service. The Depository will receive the data and prepare an ACH debit in accordance with the operating rules of the South Western Automated Clearing House Association and the operating rules of the National Automated Clearing House Association and as provided herein. ARTICLE 3 Security for Deposits 3.01 Background. As security for the deposits of the City,the Depository shall pledge to the City securities equal to the largest total ledger balances the City maintains in the Depository, less the amount of coverage provided by the Federal Deposit Insurance Corporation. All funds deposited under the Depository Services Agreement shall be continuously secured in accordance with applicable federal laws and regulations as well as the laws of the State of Texas, including,but not limited to: the Public Funds Collateral Act,Vernon's Texas Government Code Section 2257.001 et. seq.and Subchapter C Security for Funds Held by Depository of Vemon's Texas Local Government Code. 3.02 Qualification as Depository. The Depository shall,no later than five days before the commencement of the term of this Depository Services Agreement,pledge security for the funds to be deposited by the City at the Depository as provided by Subchapter C, Security for Funds Held by Depository of Chapter 105, Depositories for Municipal Funds of the Texas Local Government Code,Chapter 2257,Public Funds Collateral Act,Government Code, and this Depository Services Agreement. 3.03 Collateral Provision of Financial Institution Reform, Recovery and Enforcement Act(FIRREA). The Depository shall provide certification that the Depository has complied with all requirements of the Financial Institution Reform,Recovery and Enforcement Act(FIRREA)and FDIC policies which may apply to the City's security interests in the pledged collateral and shall specify the officers of the Depository who are authorized to sign agreements with the City.Prior to the initial pledge of securities under the Depository Services Agreement,the Depository shall:(a)execute a Security Agreement-Pledge and ancillary agreements necessary to effect the pledge of securities to collateralize all of the City's deposits in such form as is acceptable to the City; (b)deliver to the City a certified copy of excerpts from the minutes of a meeting of the Loan Committee and/or Board of Directors of the Depository, properly authorizing the Depository to enter into a Security Agreement-Pledge, and to pledge assets of the Depository to secure all deposits made by the City with the Depository; and (c) deliver to the City certification that the Depository Agreement, the Security Agreement- Pledge, and the authorization of the Board of Directors and the Loan Committee of the Depository have been placed(and will continuously be maintained) in the official records of the Depository. C 2015 Frost Bank 3.04 Permissible Security. Only the following types of securities are acceptable to the City to secure City deposits: (1) a treasury note of the United States or other evidence of indebtedness of the United States that is guaranteed as to principal and interest by the United States. (2) an obligation of an agency of the United States,provided that: (i)the market value can be readily established and (ii) the obligation has been approved by an Authorized City Representative. 3.05 Custodian of Pledged Securities. The securities pledged by the Depository as collateral for City deposits shall be deposited with a Texas branch of the Federal Reserve Bank, ("the Custodian"), in escrow in a safekeeping account held in the name of the City, ("the Custodian Account"). The Custodian Account shall require the authorization of both the Depository and an Authorized City Representative to release pledged collateral.The Custodian,upon receipt of pledged securities, shall promptly issue and deliver to the Authorized City Representative trust receipts for the securities pledged. The securities shall be held by the Custodian. The Custodian may not transfer or deposit the securities in another institution without the prior written authorization of an Authorized City Representative. 3.06 Amount of Collateral. Securities pledged by the Depository to secure City funds on deposit identified with federal taxpayer identification number 74-6000574 shall have a market value of at least thirty million dollars ($30,000,000) or as designated in writing by an Authorized City Representative. During the City's tax season, which occurs from October through March, the Depository shall provide additional collateral in accordance with this Agreement. Securities pledged by the Depository to secure City funds identified with federal taxpayer identification number 74-2442464 shall have a market value of at least four million dollars ($4,000,000) or as designated in writing by an Authorized City Representative. 3.07 Determination of Market Value.The market value of a security is to be determined by an Authorized City Representative from a third party source (i.e. Primary dealer, Wall Street Journal) and is binding on the Depository. 3.08 Charles for Collateral. Charges for the collateral provided by the Depository are provided in the Applicant's response to Section 3.6,Fees,B. of the Request for Applications. 3.09 Federally Insured Deposits. The Depository is not required to provide security for the deposit of City funds to the extent deposits are insured under 12 U.S.C.A., Sections 1811-1835a. 3.10 Additional Security. An Authorized City Representative may,by written order,require the Depository to pledge additional collateral at any time it is determined to be advisable. Additionally, if, for any reason,the total City balance on deposit with the Depository exceeds the market value of pledged security, the Depository shall immediately pledge additional securities to the City. Any additional security pledged shall meet the requirements of this Depository Services Agreement and shall be approved by an Authorized City Representative. Failure to pledge additional securities on the day the Depository is provided notice constitutes grounds for City Council to select a new depository as required by law and terminate the Depository Services Agreement. Prior to the pledge of additional securities under the Depository Services Agreement, the Depository shall: (a) execute a Security Agreement-Pledge and ancillary agreements necessary to effect the pledge of additional securities to colIateralize all of the City's deposits in such form as is acceptable to the City; (b) deliver to the City a certified copy of excerpts from the minutes of a meeting of the Loan Committee and/or Board of Directors of the Depository,properly authorizing the Depository to enter into a Security Agreement-Pledge,and to pledge ©2015 Frost Bank assets of the Depository to secure all deposits made by the City with the Depository; and(c)deliver to the City certification that the Depository Agreement,the Security Agreement-Pledge,and the authorization of the Board of Directors and the Loan Committee of the Depository have been placed(and will continuously be maintained) in the official records of the Depository. 3.11 Substitution of Securities. The Depository may substitute one security for another provided that the security meets the requirements of this Depository Services Agreement;the substitution is approved,in writing, by an Authorized City Representative and the Depository.Prior to such substitution of securities,the Depository shall: (a) execute a Security Agreement- Pledge and ancillary agreements necessary to effect the pledge of securities to collateralize all of the City's deposits in such form as is acceptable to the City; (b) deliver to the City a certified copy of excerpts from the minutes of a meeting of the Loan Committee and/or Board of Directors of the Depository,properly authorizing the Depository to enter into a Security Agreement-Pledge,and to pledge assets of the Depository to secure all deposits made by the City with the Depository; and(c)deliver to the City certification that the Depository Agreement,the Security Agreement-Pledge,and the authorization of the Board of Directors and the Loan Committee of the Depository have been placed(and will continuously be maintained) in the official records of the Depository. 3.12 Release of Security. If the securities pledged by the Depository exceed the amount required under this Depository Services Agreement, an Authorized City Representative may authorize the release of the excess. Such release shall be approved in writing by an Authorized City Representative. 3.13 Records and Audit. The Depository shall maintain separate, accurate, and complete records relating to the deposit of public funds, the pledged investment securities, and all transactions relating to the pledged investment securities. The Custodian shall maintain separate, accurate, and complete records regarding the pledged investment securities. All such records shall be subject to any internal or external audit or regulatory examination of the Depository or Custodian. 3.14 Documentation to Be Provided to City. The Depository and Custodian shall provide documentation relating to the description of securities pledged as collateral, substitution of pledged securities, pledge of additional securities, and withdrawal of excess securities to the Authorized City Representative. A certificate as to the then-market value of securities pledged as security hereunder shall be provided to the Authorized City Representative at least monthly. 3.15 Surrender of Interest on Securities. Upon the request of the Depository, the City shall surrender, when due, interest coupons or other evidence of interest on securities if the remaining value of the securities pledged are adequate to meet the requirements of this Agreement. ARTICLE 4 Account Transfers 4.01 Electronic. Telephonic, Telegraphic or Oral Requests for Account Transfers. The Depository is authorized to honor,execute and charge City accounts for electronic,telephonic or oral requests: (a) for the transfer of funds from designated City accounts to any other City depository account,whether the account is with the Depository or another financial institution;or (h) for the transfer of funds from designated City accounts to the account of or the credit of a third party, whether the third party account is with the Depository or another financial institution. All requests shall be properly identified as being made by an Authorized City Representative in compliance with the Depository's transfer procedures. C 2015 Frost Bank 4.02 Internal Transfers. An Authorized City Representative will periodically need to transfer funds from one City account to other City accounts. 4.03 Instructions for Transfer. The Depository shall act upon all electronic, written or verbal transfer requests within one hour from the time received from an Authorized City Representative,and use any means for the transmission of the funds the Depository may consider suitable up until 2:30 p.m.CT. 4.04 Immediate Credit.The Depository shall give both ledger and collected credit the day of the wire receipt, regardless of the time the Depository receives the transfer through the Fed wire System. Credit to City accounts for incoming wire transfers shall be immediate. 4.05 Daylight Overdraft Policy. The City actively invests in marketable securities. An outgoing wire transfer will be made in the morning for the reinvestment of funds expected by an incoming wire transfer. The Depository shall allow the City to reinvest and to wire funds out in anticipation of an incoming wire transfer later in the day. The Depository will not charge the City for daylight overdrafts. When a daylight overdraft is anticipated,an Authorized City Representative will notify the designated depository official of the situation. 4.06 Notification of Funds Transfers.Notification to the City of incoming wire transfers or problems with outgoing wire transfers shall be made within one hour of the transaction. The City allows two authorized employees to initiate repetitive transfers. All authorized employees will be issued a personal identification number in order to initiate wire transactions. If the wire transfer is initiated over the telephone,the Depository shall telephone the City and specifically request to speak to an Authorized City Representative other than the person initiating the wire to verify that the wire is authorized prior to releasing the wire. 4.07 Records. The Depository shall record all telephonic instructions from the City received by the Depository's wire transfer department and retain the recordings for sixty-one (61) days (the period for City notification of discrepancies)following such requests. The City agrees to report any discrepancies between the City's records and the Depository statement to the Depository's wire transfer department in writing within sixty- one(61)days after the statement date. 4.08 Discrepancies/Loss of Interest/Error. In the event there is a loss of interest or use of funds as result of a Depository error for failure to execute a transfer request on the date received,or such other error within the Depository's control, the Depository agrees that compensation for loss shall be corrected by adjusting the aggregate ledger and collected balances of the City accounts to reflect properly the average balances of the amounts that would have resulted had no error occurred. 4.09 Designated Accounts. Account Transfers may be made from the other accounts as designated by an Authorized City Representative. ARTICLE 5 Other Financial Services 5.01 Bailor/Bailee Relationship. Until deposits are credited to the City as evidenced by validation of duplicate deposit slips, the relationship between the City and the Depository as to all contents shall be that of Bailor and Bailee. The Depository shall be responsible and liable to the City for use of that degree of care required under the laws of Texas for Bailees having custody of property of other persons. 5.02 Custody, Safekeeping of Governmental Agency Securities. The Depository agrees to handle all purchases and sales of securities on a delivery versus payment or payment versus delivery basis(i.e.for securities purchases,monies will not be released by the City's safekeeping bank until securities are received at the Federal Reserve Bank or further credit to the City's safekeeping bank. In the case of securities sales, monies will be received by the City's safekeeping bank via the Federal Reserve Bank as the securities are simultaneously 0 2015 Frost Bank released to the purchaser). In this manner, the City will always have possession of either the securities or its monies on a delivery versus payment basis. The cost of safekeeping securities, processing purchase/sale transactions, and coupon interest payments are listed in the Applicant's response to Section 3.6, Fees, A., MONTHLYPRICING SUMMARY FORM. The City will send written instructions to the securities clearance department for each transaction.Most of these instructions will be sent by facsimile to assure the timeliness of the operation. It is specifically provided that when a City security matures, or when a City security is purchased, funds will be transferred from or to the Combined Operating account, the Bond Funds account, or another account as directed by an Authorized City Representative. The Depository shall give prompt notification to the City of any settlement problems,including securities delivered where the instructions do not match or where instructions have not been given to the Depository. All securities shall be perfected in the name of the City. All book entry securities owned by the City shall be evidenced by a safekeeping receipt issued to the City. The original safekeeping receipt for each transaction will be forwarded to the City. ARTICLE 6 General Provisions 6.01 Automated Clearing House ("ACH") Membership. The Depository shall be a participating depository in the Southwestern Automated Clearing House Association to be able to deliver debit and credit payments for the following transactions: City employee Payroll Account,Vouchers Payable Account, and pre- authorized City Utility, Marina and Misc. Accounts Receivable customer debits. An Authorized City Representative shall establish use of additional ACH transactions in writing. The Depository warrants that it is a participating financial institution in the Southwestern Automated Clearing House Association ("SWACHA"), which provides facilities for the exchange of electronic funds transfers among its members, and other automated clearing house associations within the United States by utilizing the capacities of the National Automated Clearing House Association("NACHA"). The Depository acknowledges that it shall comply with the rules, as may be amended, for the notification, posting, or transfer of funds by means of electronic credit transfer facilities. The Depository is required to comply with the procedures of the SWACHA and NACHA including, but not limited to, matters such as input format, data acceptance criteria, return item handling,adjusting entries, and dishonored entries. 6.02 Charging of Fees. The Depository is authorized to charge City accounts upon direct authorization by an Authorized City Representative for: (a) charge backs on correction of mathematical errors, and (b) bank service fees owed to Depository, including Deficient Balances Before Services. Deficient Balances Before Services will be reviewed by the City's Treasurer on a quarterly basis for fee assessment. The Depository or the City will not change the schedule of fees as listed in Applicant's response to Section 3.6, Fees,of the Request for Applications during the initial term of this Agreement or during any option year. 6.03 Confidentiality, Audits and Inspections. All information assembled by the Depository under this Agreement is to be kept confidential and not be made available to any individual or organization without the prior written approval of the City. At reasonable times during regular business hours,the Depository will make available for examination by the City, its duly authorized agent, accountant, or legal representative, pertinent copies of statements and debit and credit items supporting such statements, relating to the City's accounts. 2015 Frost Bank 6.04 Recalls.Debit Adjustments and Other Adjustments. The Depository is required to process recall or adjustment requests upon verbal authorization by an Authorized City Representative followed by written confirmation by the City, if possible,no Iater than four(4)working days after the request. 6.05 Compliance with Law. The Depository represents to have the expertise and personnel required and necessary to perform the services under this Agreement.The Depository acknowledges that it is fully qualified, authorized, and willing to comply under federal, state and local law to perform the services described in this Agreement. 6.06 Indemnification. The Depository fully indemnifies, saves, and holds harmless the City of Corpus Christi, its officers, employees, and agents against any and all liability, damage, account of personal injuries (including, without limitation on workers' compensation and death claims), or property loss or damage of any kind whatsoever,which arise out of or are in any manner connected with: (a) the Depository's failure to fulfill any of the terms and conditions of this Agreement; (b) any violation by Depository of any applicable federal or state law, rules, or regulation resulting from any act or omission of the Depository or its agents and employees which caused a direct loss to the City under this Agreement. The Depository may, at its own expense, investigate all claims and demands,attend to their settlement or other disposition,defend all actions,pay all charges of attorneys or other expenses of any kind arising from liability, damage, loss, claims, demands, and actions. This indemnification will not be construed to require indemnification of such injury, loss or damage which may be caused or arise from the negligence of the City, its officers,employees, and agents. The City agrees to indemnify, save and hold harmless, defend or pay the defense cost of the Depository, its officers, agents, and employees from and against any and all lawsuits, claims, demands, liabilities, losses or expenses, including court costs, attorney and expert witness fees, from or arising out of negligence of the City under the terms of this Agreement or the City's failure to fulfill any of the terms and conditions of this Agreement. 6.07 Term. This Agreement shall commence on the date following the date signed by the last signatory hereto and shall continue for a period of three years, or until a successor Depository is appointed and qualified. The City may, by 90 day written notice to Depository, terminate this Agreement during the remainder of the initial term and any option terms. Upon completion of the initial term, either party may elect to terminate any option term with 90 days prior written notice. Unless terminated, this Agreement will automatically renew for two additional one-year terms. Depository guarantees all service fees for the initial term of the Agreement and any option year. Upon termination or expiration of this Agreement, all finished or unfinished documents,data, studies,or reports prepared by the Depository,at the option of the City,will be delivered to the City and become the property of the City. 6.08 Duties After Termination. All obligations of the parties made or incurred or existing under this Agreement as of the date of termination, with respect to transactions initiated prior to the effective date of termination, will survive such termination, including, but not limited to: Depository's obligation to retain duplicates of transaction receipts and credit slips and any continuing obligation of the Depository with respect to charge backs.Upon termination of this Depository Services Agreement,all finished or unfinished documents, data,studies, or reports prepared by the Depository, at the option of the City, will be delivered to the City and become the property of the City. 6.09 No Endorsement. The Depository is not authorized to advertise or publish the fact that the City has entered into this Agreement without the City's prior written consent. 0 2015 Frost Bank 6.10 Notices. Notices provided herein will be in writing and delivered to: On behalf of the City: City of Corpus Christi Judy Villalon,City Treasurer P.O. Box 9277 Corpus Christi,TX 78469-9277 On behalf of the Depository: 6.11 Assignment. Any party may not assign this Agreement without the prior written consent of the other party. 6.12 Force Majeure. Neither party will be responsible for losses resulting if the fulfillment of any terms or provisions of this control of the party whose performance is interfered with, and which, by the exercise of reasonable diligence,said party is unable to prevent. 6.13 Conflicts of Interest.The Depository agrees to maintain current,updated disclosure of information on file with the Director of Finance throughout the term of this Agreement as may be required by the City Code of Ordinances or the City Charter. 6.14 Equal Employment Opportunity. The Depository agrees that during the performance of this Agreement,it will: (a) treat all applicants and employees without discrimination as to race,color,religion,sex, national origin,marital status,age,or handicap,and (b) identify itself as an "Equal Opportunity Employer" in employment advertising or requests. The Depository will be advised of any complaints filed with the City alleging that the Depository is not an Equal Opportunity Employer. The City reserves the right to consider its reports from the Human Relations Administrator in response to such complaints. 6.15 Entire Agreement. This Agreement and all amendments hereto, as may be updated, constitute the entire agreement between the parties and will supersede all previous negotiations,commitments,and contracts. 6.16 Governing Law and Venue. To the extent this Agreement is not governed by applicable federal laws and regulations, this Agreement will be governed by and construed in accordance with laws of the State of Texas. Any suit brought in connection with this Agreement shall be tried in Nueces County,Texas. 6.17 Notification of Changes in Depository Laws. The Depository shall notify the City in writing within ten(10) days of any changes in federal or state regulations or laws that would thereafter affect the Depository Services Contract. The Depository shall also notify the City of any services,which become available to the City throughout the contract period. 6.18 Monthly Reports.The Depository shall provide to the City each quarterly CALL report(Schedule RC only)as well as any public information concerning changes in the ownership,management or financial position of the Depository or its parent company. 0 2015 Frost Bank 6.19 Corporate Resolutions Not Required.The Depository shall not require corporate resolutions when an Authorized City Representative opens an account. 6.20 Precedence of Contract Documents. In case of a conflict in the contract documents, first precedence shall be given to the fully executed contract, as amended; second precedence shall be given to the REQUEST FOR APPLICATION, including addenda and third precedence shall be given to the application, as clarified. 6.21 Terms During Extension Year. During any extended term of the agreement,all terms,conditions and pricing shall remain the same as those in the agreement applicable to the primary term. AGREED TO BY: CITY OF CORPUS CHRISTI DEPOSITORY BY: BY: NAME: NAME: TITLE: TITLE: DATE: DATE: Incorporated by Reference: Exhibit A—Authorization for Depository Accounts Exhibit B—2016 Payroll Calendar Exhibit C—Request for Applications Event No.: 72 Exhibit D—Applicant's/Depository's Response to Request for Applications Event No.: 72 ©2015 Frost Bank EXHIBIT A Attached to and made a part of the City of Corpus Christi Depository Services Agreement AUTHORIZATION FOR DEPOSITORY ACCOUNTS As the duly appointed and authorized City Manager of the City of Corpus Christi, I designate the officers listed below as the Authorized City Representatives of the City of Corpus Christi. The signatures below are the signatures of the Authorized City Representatives vested with full authority to sign and transact business for the City including, but not limited to, Account Transfers, open and close accounts, request reports, or authorize other signatories to specific bank accounts. The signatures of the officers subscribed below are true and genuine: Judy Villalon, City Treasurer AIma Iris Casas,Assistant Director of Financial Services Constance P. Sanchez, Director of Financial Services Controller This Authorization for Depository Accounts is entered into in addition to and will not amend, modify, waive, or revoke any of the terms of the City of Corpus Christi Depository Agreement except as expressly provided herein. This authorization is entered into to facilitate the electronic transfer of funds or administration of the services to be provided pursuant to the City of Corpus Christi Depository Agreement. It is not intended to empower Authorized City Representatives to approve or accept amendments,waivers, or new provisions or terms to the Depository Agreement on behalf of the City of Corpus Christi. Authorized City Representatives remain authorized until the Depository receives written notification revoking authorization. THIS AUTHORIZATION FOR DEPOSITORY ACCOUNTS is effective this th day of ,2015 and revokes all previous authorizations. ATTEST: CITY OF CORPUS CHRISTI By By ©2015 Frost Bank EXHIBIT B 2016 PAYROLL CALENDAR PAY DATE 01/15/16 01/29/16 02/12/16 02/26/16 03/11/16 03/25/15 04/08/16 04/22/16 05/06/16 05/20/16 06/03/16 06/17/16 07/01/16 07/15/16 07/29/15 08/12/16 08/26/16 09/09/16 09/23/16 10/07/16 10/21/16 11/04/16 11/18/16 12/02/16 12/16/16 12/30/16 ©2015 Frost Bank ATTACHMENT I AVAILABILITY SCHEDULE FROST BANK-SAN ANTONIO FLOAT SCHEDULE Availability Schedule by Deadline This Availability Schedule supersedes all prior schedules published by this Bank. The following schedule is effective as of January 1,2012. NOTE: The availability offered in this schedule is subject to change without notice. Deadline ABA Description Availability 00:01 see supplemental FROST PARTNER RTS 0 1140 SA CITY-NON CLNG 0 1149 SAN ANTONIO RCPC 0 14:30 0000-0008 CANADIAN ITEMS 2 15:59 see supplemental GOVERNMENT 2 0110 BOSTON CITY 2 0111 WINDSOR LOCKS RCPC 2 0112 LEWISTON RCPC 2 0113 BOSTON RCPC 2 0114 BOSTON RCPC 2 0115 BOSTON RCPC 2 0116 WINDSOR LOCKS RCPC 2 0117 WINDSOR LOCKS RCPC 2 0118 WINDSOR LOCKS RCPC 2 0119 WINDSOR LOCKS RCPC 2 0210 EAST RUTHERFORD CITY 2 0211 WINDSOR LOCKS RCPC 2 0212 EAST RUTHERFORD RCPC 2 0213 UTICA RCPC 2 0214 JERICHO RCPC 2 0215 JERICHO COUNTRY 2 0216 JERICHO COUNTRY 2 0219 JERICHO RCPC 2 0220 UTICA CITY 2 0223 UTICA RCPC 2 0260 EAST RUTHERFORD CITY 2 0270 EAST RUTHERFORD RCPC 2 0280 EAST RUTHERFORD CITY 2 0310 PHILADELPHIA CITY 2 0311 PHILADELPHIA RCPC 2 0312 PHILADELPHIA RCPC 2 0313 PHILADELPHIA RCPC 2 0319 PHILADELPHIA RCPC 2 0360 PHILADELPHIA CITY 2 0410 CLEVELAND CITY 2 0412 CLEVELAND RCPC 2 0420 CINCINNATI CITY 2 CFBI CONFIDENTIAL January 1, 2011 1 FROST BANK-SAN ANTONIO STANDARD FLOAT SCHEDULE Availability Schedule by Deadline Deadline ABA Description Availability 15:59 0421 CINCINNATI RCPC 2 0422 CINCINNATI RCPC 2 0423 CINCINNATI RCPC 2 0430 PITTSBURGH CITY 2 0432 PITTSBURGH RCPC 2 0433 PITTSBURGH RCPC 7 0434 PITTSBURGH RCPC 2 0440 COLUMBUS CITY 2 0441 COLUMBUS RCPC 2 0442 COLUMBUS RCPC 2 0510 RICHMOND CITY 2 0514 RICHMOND RCPC 7 0515 CHARLESTON RCPC 2 0519 CHARLESTON CITY 2 0520 BALTIMORE CITY 2 0521 BALTIMORE RCPC 2 0522 BALTIMORE RCPC 2 0530 CHARLOTTE CITY 2 0531 CHARLOTTE RCPC 2 0532 COLUMBIA RCPC 7 0539 COLUMBIA CITY 2 0540 BALTIMORE RCPC 2 0550 BALTIMORE RCPC 2 0560 BALTIMORE RCPC 2 0570 BALTIMORE RCPC 7 0610 ATLANTA CITY 2 0611 ATLANTA RCPC 2 0612 ATLANTA RCPC 7 0613 ATLANTA RCPC 2 0620 BIRMINGHAM CITY 2 0621 BIRMINGHAM RCPC 2 0622 BIRMINGHAM RCPC 7 0630 JACKSONVILLE CITY 2 0631 JACKSONVILLE RCPC 7 0632 JACKSONVILLE RCPC 7 0640 NASHVILLE CITY 2 0641 NASHVILLE RCPC 2 0642 NASHVILLE RCPC 2 0650 NEW ORLEANS CITY 2 0651 NEW ORLEANS RCPC 7 0652 NEW ORLEANS RCPC 2 0653 NEW ORLEANS RCPC 7 0654 NEW ORLEANS RCPC 7 0655 NEW ORLEANS RCPC 7 CFBI CONFIDENTIAL January 1, 2011 2 FROST BANK-SAN ANTONIO STANDARD FLOAT SCHEDULE Availability Schedule by Deadline Deadline ABA Description Availability 15:59 0660 MIAMI CITY 2 0670 MIAMI RCPC 2 0710 CHICAGO CITY 2 0711 PEORIA RCPC 2 0712 CHICAGO RCPC 2 0719 CHICAGO RCPC 2 0720 DETROIT CITY 2 0724 DETROIT RCPC 2 0730 DES MOINES CITY 2 0739 DES MOINES RCPC 2 0740 INDIANAPOLIS CITY 2 0749 INDIANAPOLIS RCPC 2 0750 MILWAUKEE CITY 2 0759 MILWAUKEE RCPC 2 0810 ST LOUIS CITY 2 0812 ST LOUIS RCPC 2 0813 LOUISVILLE RCPC 2 0815 ST LOUIS RCPC 2 0819 ST LOUIS RCPC 2 0820 LITTLE ROCK CITY 2 0829 LITTLE ROCK RCPC 2 0830 LOUISVILLE CITY 2 0839 LOUISVILLE RCPC 2 0840 MEMPHIS CITY 2 0841 MEMPHIS RCPC 2 0842 MEMPHIS RCPC 2 0843 MEMPHIS RCPC 2 0863 LOUISVILLE RCPC 2 0865 ST LOUIS RCPC 2 0910 MINNEAPOLIS CITY 2 0911 MINNEAPOLIS COUNTRY 2 0912 MINNEAPOLIS COUNTRY 2 0913 MINNEAPOLIS COUNTRY 2 0914 MINNEAPOLIS COUNTRY 2 0915 MINNEAPOLIS COUNTRY 2 0918 MINNEAPOLIS RCPC 2 0919 MINNEAPOLIS RCPC 2 0920 HELENA CITY 2 0921 ST LOUIS RCPC 2 0929 HELENA RCPC 2 0960 MINNEAPOLIS CITY 2 1010 KANSAS CITY-CITY 2 1011 KANSAS CITY COUNTRY 2 1012 KANSAS CITY COUNTRY 2 1019 KANSAS CITY COUNTRY 2 1020 DENVER CITY 2 CFBI CONFIDENTIAL January 1, 2011 3 FROST BANK-SAN ANTONIO STANDARD FLOAT SCHEDULE Availability Schedule by Deadline Deadline ABA Description Availability 15:59 1021 DENVER COUNTRY 2 1022 DENVER COUNTRY 2 1023 DENVER COUNTRY 2 1030 OKLAHOMA CITY 7 1031 OKLAHOMA CITY CTRY 2 1039 OKLAHOMA CITY RCPC 2 1040 OMAHA CITY 2 1041 OMAHA COUNTRY 2 1049 OMAHA RCPC 2 1070 DENVER RCPC 2 1110 DALLAS CITY 7 11 1 1 DALLAS RCPC 2 1113 DALLAS COUNTRY 2 1119 DALLAS RCPC 2 1120 EL PASO CITY 2 1122 EL PASO RCPC 2 1123 EL PASO RCPC 2 1130 HOUSTON CITY 2 1131 HOUSTON RCPC 2 see supplemental FROST BK-ON US 0 0000-9000 SAVINGS BONDS 1163 EL PASO RCPC 2 1210 SAN FRANCISCO CITY 7 1211 SAN FRANCISCO RCPC 2 1212 SAN FRANCISCO RCPC 2 1213 SAN FRANCISCO RCPC 2 1214 SAN FRANCISCO CTRY 2 1220 LOS ANGELES CITY 2 1221 LOS ANGELES RCPC 2 1222 LOS ANGELES RCPC 2 1223 LOS ANGELES CITY 2 1224 LOS ANGELES RCPC 2 1230 PORTLAND CITY 2 1231 PORTLAND RCPC 2 1232 PORTLAND RCPC 2 1233 PORTLAND RCPC 2 1240 SALT LAKE CITY 2 1241 SALT LAKE CITY RCPC 2 1242 SALT LAKE CITY RCPC 2 1243 SALT LAKE CITY RCPC 2 1250 SEATTLE CITY 2 1251 SEATTLE RCPC _ 2 1252 SEATTLE RCPC 2 see supplemental TRAVELERS CHECKS 2 CFBI CONFIDENTIAL January 1, 2011 4 ATTACHMENT 2 COLLATERAL AGREEMENT () Frost Bank SECURITY AGREEMENT FROST BANK, (the "Bank"), for valuable consideration,the receipt and sufficiency of which is acknowledged, grants a security interest in and a pledge and assignment of (a) any and all Eligible Collateral (as defined below) from time to time held by The Federal Reserve Bank and/or Federal Home Loan Bank(the"Custodian"), identified on the Custodian's books as held for the account of the Depositor or jointly for the account of the Bank and the Depositor, together with (b)the products and proceeds of the foregoing and any substitutions or replacements thereof, whenever acquired and wherever located (the "Collateral") to INSERT NAME OF DEPOSITOR (the "Depositor"), in order to secure the payment when due,of the Deposits(as defined below)pursuant to the depository agreement("Depository Agreement") between the Bank and the Depositor, dated of even date with this security agreement (the "Agreement") : 1. Definitions. Except as otherwise expressly defined in this Agreement, all terms used herein which are defined in the Uniform Commercial Code as in effect from time to time in Texas (the "Code") have the same meaning as in the Code. All other terms capitalized but not defined herein or in the Code have the meanings assigned to them in the Depository Agreement. "Account" shall mean the separate custodial account established with Custodian in the name of Bank and for the benefit and subject to the control of Depositor as secured party in accordance with this Agreement. "Authorized Person" shall be any officer of Depositor or Bank, as the case may be, duly authorized to give Written Instructions on behalf of Depositor or Bank, respectively, such authorized persons for Depositor to be designated in a certificate substantially in the form of Exhibit B, attached hereto, as such exhibit may be amended from time to time, or as designated in such other forms as may be prescribed by the Bank. "Book-Entry System" shall mean the Federal Reserve/Treasury Book Entry System for receiving and delivering U.S.Government Securities. "Business Day" shall mean any day on which Custodian and Bank are open for business and on which the Book Entry System is open for business. "Collateral Requirement" shall mean an amount of Securities with a Market Value equal to 102% of Uninsured Deposits; provided, however, to the extent that mortgage-backed securities (declining principal balance) are used as Eligible Collateral, "Collateral Requirement" shall mean an amount of Securities with a Market Value equal to 110%of Uninsured Deposits secured with such mortgage-backed securities. "Deposits" shall mean all deposits by Depositor in Bank, including all accrued interest on such deposits, that are available for all uses generally permitted by Bank to Depositor for actually and finally collected funds under the Bank's account agreement or policies. "Eligible Collateral" shall mean any Securities of the types enumerated in the Schedule of Eligible Collateral (which types are in compliance with the collateral policy adopted and approved by the FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT(FEBRUARY 2010) governing body of Depositor)attached hereto as Exhibit A,as such exhibit may be amended from time to time pursuant to a written amendment signed by each of the parties to this Agreement, and any Proceeds of such Securities. "Market Value" shall mean: (i)with respect to any Security held in the Account,the market value of such Security as made available to Bank or Custodian by a generally recognized source selected by the Bank or the Custodian, plus, if not reflected in the market value, any accrued interest on such Security, or, if such source does not make available a market value, the market value shall be as determined by Custodian or the Bank in its sole discretion based on information furnished to Custodian or Bank by one or more brokers or dealers; and (ii)with respect to any cash held in the Account,the face amount of such cash. "Proceeds" shall mean any principal or interest payments or other distributions made in connection with Eligible Collateral and anything acquired upon the sale, lease, license, exchange, or other disposition of Eligible Collateral. "Security" or "Securities" shall include, without limitation, any security or securities held in the Book-Entry System; common stock and other equity securities; bonds, debentures and other debt securities; notes, mortgages, or other obligations; and any instruments representing rights to receive, purchase, or subscribe for the same, or representing any other rights or interests in such security or securities. "Trust Receipt" shall mean evidence of receipt, identification, and recording, including a written or electronically transmitted advice or confirmation of transaction or statement of account. Each advice or confirmation of transaction shall identify the specific securities which are the subject of the transaction. If available, statements of account may be provided by the Bank or the Custodian at least once each month and when reasonably requested by the Depositor, and must identify all Eligible Collateral in the Account and its Market Value. "Uninsured Deposits" shall mean that portion of the daily ledger balance (amount of funds plus the amount of any accrued interest on the funds) of Depositor's Deposits with Bank which exceeds the standard maximum deposit insurance amount ("SMDIA") of the Federal Deposit Insurance Corporation ("FDIC"). "Written Instructions" shall mean written communications actually received by Bank or Custodian from an Authorized Person or from a person reasonably believed by Bank or Custodian to be an Authorized Person by a computer,telex, telecopier, or any other system whereby the receiver of such communications is able to verify by codes or otherwise with a reasonable degree of certainty the identity of the sender of such communication. 2. Security Requirement. (a) The Bank, to secure the timely payment of Uninsured Deposits made by Depositor, has deposited with Custodian certain Securities as more fully described in the initial confirmation or Trust Receipt of such deposit delivered by Custodian to Bank and Depositor respectively. Pursuant to the Code,the Custodian shall act as a bailee or agent of the Depositor and,to the extent not inconsistent with such duties, shall hold Securities as a securities intermediary(as such term is defined in Chapter 8 of the Code) in accordance with the provisions of this Agreement, the Depository Agreement, and of any agreement entered into with the Custodian further governing the provision of Security by the Bank for Uninsured Deposits. FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT 2 (b) (i) To secure the timely payment of Uninsured Deposits made by Depositor with Bank, Bank agrees to deliver or cause to be delivered to Custodian for transfer to the Account, Eligible Collateral having a Market Value equal or greater than the Collateral Requirement. (ii) If the Market Value of such Eligible Collateral on any Business Day is less than the Collateral Requirement for such day, the Bank shall be required to deliver additional Eligible Collateral having a Market Value equal to or greater than such deficiency as soon as possible but no later than the close of business of Custodian on the Business Day on which Bank determined such deficiency. If on any Business Day, the aggregate Market Value of the Eligible Collateral provided pursuant to this Agreement exceeds the Collateral Requirement for such day, Custodian shall, at the direction of Bank and with the approval of the Authorized Person acting on behalf of the Depositor, transfer from the Account to or for the benefit of Bank, Eligible Collateral having a Market Value no greater than such excess amount. (iii) When additional Eligible Collateral is required to cover incremental Deposits, the Bank must receive the request for collateral one (1) Business Day prior to the Business Day the incremental Deposits are received, and the Bank shall be required to deliver additional Eligible Collateral having a Market Value equal to or greater than the deficiency on the Business Day the incremental Deposits are received. (c) For any changes made to the Eligible Collateral held in the Account due to releases, substitutions, or additions of Eligible Collateral, the Custodian shall update its records of the Account accordingly as soon as possible and promptly issue a Trust Receipt to the Depositor and the Bank. (d) The Bank shall be entitled to income on Securities held by the Custodian in the Account, and the Custodian may dispose of such income as directed by Bank without approval of the Depositor, to the extent such income is not needed to meet the Collateral Requirement. 3. Custody of Securities. The parties agree that all Securities held in the Account shall be treated as financial assets. For purposes of the Code, the security interest granted by Bank in the Eligible Collateral and Proceeds for the benefit of the Depositor is created, attaches, and is perfected for all purposes under Texas law from the time Custodian identifies the pledge of any Eligible Collateral or Proceeds to the Depositor and issues a Trust Receipt to the Depositor for such Eligible Collateral or Proceeds. The security interest of the Depositor in Securities and all Proceeds shall terminate upon the transfer of such Securities or Proceeds from the Account. 4. Delivery of Securities. Bank and Depositor agree that Securities and Proceeds delivered to or received by Custodian for deposit in the Account may be in the form of credits to the accounts of Custodian in the Book Entry System. Bank and Depositor authorize Custodian on a continuous and ongoing basis to deposit in the Book Entry System all Securities and Proceeds that may be deposited therein and to utilize the Book Entry System in connection with its performance under this Agreement. Securities and Proceeds credited to the Account and deposited in the Book Entry System will be represented in accounts that include only assets held by Custodian or its agent(s) for third parties, including but not limited to accounts in which assets are held in a fiduciary, agency, or representative capacity. The Bank acknowledges that to the extent permitted by law, the records of the Bank and/or the Custodian with respect to the pledge of Eligible Collateral as described in this Agreement: (a) may be inspected by the Depositor or by the Texas Comptroller of Public Accounts (the "Comptroller"), at any FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT 3 time during regular business hours of the Bank or the Custodian; (b)such records may be subject to audit or inspection at any time pursuant to Sections 2257.025 and 2257.061 of the Texas Government Code, as amended; and (c) reports must be filed by the Custodian with the Comptroller when requested by the Comptroller. 5. Collection of Securities. If Depositor certifies in writing to Custodian that(a) Bank is in default under any underlying pledge or security agreement between Depositor and Bank, including the Depository Agreement and (b) Depositor has satisfied any notice or other requirement to which Depositor is subject pursuant to the Depository Agreement, then Depositor may give Custodian and any appointed receiver Written Instructions to transfer the value of specific amounts and issues of Securities held in the Account and, if applicable, specific amounts of the Proceeds held in the Account which have not previously been released to Bank, up to the amount that Depositor has in its depository account with Bank as of the date the Bank default occurs,to designated accounts of Depositor and to cease releasing to an account of Bank any Proceeds reflecting the interest and principal on Securities in the Account as provided in Section 2(d). 6. Representation and Warranties. (a) Representations of Bank. Bank represents and warrants, which representations and warranties shall be deemed to be continuing,that: (i) the Board of Directors of the Bank has authorized the Bank to enter into this Agreement, and such authorization is reflected in the approving resolution of the Bank's Board of Directors and in the minutes of the meeting of the Board of Directors at which this Agreement was approved, and this Agreement has been legally and validly entered into and is enforceable against Bank in accordance with its terms; (ii) this Agreement and the pledge of Eligible Collateral under this Agreement do not violate or contravene the terms of the Bank's charter documents, by-laws, or any agreement or instrument binding on the Bank or its property, or any statute or regulation applicable to the Bank; (iii) the Bank has entered into this Agreement and the Depository Agreement (A) in the ordinary course of business, (B) in good faith and on an arm's-length basis with the Depositor, (C) not in contemplation of bankruptcy or insolvency, and (D) without intent to hinder,delay,or defraud the Bank's creditors; (iv) a copy of each of(A)this Agreement, (B)the Depository Agreement,and(C)the resolution of the Board of Directors of the Bank approving this Agreement and the minutes of the meeting of the Board of Directors at which this Agreement was approved, have been placed (and will be continuously maintained) in the official records of the Bank; (v) the Bank is sole legal and actual owner of the Securities or of beneficial interests in Securities deposited in the Account, free of all security interests or other encumbrances,except the security interest created by this Agreement; (vi) this Agreement was executed by an officer of Bank who was authorized by the Bank's Board of Directors to do so; FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT 4 (vii) the Bank is a bank or trust company duly authorized to do business in the State of Texas; and (viii) all acts, conditions, and things required to exist, happen, or to be performed on its part precedent to and in the execution and delivery of this Agreement by it exist or have happened or have been performed. (b) Representations of Depositor. Depositor represents and warrants, which representations and warranties shall be deemed to be continuing,that: (i) this Agreement has been legally and validly entered into, has been approved by the Depositor's governing body, and does not and will not violate any statute or regulation applicable to it and is enforceable against Depositor in accordance with its terms; (ii) the appointment of Custodian has been duly authorized by Depositor and this Agreement was executed by an officer of Depositor duly authorized to do so; (iii) (A) all Securities identified on the Schedule of Eligible Collateral, attached hereto as Exhibit A, may be used to secure Depositor's Uninsured Deposits under applicable statutes and regulations, (B) the Collateral Requirement meets the requirements of such applicable statutes and regulations, (C) the governing board of Depositor has approved a collateral policy which authorizes all such Securities to be used as Eligible Collateral, and (D) such collateral policy complies with all applicable statutes and regulations; (iv) it will not sell, transfer, assign, convey, pledge, or otherwise dispose in whole or in part its interests in or the rights with respect to any Securities deposited in the Account, or the Proceeds of such Securities, except as permitted in Section 5 of this Agreement; (v) all acts, conditions, and things required to exist, happen, or to be performed on its part precedent to and in the execution and delivery of this Agreement exist or have happened or have been performed: (vi) Depositor will comply with the terms of any other agreements it may have with the Bank in connection with this Agreement; and (vii) In the event Depositor requests any financial services from the Bank other than depository services, the Depositor shall provide the Bank with a copy of the Depositor's current investment policy. 7. Continuing Agreement. This Agreement shall continue and remain in full force and effect and shall be binding upon the Bank and its successors and assigns until such time as (a) all Deposits have been paid in full to the Depositor or otherwise paid as instructed by the Depositor,and(b)the Depository Agreement is no longer in effect. 8. Rights and Remedies of the Depositor. The Depositor's rights and remedies with respect to the Collateral shall be those of a secured party under the Code and under any other applicable law, as the same may from time to time be in effect, in addition to those rights granted in this Agreement.. in the Depository Agreement, and in any other agreement in effect between the Bank and the Depositor. The Depositor agrees to provide the Bank and the Custodian with reasonable notice of the sale, disposition, 5 FROST PUBLIC FUNDS ENTiTY SECURITY AGREEMENT or other intended action subject to the provisions of this Agreement in connection with the Collateral, whether required by the Code or otherwise. 9. Application of Proceeds by the Depositor. In the event the Depositor requests that the Custodian and receiver sell or otherwise dispose of the Collateral in the course of exercising the remedies provided for in Section 5 above and in the Depository Agreement, any amounts held, realized, or received by the Depositor pursuant to the provisions of this Agreement, including the proceeds of the sale, in whole or in part, of any of the Collateral, shall be applied by the Depositor first toward the payment of any costs and expenses incurred by the Depositor (a) in enforcing this Agreement, (b) in realizing on selling, disposing or protecting any Collateral and (c) in enforcing or collecting any Deposits, including attorneys' fees, and then toward payment of the Deposits in such order or manner as the Depositor may elect. Any Collateral remaining after such application and after payment to the Depositor of all the Deposits in full shall be paid or delivered to the Bank, its successors or assigns,or as a court of competent jurisdiction may direct. 10. Notices. Any communication, notice, or demand to be given under this Agreement shall be duly given when delivered in writing or sent by telex or facsimile to a party at its address indicated below. If to the Depositor,at: If to the Bank,at: Ms. D'Layna Thamm Administrative Officer Frost Bank P.O. Box 1600 San Antonio,TX 78296 11. Miscellaneous. (a) Updating Certificate of Authorized Persons. Depositor agrees to furnish to Bank a new and updated "Certificate of Authorized Persons" substantially in the form of Exhibit B, attached hereto, or in similar form as Bank may require, within a reasonable amount of time after there are additions or deletions to list of Authorized Persons authorized to act on behalf of the Depositor. (b) Invalidity: Severability. If any clause or provision of this Agreement is for any reason held to be invalid, illegal or unenforceable, such holding shall not affect the validity, legality or enforceability of the remaining clauses or provisions of this Agreement. (c) Amendment. This Agreement may not be amended or modified in any manner except by written agreement executed by all of the parties. (d) Assignment and Binding Effect. The Depositor may not assign all or any part of its rights or obligations under the Agreement without the Bank's prior express written consent, which may be withheld in the Bank's sole discretion. The Bank may assign or delegate all or any part of its rights or obligations under the Agreement, including,without limitation,the performance of the services described herein. The Agreement will be binding on and inure to the benefit of the successors and permitted assigns of either party. 6 FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT (e) Governing Law; Venue. This Agreement shall be construed in accordance with the substantive laws of the State of Texas, without regard to conflicts of law principles thereof. Bank and Depositor hereby consent to the non-exclusive jurisdiction of a state or federal court situated in INSERT COUNTY County, Texas, in connection with any dispute arising hereunder. Bank and Depositor hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of venue of any such proceeding brought in such a court and any claim that such proceeding brought in such a court has been brought in an inconvenient forum. Bank and Depositor each hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement. (f) Liability of the Parties. The Bank's and Depositor's duties and responsibilities to each other are limited as set forth in this Agreement, except with respect to any provisions of the law which cannot be varied or waived by agreement. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, NEITHER BANK NOR DEPOSITOR WILL BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, EXEMPLARY, SPECIAL, OR PUNITIVE DAMAGES (INCLUDING WITHOUT LIMITATION,LOSS OF REVENUE OR ANTICIPATED PROFITS) OR FOR ANY INDIRECT LOSS [HAT THE OTHER PARTY MAY INCUR OR SUFFER IN CONNECTION WITH THE SERVICES PROVIDED HEREUNDER (EVEN IF SUCH PARTY HAS BEEN INFORMED OF THE POSSIBILITY OF SUCH DAMAGES), INCLUDING WITHOUT LIMITATION,ATTORNEYS' FEES. FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT 7 IN WITNESS WHEREOF,the Bank and Depositor have caused this Agreement to be duly executed as of the day of ,20_. FROST BANK By Name: Tom Frost III Title: Senior Executive Vice President Dated: DEPOSITOR ACCEPTS AND AGREES as of ,20 INSERT NAME OF DEPOSITOR By Name: INSERT NAME Title: INSERT TITLE FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT 8 EXHIBIT A Schedule of Eligible Collateral Eligible Collateral All funds on deposit under the provisions of this agreement shall be continuously secured in accordance with the Texas Public Funds Collateral Act,Chapter 2257 of the Texas Government Code. The following securities are approved as collateral for INSERT NAME OF DEPOSl1 FOR funds: 1. United States Treasury Notes,Bills,Bonds or obligations fully and unconditionally guaranteed as to principal and interest by the full faith and credit of the United States. 2. Obligations of the Federal Home Loan Bank, Federal Home Loan Mortgage Corporation, or the Federal National Mortgage Association. 3. Obligations of the Government National Mortgage Association. 4. Any obligation of an approved government agency which is considered to be an asset-backed, mortgage- backed,or pooled security. 5, Direct obligations of this State or its agencies or instrumentalities. FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT A-I EXHIBIT B CERTIFICATE OF AUTHORIZED PERSONS (Depositor) The undersigned hereby certifies that he/she is the duly elected and acting of (the"Depositor"),and further certifies that the following officers or employees of Depositor have been duly authorized in conformity with the approval of the Depositor's governing body to deliver Written Instructions to the ("Custodian") pursuant to the Security Agreement between Depositor and the Bank dated , and that the signatures appearing opposite their names are true and correct: Name Title Signature Name Title Signature Name Title Signature Name Title Signature Name Title Signature Name Title Signature Name Title Signature Name Title Signature Name Title Signature This certificate supersedes any certificate of authorized individuals you may currently have on file. [corporate seal] Title: Date: FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT B-I Pledgee Agreement Form To: Federal Reserve Bank of Boston Tel: 800-327-0147,#4 P.O. Box 55882 Fax: 877-973-8972 Boston,MA 02205 Attn: Wholesale Operations/Joint Custody Date: We,the agree to the terms of Appendix C of your Operating Circular7,dated August 19, 2005,as it may be amended from time to time with respect to the account on your books designated (4-digit alpha-numeric account number). We further agree that you may accept par for par substitutions: securities from the Pledgor as a replacement of.or in substitution for,those securities presently held(please check one): n NO (Instructions required ❑ YES (Standing Approval) for each withdrawal) Provided that the replacement or substitution does not reduce the aggregate par amount of securities held in custody for us(see Operating Circular 7,Appendix C',Section 4.3). We authorize you to use the following call-back procedure for securities transaction pertaining to this account(please check one): ❑ Three-party call-back ❑ Four-party call-back We certify that the individuals listed below may take authoritative action on our behalf with respect to the account, including a direction to release collateral from the account. You may rely on the authority of these individuals with respect to the account until we otherwise notify you. Telephone: Print Name: Title: Fax: Signature: Date: Telephone: Print Name: Title: Fax: Signature: Date: Telephone: Print Name: Title: Fax: Signature: Date: Pledgee Agreement (page 2 of 2) Telephone: Print Name: Title: Fax: Signature: Date: The Undersigned hereby certifies that he/she is the present lawful incumbent of the designated public office. Pledgee Name of Governmental Unit Street Address or P.O.Boz Number City,State,Zip Code Official Signature/Date Printed Name and Title Notary State of County of On this_day of ,20_before me personally appeared to me personally known or satisfactorily proven,who by me duly sworn,did depose and say that he/she resides at in the city of , in the State of , that he/she is the [Title] of and that he/she executed this document on behalf of before me. Signature of Notary Printed Name of Notary My commission expires on _ Instructions for Completing a Pledge.Agreement& Authorization List Please retain a blank copy of the Pledgee Agreement for future use and a copy of the completed form for your records. Please type or print in ink the following information in the appropriate sections of the form • Please list the name of your entity, as it appears on your statements, on the blank line in the first sentence. (e.g. We,the"Town of Plainville") • Pledgee number is the four-character identifier that begins with an alpha character, is assigned by the Federal. Reserve Bank, and can be found on your statement as the Institution ID. If this is a request to open a new account, please write"NEW'. • To allow substitution of collateral, cheek the box YES to permit financial institutions that pledge collateral to you to replace or substitute collateral at the same or greater current value (par for par) without your having to approve each transaction: • Replacement collateral must be deposited the same day that the request to release the collateral is made. At no time are you at risk of being under-collateralized. No collateral will be released without a qualifying substitution or your approval. • FRB staff will calculate the current book value of the replacement collateral and ensure that it is of equal or greater value to the collateral it is replacing. • A Pledgee Activity statement will be sent to you as notification that a substitution has been completed. • Select NO to approve each and every individual transaction. • Call-back procedure refers to the number of Authorized Individuals who must approve a release of collateral. By checking the box for three-party call-back,you are indicating that one individual from your organization can initiate a collateral transaction and that same person can also verify the transaction. By checking the box for four-party call-back, you are indicating that two individuals from your organization are required for every approval: one individual can initiate the transaction but a second must verify it.(In both cases,the other two parties are Federal Reserve individuals.) • Name, title, signature, fax and telephone numbers of each individual authorized to release securities pledged to this public entity and held in a joint custody account at the Federal Reserve Bank. This list will be used to verify the authenticity of instructions to release pledged securities. Please provide at least three names and as many additional people as you need to accommodate vacations, illness, turnover,etc. Please list them in the order you prefer they be contacted. Instructions for Completing a Pledgee Agreement (page 2 of 2) • Signature, name, and title of the officer who is authorized to designate the listed individuals. We recommend that the officer not be included on this list as one of the persons authorized to release securities. By signing this form, the officer authorizes the individuals listed to release pledged securities. This signature must be notarized. • Notary Information with seal must be obtained to validate the authenticity of the signature of the approving officer. • Please Return the completed Pledgee Agreement to: Frost Bank Capital Markets PO Box 1600 San Antonio,TX 78296 Attn:Donna Easterling 210-220-4107 If you have questions or require assistance,please call 210-220-4107. You can view Operating Circular 7 at the following web address: www.frbservices.org/OperatingCirculars/pdf/Oc7.pdf F E AL Federal Reserve Bank Internal FR RESERVE (upon receipt bv the Federal Reserve Bank) • Joint Custody Service via FedMail- Federal Reserve Bank Use Only Request Form Due Diligence Verified: FINANCIAL Initials: SERVICES PLEASE TYPE FORM.PRINT&SUBMIT(handwritten forms may. FRBservices.org delay processing) Date: Use of the FedMail'access solution is governed by Federal Reserve Bank Operating Circular 5,Electronic Access("OC 5"). Depending on the services you choose to access using FedMail,additional Operating Circulars may govern. Federal Reserve Bank Operating Circulars are available at FRBservices.ore/regulations/operating)circulars.html. Submission of this form constitutes acceptance of the terns and conditions of OC 5 and other applicable Operating Circulars and agreements. The Federal Reserve Banks have no obligation to verify'the accuracy of the information you provide below and have the right to rely on such information in connection with the provision of the FedMail access to the services your are requesting. Except to the extent prohibited by law or regulation,you agree to indemnify,hold harmless and defend the Federal Reserve Banks against any claim.loss,liability,or expense made against or incurred by the Federal Reserve Banks in connection with their reliance on the information provided below. Section 1—General *Required Fields State or Local Government Institution Name* Phone Extension Telephone* Provide the 4-digit alpha-numeric account number(s)below that are listed as"Institution ID" Joint Custody Account on your statement.This form may be used for multiple account numbers being.delivered to Number(s)* the same address,with a maximum of four account numbers. Account#1 Account#2 Account#3 Account#4 Section 2—Service Profile Instructions l.For e-mail delivery,please provide more than one email address. 2.lf updates are required to your current Joint Custody pledgee agreement, please call 800-327- 0147 and select option 4. The email address(es) and/or fax number(s) below will remain in effect until an updated Joint Custody FedMail Request Form is submitted. Joint Custody Service(JCCR) Email Address or Fax Number This list replaces the prior e-mail addresses and/or fax numbers on file for your organization Federal Reserve Bank Joint Custody Service via FedMail® Request Form Section 3—Service Description Service Description Provides the ability to receive Joint custody Daily Activity Statements and monthly Securities Joint Custody Service Holdings Reports electronically. The e-mail is sent in the text format,the statements and (JCCR) reports are sent as attachments,which may be viewed with a text editor,spreadsheet or word processing software. Section 4—Authorized Approval *Required Fields First Middle Last Name* Signature* The person signing this form must be listed on your current pledge agreement on file with the Federal Reserve Bank as authorized to act for your account. Date* Phone# Extension Telephone* The Financial Services logo and"FedMail"are registered service marks of the Federal Reserve Banks. A complete listing of marks owned by the Federal Reserve Banks is available at FRBservices.org ATTACHMENT 3 SAFEKEEPING/SECURITIES CLEARANCE SAFEKEEPING AGREEMENT (CORPORATE--NO FOREIGN SECURITIES) THIS SAFEKEEPING AGREEMENT (this "Agreement") is entered into as of the day of ,by and between FROST BANK, a Texas state bank (the "Bank") and ,a (the "Depositor"). The Bank and the Depositor agree that all securities and/or other property deposited with and accepted by Bank ("Security")shall be governed by the terms and conditions herein set forth,and agree to the following: WITNESSETH: The Bank shall establish and maintain a custody account(the "Account") for and in the name of the Depositor and hold therein all securities deposited with or collected by the Bank in its capacity as custodian for the Account. The terms "Security" or "Securities" shall mean any negotiable or non- negotiable investment instrument(s) commonly known as a security or securities in banking custom or practice,and so long as held by the Bank,all income therefrom and all cash deposited by,or for the account of, the Depositor. The Bank agrees to open the Account and hold all Securities and other property. from time to time, deposited with or collected by the Bank for the Account, subject to the terms and conditions of this Agreement,as the same may be amended from time to time. SECTION 1 ACCEPTANCE OF SECURITIES (a) The Bank shall accept delivery from and on behalf of the Depositor such Securities as shall,from time to time,be acceptable to it. Any Securities now held by the Bank for the Depositor under a prior custody agreement shall be deemed to have been deposited hereunder. The Bank shall have no responsibility to (i) determine the validity, genuineness or alteration of the Securities or related instruments delivered pursuant to the terms hereof;(ii)review the Securities;or(iii)provide advice to the Depositor relative to the purchase, retention, sale, exchange, disposition. call for redemption of the Securities or related instruments. The parties acknowledge that the Bank is performing the services hereunder merely as an aid to the Depositor, and this does not relieve the Depositor of its duty to manage and keep itself informed of information affecting its own portfolio. (b) The Bank shall supply to the Depositor from time to time as mutually agreed by the Bank and the Depositor a written statement with respect to all of the Securities held in the Account. In the event that the Depositor does not inform the Bank in writing of any exceptions or objections to such statement within sixty(60)days after receipt of such statement,the Depositor shall be deemed to have approved such statement. (c) The Bank shall segregate and identify on its books and records as belonging to the Depositor all Securities delivered by or for the account of the Depositor which are held by the Bank in the Account. (d) The Depositor authorizes the Bank. for any Securities held hereunder,to use the services of any United States central securities depository it deems appropriate and where it may hold any of its own securities,including,but not limited to,the Depository Trust Company and the Federal Reserve Book Entry System. The term "central securities depository" shall also include any depository service which acts as a custodian of securities in connection with a system for the central handling of securities whereby all securities of a particular class or series of any issuer deposited within the system are treated as fungible and may be transferred by bookkeeping entry without physical delivery of security certificates. Placement by the Bank of Securities into a central securities depository or safekeeping facility shall neither augment nor diminish the Bank's duties or obligations under any other paragraph of this Agreement, provided that the Bank shall have no liability for the acts or failure to act of any such central securities depository. SANANTONIO 298076A.5 32600-01094 (c) The Bank is authorized to re-register the Securities in the name of the Bank or its nominee unless alternative and acceptable registration instructions are promptly furnished by the Depositor. SECTION 2 COLLECTION OF INCOME The Bank agrees to collect and receive the dividends,interest and other income from the Securities,as directed by the Depositor,and will credit the Depositor's designated deposit account for such items. Charges,if any, will be charged to the Depositor's deposit account under advice. The Bank will make commercially reasonable efforts to collect and receive such dividends, interest and other income from the Securities but assumes no liability for its inability to do so due to the acts or omissions of Depositor,any issuer of Securities or such issuer's paying agent,or any third party. The Bank shall not be obligated to institute or participate in any legal proceedings relative to any such acts or omissions, The Bank is hereby authorized to sign,on the Depositor's behalf,any declarations,affidavits,certificates of ownership,or other documents which are now or may hereafter be required with respect to coupons,registered interest,dividends or other income on Securities. THE DEPOSITOR HEREBY AGREES TO REIMBURSE,INDEMNIFY,AND HOLD HARMLESS, THE BANK,ITS OFFICERS,DIRECTORS AND EMPLOYEES FROM ANY LIABILITY,CLAIM, LOSS,DAMAGE OR EXPENSE(INCLUDING ATTORNEYS' FEES AND COURT COSTS)THAT MAY ARISE BY REASON OF THE EXECUTION OF ANY SUCH DOCUMENTS BY THE BANK. SECTION 3 COLLECTION OF PRINCIPAL The Bank is authorized to collect,receive and receipt for the principal of all Securities when and as the same may mature,be redeemed,or be sold upon the order of the Depositor. The proceeds of such collections, as well as any other principal payments received for any Securities, will be credited to the Depositor's designated deposit account. The Bank will use commercially reasonable efforts to collect the Securities and other property at maturity and at dates of call for payment,but assumes no responsibility for its inability to do so due to the acts or omissions of Depositor,any issuer of Securities or such issuer's paying agent,or any third party. The Bank shall not be obligated to institute or participate in any legal proceedings relative to any such acts or omissions, The Bank will not be liable for the insolvency, or default in the payment of principal or interest or in the performance,of the issuer of any Securities. SECTION 4 WITHDRAWAL OF SECURITIES The Securities will be released only upon the Bank's receipt of written instructions from the Depositor. In the event the Depositor is a corporation,limited liability company,or limited partnership,Securities will be released upon the instructions of such officer(s) as are authorized by an appropriate entity resolution ("Authorized Representative"), and the Depositor shall furnish the Bank on or before such withdrawal, certified copies of resolutions relating to or changing such authority. The Depositor expressly agrees that the Bank shall not be liable for any loss,damage,or liability resulting from the Bank's actions taken in accordance with instructions given to the Bank by an Authorized Representative. If the Depositor has delivered to the Bank Securities subject to a pledge,such Securities will be released only upon the receipt of(i)a written notice by the Depositor or an Authorized Representative, if requested by Bank,(ii)a written release of the pledgee, and(iii)a certificate of the Depositor certifying that the signature of the pledgee is authorized and authentic. SECTION 5 STANDARD OF CARE The Bank shall exercise commercially reasonable care in receiving, holding and handling the Securities. The Bank will exercise the commercially reasonable care expected of a professional custodian for hire with respect to the Securities in its possession or control. 2 SANANTONIO 298076v5 82600-03994 SECTION 6 DEPOSITOR DUTIES (a) The Depositor shall provide the Bank with a written certificate signed by an Authorized Representative containing the specimen signatures of each person authorized to act and give direction on behalf of the Depositor. The Bank shall be entitled to rely upon such certificate until notified in writing otherwise by the Depositor. (b) The Bank is further authorized to rely upon any written instructions or instructions received by any other means and identified as having been given or authorized by any person named to the Bank as authorized to give written instructions, regardless of whether such instructions shall in fact have been authorized or given by any of such persons provided that the Bank and the Depositor shall have agreed in writing upon the means of transmission and the method of identification for such instructions. Instructions received by any other means shall include verbal instructions, provided that any verbal instruction shall be promptly confirmed in writing. In the event verbal instructions are not subsequently confirmed in writing, as provided above, the Depositor agrees to hold the Bank harmless and without liability for any claims or losses in connection with such verbal instructions. Notwithstanding the above, instructions for the withdrawal of securities "free of payment" shall be given only in writing, manually signed by any such authorized persons. (c) The Depositor may appoint one or more investment managers("Investment Managers") with respect to the Account. The Bank is authorized to act upon instructions received from any Investment Manager to the same extent that the Bank would act upon the instructions of the Depositor,provided that the Bank has received copies of the instruments appointing the Investment Manager and written confirmation from the Investment Manager evidencing its acceptance of such appointment, or other evidence satisfactory to the Bank. (d) If the Depositor should choose to have telecommunication or other means of direct access to the Bank's reporting system for Securities in the Account pursuant to paragraph (e) of Section 7, the Bank is also authorized to rely and act upon any instructions received by it through a terminal device, provided that such instructions are accompanied by code words which the Bank has furnished to the Depositor by any method mutually agreed to by the Bank and the Depositor,and which the Bank shall not have then been notified by the Depositor to cease to recognize regardless whether such instructions shall in fact have been given or authorized by the Depositor or any such person. The Depositor's delegates shall be named by a certificate provided to the Bank from time to time by the Depositor. (e) In the event that the Bank shall receive conflicting instructions from Depositor regarding any particular transaction, the Bank shall make reasonable efforts to resolve such conflict; provided, however, the Bank may rely upon the instruction first received by the Bank and the Bank is hereby held harmless from all consequences of such reliance. SECTION 7 BANK DUTIES (a) The Bank shall receive or deliver, or shall instruct any other entity authorized to hold Securities hereunder to receive or deliver, Securities and credit or debit the Account, in accordance with written instructions from the Depositor. The Bank or such entity shall also receive in custody all stock dividends,rights and similar securities issued in connection with Securities held hereunder,shall surrender for payment, in a timely manner, all items maturing or called for redemption and shall take such other action as the Depositor may direct in properly authorized and timely written instructions to the Bank. (b) All cash received or held by the Bank as custodian or by any entity authorized to hold the Securities hereunder as interest,dividends, proceeds from transfer,and other payments for or with respect to the Securities shall be(i)held in a cash account,or(ii) in accordance with written instructions received by the Bank.remitted to the Depositor. 3 SANANTONIO 298076v5 82600-03994 (c) If the Bank has in place a system for providing telecommunication or other electronic access or other means of direct access by customers to the Bank's reporting system for Securities in the Account,then upon separate written agreement between the Bank and the Depositor,the Bank shall provide such service to the Depositor. (d) During the Bank's regular banking hours and upon receipt of reasonable notice from the Depositor, any officer or employee of the Depositor, any independent accountant(s) selected by the Depositor and any person designated by any regulatory authority having jurisdiction over the Depositor shall be entitled to examine on the Bank's premises, the Securities held by the Bank on its premises, but only upon the Depositor's furnishing the Bank with properly authorized instructions to that effect,provided, such examination shall be consistent with the Bank's obligations of confidentiality to other parties. The Bank's reasonable costs and expenses in facilitating such examinations,including but not limited to the cost to the Bank of providing personnel in connection with examinations shall be borne by the Depositor, according to the research fee set forth in the fee schedule attached as Exhibit A. The Bank shall also, subject to restrictions under applicable law,seek to obtain from any entity with which the Bank maintains the physical possession of any of the Securities in the Account such records of such entity relating to the Account as may be required by the Depositor or its agents in connection with an internal examination by the Depositor of its own affairs. Upon a reasonable request from the Depositor, the Bank shall use its reasonable efforts to furnish to the Depositor such reports(or portions thereof)of the external auditors of each such entity as related directly to such entity's system of internal accounting controls applicable to its duties under its agreement with the Bank. (e) The Bank will transmit to the Depositor upon receipt, all financial reports, stockholder communications,notices,proxies and proxy soliciting materials received from issuers of the Securities,and all information relating to exchange or tender offers received from offerors with respect to the Securities. Proxies will be executed by the registered holder if the registered holder is other than the Depositor,but the manner in which the Securities are to be voted will not be indicated. Specific instructions regarding proxies will be provided when necessary. The Bank shall not vote any of the Securities or authorize the voting of any Securities or give any consent or take any other action with respect hereto,except as provided herein. The Bank is authorized to accept and open in the Depositor's behalf all mail or communications received by it or directed to its care. (f) In the event of tender offers,the Depositor shall mail or fax instructions to the Bank as to the action to be taken with respect thereto or telephone such instructions to the Depositor's account administrator at the Bank, designating such instruction as being related to a tender offer. The Depositor shall deliver to the Bank, by 4:00 p.m., San Antonio, Texas time on the following calendar day, written confirmation. The Depositor shall hold the Bank harmless from any adverse consequences of the Depositor's use of any other method of transmitting instructions relating to a tender offer. The Depositor agrees that if it gives an instruction for the performance of an act on the past permissible date of a period established by the tender offer or for the performance of such act or that it fails to provide next day written confirmation of an oral instruction, the Depositor shall hold the Bank harmless from any adverse consequences of failing to follow said instructions. (g) The Bank shall not be liable for late submission of any items or information in response to calls for redemption, mergers, tenders, consolidations, reorganizations, recapitalizations, or similar proceedings affecting the Securities when the Depositor has failed to timely instruct the Bank in writing. Should any Security held in a central securities depository be called for a partial redemption by the issuer of such Security,the Bank is authorized, in its sole discretion,to allot the called portion to the respective holders in any manner it deems fair and equitable. (h) The Bank shall present all maturing bonds and coupons for collection and is authorized to receive payment of income and principal on other items in accordance with their terms. All funds so collected shall be credited to the Account or remitted in accordance with the instructions of the Depositor. (i) The Bank shall not be liable in damages for any loss or damage beyond it's reasonable control, including, but not limited to acts of God, war or terrorist act, fire, storm, or other catastrophe, interruption of transmission or communication facilities, equipment failure, or electrical or computer failure. 4 SAN ANTONIO 298076v5 82600-03994 SECTION 8 FOREIGN SECURITIES The Bank shall not hold Securities which are issued by foreign governments or foreign companies or for which the principal trading market is located outside the United States hereunder. Should the Bank elect to hold such securities, such activities shall be governed by a separate agreement between the bank and the Depositor. SECTION 9 FEES AND EXPENSES (a) The Depositor agrees to promptly pay upon receipt of an invoice from the Bank the fees and expenses set forth therein. Fees and expenses for the services to be rendered under this Agreement are set forth in Exhibit A attached hereto and incorporated herein for all purposes, as such may be amended from time to time,effective upon 30 days' prior written notice by the Bank to the Depositor. In addition,if the Bank advances securities to the Depositor for any purpose or in the event that the Bank or its nominee shall incur or be assessed any taxes,charges,expenses,assessments,claims or liabilities in connection with the performance of its duties hereunder, except such as may arise from or be caused by the Bank's or its nominee's gross negligence or willful misconduct, Depositor shall immediately reimburse the Bank,or its nominee, for such advances, taxes, charges, expenses, assessments, claims or liabilities, or replace such securities. (b) The Bank may, in its sole discretion, advance funds on behalf of the Depositor which results in an overdraft if the monies held in the Account are insufficient to pay the total amount payable upon purchase of Securities as instructed. Any such overdrafts shall be deemed to be a loan made by the Bank to the Depositor payable promptly upon demand and bearing interest at Frost Bank's prime rate plus two percent per annum from the date incurred. Notwithstanding anything contained in this Agreement to the contrary,the Bank shall have no obligation to advance funds on behalf of the Depositor. (c) The Bank shall have a lien on the Securities in the Account to secure payment of such fees and expenses, taxes, advances and other charges incurred under this Section 9. The Depositor agrees that the Bank's lien shall be a continuing lien and security interest in and on any Securities at any time held by or through it in accordance with this Agreement, for the benefit of the Depositor or in which the Depositor may have an interest which is then in the Bank's possession or control or in possession or control of any third party acting on the Bank's behalf. Upon failure by the Depositor to cure any overdraft amounts, or to reimburse the Bank for fees and expenses, taxes, advances and other charges, within 48 hours after the request for payment, the Bank may dispose of securities to the extent necessary to obtain reimbursement. The parties agree that upon Depositor's receipt of such request for payment„the Depositor shall not transfer or dispose of any securities except as agreed to by the parties until appropriate reimbursement is made. The Bank shall have all of the rights and remedies of a secured creditor under the Uniform Commercial Code as in effect in State of Texas from time to time with respect to the Securities. (d) The Bank is hereby authorized to charge the Depositor's deposit account number for all fees and charges incurred or assessed hereunder. SECTION 10 INVESTMENT RESPONSIBILITY Unless otherwise agreed in writing by the Depositor and the Bank,the Bank is under no duty'to(i) advise the Depositor relative to the investment, purchase, retention. sale, or other disposition of any Securities held hereunder:(ii)supervise the Depositor's investments,purchases or sales: (iii)invest,or see to the investment of, any cash proceeds or other cash deposited hereunder and held by the Bank: or (iv) determine whether any investment or sale made for the account of Depositor is made in conformity with Depositor's requirements or understandings. The Bank's duties hereunder are strictly ministerial in nature SANANTONIO 2980T6v5 82600-0.4,4 and are limited to those duties expressly set forth in this Agreement. Nothing in this Agreement shall be construed to impose fiduciary responsibilities on the Bank. SECTION 11 LIMITATION OF LIABILITY The Bank undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, it being expressly understood that there are no implied duties hereunder. In addition to other provisions of this Agreement,the Depositor agrees that the Bank(a)will be responsible only for the exercise of reasonable commercial standards of the banking business; (b)will not be liable for any loss or damage to the Securities when such loss or damage is due to any cause other than failure to exercise reasonable commercial standards,and in any event will not be liable for any decline in the market value of the Securities;(c)will not be considered an insurer against risk of loss,damage,destruction or decline in market value of the Securities; and(d)will not have liability to the Depositor with respect to the services rendered by the Bank pursuant to this Agreement until such time as the Securities are actually delivered to the Bank,it being understood and agreed that the Depositor bears the risk of loss with respect to shipment and delivery of the Securities to Bank. IN NO EVENT SHALL THE BANK BE LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY (I) DAMAGES OR EXPENSES ARISING OUT OF THE SERVICES PROVIDED HEREUNDER OTHER THAN DAMAGES WHICH RESULT FROM BANK'S FAILURE TO ACT LN GOOD FAITH OR IN ACCORDANCE WITH THE REASONABLE COMMERCIAL STANDARDS OF THE BANKING BUSINESS OR(H)SPECIAL OR CONSEQUENTIAL DAMAGES,EVEN IF THE BANK HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. In addition to any and all rights of reimbursement, indemnification, subrogation, or any other rights pursuant hereto or under law or equity,the Depositor hereby agrees,to the extent permitted by Texas law, to indemnify and hold harmless the Bank and its officers, directors, and agents (the "indemnified parties") from and against any and all claims,damages, losses, liabilities,reasonable costs,or reasonable expenses whatsoever(including attorneys' fees and court costs) which they may incur(or which may be claimed against them by any person or entity whatsoever)by reason of or in connection with(a)any untrue statement or alleged untrue statement of any material fact contained or incorporated by reference in the information supplied by the Depositor to the Bank or its nominee in connection with the performance of their duties under this Agreement or the related documents,or the omission or alleged omission to state in such information a material fact necessary to make such statements, in the light of circumstances under which they are or were made,not misleading;or(b)the execution and delivery of this Agreement. if any proceeding shall be brought or threatened against any indemnified party by reason of or in connection with the events described in clause (a) or (b), such indemnified party shall promptly notify the Depositor in writing and the Depositor shall assume the defense thereof, including the employment of counsel satisfactory to such indemnified party and the payment of all costs of litigation. Notwithstanding the preceding sentence,such indemnified party shall have the right to employ its own counsel and to determine its own defense of such action in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless(i)the employment of such counsel shall have been authorized in writing by the Depositor or (ii) the Depositor, after due notice of the action, shall not have employed counsel to have charge of such defense, in either of which events the reasonable fees and expenses of counsel for such indemnified party shall be borne by the Depositor. The Depositor shall not be liable for any settlement of any such action effected without its consent. Nothing under this section is intended to limit the Depositor's payment obligations contained elsewhere in this Agreement. This section shall survive the termination of this Agreement. SECTION 12 BANK POWER OF ATTORNEY In addition to other rights granted to the Bank pursuant to the terms of this Agreement,the Bank is authorized and empowered in the name of and on behalf of the Depositor to execute any certificates of ownership or other instruments which are or may hereafter be required by any regulations of the United States or any state or political subdivision thereof,so that the Bank may fulfill its obligations hereunder as required in connection with any Securities. 6 SANANTONIO 298076v5 82600-03994 SECTION 13 AMENDMENTS Except as otherwise provided hereby, the parties may make amendments to this Agreement from time to time, provided that any such amendment shall be reduced to writing;provided however, the Bank may, at any time, in its sole discretion amend any of the provisions of this Agreement upon thirty (30) days'prior written notice to the Depositor. SECTION 14 SUCCESSORS AND ASSIGNS This Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the respective parties hereto. SECTION 15 COMPLETENESS OF AGREEMENT This Agreement, along with a copy of the fee schedule attached hereto as Exhibit A, constitutes the full and complete agreement between the Bank and the Depositor, and no other understanding or agreement,whether written or oral shall bind either of the parties hereto. The headings of Sections of this Agreement are for convenience only and have no effect on a party's responsibilities or liabilities. SECTION 16 GOVERNING LAW This Agreement shall be governed by the applicable laws of the State of Texas without giving effect to the choice of law principals thereof. This agreement is performable in Bexar County,Texas and venue for all purposes incident to this agreement shall be in Bexar County, Texas. THE PARTIES HEREBY WAiVE THE RiGHT TO TRIAL BY JURY OF ALL DISPUTES, CONTROVERSIES AND CLAIMS BY,BETWEEN OR AGAINST EITHER THE DEPOSITOR OR THE BANK. SECTION 17 TERMINATION This Agreement may be terminated by either the Depositor or the Bank upon at least ten(10)days prior written notice to the other. However,upon request of Depositor,the Bank shall continue to operate as the holder of securities for the Depositor under the terms and conditions of this Agreement for a period of up to sixty(60)days while the Depositor engages another safekeeping entity. The Depositor shall have a period of thirty(30)days from the date of the last and final accounting provided by the Bank to make any objection or claim, and failure to do so within the thirty (30) day period shall be deemed by the parties hereto to constitute accord and satisfaction. As soon as practicable following termination of this Agreement,the Bank shall deliver all Securities to the Depositor in accordance with the Depositor's written instructions. SECTION 18 NOTICES Any notice to be given or to be served upon any party hereto in connection with this Agreement must be in writing and shall be deemed to have been given when personally delivered, when sent by facsimile with receipt confirmed, when delivered by a nationally recognized courier service, or three business days after deposited in the United States mail, first class postage prepaid, return receipt requested. Such notices shall be given to the parties hereto at the following addresses: 7 SANANTONIO 298076x5 82600-0.,04 if to the Bank: Frost Bank P.O.Box 1600 San Antonio,Texas 78296 Attention: Custody Services Department Facsimile No.: (210)220-5986 If to the Depositor: Attention: Facsimile No.: Any notices served by fax shall be deemed to have been given and received only when written confirmation of the receipt of such fax has been received by the sender. Any party hereto may,at any time by giving fifteen(15)days' written notice to the other party hereto,designate any other address in substitution of the foregoing address to which such notice shall be given. SECTION 19 MISCELLANEOUS (a) This Agreement may be executed in any number of counterparts; each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. I (b) Whenever the context hereof shall so require the singular shall include the plural, the male gender shall include the female gender and the neuter,and vice versa. (c) In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid,illegal,or unenforceable provision had never been contained herein. [(d) The Addendum to Safekeeping Agreement attached hereto is incorporated herein and made a part hereof for all purposes.] IN WITNESS WHEREOF,the parties thereto executed this Agreement as of the day and year first above-written. BANK: DEPOSITOR: FROST BANK By: By: Name: Name: Title: Title: 8 SAN ANTONIO 298076v5 82600-03994 411P? Settlement & Processing Guide Frost Bank Capital Markets Effective May I,2003 SETTLEMENT NOTIFICATION DEADLINES CASH FAX copy of broker confirm no later than 11.00 am on settlement date. (SAME DAY) OR FREE OF PAYMENT REGULAR WAY.NEXT DAY FAX copy of broker confirm no later than 11:00 am on settlement date. (T+I) SKIP DAY FAX copy of broker confirm no later than T+1. +2) ALL OTHERS FAX copy of broker confirm no later than T+3 or S-3.whichever date is later. (T+3 OR GREATER) •TRADE INSTRUCTIONS RECEIVED PAST THE NOTIFICATION DEADLINE WILL BE ASSESSED A 525 CHARGE AND PROCESSED ON A "BEST EFFORTS"BASIS. * TRADE INSTRUCTIONS MODIFIED FROM ORIGINAL INSTRUCTIONS WILL BE ASSESSED A S25 CHARGE, CATEGORY FROST SECURITY DELIVERY INSTRUCTIONS TYPES ABA: 114000093 Government Treasury & Agency FED ELIGIBLE SECURITIES FROST SA11020 Issues FAO: NAME/SAFEKEEPING ACCT# DTC #901 Municipals DTC ELIGIBLE SECURITIES AGENT ID #80901 Corporate Debt INSTITUTION ID#26056 Commercial Paper REF: FROST BANK ACCT#096285 Equities FAO: NAME/SAFEKEEPING ACCT# PLEASE CALL FROST BANK SAFEKEEPING TO DISCUSS PHYSICAL DELIVERY SETTLEMENT: 210-220-4138 Other Instructions MUTUAL FUNDS Call your Frost salesperson no later than 3:00 pm. REPURCHASE AGREEMENTS Call your Frost salesperson no later than 1'00 pm to initiate repurchase aseements. Call your Frost salseperson no later than 10:00 am to request chances to TFN repurchase agreements. FAX copy of pledge instructions no later than 3:00pm. PLEDGES:RELEASES -OR- FAX copy of pledgee releases no later than notification deadlines above for securities being withdrawn from safekeeping. ABA 114000093 FED WIRE FROST BANK CASH REF: CUSTODY SERVICES ACCT: 280495-20031 FAO: NAME/SAFEKEEPING ACCT# TAX ID 74-0635455 Definitions T TRADE DATE DATE THAT BUY/SELL IS ENTERED INTO WITH THE BROKER S SE t ILEMENT DATE DATE THAT SECURITY IS DELIVERED INTO OR OUT OF YOUR SAFEKEEPING ACCOUNT AND PAYMENT IS MADE. SANANTONIO 298076v5 82600-03994 ADDENDUM TO SAFEKEEPING AGREEMENT' NOTWITHSTANDING anything in the main body of the Agreement to the contrary, the Bank and the Depositor do further agree that the Agreement shall be modified as follows, and that the terms of this Addendum shall control in the event of any conflict with the main body of the Agreement,but only in the following respects: The Bank and the Depositor hereby agree to the conditions described in paragraphs(l)-(12)of this subsection: (1) The Bank shall exercise the same due care that is expected of a fiduciary with the responsibility for the safeguarding of the Securities and for compliance with all provisions of this Agreement, whether the Securities are in the Depositor's possession or have been redeposited by the Depositor with a subcustodian. (2) The Bank shall indemnify the Depositor for any loss of the Securities occasioned by the negligence or dishonesty of custodian's officers and employees, or burglary, robbery, hold-up, theft or mysterious disappearance. including loss by damage or destruction. In the event of such loss,the custodian must promptly replace the Securities or the value thereof, and the value of any loss of rights or privileges resulting from said loss of the Securities. (3) The Securities shall be segregated at all times from the proprietary assets of the Bank and any subcustodian. (4) The Bank's official records shall separately identify the Securities owned by the Depositor,whether held by the Bank or a subcustodian. If held by a subcustodian,the Bank's records shall also identify the subcustodian. (5) Any Securities that are in registered form shall be registered only in the name of the Depositor,the Bank or its nominee,or the subcustodian or its nominee. (6) All activities involving the Depositor's Securities shall be subject to the Depositor's instructions and the Securities shall be withdrawable upon demand of the Depositor. Securities deposited with insurance regulators to satisfy statutory requirements shall not be withdrawn without approval of the appropriate insurance regulatory authority. (7) The Bank shall furnish, upon request by the Depositor, a confirmation of all transfers of Securities to or from the account of the Depositor,and reports of Securities sufficient to verify information reported by the Depositor's annual statement filed with the Texas Department of Insurance and supporting schedules and information required in any audit of the Depositor's financial statement whether the Securities are held by the Bank or by a subcustodian. (8) The Depositor or its designee shall at all times be entitled to examine all records maintained by the Bank or subcustodian relating to the Depositor's Securities. (9) Upon request of the Depositor, the Bank shall be required to send to the insurer all reports it receives from a clearing corporation or the Federal Reserve book-entry system on their respective systems of internal accounting control, and all reports prepared on the Bank's and subcustodian's systems of internal accounting control of the Securities. This Addendum is required fur any safekeeping/custodial agreement in\oh ine an insurer as defined in 28 TAC Sec. 7.86. (10) The Bank shall not use any of the Depositor's Securities for the Bank's benefit and none of the Depositor's Securities shall be loaned,pledged,or hypothecated by the Bank or subcustodian without a written contract executed by the Depositor separate and apart from this Agreement. (11) The Bank is authorized and instructed by the Depositor to honor any requests made by the Texas Department of Insurance for information concerning the Depositor's Securities. The department, from time to time,may request,and the Bank shall furnish, a detailed listing of the Depositor's Securities (whether in the possession of the Bank or with a subcustodian)and an affidavit by the Bank certifying the Bank's safekeeping responsibilities relative to the Securities. The Bank's response to such requests shall be made directly to the department and shall encompass all of the Depositor's Securities (whether in the possession of the Bank or with a subcustodian). (12) The Bank and subcustodian (if any) shall maintain "securities all risks coverage" at levels considered reasonable and customary for the custodian banking industry covering the Bank's duties and activities as custodian for the Depositor's assets and shall describe the nature and extent of such insurance protection. Any change in such insurance protection during the term of this Agreement shall be promptly disclosed to the Depositor. ATTACHMENT A SAFEKEEPING AGREEMENT GOVERNMENTAL ENTITY RIDER This Agreement is an agreement between the Bank . Accordingly, this Agreement is modified in accordance with the following provisions of this Attachment: 1. No Indemnity. Section 11 of the Safekeeping Agreement and any analogous provision of any Service Addendum or any other Bank Agreement, Schedule and Disclosure is hereby modified to remove therefrom any agreement by the Depositor to indemnify the Bank and its affiliates, directors, officers, employees and agents. 2. Mandamus. In addition to the other remedies specified in this Agreement, the Bank shall be entitled to a writ of mandamus upon any breach of this Agreement by the Depositor to the extent that is permitted by law. 3. Representations. The Depositor represents and warrants that, to the extent required by applicable law (including but not limited to any statute, ordinance or charter), (a) the execution, delivery and performance of this Agreement are in compliance with any competitive bidding requirement and (b) the payment to the Bank of all fees and other expenses properly chargeable to the Depositor under this Agreement have been authorized by all necessary action, including but not limited to the inclusion of such amounts in the approved budget of the Depositor. 4. Payment Procedure. If the Depositor is subject to Chapter 113 of the Texas Local Government Code, (a) the Depositor must check the following box (and if the Depositor fails to check such box, this Section shall be of no force or effect); (b) rather than charging a Deposit Account, he Bank shall provide the Depositor with invoices for all fees and other charges due to the Bank pursuant to the terms of this Agreement, and (c) the Depositor directs that such invoices should be sent to the following address and with the following reference (if indicated) for prompt handling and payment: Reference: ❑ The Depositor certifies that it is subject to Chapter 113 of the Texas Local Government Code. 5. Execution. The execution of this Attachment by the Depositor in the space provided below, and the affixing of the Depositor's seal as provided below, shall be the formal execution of this Agreement (including the Safekeeping Agreement and all Service Addenda executed and delivered concurrently herewith). The Depositor agrees that it will execute, seal and deliver all Service Addenda executed after the date hereof in compliance with all applicable law (including but not limited to statutes, ordinance and charter), and that this Attachment shall be deemed a part of each such subsequent Service Addendum. IN WITNESS WHEREOF, the Bank and the Depositor have caused this Attachment to be executed by their respective duly authorized representatives. FROST BANK By: Name: Title: By: Name: Title: ATTEST: Name: Title: (SEAL) -2- Frost Bank Safekeeping Signature Card 'ease Check One: ❑ New Card 0 Addition to Card Currently on File 0 Replacement of Card Currently on File Customer Name Capital Markets Account Number Address City State ZIP Name (Please Print) Title I Specimen Signature The following person(s) may effect safekeeping transactions: Important - Please Complete the Certification To: Frost Bank ("Bank") I certify that I am the duly elected, qualified acting secretary of and that the above-named individuals are duly authorized by the Board of pursuant to applicable resolutions of said Board and may be recognized by the Bank for effecting safekeeping transactions only. I further certify that the specimen signatures are the genuine signatures of the persons named above. Unless specifically revoked in writing, previously submitted signature cards shall remain in effect. Signature Date r'rost Bank Collateral Signature Card Please Check One: 0 New Card 0 Addition to Card Currently on File 0 Replacement of Card Currently on File Customer Name Capital Markets Account Number Address City State ZIP Name (Please Print) Title Specimen Signature The following person(s) may authorize SECURITIES Assignments and Releases: Important - Please Complete the Certification To: Frost Bank ("Bank") I certify that I am the duly elected, qualified acting secretary of and that the above-named individuals are duly authorized by the Board of pursuant to applicable resolutions of said Board and may be recognized by the Bank for authorizing securities assignments and releases. I further certify that the specimen signatures are the genuine signatures of the persons named above. Unless specifically revoked in writing, previously submitted signature cards shall remain in effect. Signature Date Form 11'9 Request for Taxpayer Give form to the (Rev.October 2007) Identification Number and Certification requester. Do not Department of the Treasury send to the IRS. Internal Revenue Service Name(as shown on your income tax return) e) aBusiness name,if different from above c o -- To Check appropriate box: ❑ Individual/Sole proprietor ❑ Corporation ❑ Partnership F�empt ` ❑ Limited liability company.Enter the tax classification(D=disregarded entity,C=corporation,P=partnership)► I-1 payee o EG ❑ Other(see instructions) e cAddress(number,street,and apt.or suite no.) Requester's name and address(optional) 7.) City,state,and ZIP code a rn ct List account number(s)here(optional) Co Part I Taxpayer Identification Number(TIN) Enter your TIN in the appropriate box.The TIN provided must match the name given on Line 1 to avoid Social security number backup withholding. For individuals,this is your social security number(SSN). However,for a resident alien,sole proprietor,or disregarded entity,see the Part I instructions on page 3. For other entities, it is your employer identification number(EIN).If you do not have a number,see How to get a TIN on page 3. or Note. If the account is in more than one name,see the chart on page 4 for guidelines on whose Employer identification number number to enter. Part II Certification Under penalties of perjury, I certify that: 1. The number shown on this form is my correct taxpayer identification number(or I am waiting for a number to be issued to me),and 2. I am not subject to backup withholding because:(a) I am exempt from backup withholding, or(b)I have not been notified by the Internal Revenue Service(IRS)that I am subject to backup withholding as a result of a failure to report all interest or dividends, or(c)the IRS has notified me that I am no longer subject to backup withholding,and 3 I am a U.S. citizen or other U.S, person(defined below). Certification instructions.You must cross out item 2 above if you have been notified by the IRS that you are currently subject to backup withholding because you have failed to report all interest and dividends on your tax return. For real estate transactions, item 2 does not apply. For mortgage interest paid, acquisition or abandonment of secured property, cancellation of debt, contributions to an individual retirement arrangement(IRA),and generally, payments other than interest and dividends,you are not required to sign the Certification,but you must provide your correct TIN. See the instructions on page 4. Sign Signature of Here u.s.person ► Date P. General Instructions Definition of a U.S. person. For federal tax purposes, you are considered a U.S.person if you are: Section references are to the Internal Revenue Code unless • An individual who is a U.S.citizen or U.S. resident alien, otherwise noted. • A partnership, corporation,company, or association created or Purpose of Form organized in the United States or under the laws of the United A person who is required to file an information return with the States, IRS must obtain your correct taxpayer identification number(TIN) • An estate(other than a foreign estate), or to report,for example,income paid to you, real estate • A domestic trust(as defined in Regulations section transactions, mortgage interest you paid, acquisition or 301.7701-7). abandonment of secured property,cancellation of debt, or Special rules for partnerships. Partnerships that conduct a contributions you made to an IRA. trade or business in the United States are generally required to Use Form W-9 only if you are a U.S. person(including a pay a withholding tax on any foreign partners'share of income resident alien),to provide your correct TIN to the person from such business. Further, in certain cases where a Form W-9 requesting it(the requester)and,when applicable,to: has not been received, a partnership is required to presume that 1.Certify that the TIN you are giving is correct(or you are a partner is a foreign person, and pay the withholding tax. waiting for a number to be issued), Therefore, if you are a U.S. person that is a partner in a 2.Certify that you are not subject to backup withholding, or partnership conducting a trade or business in the United States, provide Form W-9 to the partnership to establish your U.S. 3.Claim exemption from backup withholding if you are a U.S. status and avoid withholding on your share of partnership exempt payee. If applicable,you are also certifying that as a income. U.S. person, your allocable share of any partnership income from The person who gives Form W-9 to the partnership for a U.S.trade or business is not subject to the withholding tax on foreign partners' share of effectively connected income. purposes of establishing its U.S. status and avoiding withholding on its allocable share of net income from the partnership Note.If a requester gives you a form other than Form W-9 to conducting a trade or business in the United States is in the request your TIN, you must use the requester's form if it is following cases: substantially similar to this Form W-9. • The U.S. owner of a disregarded entity and not the entity, Cat.No.10231X Form W-9 (Rev.10-2007) Form W-9(Rev.10-2007) Page 2 • The U.S. grantor or other owner of a grantor trust and not the 4.The IRS tells you that you are subject to backup trust, and withholding because you did not report all your interest and • The U.S. trust(other than a grantor trust)and not the dividends on your tax return(for reportable interest and beneficiaries of the trust. dividends only), or Foreign person. If you are a foreign person, do not use Form 5.You do not certify to the requester that you are not subject W-9. Instead, use the appropriate Form W-8(see Publication to backup withholding under 4 above(for reportable interest and 515,Withholding of Tax on Nonresident Aliens and Foreign dividend accounts opened after 1983 only). Entities). Certain payees and payments are exempt from backup Nonresident alien who becomes a resident alien.Generally, withholding. See the instructions below and the separate only a nonresident alien individual may use the terms of a tax Instructions for the Requester of Form W-9. treaty to reduce or eliminate U.S.tax on certain types of income. Also see Special rules for partnerships on page 1. However,most tax treaties contain a provision known as a Penalties "saving clause." Exceptions specified in the saving clause may permit an exemption from tax to continue for certain types of Failure to furnish TIN.If you fail to furnish your correct TIN to a income even after the payee has otherwise become a U.S. requester, you are subject to a penalty of$50 for each such resident alien for tax purposes. failure unless your failure is due to reasonable cause and not to If you are a U.S.resident alien who is relying on an exception willful neglect. contained in the saving clause of a tax treaty to claim an Civil penalty for false information with respect to exemption from U.S.tax on certain types of income, you must withholding.If you make a false statement with no reasonable attach a statement to Form W-9 that specifies the following five basis that results in no backup withholding,you are subject to a items: $500 penalty. 1.The treaty country. Generally, this must be the same treaty Criminal penalty for falsifying information.Willfully falsifying under which you claimed exemption from tax as a nonresident certifications or affirmations may subject you to criminal alien. penalties including fines and/or imprisonment. 2.The treaty article addressing the income. Misuse of TINs.If the requester discloses or uses TINs in 3. The article number(or location) in the tax treaty that violation of federal law,the requester may be subject to civil and contains the saving clause and its exceptions. criminal penalties. 4.The type and amount of income that qualifies for the exemption from tax. Specific Instructions 5.Sufficient facts to justify the exemption from tax under the Name terms of the treaty article. Example.Article 20 of the U.S.-China income tax treaty allows If you are an individual, you must generally enter the name an exemption from tax for scholarship income received by a shown on your income tax return. However, if you have changed Chinese student temporarily present in the United States. Under your last name, for instance, due to marriage without informing U.S. law,this student will become a resident alien for tax the Social Security Administration of the name change,enter purposes if his or her stay in the United States exceeds 5 your first name,the last name shown on your social security calendar years. However, paragraph 2 of the first Protocol to the card, and your new last name. U.S.-China treaty(dated April 30, 1984)allows the provisions of If the account is in joint names, list first, and then circle,the Article 20 to continue to apply even after the Chinese student name of the person or entity whose number you entered in Part I becomes a resident alien of the United States. A Chinese of the form. student who qualifies for this exception(under paragraph 2 of Sole proprietor. Enter your individual name as shown on your the first protocol)and is relying on this exception to claim an income tax return on the"Name" line. You may enter your exemption from tax on his or her scholarship or fellowship business,trade, or"doing business as(DBA)"name on the income would attach to Form W-9 a statement that includes the "Business name" line. information described above to support that exemption. If you are a nonresident alien or a foreign entity not subject to Limited liability company(LLC).Check the"Limited liability backup withholding, company"box only and enter the appropriate code for the tax p g,give the requester the appropriate classification("D"for disregarded entity, "C"for corporation, "P" completed Form W-8. for partnership)in the space provided. What is backup withholding?Persons making certain payments For a single-member LLC(including a foreign LLC with a to you must under certain conditions withhold and pay to the domestic owner)that is disregarded as an entity separate from IRS 28% of such payments.This is called"backup withholding." its owner under Regulations section 301.7701-3, enter the Payments that may be subject to backup withholding include owner's name on the"Name"line. Enter the LLC's name on the interest,tax-exempt interest, dividends, broker and barter "Business name"line. exchange transactions, rents, royalties,nonemployee pay,and certain payments from fishing boat operators. Real estate For an LLC classified as a partnership or a corporation, enter transactions are not subject to backup withholding. the LLC's name on the"Name" line and any business,trade, or You will not be subject to backup withholding on payments DBA name on the"Business name"line. you receive if you give the requester your correct TIN,make the Other entities. Enter your business name as shown on required proper certifications,and report all your taxable interest and federal tax documents on the"Name"line.This name should dividends on your tax return. match the name shown on the charter or other legal document creating the entity. You may enter any business,trade, or DBA Payments you receive will be subject to backup name on the"Business name" line. withholding if: Note.You are requested to check the appropriate box for your 1.You do not furnish your TIN to the requester, status(individual/sole proprietor, corporation, etc.). 2.You do not certify your TIN when required(see the Part II Exempt Payee instructions on page 3 for details), 3.The IRS tells the requester that you furnished an incorrect If you are exempt from backup withholding, enter your name as TIN, described above and check the appropriate box for your status, then check the"Exempt payee"box in the line following the business name, sign and date the form. Form W-9(Rev. 10-2007) Page 3 Generally, individuals(including sole proprietors) are not exempt Part I. Taxpayer Identification `rom backup withholding. Corporations are exempt from backup Number withholding for certain payments,such as interest and dividends. (TIN) Note. If you are exempt from backup withholding,you should Enter your TIN in the appropriate box.If you are a resident still complete this form to avoid possible erroneous backup alien and you do not have and are not eligible to get an SSN, withholding. your TIN is your IRS individual taxpayer identification number The following payees are exempt from backup withholding: (ITIN). Enter it in the social security number box. If you do not 1.An organization exempt from tax under section 501(a), any have an ITIN, see How to get a TIN below. IRA, or a custodial account under section 403(b)(7)if the account If you are a sole proprietor and you have an EIN,you may satisfies the requirements of section 401(0(2), enter either your SSN or EIN. However,the IRS prefers that you use your SSN. 2. The United States or any of its agencies or Ify single-member9 ou are a LLC that is disregarded as an instrumentalities, entity separate from its owner(see Limited liability company 3. A state,the District of Columbia, a possession of the United (LLC) on page 2), enter the owner's SSN(or EIN, if the owner States,or any of their political subdivisions or instrumentalities, has one). Do not enter the disregarded entity's EIN. If the LLC is 4.A foreign government or any of its political subdivisions, classified as a corporation or partnership, enter the entity's EIN. agencies,or instrumentalities, or Note. See the chart on page 4 for further clarification of name 5. An international organization or any of its agencies or and TIN combinations. instrumentalities. How to get a TIN.If you do not have a TIN, apply for one immediately.To apply for an SSN, get Form SS-5,Application Other payees that may be exempt from backup withholding include: for a Social Security Card,from your local Social Security Administration office or get this form online at www.ssa.gov.You 6.A corporation, may also get this form by calling 1-800-772-1213. Use Form 7. A foreign central bank of issue, W-7,Application for IRS Individual Taxpayer Identification 8. A dealer in securities or commodities required to register in Number,to apply for an ITIN, or Form SS-4,Application for the United States,the District of Columbia, or a possession of Employer Identification Number,to apply for an EIN.You can the United States, apply for an EIN online by accessing the IRS website at www.irs.gov/businesses and clicking on Employer Identification 9. A futures commission merchant registered with the Number(EIN)under Starting a Business.You can get Forms W-7 Commodity Futures Trading Commission, and SS-4 from the IRS by visiting www.irs.gov or by calling 10.A real estate investment trust, 1-800-TAX-FORM (1-800-829-3676). 11. An entity registered at all times during the tax year under If you are asked to complete Form W-9 but do not have a TIN, the Investment Company Act of 1940, write"Applied For" in the space for the TIN,sign and date the 12.A common trust fund operated by a bank under section form, and give it to the requester. For interest and dividend 584(a),12. payments,and certain payments made with respect at readily tradable instruments,generally you will have 60 days tor get a 13.A financial institution, TIN and give it to the requester before you are subject to backup 14.A middleman known in the investment community as a withholding on payments.The 60-day rule does not apply to nominee or custodian, or other types of payments. You will be subject to backup withholding on all such payments until you provide your TIN to 15. A trust exempt from tax under section 664 or described in the requester. section 4947. Note. Entering"Applied For"means that you have already The chart below shows types of payments that may be applied for a TIN or that you intend to apply for one soon. exempt from backup withholding.The chart applies to the Caution:A disregarded domestic entity that has a foreign owner exempt payees listed above, 1 through 15. must use the appropriate Form W-8. IF the payment is for... THEN the payment is exempt Part II. Certification for... To establish to the withholding agent that you are a U.S.person, Interest and dividend payments All exempt payees except or resident alien, sign Form W-9.You may be requested to sign for 9 by the withholding agent even if items 1, 4, and 5 below indicate Broker transactions Exempt payees 1 through 13. otherwise. Also,a person registered under For a joint account,only the person whose TIN is shown in the Investment Advisers Act of Part I should sign(when required). Exempt payees,see Exempt 1940 who regularly acts as a Payee on page 2. broker Signature requirements.Complete the certification as indicated Barter exchange transactions Exempt payees 1 through 5 in 1 through 5 below. and patronage dividends 1.Interest,dividend,and barter exchange accounts Payments over$600 required Generally, exempt payees opened before 1984 and broker accounts considered active during 1983.You must give your correct TIN, but you do not to be reported and direct 1 through 7 have to sign the certification. sales over$5,000' 2.Interest,dividend, broker,and barter exchange See Form toss-MISC,Miscellaneous Income,and its instructions. accounts opened after 1983 and broker accounts considered 2however,the following payments made to a corporation(including gross inactive during 1983.You must sign the certification or backup withholding will apply. If you are subject to backup withholding proceeds paid to an attorney under section 6045(f),even if the attorney is a corporation)and reportable on Form 1099-MISC are not exempt from and you are merely providing your correct TIN to the requester, backup withholding:medical and health care payments,attorneys'fees,and you must cross out item 2 in the certification before signing the payments for services paid by a federal executive agency. form. Form W-9(Rev.10-2007) Page 4 3. Real estate transactions.You must sign the certification. Secure Your Tax Records from Identity Theft You may cross out item 2 of the certification. a Identity theft occurs when someone uses your personal 4.Other payments.You must give your correct TIN, but you information such as your name, social security number(SSN),or do not have to sign the certification unless you have been other identifying information, without your permission,to commit notified that you have previously given an incorrect TIN. "Other fraud or other crimes.An identity thief may use your SSN to get payments"include payments made in the course of the a job or may file a tax return using your SSN to receive a refund. requester's trade or business for rents, royalties,goods(other than bills for merchandise),medical and health care services To reduce your risk: (including payments to corporations), payments to a • Protect your SSN, nonemployee for services, payments to certain fishing boat crew • Ensure your employer is protecting your SSN, and members and fishermen, and gross proceeds paid to attorneys • Be careful when choosing a tax preparer. (including payments to corporations). 5. Mortgage interestpaid byCall the IRS at 1-800-829-1040 if you think your identity has you,acquisition or been used inappropriately for tax purposes. abandonment of secured property,cancellation of debt, qualified tuition program payments(under section 529), IRA, Victims of identity theft who are experiencing economic harm Coverdell ESA,Archer MSA or HSA contributions or or a system problem,or are seeking help in resolving tax distributions,and pension distributions.You must give your problems that have not been resolved through normal channels, correct TIN,but you do not have to sign the certification. may be eligible for Taxpayer Advocate Service(TAS)assistance. You can reach TAS by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059. What Name and Number To Give the Requester Protect yourself from suspicious emails or phishing For this type of account: Give name and SSN of: schemes. Phishing is the creation and use of email and 1. Individual The individual websites designed to mimic legitimate business emails and 2. Two or more individuals Goint The actual owner of the account or, websites.The most common act is sending an email to a user account) if combined funds,the first falsely claiming to be an established legitimate enterprise in an individual on the account' attempt to scam the user into surrendering private information 3. Custodian account of a minor The minor° that will be used for identity theft. (Uniform Gift to Minors Act) The IRS does not initiate contacts with taxpayers via emails. 4. a. The usual revocable savings The grantor-trustee Also,the IRS does not request personal detailed information trust(grantor is also trustee) through email or ask taxpayers for the PIN numbers, passwords, b.So-called trust account that is The actual owner or similar secret access information for their credit card, bank,or not a legal or valid trust under other financial accounts. state law 5. Sole proprietorship or disregarded The owner' If you receive an unsolicited email claiming to be from the IRS, entity owned by an individual forward this message to phishing@irs.gov. You may also report For this type of account: Give name and EIN of: misuse of the IRS name, logo, or other IRS personal property to the Treasury Inspector General for Tax Administration at 6. Disregarded entity not owned by an The owner 1-800-366-4484. You can forward suspicious emails to the individual Federal Trade Commission at:spam@uce.gov or contact them at 7. A valid trust,estate,or pension trust Legal entity' www.consumer.gov/idtheft or 1-877-IDTHEFT(438-4338). 8. Corporate or LLC electing The corporation corporate status on Form 8832 Visit the IRS website at www.irs.gov to learn more about 9. Association,club,religious, The organization identity theft and how to reduce your risk. charitable,educational,or other tax-exempt organization 10. Partnership or multi-member LLC The partnership 11. A broker or registered nominee The broker or nominee 12.Account with the Department of The public entity Agriculture in the name of a public entity(such as a state or local government,school district,or prison)that receives agricultural program payments 'List first and circle the name of the person whose number you furnish If only one person on a joint account has an SSN,that person's number must be furnished. 2Circle the minor's name and furnish the minor's SSN. 'You must show your individual name and you may also enter your business or"DBA" name on the second name line.You may use either your SSN or EIN(it you have ore), but the IRS encourages you to use your SSN. 'List rust and circle the name of the trust,estate,or pension trust.(Do not furnish the TIN of the personal representative or trustee unless the legal entity itself is not designated in the account title.)Also see Special rules for partnerships on page 1. Note. If no name is circled when more than one name is listed, the number will be considered to be that of the first name listed. Privacy Act Notice Section 6109 of the Internal Revenue Code requires you to provide your correct TIN to persons who must file information returns with the IRS to report interest, dividends,and certain other income paid to you,mortgage interest you paid,the acquisition or abandonment of secured property,cancellation of debt,or contributions you made to an IRA,or Archer MSA or HSA.The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. The IRS may also provide this information to the Department of Justice for civil and criminal litigation,and to cities,states,the District of Columbia,and U.S. possessions to carry out their tax laws.We may also disclose this information to other countries under a tax treaty,to federal and state agencies to enforce federal nontax criminal laws,or to federal law enforcement and intelligence agencies to combat terrorism. You must provide your TIN whether or not you are required to file a tax return.Payers must generally withhold 28%of taxable interest,dividend,and certain other payments to a payee who does not give a TIN to a payer.Certain penalties may also apply. ADDENDUM FOR "SAFEKEEPING ONLINE" THIS ADDENDUM FOR"SAFEKEEPING ONLINE" (this "Addendum") is entered into as of the day of , , by and between FROST BANK, a Texas state bank (the "Bank") and , a (the "Depositor"). WHEREAS, the Bank and the Depositor have executed a Safekeeping Agreement (Corporate — No Foreign Securities), as such agreement may have been amended from time to time (the "Safekeeping Agreement"), and such Safekeeping Agreement has not expired or been terminated by either party; and, WHEREAS, the Bank and the Depositor desire to effect certain communications under the Safekeeping Agreement electronically rather than on paper or in documentary form by means of the Bank's"Safekeeping Online"service, upon the terms and conditions provided in this Addendum; NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Bank and the Depositor agree as follows: SECTION 1 CAPITALIZED TERMS All capitalized terms used in this Addendum which are not defined herein shall have the same meanings as set forth in the Safekeeping Agreement. SECTION 2 ACCOUNT ACCESS AND DEPOSITOR COMMUNICATIONS (a) The Depositor may utilize the Bank's Safekeeping Online web site on the Internet, at https://portal.sungardsn.com/044 (the"Website"), to access Account statements,billing statements, forms relating to the Account, and other information relating to the Account and the Securities, as well as certain communications and notices that may be provided by the Bank under the Safekeeping Agreement (collectively, "Account Access"). (b) In addition, the Depositor may utilize the Website to provide instructions and effect other communications regarding the Account and/or the Securities, to effect other communications under the Safekeeping Agreement (collectively, "Depositor Communications"). (c) Account Access and Depositor Communications under the Safekeeping Agreement may be effected online by an Authorized Representative. An Authorized Representative will be required to enter the Access Code (defined hereafter) plus their User ID (defined hereafter) to initiate Account Access or Depositor Communications. SECTION 3 BANK COMMUNICATIONS The Bank will utilize the Website to provide Account statements, billing statements, forms relating to the Account, and other information regarding the Account and/or the Securities, in lieu of on paper or in documentary form (collectively, "Account Information"). In addition, to the extent permitted by applicable law, the Bank may deliver all notices, disclosures, amendments or other communications under the Safekeeping Agreement to the Depositor by electronic mail ("e-mail") at the Depositor's e-mail address as provided to the Bank, or by a posting on the Website (collectively, "Bank Communications"). Rev 102510 SECTION 4 E-MAIL (a) The Depositor may send e-mail to the Bank and receive e-mail from the Bank. E-mail transmitted by the Depositor to the Bank may not be delivered to the Bank immediately. If the Depositor needs to contact the Bank immediately to report an unauthorized use of the Depositor's Access Code (defined hereafter) or a User ID (defined hereafter), to report unauthorized Account access, or for any other reason, the Depositor shall contact the Bank as instructed on the Website, by telephone at the telephone number of the Bank's Custody Services Department, or in person. The Bank will not be responsible for acting on or responding to any e-mail request made until the Bank actually receives the Depositor's e-mail message and the Bank has a reasonable opportunity to act. The Depositor should check its e-mail regularly as the Bank may attempt to notify the Depositor by e- mail about the existence of new Account Information on the Website, or in the event of any technical difficulties or other occurrence that may affect the Bank's services under the Safekeeping Agreement or this Addendum. (b) All e-mail communications in connection with the Safekeeping Agreement shall be sent to the applicable e-mail address indicated below. If to the Bank: webhelpCafrostbank.com If To the Depositor: SECTION 5 AUTHORIZATIONS (a) By providing the Bank the appropriate authorization form found at Schedule 1 to this Addendum (the "Authorization Form") containing the signature of any person authorized to sign the Safekeeping Agreement or this Addendum on behalf of the Depositor, the Depositor authorizes the individual(s) named therein as Authorized Persons to effect Account Access or Depositor Communications under this Addendum. The Bank will administer the granting of access to the Website by Authorized Persons pursuant to Section 6 hereof. (b) THE DEPOSITOR AGREES THAT THE BANK WILL RELY ON THE MOST CURRENT AUTHORIZATION FORM SUPPLIED BY THE DEPOSITOR AND, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BANK SHALL HAVE NO LIABILITY FOR UNAUTHORIZED ACCOUNT ACCESS OR DEPOSITOR COMMUNICATIONS EFFECTED BY THOSE INDIVIDUALS NAMED AS AUTHORIZED REPRESENTATIVES IN AUTHORIZATION FORMS. THE DEPOSITOR AGREES THAT IN THE EVENT THE DEPOSITOR DESIRES TO NAME ADDITIONAL AUTHORIZED REPRESENTATIVES OR REMOVE THE AUTHORITY OF AN EXISTING AUTHORIZED REPRESENTATIVE, THE DEPOSITOR MUST PROVIDE THE BANK WITH A NEWLY EXECUTED AUTHORIZATION FORM ADVISING THE BANK OF THE CHANGE IN AUTHORITY GRANTED. (d) Delivery of Documents. The Depositor agrees to deliver, in a form and content satisfactory to the Bank, such additional executed, or as the case may be, certified, documents required by the Bank from time to time in order to continue to receive services under the Safekeeping Agreement or this Addendum, including Authorization Forms and implementation documents. Rev 102510 SECTION 6 SECURITY PROCEDURES (a) The Bank and the Depositor will agree in writing from time to time to one or more security procedures ("Security Procedures") that must be used by the Bank and the Depositor in connection with this Addendum. Security Procedures offered by the Bank are described herein. The Depositor is responsible for the establishment and maintenance of procedures reasonably adapted to insure the confidentiality of Security Procedures. If the Depositor or its agents have reason to believe that any Security Procedure has or may have become known by unauthorized persons (whether or not employed by the Depositor), the Depositor shall immediately notify the Bank by telephone and confirm that oral notification in writing to the Bank within twenty-four (24) hours of the oral notification. The Bank will replace the Security Procedures in accordance with the Bank's standard security requirements. To the maximum extent permitted by applicable law, the Depositor will be solely liable for all Account Access and Depositor Communications effected before the Bank has received such notification and has had a reasonable opportunity to act on such notification. The Bank reserves the right to change any or all of the Security Procedures offered and/or used at any time by giving oral or written notice to the Depositor. The Depositor agrees that its effecting of Account Access or Depositor Communications after the Bank provides notice of such changes will be the Depositor's acceptance of the new Security Procedures. The Depositor acknowledges that the purpose of Security Procedures is to verify the authorized nature of Account Access and the authenticity of Depositor Communications, not to detect errors in transmission or content. (b) The Bank will assign the Depositor an access code (the"Access Code") to be used to initiate all Account Access and Depositor Communications hereunder. Furthermore, the Bank will issue individual identification numbers (the "User ID") to each person named by the Depositor as an Authorized Representative pursuant to an Authorization Form. Each Authorized Representative will be required to enter the Access Code plus their User ID to initiate Account Access or Depositor Communications online pursuant to this Addendum. (c) The Access Code will be assigned to the Depositor upon execution of this Addendum and sent by e-mail to the individual authorized to sign this Addendum on behalf of the Depositor and who so signs this Addendum. The Depositor is responsible for providing Authorized Representatives with the Access Code. (d) THE DEPOSITOR AGREES TO KEEP THE ACCESS CODE CONFIDENTIAL AND FOR USE ONLY AS PROVIDED FOR HEREIN. THE BANK STRONGLY RECOMMENDS THAT THE DEPOSITOR NOT DISCLOSE THE ACCESS CODE OR USER IDS TO ANY THIRD PARTIES NOT AUTHORIZED TO EFFECT ACCOUNT ACCESS OR DEPOSITOR COMMUNICATIONS PURSUANT TO THIS ADDENDUM. USE OF THE ACCESS CODE AND USER ID(S) BY THE DEPOSITOR OR BY ANY OTHER PERSON WITH THE AUTHORIZATION OF THE DEPOSITOR WILL BE CONSIDERED THE SAME AS THE DEPOSITOR'S WRITTEN SIGNATURE AUTHORIZING THE BANK TO COMPLETE ANY TRANSACTION OR REQUEST CONTAINED IN A DEPOSITOR COMMUNICATION. The Depositor agrees that any Account Access or Depositor Communication initiated by use of the Access Code and a User ID will be subject to and governed by this Addendum. SECTION 7 EFFECTS OF COMMUNICATIONS (a) To the extent permitted by applicable law, the parties agree that each Depositor Communication and Bank Communication will be binding and enforceable under the Safekeeping Agreement to the same extent as if it were delivered to the other party in writing by facsimile, courier service, regular mail or in person. The parties agree that a Depositor Communication submitted online with an Authorized Representative's User ID will be considered a "writing" or"in writing" and to have been "signed", as such terms are used under applicable law. Any computer printout of such Depositor Communication will be considered an "original"when maintained in the normal course of business and will be legally admissible as between the parties to the same extent and under the same conditions as other business records maintained in documentary form, including, without limitation, Rev 102510 • with regard to the business records exception to the hearsay rule, the best evidence rule, and the Statute of Frauds. (b) The Bank will honor the Depositor's transactions and instructions contained in a Depositor Communication only when the Depositor has complied with this Addendum and the Safekeeping Agreement. The Bank will be under no obligation to complete any transaction or instruction that (i) is not in accordance with any condition requested by the Depositor and agreed to by the Bank, (ii) the Bank has reason to believe may not be authorized by the Depositor, (iii) the Bank has reason to believe may contain errors and/or inconsistent instructions, (iv) involves Securities or funds subject to a hold, dispute or legal process preventing their release or withdrawal, (v) violates, in the opinion of the Bank, any provision of any present or future risk control program of applicable regulators or any other applicable federal or state law, (vi) does not comply with any other requirement stated in this Addendum or the Safekeeping Agreement or any Bank policy, procedure or practice, and/or(vii) for the protection of the Bank or the Depositor, the Bank has reasonable cause not to honor. (c) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BANK WILL NOT BE LIABLE FOR ANY TRANSACTION OR INSTRUCTION, OR ANY LOSS ARISING THEREFROM, ERRONEOUSLY TRANSMITTED THROUGH A DEPOSITOR COMMUNICATION BY THE DEPOSITOR OR ANYONE AUTHORIZED BY THE DEPOSITOR HEREUNDER,OR CONTAINING AN ERROR IN CONTENT AS PROVIDED BY THE DEPOSITOR OR ANYONE AUTHORIZED BY THE DEPOSITOR HEREUNDER, REGARDLESS OF WHETHER THE BANK FOLLOWED THE SECURITY PROCEDURES AGREED UPON HEREIN. SECTION 8 HARDWARE AND SOFTWARE REQUIREMENTS (a) To effect Account Access or Depositor Communications online, the Depositor must own or have access to the following hardware and software (collectively, the"Computer"): Hardware Requirements: • At least 400 MHZ Pentium PC or equivalent • At least 15" monitor with 824 by 632 pixel display, 17"with 1024x768 preferred • Printer • At least 16 Mbytes of memory, 32 Mbytes preferred • At least 1 Gbyte of disk space, 2 Gbytes preferred • Keyboard • Pointer Device Software Requirements for PC: • Internet Web Browsers o Netscape Navigator 6.2 or later o Microsoft Explorer 6.0 or later o Frames, JavaScript and Cookies should be enabled • Acrobat Reader 3.0 and browser plug-ins (b) The Depositor understands that if a Computer is used that does not comply with these specifications, the security of the Depositor's Account Access or Depositor Communications may be compromised. The Depositor further understands that installation, maintenance, and operation of the Depositor's Computer is the Depositor's responsibility. The Bank is not responsible for any errors or failures of the Depositor's Computer, including but not limited to, any virus or Internet related problems that may be associated with the Depositor's initiation or Account Access or Depositor Communications. The Bank reserves the right as encryption technology develops to impose further reasonable restrictions or requirements to maintain the appropriate level of security for the transactions contemplated hereunder and the Depositor agrees to abide by such restrictions or requirements or discontinue the services hereunder. SECTION 9 Rev 102510 PROPRIETARY PROPERTY (a) The Depositor acknowledges and agrees that all trademarks, trade names, service marks, copyrights, programs, specifications, software, systems designs, applications, routines, techniques, enhancements, software codes, test keys, security devices, Security Procedures, documentation, manuals, ideas and formulas (collectively, referred to herein as the"Proprietary Property") utilized or developed and provided by the Bank or Bank vendor in connection with this Addendum or the Safekeeping Agreement, whether online via the Website or otherwise, are proprietary property of the Bank or Bank vendor having great commercial value. The Depositor shall have no ownership interest in the Proprietary Property or other rights related thereto, and the Depositor agrees to keep the Proprietary Property confidential at all times. (b) The Depositor may use the Proprietary Property only for the purposes for which it was provided by the Bank and shall notify the Bank immediately of any breach of this Section 9 of which it becomes aware. (c) The Bank may require the Depositor to license specific software in order to effect Account Access or Depositor Communications hereunder. Unless agreed to the contrary between the parties at the time the use of the software is contracted for, upon termination of this Addendum and/or the Safekeeping Agreement, the Depositor agrees to immediately cease using any related Proprietary Property. Additionally, and unless contrary to prior agreement regarding the software, the Depositor agrees to erase any software comprising the Proprietary Property and relating to the Safekeeping Agreement or this Addendum to the extent such software is stored in the Depositor's computers, and, at the request of the Bank, to return all copies of all items relating to the Proprietary Property which are in the possession of the Depositor. Alternatively, and at the Bank's option, the Depositor will destroy all copies of all items relating to the Proprietary Property which are in the possession of the Depositor and, upon request from the Bank, provide written certification to the Bank that such destruction has occurred. SECTION 10 CONFIDENTIALITY The Depositor and the Bank each agree that all information concerning the other party or parties which comes into its possession in connection with the performance of the Safekeeping Agreement or this Addendum including, but not limited to, software licensed to the Depositor by the Bank, user guides, and Security Procedures including Access Codes and User IDs, will be maintained as confidential and shall not be used or divulged to any other party except as may be appropriate to enable the Bank to provide the services hereunder or as required by applicable law. Unless the Depositor objects in writing and notwithstanding the above, the Depositor agrees that the Bank may share any information concerning the Depositor's Account with any of the Bank's affiliates, subsidiaries, holding companies, service providers, and state or federal regulators. Notwithstanding the foregoing, the Bank agrees at all times to act in accordance with its stated Customer Privacy Policy, as amended from time to time, which is available at any branch office of the Bank and on the Bank's primary web site at www.frostbank.com. SECTION 11 DEPOSITOR RECORDS This Addendum will not relieve the Depositor of any obligation imposed by law, contract, or otherwise regarding the maintenance of records or from employing adequate audit, accounting and review practices. The Depositor shall retain and provide to the Bank upon request all information necessary to remake or reconstruct any Depositor Communication for at least ten (10) Business Days following receipt by the Bank of the Depositor Communication; provided, however, that the Bank's records, kept in the ordinary course of business, will be presumed to accurately reflect the contents of Depositor Communications and, in the absence of manifest error, will be binding and conclusive. Rev 102510 SECTION 12 LIMITATION OF LIABILITY (a) THE DEPOSITOR ACKNOWLEDGES THAT NO EXPRESS OR IMPLIED WARRANTY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, IS MADE BY THE BANK WITH RESPECT TO ANY SERVICE HEREUNDER AND THE BANK HEREBY DISCLAIMS ALL SUCH WARRANTIES. To the fullest extent permitted by applicable law, and without limiting the generality of the foregoing, the Bank shall not be liable at any time to the Depositor or any other person or entity for loss, charge, fee, penalty, expense or other damage resulting from any failure or delay of the performance of the Bank's responsibilities under the Safekeeping Agreement or this Addendum which is caused or occasioned by any act or thing beyond the Bank's reasonable control, including, without limitation, legal restraint, interruption of transmission or communication facilities, equipment failure, electrical or computer failure, war, emergency conditions, acts of God, fire, storm, or other catastrophe, or inability to obtain or delay in obtaining Internet access, or refusal or delay by a service provider or another bank or financial institution. In addition, the Bank shall be excused from any failure or delay in executing a transaction or instruction in a Depositor Communication hereunder, if such execution would result in the violation of any applicable state or federal law, rule, regulation or guideline. To the fullest extent permitted by applicable law, the Depositor agrees that the Bank shall not have any liability whatsoever for any loss caused by the act, error, or omission of the Depositor or any other person, including, without limitation, any service provider or vendor, any Internet access service provider, or any transmission or communications facility. The Depositor understands and agrees that the fees charged for the performance of the services under this Addendum and the Safekeeping Agreement have been established in contemplation of these limitations on liability. (b) The Depositor acknowledges that it is not possible for services provided by the Bank hereunder to be free of operator, program or equipment error, and that errors in processing and compiling Account data may occasionally occur, requiring adjustments. As such, the Depositor agrees to review and verify all results and to maintain adequate controls for insuring both the accuracy of data transmissions and the detection of errors. Unless otherwise required by law, the Bank's sole responsibility for reporting errors caused by it will be to reprocess information and statements for the applicable period in question and to submit corrected statements at its own expense to the Depositor. (c) The limitations on liability in this Section 12 are supplemental to those set forth in Section 11 of the Safekeeping Agreement, which shall continue to remain in full force and effect. SECTION 13 FEES AND EXPENSES Depositor agrees to promptly pay upon receipt of an invoice from the Bank all fees and expenses owing for the services provided under this Addendum. The fees and expenses to be charged for such services are set forth on the fee schedule comprising Exhibit A to the Safekeeping Agreement. All such fees and expenses shall be subject to the provisions of Section 9 of the Safekeeping Agreement. SECTION 14 MISCELLANEOUS (a) This Addendum is for the benefit of the Depositor and the Bank and is not intended to grant, and shall not be construed as granting, any rights to or otherwise benefiting any other person, except as expressly otherwise provided for in this Addendum or the Safekeeping Agreement. (b) This Addendum shall be governed by and construed in accordance with the laws of the State of Texas (without reference to its conflicts of law principles). In addition, any dispute arising from or related to the Depositor's Accounts with the Bank or the activities of the parties hereunder shall be governed by applicable federal laws and regulations and general commercial bank practices applicable to accounts such as the Accounts. Rev 102510 (c) Except as expressly modified hereby, the Safekeeping Agreement shall remain in full force and effect. In the event of any inconsistency between the terms of this Addendum and the terms of the Safekeeping Agreement, the terms of this Addendum shall govern and prevail. (d) This Addendum and its Schedule 1, and the Safekeeping Agreement and its Exhibit A, constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersedes all prior written or oral agreements, understandings and discussions of the parties with respect to such subject matter. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. "DEPOSITOR" By: Name: Title: FROST BANK By: Name: Title: Rev 102510 FROST BANK CAPITAL MARKETS DIVISION SAFEKEEPING ONLINE USER REGISTRATION FORM Schedule 1 Customer Name: Safekeeping Customer Number: User First Name: User Last Name User E-mail Address: email notices? Y I N User First Name: User Last Name User E-mail Address: email notices? Y/N User First Name: User Last Name User E-mail Address: email notices? Y/N User First Name: User Last Name User E-mail Address: email notices? Y/N Product Access: Safekeeping Extract I I Messenger Safekeeping Documents Trade Confirmations The individuals listed above are authorized to receive information regarding the safekeeping account. Authorized Signatory Date 1'= Frost ��►` Safekeeping Online 1:0©© R ©0© D What is Safekeeping Online? Safekeeping Online is an online service offered by Frost Bank that allows Capital Markets customers to: • View current and historical account statements • View current and historical detailed billing statements* • Communicate with us about trade settlements and pledging activities • Download a data file that reflects current holdings • Customize user access • Activity statements provided as requested Tips for Using Safekeeping Online The following tips will help you when using the service: • To navigate between pages within Safekeeping Online, use your browsers back/forward arrows • Required fields are marked in red text Messages cannot be sent without this information. • Recommended fields are market in black text • For a detailed description of the required fields, click on the Help link in Messenger Customer Support Internet Banking Specialists are available to assist you Monday - Friday from 8:30am to 9pm and Saturday from 9am to fpm CT. You can contact them by e-mail at webhelp@frostbank.com or toll-free at 1-877-714-4932. `Billing statements are only available to customers who are not currently billed through analysis. Safekeeping Online ©©© R ©01© D Accessing Safekeeping Online 1.Type http:l/www.frostbank.com into your e., s. dur r 1111.M.+ .w rr browser's address bar. 2. The Frost Bank homepage is displayed. 3. Hover your arrow over the Logins link located in `''" navigation bar at the topof the screen. NOW Cll.WC M[Le•OU,0001,1 -'�-- • 9 4. The Online Services Login choices are ! •. displayed. 5. Select Capital Markets Online.This will direct you to the Safekeeping Online login screen*. r..rn To protect the security of your personal account information, we require you to use either Netscape version 4.0 or higher or Internet Explorer version 4.0 or higher. These browser versions support the use of 128-bit Secure Socket Layer(SSL)encryption technology. The secured communication connection Frost Bank Homepage provided by SSL helps ensure transmitted information remains confidential. *Safekeeping Online can directly be accessed via. https://portal.sungardsn.com/044 yeti a to, r w.e r+ s. . . p 0 a d! s d z- a Oat r. - ,.. _e+.rWarr re r ...-- ...d....+....., ..,. 111,1_,(1...* • NOW C•N WC NMI.YOU Nadir ,._ Online Services Login choices displayed Safekeeping Online ©©© R DUi Logging in to Safekeeping Online 1. Enter your User ID and Password in the ..,•.=-a': 3 r-4 appropriate boxes.* 2. Click the Login button. "` �— 'The fields for User ID and Password are case sensitive. JM rwn. w 11 •. •• G.!R Safekeeping Online Log In Page Selecting a Safekeeping Service y+a From the Safekeeping Online Welcome page, you - 0 _ ="-' can choose which service you would like to use. 1. Click on the View Content link on the left. 2.View New Content,View All Content, and a=mal Safekeeping Extract and Internet SK will display. Safekeeping Orl:re 3. Messenger is also located on the left. ----------- View New Content and View All.Content offers access to your account information. Safekeeping Extract allows you to access a data file that reflects your current holdings. Internet SK allows you to access documents online. 4-6 '.- Messenger allows you to communicate with Frost Safekeeping Online welcome Page Bank about your trade settlements and pledging activities. Helpful Links offers a direct connection to websites with information that can assist you in conducting your business. Safekeeping Online ®©® R@MUD Using the View List From the Safekeeping Online Welcome Page, you o mow-.^-=o Z-a can View New Content and View All Content to a access to your account information. View New --, Content displays only content that has not been SUEZ= ceM.Mviewed by you, or any other user from your firm. %o-�`�".Its., View All Content displays all content whether it �„p�, �� , has been view or not. essecomdinimm... "`+` 14•0101111 the View List ..,.,.......s •2006•11..• You can use the view list to display records that ..... »-�� match your selection criteria. The Default View is a system-defined view, available to all Safekeeping Online users, which shows all the records for the area you are working in. You can t- °- �-- also create your own saved views. They are listed in the View list along with the default view. You can use both default view and your saved views New Content List Page as the basis for viewing records. To create your custom view, select New View from the view list view. View Options section: Whenever you save a view, you must give it a unique name in the first field. You may also choose the number of records to display on each page. Column Layout section: You can customize your view by adding, c_11111111 c°^�'".,"-""..6'"'—NMa removing, or by changing the columns and their order. When you select the custom view,the list of records returned, will show the columns in the `. 4'—at-�='.r order selected. Ge..�Mw,.w Iwi�✓r i I:A+M1w+ . ?r=. - , • Sorting Options section: I M`= You can choose how to sort the records in your view. The example shown changes the list to group all documents loaded on the same day together. Save your custom view by clicking on the save button on the bottom right corner. Content Search Safekeeping Online ®®© R ©MBD . , Editing Custom Views .... o•r: v.., ....,car c-oe You may edit your custom views by choosing that ® N.,.canton Ior view in the drop down menu, then clicking on the edit button to the right of the view. .,..0.000.200.0 0001.10 ... 1010.011110 e..»! 101001.000 0000. ....» w.,.,..�.,... .... ..o., S..,.3s-a New Content List Page a, , �.. _ ,w., ,..r.<,........,....... 0.0 . . o.. 3 3 O =11111111 came.sot VOW Vow Una. WE •-oaf .,,_. 3f•:w3 Content:Edit View Page Safekeeping Online ©©© R ©El DLI Using Safekeeping Extract ' "-~-�- - - -•^-�- Safekeeping Extract allows you to access a data file that T k T •••'• M+ T o: st••• •-- 3 --._� reflects your current holdings. e.• ., 1. Click Safekeeping Extract under View Content. s°o•"*a,ennw 2. The Safekeeping Extract List is displayed. +.wr�''I. •.amu w... r�.Mr• .wawtlab.lM• OwWa IaM.MIn•1 eas111.0. larlirOaN -111C!31 Safekeeping Extract List Page •The safekeeping extract file is an XML text file. ›• o-w o—T..—C3 Z- •The extract is produced on a daily basis and always Frot.ori. ... r_ reflects your most current holdings. •Only the most current file is viewable online. o...aaa mamma-gym-�•--t-�.�.. �-«.- •The file includes the total active, settled positions �.�....., ,. .".0 s. 1..;A.. ON l,samb ,:2 ,,. MNN1112012> (settled par>0)for each holding. own. A _ .,totemsM�. :.>� ION 7."" • If holdings exist in multiple locations,the system . - .1411, �„•,n combines all locations and displays the total position in - A2..». "am• n a single line item on the extract file. NEW., 610.2,21 11,0.1115 "a'” IOWAN "°"' Me". •1.0. •The file includes holdings for sub-customers. TMMM. . •MY1•. OMIl.C* MOW,.T G X.2020 14.14.62, __ OMAN r Awa nVe02.2 •a.s n.am w• +a arow• ,rte NEMO 0,006 1. ""'� •The data displays in a table that can be sorted by w.u.♦ n.rw watt, auto maw. M,.rn.rA m••sMc N, .ram • fliNaMN column. Each column has a descriptive heading and is 1414 .:3�a d , formatted according to the type of data, e.g., dollars, ir... dates, etc. Safekeeping Downlcad Page Safekeeping Online ©©© R ©©© 101 D O,%I.to oo woo totoor oat opt too.14 .142- "" Using Safekeeping Extract with Excel ..Ci:-- f.eU - • •• • a}...f.!4 -Z r .` To use the file with Excel, you must have Excel :gz e " ....fr.•x wteo,n ••xflx m�.� �•I . . 2000 or higher installed on your PC. E 11.4...; .� ,r., a.•. u' Mt. , b,, r=z, •;.01•� •:71G.4.Wi.>N_MOVE ,K,;,`.,C wm,xci /0•z . «e• Y-"Ma. -tap.. ,••",1,, e.•Hrt.0 r.RA A 1 M r„1•Yar Ka•". """" 'n ' "M •"4T""` �9t t ,EA To extract the file to Excel, select"Excel' at the ,nur...1 •a,rK.. War n:s.n •n::a•.tt .ae rmx •atibm o .00•20 w IN..4<. •0•n•--.. +.;sv ars:•s....w"c ..••raQc,� .1,Or7 mss .1.S. ...:1,°""`""_..�"e. -"^'. • mcm� mew bottom of the Safekeeping Download screen. ..▪...r• .9....s «s•.m-.t>.,•,_..w:x_ mr'i•ve s .m..imm a IOC•4 Based on how you have your Windows Operating System configured for.xls type files,the new file will either load to Excel from within Internet Explorer or will load directly to Excel in a new window. ' Excel will treat the file as a web page format(html) "•' when the file is saved to your PC. Use the Excel `' ;s."'� ••. .__ "Save As"function to change the file type to Excel workbook(.xls) in order to obtain the properties of Safekeeping Extract-Excel Excel. ILII M..Ya...•s.w .oRs Saving the file as a Comma Separated Value file cfir a oar i•*•-• . •• Fa lift i•a '3 Mira' -. - To save the file as CSV, select'CSV at the bottom of , •ftres,r4 0547••«»a • 4.. AntErtIP r 0•cT 47fni 1Sk Download screen. You are them prompted to 1'-.w MM.,' ciOlsr ivc z:~i.+✓o-�:..u v••ne:M. •n MC Si +re`w2, oy. • .0•-1, KY-,J•.�..�...�, .•R}2.„•= PRIM.31:• •a'"'6> 'ay either save or open the file. The default file name for a ••••e..r. .y. .•_a r...n.xe •.r..11, m.mv vu mm -n.:e, •>•� .• r~�^Itr•=. •��_•mmm 11[15 DO the file is SafekeepingHoldings.csv. You can change es xs:,•, •s1-- . . , ,nc,:,• .v.... axmn•••4••••• z m _ i a aLr•••4••••• - 4116)16 ..me.,ssa..Fii-E•e�.:A-:u-AL :Arm.r"a S.Y saI'SIC •.,i the file name. . . • If you choose to open the file, your operating system r (most likely Windows)will open the file based on its file •• association for CSV type files. Most likely this will be Excel if it is installed on your PC. Otherwise, any text x editor(like Notepad)can open the file. .4.4.4.1r1 �r.1f v• � rs A Safekeeping Extract-CSV Saving the file as a PDF of XML file The Sk Download can also be saved in PDF or XML format. Both options are located at the bottom of the Sk Download screen. Safe<eeping Online ®®® R INEHOL Safekeeping Extract Data Descriptions NAME DESCRIPTION Account Customer number Acq Date Settlement date in As of Date Last processing date Call Date Next call date Call Price Call price Cost Principal cost Currency Currency code of holding Description 1 First line of security description Description 2 Second line of security description Factor Current factor Factor Eff Date Effective date of current factor Floating Rate Floating rate indicatory, y/n Market Date Market date Market Price Market price Maturity Maturity/stock date Next Int Amount Amount of interest due Next Int Date Next interest/stock exchange date Next Opt Call Date Next call date Next Opt Call Price Next call price Next Reset Date Nest rate reset date Paid Down Value Par Current par value of holding Pledge Amount Total amount of all pledged holdings Pledged Face Pledged amount, original face value Puttable Date First put date Puttable Price First put price Rate Current rate Receipt Receipt number Security ID CUSIP or Security ID Shares Number of shares Sub Account Sub customer account number Safekeeping Online L!IR ©LJ© D Using Internet SK Internet SK stores the following document types for 35 � r r •rte » a • o.: --- = calendar days: Forms �e Lia •Credit Advices rz=ccini int -- ---- --- •Maturity Notices _ - - • Pledge Notices =MP W - cssa _.,._ .. r w.....•cua.9 a.w o.... arrw. ..,.� V.... • Receipts M..,. .. . ...e9.9.9 90999 s ea-sae,- ~°" Statements •,r 991 9699 • �` 9.9,9 99999 , ¢= _ •Activity Statements, per your request 9 amion = = 2 =9 =• •Account Verifications Audit Verifications r.7.19.9 9.19E9i9i9•9999 s imam 1110162r. Mew.. 01.4.1r1 94•11,99.19990 tamen—.—.1196111241 9.99 ..=97 O 9.rant 9vory_pw..simil ' == =:9. You can request to receive an e-mail notification when :ter. smarm .91.19-,99999 new documents are posted. :a 9�....> To Access Internet SK: Internet SK List Pace 1. Click Internet SK under View Content. 2, The Internet SK List is displayed. Sorting Options: You can choose how to sort the records in your view. Click on the column title to sort the records by that field. •One click sorts the records in that column in ascending order. •Two clicks on the column title sorts the records in that column in descending order. r, Print: Select the document you want to print by clicking on the name of the document. The document will open in PDF format. Click the printer icon is located in the tool bar. *Billing statements are only available to customers who are not currently billed through analysis. Current Account Analysis customers will receive statements via analysis. -ad:r 9999. .-9999, tis 9999... '— SK document in PDF format Safekeeping Online R ©L IJ Using Messenger • 5. " Messenger is a secure, browser-based messaging system that allows you to quickly and easily send the following types of messages to your service •Cr. *aWO Provider. 1. Select Create Message on the left-hand side of the screen. Four Message types are displayed: • Purchase-Send purchase activity securely to Frost Bank •Sale-Send sales activity securely to Frost Bank • Maintenance-Send pledges and make changes to Safekeeping receipts •Message-Send text messages to Safekeeping .r ,,.•( staff u- r t.:..-. .. - Messenger Welcome Page I • . :.. 100 Sending a Purchase Message St 1. Select Purchase in the Messenge type drop- down box. Galt • '-�*^ - A 2. Enter the information in the fields provided.* r°ni 3. To send the message click Submit.** 4. Messenger displays the information sent. You can print a copy for your records. r *Required fields are marked in red text. Recommended -�i - fields are marked in black text. r-- **To clear your screen without sending a message, click �•-v— Reset. If you switch to another tab without clicking te...: Submit, the information you entered will be erased. C•R Messenger-Purchase Safekeeping Online LO®® R ®®®-a ® .„... ,., „ Sending a Sale Message O ^kms fir. - 1. Select Sale in the Message type drop-down box. ImesAMM 2. Enter the information in the fields provided.* ._ no r..r..�.r.- 3. To send the message click Submit." 4. Messenger displays the information sent. You r-----3' can print a copy for your records. M.— • *Required fields are marked in red text. Recommended fields are marked in black text **To clear your screen without sending a message, click Reset. If you switch to another tab without clicking P. Submit, the information you entered will be erased. Messenger-Sale >~--- ----��� Sending a Maintenance Message Os -- --3 Z-1 htc, ' • 1. Select Maintenance in the Message type drop- - down box. 2. Enter the information in the fields provided.* - _ 3. To send the message click Submit.** mum """ •.«�..; 4. Messenger displays the information sent. You `• can print a copy for your records. *Required fields are marked with an asterisk. **To clear your screen without sending a message,click Reset. If you switch to another tab without clicking Submit, the information you entered will be erased. Messenger-Maintenance Safekeeping Online L©© R EMU D Sending a Text Message rr - cot sti- --4-64 1. Select Message in the Message type drop-down ^-_ - _ box. Croat Wasp* 2. Enter the information in the fields provided.* M "— 4 3. To send the message click Submit.** 4. Messenger displays the information sent. You — J can print a copy for your records. *Required fields are marked in red text. Recommended -- — fields are marked in black text. 1^=11 "To clear your screen without sending a message, click Reset. If you switch to another tab without clicking Submit, the information you entered will be erased. Messenger-Message +tit,? ==ii iC+r � —1922 Safekeeping Online ©©© R OIE® D ICI Using Review Messages Cancel and Resend Messages Messages once created cannot be edited, but if a message is rejected repeatedly due to incorrect Alma slti information, making changes to a message may be �i necessary. You cannot modify an existing ® �--- message, but using Cancel and Resend allows you ....- to cancel the incorrect message and create a new _Jm message based on the old one. These messages can be opened from the message list. 1. Under Messenger, click Review Messages to see a list of messages. c"' *To displaymessages,select No Filter for the criteria. all Messages List Welcome Pace 2. To open a message, click the Message details. rte M.*..p.s List ..,. �.�<.�. Safekeeping Online 0©© R D �..�. a Cancel and Resend Messages (cont'd) 3.Click Cancel and Resend.The current value from the old message is brought in to create a new ® .._ ;o message.and enter the appropriate values in the =.:7, Operator and Value fields.*,,gym to.*Ammo. j J Safekeeping Online ®©© R ©®© D View Your Profile 1.Click on the My Settings tab on the • 0 .{.0--=---3 Zrti left-hand side of the screen. 2. Click View Profile under My Profile. ! • - 3.The Profile page is displayed. raw UN. Med IIM•10.1•03—fit • Profile Page Changing Your Password o You may change your password at any time. • °"` --° �. ..•Z- 1. Click on the My Settings tab on the left-hand side of the screen. Choy.Pompon' ions..law 2. Click Change Password under My Profiles. 3. The Change Password page is displayed 4. Enter the old password in the appropriate box. I 5. Enter and confirm the new password. 6. Click Change Password. can (range Password Page Safekeeping Online ®®® R @Me D Logging off of Safekeeping Online �.. t-i gyp.. .+...r.m..r.. �..�.. _ ^•Y ��-M' '. T 'TT IM Click on the Log Off button at the top right-hand Y 11� • a side of the Safekeeping Online Welcome page. mow Sa`ekee.. e enn It4J Safekeeping Online Welcome Page Frost Capital Markets Services RESOLUTION (GOVERNMENTAL INSTITUTION) BE IT RESOLVED THAT (Name and title of authorized person) (Name and title of authorized person) (Name and title of authorized person) 'RESOLVED, that Frost Bank of San Antonio ("Frost Bank") be and is hereby designated a depository of (the "Government Institution") for the safekeeping of securities. FURTHER RESOLVED, that the listed individuals are hereby authorized in the name and on behalf of this Government Institution to enter into a Safekeeping/Custody Services Agreement with Frost Bank upon such terms and conditions as may be agreed upon, to deposit securities with Frost Bank, to withdraw and otherwise deal with same, all pursuant to the provisions of said agreement." (Type of Governmental Institution) I, (Name and title of Authorized Signer) of (Name of Governmental Institution) hereby certify that the foregoing is a true copy of a resolution duly adopted by the (Name of Governing Body of the Governmental Institution) of said at a meeting duly held the day of , at which a quorum was present and voting and that the same has not been repealed or amended and remains in full force and effect and does not conflict with the (Name of Document under which Governmental Institution is Operating) Date: (Authorized Signer of Governmental Institution) ATTACHMENT 4 HISTORICAL RATES ,4 * . .x - // / 45 il A7 (w //�. ()Frost LEGAL DISCLOSURE PLEASE NOTE THAT INFORMATION IN THIS PROPOSAL ON SWEEP ACCOUNTS, INVESTMENTS AND RATE INFORMATION HAS BEEN PROVIDED BY A REGISTERED SERIES 6 REPRESENTATIVE, ELSA ARIAS. i,,,=Frost RANKING INVESTMENTS INSURANCE Frost Public Funds Historical Rates Earnings Credit Rate (previous month's average 91-day T-bill auction discount rate plus 30 basis points) Month/Year Rate Month/Year Rate Month/Year Rate Oct 2014 0.32 Feb 2015 0.33 June 2015 0.32 Nov 2014 0.32 Mar 2015 0.32 July 2015 0.31 Dec 2014 0.32 April 2015 0.32 Aug 2015 0.32 Jan 2015 0.34 May 2015 0.32 Sept 2015 0.35 Interest On Checking (previous month's average 13-week T-bill auction discount rate less 35 basis points) Month/Year Rate Month/Year Rate Month/Year Rate Oct 2014 0.01* Feb 2015 0.01* June 2015 0.01" Nov 2014 0.01* Mar 2015 0.01* July 2015 0.01* Dec 2014 0.01" April 2015 0.01* Aug 2015 0.01* Jan 2015 0.01* May 2015 0.01* Sept 2015 0.01* *You may elect to use Frost Bank's quoted interest on checking rate which is currently 0.01%. Quoted rates are subject change on a daily basis. Money Market Accounts (previous month's average 13-week T-bill auction discount rate less 25 basis points) Month/Year Rate Month/Year Rate Month/Year Rate Oct 2014 0.01* Feb 2015 0.01* June 2015 0.01* Nov 2014 0.01* Mar 2015 0.01* July 2015 0.01* Dec 2014 0.01* April 2015 0.01* Aug 2015 0.01* Jan 2015 0.01* May 2015 0.01* Sept 2015 0.01* **You may elect to use Frost Bank's quoted money market rate which is currently 0.03%. Quoted rates are subject to change on a daily basis. Automatic Sweep (rates set byInuesco) (Invesco GAP Fund, Resource Class) Month/Year Rate Month/Year Rate Month/Year Rate Oct 2014 0.01 Feb 2015 0.01 June 2015 0.04 Nov 2014 0.01 Mar 2015 0.01 July 2015 0.04 Dec 2014 0.01 April 2015 0.01 Aug 2015 0.04 Jan 2015 0.01 May 2015 0.02 Sept 2015 0.04 Non-Sweep (rite,set by l,weno) (Invesco GAP Fund, Cash Management Class) Month/Year Rate Month/Year Rate Month/Year Rate Oct 2014 0.01 Feb 2015 0.01 June 2015 0.04 Nov 2014 0.01 Mar 2015 0.01 July 2015 0.04 Dec 2014 0.01 April 2015 0.01 Aug 2015 0.04 Jan 2015 0.01 May 2015 0.02 Sept 2015 0.04 ©2015 Frost Bank ATTACHMENT 5 TREASURY MANAGEMENT/FEES w 040, { ACCOUNT RECONCILIATION Reduce reconciliation time dramatically. Simplify the monthly accounting chore of reconciling your business checking accounts.Receive timely,accurate information in an electronic data file that can be uploaded into your corporate reconciliation system—saving you the time and expense of manually sorting,matching and keying entries. RECONCILIATION OPTIONS: Full Reconciliation Frost compares your issued check file with our records, then sends you standard reports detailing paid,outstanding and stale items.You can request electronic paid item and outstanding check files as well. We recommend Positive Pay,a service that intercepts potentially fraudulent checks before they are paid,offered free with Full Reconciliation. Partial Reconciliation Following verification assessment,Frost sends a list of paid checks,including magnetic ink character recognition (MICR)line repairs and check range comparisons. Site Reconciliation Frost reports deposits and paid checks for each of your locations. All-Items Report You receive an electronic file with all items posted to your account. RECONCILIATION ADVANTAGES • Reduce the number of exceptions from posting errors. • Accelerate check research and problem resolution. • Simplify your accounting tasks. • Improve audit controls through third-party involvement. A tip for you from Frost CD-ROM Image Archive from Frost is an excellent option to help you file,store and retrieve check information easily. (09/11)AIP.AfBI R 1.1)1C 1t/ /4 Frost ,l w , ACH SERVICES Manage payments you make and receive with ACH services. Speed and efficiency in initiation,collection,concentration and disbursement of funds are important economic considerations for an organization of any size.Automated Clearing House(ACH) services from Frost deliver a dependable collection and payment system with the speed and efficiency you need and expect. OUR ACH SERVICES COVER MOST TRANSACTIONS We accept a number of ACH transaction types for processing.Some of the most common transactions we accept: Direct Deposit offers a safe,convenient way to pay your employees wherever they bank. Preauthorized Debits electronically collects money from your customers. Cash Concentration quickly transfers funds to your Frost account from other financial institutions. Disbursements allow you to move money from your Frost account to another financial institution in a cost-effective manner. Vendor Payments permit you to pay your obligations and include additional invoice information about payments. Tax Payments enable you to pay both federal and state agencies electronically. Child Support Payments streamline the transmittal of child support payments to the state. EASY TRANSMISSION OPTIONS MEET YOUR OPERATIONAL NEEDS • Cash Manager,Frost's online commercial banking and treasury management service • File transfer protocols (l-TP P sites) ACH SERVICES OFFER YOU PRACTICAL ADVANTAGES • Reduce the number and cost of payroll checks you prepare and reconcile. • Lower your costs of billing and collections by electronically collecting repetitive payments. • Eliminate postage and mailing expenses. • Minimize the risks of check fraud. Choose Frost's ACH services to take care of your business ACH transfer provides a convenient,low-cost and flexible way to make payments and receive funds. We'd like to show you how ACH services from Frost make doing business easier. (D3/1I)Nil FDIC " Aw*.""77 * fry, /f t; ` � w awerr /4 ▪F• rost % /,• ACH BLOCKING SERVICES Protection for Your Business Accounts Against Unauthorized or Fraudulent ACH Transactions The electronic payments you make and receive through the Automated Clearing House (ACH)are increasingly vulnerable to fraud and misuse from unscrupulous individuals who take advantage of technology and your trust to rob your banking accounts.Frost's ACH Blocking Services defend your Financial assets against these threats with a shield of protection between your accounts and unauthorized ACH debits,credits or both. Four blocking options offer you varying types of service; you choose the alternative that fits your organization's needs and existing operations. WHY YOU WANT FROST'S ACH BLOCKING SERVICES FOR YOUR ACCOUNTS A powerful tool for protecting your organization's banking accounts,Frost's ACH Blocking Services deliver valuable benefits to organizations like yours. • Monitors and controls all incoming ACH transactions so only authorized items post against an account,effectively managing your risk of becoming a victim of ACH fraud. • Automatically blocks or filters all incoming ACH credits,debits or both for an account, depending on the service option you choose. • Saves your organization the time necessary for your staff to examine all ACH transactions posted to an account,then identify and reverse unauthorized transactions. OPTIONS TO FIT YOUR SPECIFIC NEEDS If you want no ACH activity on your account: Choose Frost's standard ACH blocking service.You designate which transactions will be blocked: all ACH debits,all ACH credits,or all ACH credits and debits.Blocked transactions are rejected and automatically returned to the originator. If you have minimal ACH activity on your account: Choose Frost's ACH positive fiat'service.All ACH debits to your account are blocked the day they are received,and you review them the next business day,making an"accept"or"reject" decision for each.If desired,you may also specify a dollar limit that will allow any transaction below that amount to post to your account without your review. If you have numerous ACH debits and/or credits from recurring vendors or customers and don't expect random transactions: Choose Frost's Electronic Payment Authorization(EPA)service.You provide Frost a list of vendors or customers(and their bank's origination IDs) that you authorize to make ACH debits or credits to your account.Preauthorized ACH transactions post to your account;all other transactions are automatically rejected and returned to the originator. If you review your ACH activity each day and would like to block certain types of transactions from your account: Choose Fmst'.rACH SEC(Standard Entry Class)blocking service.You specify which ACH transactions you want to authorize and which you want to block based on SEC codes. Transactions with the SEC codes you've approved are automatically posted to your account; all other transactions are automatically rejected and returned to the originator. Safeguard Your Organization's Financial Resources with Frost's ACH Blocking Services, An Essential Weapon Against ACH Misuse and Fraud. (03/11).MIEMBER FDIC /14,7l •!.7.; _, ; ,�. t (I/ /4 ko FrOst ei4 BANKCARD MERCHANT SERVICES As your business partner,Frost shares your commitment to superior service and wants to provide solutions to increase sales and improve cash flow.Through a partnership with First Data,Frost can provide you with reliable, secure and cost effective solutions that help your business operate smoothly and efficiently. You will have the ability to accept VISA,MasterCard,American Express,Discover,Diners Club,JCB,debit cards,and stored- value cards. Accepting Payments Made Easy Our comprehensive suite of affordable terminals,peripherals and integrated Web services allows you to accept virtually every payment option,whether it's in person,over the Internet,by phone or mail,or in any card-not- present(CNP)environment. • Credit cards • Debit cards • Electronic Benefits Transfer(EBT) • Gift cards • Automated Clearing House(ACH) • TeleCheck Electronic Check Acceptance • eCommerce solutions You also benefit from 24/7/365 service and support, flexible reporting systems and international payment processing. Terminal and software options with the latest technology and functionality First Data offers the choices and technology to meet your needs.Terminals and Point-of-Sale Solutions feature: • Ultra-fast processors • High-speed,built-in printers • IP and dial-up connectivity,with optional Wi-Fi • Intuitive touch-screen interfaces • Lease,rental and purchase options For retail shops and restaurants,we offer a solution that allows for the management of every aspect of the business,including payment processing,inventory and menu item management,sales tracking,employee management and more. Loyalty and Gift Card Programs First Data's loyalty program provides a Web-based interface that lets you select from standard programs and customizable campaigns.Whether you'd like to print a coupon on the receipt or establish and manage your store-branded gift card program,we can help. Contact Us To speak with a First Data merchant services sales representative, call 1-800-790-2008. (08/12)MEMBER FDIC 4400 4, M." p / e- Y' b }. / /AI Frost •}'• exit;' ` BILL PAYMENT AND PRESENTMENT SERVICE Boost your company's operational efficiency by reducing the number of checks transmitted and the employee hours devoted to manual payment processing. Frost has partnered with MasterCard RPPS to offer you Bill Payment and Presentment Service,a service that offers a single point of connectivity to virtually every consumer in the United States who is paying bills online through a financial institution's website. Online bill payment allows consumers to pay all of their bills via a single, trusted provider,including banks, credit unions,third-party service providers, and others. Electronic bill payments from your customers post faster and more accurately than paper remittances,and the processing costs are a fraction of those for paper. With the help of MasterCard RPPS, Frost is now taking that service concept even further and processing bill payments as ACH transactions instead of mailing paper checks to you,the biller. Settlement and payment data are combined for electronic delivery with multiple billers being combined to a single credit and file. How it Works Consumer Payment makes transmits to MasterCard Frost gets You receive payment originator RPPS payment data data files and through web who batches processes and funds to funds from portal pay payments to one payment deposit into service(i.e. MasterCard file for Frost your account Frost Frost Bill Pay) RPPS Getting Started Optimize your data accuracy,increase the speed of delivery, and secure your transactions all through Bill Payment and Presentment Service.Ask a Frost Treasury Management Specialist how this product can help your company run more efficiently. MEMBER FDIC k 404 !.f-., 4Y (.7,/ /4 Frost Ad_ • BUSINESS ATM AND CHECKCARD THE EASY WAY TO PAY With a Frost Visa Checkcard,you have all the buying power of checks or cash without the hassle of writing checks or carrying cash. With one card you can pay for anything you want. Quick,easy and secure. MORE THAN AN ATM CARD • Gives you the purchasing power of a Visa card without any interest or annual fee. • Deducts purchases directly from your business checking account. • Prevents you from waiting for check approvals-simply present your card and sign the receipt. • Allows for additional cards for trusted employees. • Earns points towards large and small rewards for every qualifying Visa transaction-for details visit www.visa.com/extras-business IT'S EASY • No checkbook to worry about. • No check to write. • It's like having cash in your pocket. IT'S CONVENIENT • Free access to My Frost Internet banking lets you track account activity,transfer funds,pay bills, view check images and receive statements online instead of by mail. • Frost Mobile provides you free access to view account balances,monitor account activity,pay bills and transfer funds all from the convenience of your mobile device. • It's also your ATM card. • It's accepted everywhere Visa is accepted. • Every transaction is detailed on your monthly checking account statement. •Shop online •Fill your car's gas tank • Buy office supplies •Purchase airline tickets •Pay for your business lunches or dinners •Pay bills A CARD TO MEET YOUR NEEDS It's more convenient than paying with cash. It's faster than writing checks. It's smarter for your day- to-day spending. When you use your Frost Business ATM&Checkcard,you'll discover that it really is a better way to pay. ((9/11)MEMBER FDIC NittO _ lfw s 3/f e cowl/ il r/, 4,61 Frost CASH MANAGER Managing Your Cash Flow Has Never Been Easier Cash Manager,Frost's online commercial banking and treasury management service,provides easy access to your account information and business finances—anytime,anywhere. Designed to help you maximize your time and money,this comprehensive system enables you to manage account information,make smart business decisions,and move money quickly and easily. THE FUNCTIONALITY YOU NEED, THE CONVENIENCE YOU WANT Detailed Account Information Online • Previous Day Reporting: Account activity with a 180-day history • Current Day Reporting: Intraday activity,including incoming wires,ACH transactions and lockbox deposits • Multibank Balance Activity: Information from non-Frost accounts • Payment information associated with your accounts receivable function • Bank statements Quick and Easy Online Access to Treasury Management Services • Positive Pay: Delivery of issued check files and online decisions for rejected checks • Retail/Wholesale Lockbox: Images of processed checks,invoices,and deposit reports;ability to make exception decisions • ACH (Debit and Credit) Origination: Direct deposit of payroll,tax payments and more • Wire Transfer: Creation and management of wire profiles,and scheduling of future transfers • Sweep Reporting: Information about repurchase agreements,mutual fund,and line of credit sweeps • Online check inquiry and stop payment • Transaction export to a variety of software packages Report and Screen Customization Options to Fit Each User's Wants and Needs SAVES YOU WORRY • Secure access with 128-bit encryption • Customized authorization management for each of your users • Capability to audit user activities SAVES YOU TIME AND MONEY • Access your accounts anywhere you have Internet access at any time that's convenient for you. • Initiate transactions without a call or a visit to the bank. • Save on bank'fees by initiating your own transactions online. Choose Cash Manager, the information tool that puts cash management functions at your fingertips—when and where you need them. 114.11 • Member FDIC , * /i "fl ��,� Frost if«/ 440. 1,17 40.0, e1 CD Image Archive Eliminate Check Storage Instantly access your paid checks and eliminate your need to store them with CD Image Archive service from Frost. CD Image Archive Advantage • Easily search a large repository of items in seconds. • Conveniently sort,view and enlarge check images. • Eliminate costs associated with storage. • Instantly access your company's account information. CD Image Archive Benefits • Use your filing cabinet for something other than check storage. • Increase employee productivity by decreasing the time it takes to locate a check. • Reduce the risk of check fraud by keeping canceled checks out of the wrong hands. • Easily duplicate the CD to insure disaster recovery. How It Works • Items are captured and archived as Frost processes them. • Each month,you receive a CD of all the checks and deposits that posted to each of your accounts. • You directly retrieve check images from the CD on your PC through the use of speriali7ed software provided by Frost. A Tip from Frost For companies issuing large volumes of checks,Account Reconciliation from Frost is an excellent companion to CD Image Archive. We'd like to visit with you about how CD Image Archive makes doing business a little easier. ((wtt)Mcmbcr FDIC // Alf/• • .. //, Frost �a �� COMMERCIAL VAULT SERVICES Security for your deposits, cash when you need it Feel confident and secure making large deposits using Frost's automated commercial vault services, with advanced processing methods to handle checks,currency and coin deposits in a secure environment. With five locations throughout the state,our deposit and change ordering services are designed to meet your business needs. FROST DELIVERS A VARIETY OF VAULT SERVICES TO MEET YOUR NEEDS. Automated Deposit • State-of-the-art equipment verifies larger currency and coin deposits in a controlled environment. • You may make in-person deposits at one of more than 115 Frost financial centers,or an armored car service can deliver deposits directly to one of our vault locations. • To further enhance deposit integrity,we require the use of a serialized,one-time-use plastic bag. • Automated deposit results in reduced fees,processing efficiency and accuracy of deposit. AUTOMATED CURRENCY AND CHANGE ORDERS OFFER YOU CONVENIENCE. • For customers using an armored car service,we provide a 24-hour automated ordering system with same-day delivery in most situations. • Using a PIN,you order by telephone at a time that is most convenient for you. • Your account is debited the day the order is processed. OPTIMAL SECURITY FEATURES PROTECT YOUR DEPOSITS. • Dual-control processing ensures the safety and integrity of your deposit. • Tamper-evident deposit bags and constant video surveillance provide excellent protection for your funds during cash handling procedures. • Counterfeit detection mechanisms ensure the currency is authentic. • Most of our financial centers have night depository facilities. CHOOSE FROST'S COMMERCIAL VAULT SERVICES TO TAKE CARE OF YOUR BUSINESS Your deposits are quickly converted to collected funds in a secure environment to reduce your company's exposure to loss or theft.We'd like to show you how the commercial vault services at Frost can help you meet your business needs. (0I4)MEMBER FDIC: (://////:, //, 1331. CONTROLLED DISBURSEMENT Same-day reporting of disbursements to eliminate check-clearing uncertainty Take the guesswork out of planning when your payments will clear the bank. With Controlled Disbursement from Frost,you know exactly how much money you need in your disbursement account every business day. This accurate assessment of your daily cash position then allows you to maximize overnight investments or minimize short-term borrowings. WHY YOU WANT CONTROLLED DISBURSEMENT • Gain control over outgoing cash flow. • Keep funds invested until checks arrive for payment. • Eliminate overdraft charges by covering your check-clearing totals. HOW CONTROLLED DISBURSEMENT WORKS • View daily check presentment totals each morning online through Cash Manager,Frost's online banking service. • Funds in an amount equal to your total disbursements automatically transfer from your funding account at Frost to the controlled disbursement account. • Once the exact amount required to fund your disbursements is known,you can make sure you have sufficient cash in your Frost funding account to cover the checks presented against your disbursement account. • Identify excess cash for investments or other needs. Maximize your funds management with Frost's Controlled Disbursement Controlled Disbursement is just one service offered by Frost that can help you manage your accounts more effectively and improve your cash position. (09/11)JIIi\[BI?R FDIC / V if • - (1/ /4 7,w Frost ,7(1 r CREDIT CARDS A Card to Meet Your Business Needs Frost Business and Commercial Cards give you the convenience,control and reporting that you need for your business.Choose the right card to meet your needs-Business Platinum Card,Business Rewards Card, Commercial Card or Accounts Payable Solution. Visa-issued cards are accepted at millions of locations worldwide,with wide-ranging benefits for all of these card programs: • Easily make everyday purchases such as office supplies,transportation,entertainment and gas— even online purchases • Limit employee spending to certain types of merchants,establish a dollar limit by transaction,and limit the number of daily purchases • Online reporting,management and payment capabilities • 24-hour assistance for lost or stolen cards • 90-day coverage for lost or stolen purchases • Auto rental collision damage waiver • Travel accident insurance of$300,000 • Liability protection against card misuse by discharged employees Business Platinum and Business Rewards Cards • Ideal for businesses that want to separate business expenses from personal expenses and manage cash flow • No annual fee • Individual credit lines for employees • Competitive variable interest rate • Ability to revolve balance for credit lines of$50,000 and less • Earn points toward cash back,travel,gift cards,merchandise and more with Frost Business Rewards Commercial Card • Ideal for businesses that want the flexibility of one card for all business-related expenses such as travel and entertainment,procurement,and fleet • Pay balance in full every billing cycle • No annual card fee • Online access for real-time card maintenance,management and reporting • Ability to upload transactions to your GL,increasing efficiencies and eliminating re-keying Accounts Payable Solution • Replace paper checks with electronic payments through the card network • Operated as a`ghost card'program with flexible reconciliation options • Qualify for revenue share based on transaction volume • Online access for real-time maintenance,management and reporting The Frost Business and Commercial Cards and Accounts Payable Solution are made available by Commerce Bank. This is not a product of Frost nor guaranteed by Frost. (08/I2)Member I1)IC /are (I_ ' // /1/:410;101)'3/4 , ' �„ Frost FROST DIGITAL DEPOSITS A Secure and Efficient Way to Make Check Deposits Time is money,and Frost helps businesses of all sizes with both by offering a solution that enables you to scan daily check deposits and transmit digital images through the Internet for deposit credit—anytime,anywhere. Through Frost Digital Deposits,any U.S. check,money order,traveler's check,casher's check or U.S.Treasury check may be deposited,and deposits made before 9 p.m.will be processed that day,typically making funds available the following business day. Getting Started Depending on your business'specific needs,Frost has tailored our offerings to meet your needs.If your company deposits up to$100,000 per day and has a low check volume(less than 100 per month),you'll be able to make a digital deposit through My Frost.To get started,you will need a My Frost user ID and password to log in,then select"Make a Deposit,"and access to this service is immediate. If your company has a larger check volume(more than 100 per month)and needs a higher deposit limit(greater than$100,000 per day),you can make a digital deposit by accessing the service through Cash Manager.To get started,you will need to speak with a Frost banker. Why Your Organization Needs It Frost Digital Deposits is a secure and safe way to deposit checks from anywhere,anytime.Not only does this mean more organizational efficiency,better use of human resources and more security for your financial resources,but also an improved cash flow. Additionally,Frost Digital Deposits means you can: • Reduce trips to a financial center • Reduce deposit preparation costs: no more deposit tickets and eliminate check copying • Streamline operations and improve internal productivity • Reduce risk of fraud though improved notification of returned items • Improve availability of funds by accepting checks up to 9 p.m. Taking Care of You and Your Business At Frost,we understand that our customers value tools that enable their business to perform more productively and efficiently.With Frost Digital Deposits,you can actually spend your time running your business—not doing your banking. (09.12)AIP.MBfR FDIC /Ar ros{. etf• • LOCKBOX SERVICE Collecting Your Cash Has Never Been Easier Frost's Lockbox Service is a Treasury Management tool used to efficiently handle mailed check and credit card payments,so your back office doesn't have to. Accelerate check collection,funds availability and delivery of remittance information by outsourcing the processing of mailed payments to Frost Bank. • Wholesale Lockbox is most useful for companies that have lower volumes of large dollar receivables. • Retail Lockbox is recommended for companies with larger volumes of small dollar receivables. Advantages of Lockbox Save time,money and resources by reducing the in-house clerical functions of managing accounts receivable • Optimize your back office by allowing Frost to directly receive payments. • Minimize the expense of receiving and processing payments. ■ Eliminate deposit preparation and improve internal productivity and security. • Reduce incoming mail. • Gain online access to Lockbox images for up to seven years through the Frost archive. Provide immediate deposit and use of funds • Coordinated mail pickup and delivery ensure that all mail received is processed for deposit the same day. • See faster collection of funds by reducing mail,processing and availability float. • Receive Internet delivery of image remittance detail on Frost's Cash Manager. Establish strong audit control of payments • Receive payments in a secure environment each business day. ■ Posting of accounts receivables is more efficient and timely as payment information is available over the Internet or through data transmission. Depend on Our Lockbox Processing Centers • Frost is the only bank in Texas that maintains three lockbox processing centers: San Antonio Dallas/Fort Worth Houston • Wholesale and Retail lockboxes are available at all three sites. • Frost's availability schedule provides for unsurpassed funds availability of processed checks. • Three identical processing platforms ensure comprehensive disaster recovery. HOW LOCKBOX WORKS 1. Your customers mail their payments to a designated post office box assigned to you and Frost. 2. Frost picks up your mail,processes payments customized to you and deposits payments to your account. 3. Frost transmits a file of payment transactions for direct application to your accounts receivable system as instructed. 4. Frost provides a timely and accurate report of your payments and deposits. (U8/12 MEMBER FDIC If i .'/ : . � � �` �.. . 'rt l/, Frost .:a•t . POSITIVE PAY Reduce Your Risk for Fraud Protect your company against check fraud by using Frost's Positive Pay service. Positive Pay allows you to identify unauthorized, counterfeit or altered checks before they clear your account. The Positive Pay Advantage • Save time,effort and money while considerably reducing potential check fraud. • Take control over which checks are paid and which are held for review. • Identify unauthorized transactions at the time they are presented. • Access valid check information with Frost's online teller system that is updated every 30 minutes. How Positive Pay Works 1. Frost receives your check-issue information through our online banking service, Cash Manager. 2. As your checks are presented for payment, Frost will verify both the dollar amounts and the check numbers. If an item doesn't match, it is marked as an"exception." 3. Images of exceptions are presented to you each morning through Cash Manager. 4. Use the online-decisioning function to instruct Frost to pay or return the exceptions. Adding Positive Payee In addition to presenting you with check-issue information for review,Frost is also offering you the opportunity to verify the payee name is correct on checks presented for payment. Adding this service to your existing Positive Pay service is very simple: 1. Include the check payee name with your check-issue information. 2. Frost will verify the payee name on the check with the name on the issue file. 3. Images of exceptions are presented each morning through Cash Manager so you can make pay or return decisions. Taking Care of You and Your Business Frost's Positive Pay service makes it possible for you to verify checks for payment and return fraudulent checks before they post to your account—not days or weeks later. We are committed to bringing you the latest banking technology to meet your business needs. (0611))MEMBER 1DIC 4,1 ...17 •/>-; /arf t °rf /A Frost fir/ vri SAFEPOINT® Comprehensive Cash Handling Services Using Smart Safe Technology Whether you are a large and busy retailer or a small organization with a growing clientele,you face a number of challenges that are part of processing cash payments. Your employees must spend time and effort counting,recounting,reconciling and preparing cash receipts for deposit— mostly manual processes. You risk loss through employee mistakes,internal theft,or in some cases,even a forcible robbery. And you have no access to funds during the time it takes to process them internally. Then,you must arrange to transport cash to your bank for deposit. There is a better way. Frost,in partnership with Loomis,an industry leader in secure cash handling solutions,offers SafePoint,a cash management service that addresses your organization's specific needs and delivers a cost-effective alternative,especially for organizations that already use an armored service. Put SafePoint to work in your organization quickly and simply. An integrated service that takes advantage of smart-safe technology,SafePoint automates cash-handling at your business location or locations,ensures protected storage for currency out of criminal reach,provides Frost online access for daily assignment of provisional credit,and processes and transports cash payments to Frost for final validation. Employees insert cash receipts received at point of sale(POS) into an electronic validating safe on your premises,where they are verified,authenticated and stored for safekeeping. At a specified time each day, the safe is polled for cash position,and information is immediately posted to a secured Web site for your viewing and use. Daily,Frost receives polled information from your safe and uses it to issue provisional credit for cash received to your account. On a predetermined schedule,Loomis armored service messengers enter your facility to empty the safe of its contents. Loomis personnel consolidate and verify the safe's contents against the safe's validator count,and prepare receipts for deposit with Frost. Loomis transports deposits to Frost's commercial vault for final validation. Focus more time on your business and less on cash handling with SafePoint's benefits. • Improved funds availability • Efficient cash handling and reduced costs associated with processing cash,including reduction of employee time needed for manual tasks • Loomis'100-percent guarantee of your funds • Complete visibility of funds "real time"with automated,online reporting • Reduced risks of loss from employee error,internal theft,and even robber- • Service options that fit your organization's specific cash management requirements Take cash handling processes from time-consuming and costly to streamlined and cost-effective with SafePoint from Frost and Loomis. (08112 MEMBER FDIC) ei;e/Aff (,(/ ;; st ; ,as WIRE TRANSFERS Internet Banking Initiated Whether you do business across the city or across the world, from one location or many,in dollars or in euros, you expect rapid,accurate and secure movement of funds.Between local accounts or around the globe, the fastest,most reliable and most cost-effective way to move money is through a wire transfer.Add the benefits of initiating wire transactions from the convenience of your own computer and you have the ultimate funds availability solution for your organization. Among many valuable features of Frost's Internet banking service for commercial customers is a wire transfer module with functionality designed for the requirements of today's fast-paced business environment. SAVE TIME AND MONEY Frost's wire transfer module is a convenient,easy-to-use and cost-effective tool for sending funds and obtaining information about incoming wired funds.Using stored online wire profiles,you can quickly and easily initiate transfers on a repetitive or nonrepetitive basis, as your organization's needs dictate. SEND FUNDS IMMEDIATELY You're in control. Send a wire today or schedule a wire for a future date,24 hours a day,seven days a week.. Online wire transfers empower you to create,edit and delete your own wire profiles whenever necessary,even reducing the stress of last-minute transfers.As long as your wire is initiated before daily cutoff deadlines, funds are released on a near-realtime basis ensuring same-day movement,in most cases. BENEFIT FROM ENHANCED SECURITY Frost's online banking system protects your interests and assets with layers of security that begin with multifactor authentication requirements,including token use,just to gain access and to originate transfers online. Outgoing wires from the system require dual approval before their release. GAIN ESSENTIAL INFORMATION ABOUT TRANSACTIONS Quick,reliable and secure execution is undoubtedly required,but your organization needs more—useful,up-to- date reporting about wire transactions that helps you effectively manage financial resources and plan for the future.Frost delivers essential online reporting directly to your desktop. USE WIRE OPTIONS Domestic Wires transfer U.S. dollars from a Frost account to any financial institution within the U.S. Foreign Wires transfer U.S.dollars and various types of foreign currency to another country. Tax Wires transfer U.S.dollars to pay all U.S. taxing authorities. FROST'S INTERNET-INITIATED WIRE TRANSFERS TAKE CARE OF BUSINESS Electronic funds transfer technology allows you to spend your time running your business—not doing your banking.We'd like to visit with you about how Frost's wire transfer module can make doing business easier. (03/t1•MEMBER FDIC sem- flare /I ,i :// 17 ( .fie _t) '� k / ,... //, .,�►;Frost y _ , ;� -- nom: _ - �•, ZERO BALANCE ACCOUNT MAKE THE MOST OF IDLE BALANCES Minimize idle funds and administrative expenses normally associated with monitoring multiple accounts with Frost's Zero Balance Account(ZBA) service.This service is particularly useful for organizations with multiple locations or branches that need to maintain separate accounts for record keeping or audit purposes,and want to automatically concentrate these funds at the end of the day. THE ZBA ADVANTAGE • Concentrate funds automatically at the end of the day. • Automate manual transfers to fund accounts. • View corporate liquidity as a single account,not multiple accounts. • Maintain separate deposit and payment records. • Avoid idle fund balances pending payment of checks. • Gather funds from multiple locations or branches. ZBA FEATURES • Your target balance can be set at any amount,usually zero. • Multiple secondary accounts can be tied to a primary funding account. • Detailed check and deposit records are available for each account. • Multiple-tier account arrangements are available. HOW IT WORKS 1. Establish a secondary account for your organization's plants,stores and offices that need the flexibility to make deposits and write checks. 2. Assign a target balance for each secondary account. 3. Establish a primary concentration account to pool funds. 4. At the end of each business day, funds are automatically swept into or out of the primary account based on each secondary account's target level. A TIP FROM FROST Take full advantage of the concentration of funds into a primary account through ZBA;use Frost's Automated Sweep Account service to ensure that idle balances are always fully invested. 04.11 • AMI?IBI?R FDIC 400/ Fr COMMERCIAL BANKING AND 1 �S� TREASURY MANAGEMENT SERVICES BANKING INVESTMENTS INSURANCE Public Funds Schedule of Fees as of November 2015 Pricing is valid for 90 days Public Funds City of Corpus Christi Balance Inquiries/Transfers 24-hour telephone account information line-inquiries No charge 24-hour telephone account information line-transfers $0.50 each 24-hour telephone account information line-stop payment $20.00 each Customer service representative assisted-inquiries 2 free,then$2.00 each thereafter Customer service representative assisted-transfers $2.00 each Blocked and Control Accounts Setup Frost standard agreement $500.00/account Nonstandard agreement,simple $1,500.00/account Nonstandard agreement,complex $3,000.00/account Monthly maintenance $100.00/account Check Clearing and Processing Services Commercial account maintenance $10.00/account/month Cancelled checks $2.00/account/month Credits posted $0.50/credit (does not include ACH, Lockbox or Digital Deposits credits) Debits posted(does not include ACH debits) $0.10/debit Items deposited(unencoded)On Us $0.02/item Items deposited(unencoded) $0.045/item Hold mail service fee $10.00/account/month Return items $5.00/item Telephone or fax notification $10.00/call or fax Reclear $3.50/item _ Special signature requirements $3.00/month+$.035/item Collection Services Collection items(drafts,checks) $20.00/item Custodial fee(after due date of foreign documentaries) $10.00/month/item Dealer drafts/immediate credit drafts $12.00/item Documentary $80.00/item Foreign check $40.00/item Commercial Vault Services Currency deposits $0.40/$1,000.00/deposit Discrepancy notification $10.00/call Change order minimum $5.50/order Detailed reporting $15.00/hour Full Fed standard bag of coin deposited $2.25/bag Mall depository pickup $2.75/bag ATM fit currency furnished $1.50/strap Partial bag of loose coin deposited $4.00/bag Plastic deposit bag $0.65/bag+applicable processing fees Rolled coin furnished $0.09/roll Strapped currency furnished $0.55/strap Various coin/currency supplies available on request Prices vary Public Funds Schedule of Fees 1 of 4 TREASURY MANAGEMENT SERVICES Teller Services Branch deposit processing _ $3.50/deposit Change order minimum $5.50/order Rolled coin furnished $0.10/roll Strapped currency furnished $0.60/strap Wire Transfer Services Outgoing Fed Wire $25.00/wire Outgoing international wire $45.00/wire Outgoing Intrabank transfers $5.00/transfer Incoming Fed Wire $8.00/transfer Incoming Intrabank transfers $5.00/transfer Investigations $20.00/hour($20.00 minimum) Mail daily wire advice statement $5.00/statement Phone call notification $5.00/call Photocopies $3.00/page Additional Account Services Account research $20.00/hour ACH blocking $10.00/account/month Audit confirmation $10.00/hour Check/document photocopies from microfilm $3.00/item Credit investigation services $25.00/investigation Regulatory balance fee No charge Money order $3.00 each Nonsufficient funds charge $33.00/check Overdraft charge $33.00/check with a maximum of$165/day+ interest Stop payment $30.00 each Special computer programming $175.00/hour(2-hour minimum) Transfer standing order $2.00 each Account Analysis Rates Average negative collected balance Prior month's average Frost Bank Prime+ 3% Earnings credit rate Prior month's average 91 day T-Bill auction discount rate + 30 basis points Account Reconciliation Full reconciliation $25.00 setup, $75.00/account+$0.04/item Partial reconciliation $25.00 setup Paid item output-transmission $50.00/account/month+$0.04/item Statement All Items Report $0.05/item($50.00 minimum/account/month) Site reconciliation _ $25.00 setup,$50.00/account+$0.04/item _ Positive pay with full reconciliation No charge to maintain file(see Positive Pay section for per-item fees) Manual Issue Item $1.00/item Public Funds Schedule of Fees 2 of 4 TREASURY MANAGEMENT SERVICES ACH(Automated Clearing House) ACH origination $30.00/month,plus$0.08 per item ACH Operating Rules,Corporate Edition $17.00,plus tax ACH credit received $0.08/item ACH debit received _ $0.08/item ACH reclear items $2.00/item ACH returned items $3.00 each Notification $5.00/phone call or fax ACH file maintenance $12.00 each Electronic payment authorization—monthly service fee $10.00/month/account Electronic payment authorization—authorized originator $3.00/month/originator Financial Electronic Data Interchange(FEDI) $0.06/item Financial Electronic Data Interchange(FEDI)paper advice mailed $1.25/page SEC blocking—monthly service fee $10.00/month File translation $500.00/month a it - a i • a* Investment $115.00/month Line of credit $140.00/month Line of credit and investment $165.00/month *Securities products are NOT FDIC insured*NOT guaranteed by Frost*NOT products of Frost and may involve risk to principal amount invested. CD-ROM Image Archive CD-ROM captured imaged items through regular processing,checks $25.00/CD, plus$0.05/item not returned CD-ROM captured imaged items directly from checks held by $75.00/CD,plus$0.05/item customer Software for CD-ROM image archive $300.00,plus tax Controlled Disbursements Controlled disbursements $120.00/account/month Digital Deposits Digital Deposits Essential(DD Premium fees do not apply) $50.00/month Digital Deposits Premium Image capture $0.10/image Monthly maintenance fee Customer-owned scanner $50.00/workstation Frost procurement—scanner model CX30 $50.00/workstation Frost procurement—scanner model TS230 $100.00/workstation Frost procurement—scanner model Cannon CR 190 $200.00/workstation Digital Deposits credit posted $0.50/item Digital Deposits item deposited On Us $0.02/item Digital Deposits item deposited $0.065/item Public Funds Schedule of Fees 3 of 4 TREASURY MANAGEMENT SERVICES Internet Banking Cash Manager Premium Previous day balance/activity summary $50.00/month Accounts reported $15.00/account/month Data export Included with detail Previous day detail reported $0.05/item Current day reporting (cash position draw report) $35.00/account/month Account(book)transfers $0.50/transfer ACH activity report No charge Checking account statement No charge Financial Electronic Data Interchange(FEDI) $0.06/item Positive pay exception(reject) report No charge Security token $25.00/token shipped Data exchange(incoming) $75.00/account/month,plus$0.03/item Data exchange(outgoing) $75.00/account/month,plus$0.05/item BAI2 file previous day(delivered outside of Cash Manager) BAI2 accounts reported $15.00/account/month BAI2 detail reported $0.05/item BAI2 file intraday(delivered outside of Cash Manager) $50.00/account/month Positive Pay Without full recondliation No charge to maintain file With full reconciliation No charge to maintain file Adjustments to file after receipt $1.00/item Paid reject item $5.00/item ACH reverse positive pay or check blocking Paid reject item $1.00/item Payee review $20.00/month+$0.05/item Stop Payment/ Check Inquiry Cash Manager Stop payment initiation $8.00 each Check status inquiries No charge Stop payment module No charge Tax Payment Services also available through Cash Manager ACH functionality Frost Tax Payment automated tax payment setup $3.00 each Frost Tax Payment transaction $3.00 each Wire Transfer Services Cash Manager Domestic wire initiation $10.00/wire Outgoing international wire In US dollars $30.00/wire In other currencies $15.00/wire Book transfer initiation $3.00/transfer Funds transfer/wire module No charge Future-dated wire cancellation $10.00 Review of wire activity _ No charge Standing instructions $25.00/transfer,plus$10.00/wire Zero Balance Accounting Zero balance account, primary No charge Zero balance account, secondary $25.00/month/account Member FDIC Public Funds Schedule of Fees 4 of 4 Public Funds Retail Lockbox Schedule of Fees as of November 2015 ``„to FrOSt Pricing valid for 90 days. ����� City of Corpus Christi BANKING INVESTMENTS INSURANCE Lockbox Processing One-time setup $50.00/box Retail monthly maintenance(includes one address) $150.00/box/month Retail item $0.22/item Multiples(checks and/or invoices) $0.28/item Retail box rental Actual cost-hard charge Retail cash processing J1.00/item Retail check only $0.35/item Retail coupon reject $0.10/item Retail reassociation $0.06/item Retail return envelope $0.05/item Retail unprocessable check/correspondence $0.25/item Credit card processing $0.35/item Lockbox Credit Posted $0.50/item Internet Reporting Online exceptions $0.25/item Retail image delivery-Internet $125.00/box/month Retail image capture--check* 1-100,000 $0.0075/item 100,001 and above $0.005/item Retail image capture-invoice* 1-100,000 _10.0075/item _ 100,001 and above $0.005/item Long-term storage(up to 7 years) Retail image archive check $0.03/item Retail image archive coupon/invoice $0.03/item CD-ROM Images CD-ROM-Monthly $25.00/box/month CD-ROM-Weekly $8.00/CD/week CD-ROM-Daily $5.00/CD/day Retail CD image-check* 1-100,000 $0.0075/item 100,001 and above $0.005/item Retail CD image-invoice* 1-100,000 $0.0075/item 100,001 and above $0.005/item *Customers that receive images of lockbox items on a CD-ROM and through the Internet will only be assessed a per-item charge once. Lockbox Reporting Data transmission $100.00/box/month Data entry $0.01/keystroke MICR capture $0.10/line Download image file $100.00/month FTP customer report $50.00/month Fax photocopy $2.00/sheet Bill Payment and Presentment Service Bill payment presentment, monthly fee 25.00/month Bill payment presentment,transaction fee $0.05/item Bill payment presentment, return fee $0.10/item Bill payment presentment, reversal fee $2.00/item Additional Services Postage/ Multiple mailing adress Actual cost Courier/Express Mail Actual cost Branch delivery $60.00/box/month Member FDIC ©2015 Frost Bank 1 of 1 Public Funds Wholesale Lockbox Schedule of Fees as of November 2015 e/Pt Pricing valid for 90 days. Frost��A�1 City of Corpus Christi BANKING INVESTMENTS INSURANCE Lockbox Processing One-time setup $50.00/box Wholesale monthly maintenance(includes one address) $150.00/box/month Wholesale item $0.47/item Wholesale box rental Actual cost-hard charge Wholesale cash processing $1.00/item Wholesale detail sorting $0.06/item Wholesale document notation $0.06/item Wholesale hand open mail $0.06/item Wholesale medical item $0.40/item Wholesale reassociation $0.06/item Wholesale return envelope $0.06/item Wholesale special handling $0.06/item Wholesale special stapling $0.06/item Wholesale unprocessable/correspondence $0.30/item Credit card processing $0.35/item Lockbox Credit Posted $0.50/item Internet Reporting Online exceptions $0.25/item Wholesale image delivery-Internet J125.00/box/month Wholesale image capture--check* $0.10/item Wholesale image capture-invoice* $0.10/item Lockbox image capture-nonfinancial $0.10/item Wholesale extended online storage(up to 180 days) $25.00/month Long-term storage(up to 7 years) Wholesale image archive check _$0.03/item Wholesale image archive invoice $0.03/item CD-ROM Images CD-ROM-Monthly $25.00/box/month CD-ROM-Weekly $8.00/CD/week CD-ROM-Daily $5.00/CD/day Wholesale CD image-check* $0.10/item Wholesale CD image-invoice* $0.10/item *Customers that receive images of lockbox items on a CD-ROM and through the Internet will only be assessed a per-item charge once. Lockbox Reporting Data transmission $100.00/box/month Data entry $0.01/keystroke MICR capture $0.10/line Download image file $100.00/month FTP customer report $50.00/month Fax photocopy $2.00/sheet Bill Payment and Presentment Service Bill payment presentment, monthly fee $25.00/month Bill payment presentment,transaction fee $0.05/item Bill payment presentment, return fee $0.10/item Bill payment presentment, reversal fee $2.00/item Additional Services Postage Actual cost Courier/Express Mail Actual cost Branch delivery $60.00/box/month Multiple mailing address Actual cost Member FDIC ©2015 Frost Bank 1 of 1 Public Funds Safekeeping Fees Frost Schedule of Fees as of November 2015 RANKING INVESTMENTS INSURANCE City of Corpus Christi Account maintenance $10.00/month/account Safekeeping Online $50.00/month - 3 services Safekeeping Docs, Messenger Safekee•in. Extract No charge for basic service Per Item Charges Fixed income book entry per receipt A0.60 Equity book entry per receipt $1.50 Physical per receipt $2.00 Book entry per$10,000 at par at month-end $0.01/month Ph sical ent ger$10 000 of gar at month-end $0.10 month Receipt Fees Security receipt and clearance fees On-Frost Transactions Not On-Frost Transactions FRB non-ABS/MBS - $20.00 FRB ABS/MBS - $25.00 Non-FRB, non-ABS/MBS - $30.00 Non-FRB,ABS/MBS - $35.00 Physical items - $75.00 Late delivery instructions - $25.00 Change delive instructions - $25.00 Transactional Fees Interest payment-credit to account $1.00 Principal payment-credit to account $8.00 Called bond redemptions-credit to account $10.00 Maturities-credit to account _$10.00 Wire fee $11.00 Cashier's check $10.00 Pledging of customer-owned securities to another entity Pledge 6.00 Release $6.00 Substitution $12.00 Other Services Registrations and re-registrations _$35.00 Physical examination of securities $25.00/hour Reorganizations-tenders and exchanges $35.00 _ Treasury auctions _$50.00 Account verification statements(free monthly) $2.50 Account research $25.00/hour Indirect inquiries for lost or stolen securities: Semiannual charge _$25.00 Inquiry $3.00 Over-the-counter collections: Coupons $20.00/envelope Bonds _$20.00/corpus plus postage and insurance Proxies/Annual statements $3.00 Special handling (manual intervention) $20.00 additional/transaction 2015 •Member FDIC A TTACHMENT 6 SAMPLE STATEMENTS • ANALYSIS • BANK frit Aki.irp Frost Statement Date:04/30/2015 CUSTOMER Relationship ID: COMBINED MAIN ACCOUNT Relationship Manager:BANK OFFICER 123 STREET AVE Customer Service:888-481-0336 CITY,TX ZIPXX Settlement Account: XXXXXXXXX Consolidated Account Analysis Statement Statement Period:04/01/2015 through 04/30/2015 Number of Accounts:13 Accounts included in this summary' XXXXXXXXX XXXXXXXXX XXXXXXXXX XXXXXXXXX XXXXXXXXX XXXXXXXXX XXXXXXXXX XXXXXXXXX XXXXXXXXX XXXXXXXXX XXXXXXXXX XXXXXXXXX xxXXXxxxx Balance and Earnings Allowance Information Average Ledger Balance 5,708,428.62 Less:Average Float 75,701.29 Average Collected Balance 5,632,727.33 Less Legal Reserve 563,272.73 Positive Collected Balance Available for Earnings 5,069,454.60 Earnings Allowance(0.1500%) 625.00 Current Period Activity Charges 1,921.94 Total Amount Due 1,296.94 Volume Activity and History Unit Service Description Volume Price Price *Checking Servi 's 010000 Account Mainten,. 11 20.0000 220.00 010101 Credits Posted 127 0.5000 63.50 250201 ACH Incoming Credits 202 0.1500 30 30 010100 Debits Posted 1,017 0.1200 122.04 250200 ACH Incoming Debits 53 0.1500 7.95 100220 On Us Deposited items 91 0.0200 1 82 100222 Transit Clearing Deposited Items 551 0.0750 41.33 019999 Special Signature Requirement 13 3.0000 39.00 019999 Special Sign Requirement Items 980 0.1000 98,00 100400 Return Items 1 5.0000 5.00 "Subtotal Checking Services 628.94 `Vault Services 100047 Minimum Change Order 3 5.5000 16.50 *Subtotal Vault Services 16.50 bank.com Page 1of2 'ACH Origination Services 250110 ACH Origination 2 • 30.0000 60.00 250102 ACH Origination Items 1,325 0.1000 132.50 'Subtotal ACH Origination Services 192.50 'Wire Services 350300 Incoming Wire Transfers 1 5.5000 5.50 35041Z Wire Transfer Statement 1 5.0000 5.00 *Subtotal Wire Services 10.50 'Cash Manager Services 400050 Previous Day Reporting 1 50.0000 50.00 400222 Previous Day Reporting Accounts 11 15.0000 165.00 400272 Previous Day Rpting Detail Items 1,395 0.0350 48.83 400110 Current Day Reporting 11 40.0000 440.00 350222 Cash Manager Transfers 34 0.5000 17.00 150410 Cash Manager Stop Payments 2 8.0000 16.00 *Subtotal Cash Manager Services 736.83 'CO Rom Image Archive Sei.x... 151353 Image Archive Discs 1 25.0000 25.00 151353 Image Archive Ite`-,s 1,060 0.0400 42.40 'Subtotal CD.nom Image Archi,a Svcs 67.40 `Balance Rei. 000076 Interest Expense 269.27 000200 Overdraft Interest 2 3.2500% 0.00 'Subtotal Balance Rei.ted Expenses 269.27 (Applicable Activity Charges 1,921.94 bank.com Page 2 of 2 STATEMENT ISSUED MM-31-YYYY PAGE 1 CUSTOMER NAME SAMPLE ACCOUNT 123 YOUR STREET CITY, TX 77777 PUBLIC FUND CHECKING : ACCOUNT NO. 86866 BALANCE LAST_STATEMENT 1 NO 1 DEPOSITAMOUNT NO 1 WITHDRAWALAMOUNT 1 BALANCE THIS STATEMENT 210,361.33 1 11 1 2,099,048.96 I 17 [ 1,846,044.55 1 463,365.74 DEPOSITS/CREDITS DATE TRANSACTION AMOUNT I DATE TRANSACTION AMOUNT MM-01 DEPOSIT 176,784.00 MM-OS DEPOSIT 100,354.96 MM-12 DEPOSIT 330.20 MM-12 DEPOSIT 990.66 MM-22 DEPOSIT 10,659.33 DATE AMOUNT TRANSACTION DESCRIPTION MM-03 425,000.00 WIRE TRANSFER FROST BANK BOOK CDT MM-08 103.17 ACH DEPOSIT TEXAS COMPTROLLR INV-PAYMTS MM-12 650.00 ACH DEPOSIT HUD TREAS 303 MISC PAY MM-15 1,382,345.00 WIRE TRANSFER FROST BANK WIRE IN MM-22 1,373.83 ACH DEPOSIT TEXAS COMPTROLLR INV-PAYMTS MM-31 458.31 INTERST PAID CHECKS PAID DATE CHECK AMOUNT DATE CHECK AMOUNT 1 DATE CHECK AMOUNT MM-03 2798 252.66 1474-12 2843 • 837.25 1 MM-22 2856 • 2,900.26 MM-03 2800 • 252.66 I 1404-15 2851 • 1,914.84 1 MM-22 2859 • 643.12 MM-05 2820 • 624.27 MM-15 2854 • 2,378.01 1 MM-26 2870 • 2,453.94 • A BREAK IN CHECK NUMBER SEQUENCE OTHER WITHDRAWALS/DEBITS DATE AMOUNT TRANSACTION DESCRIPTION MM-01 387,088.63 MISC DEBIT MM-0S 2,346.31 WIRE TRANSFER FROST BANK WIRE OUT MM-08 51,386.19 WIRE TRANSFER FROST BANK WIRE OUT MM-12 107,872.00 CM ACCOUNT TRANSFER TRANSFERRED TO ACCT 8868666 MM-15 3,600.00 WIRE TRANSFER FROST BANK WIRE OUT MM-1S 101.00 RETURN ITEM MM-19 29.11 DEPOSIT CORRECTION MM-22 1,281,364.30 ACH DEBIT PAYROLL -SETTLEMENT DAILY BALANCE DATE BALANCE DATE BALANCE DATE BALANCE 140.1-30 210,361.33 841*1-08 470,652.24 8464-22 465,361.37 8484-01 56.70 8484-12 363,913.85 8414-26 462,907.43 1484-03 424,551.38 104-15 1,738,265.00 8484-31 463,365.74 8414-05 521,935.26 8464-19 1,738,235.89 ATTACHMENT 7 PARTIAL RECONCILIATION STATEMENT w 4 O 0 0., W 0-4 R1 V) 0 Obbev .4C e 6- 21 -g, 4 §-4 I §-i cA .5.)_, , „;, p4 §., 0 P4 o X1 8cf)jiii 0 R i7:,. 6 § -- (1) ›, to 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December 31, 2014 Ratios $ in (000's) Measures (ytd averages) Cash&Due from Bank, Investment Securities, and Fed Funds Sold $ 13,578,451 Liquidity 61.57% Deposits 22,052,759 Shareholders Equity, Long Term Debt, Loan Loss Reserve 3,041,765 Financial Strength 13.79% Deposits 22,052,759 Shareholders Equity, Long Term Debt, Loan Loss Reserve 3,041,765 Financial Strength 29.53% Loans 10,299,025 Shareholders Equity, Long Term Debt, Loan Loss Reserve 3,041,765 Leverage 11.80% Assets 25,767,738 Loans 10,299,025 Liquidity 46.70% Deposits 22,052,759 Non-Performing Loans 59,925 Loan Management 0.23% Assets 25,767,738 Net Income(annualized) 269,914 Management Skills 9.95% Shareholders Equity 2,712,226 N c7) c m a) +m a) + ani Q = m m Q < »j m m s .c2 2 000a) o°. a) o a o a` E c LL 3 .: 3 .0 > > M al ° m v co v a) a) m Ta + .o 00 Q Q ▪ Qm co < < < u in ca m a) .o ;o + + , to tnm m m o < Em co co m a. E E E E E a°i mE ea 2 co o 0 0 o E E 'a ao a= a aaE ',E a 6- 3 -o 3 .c 3 3 3 ca co 3 -a c a) :° > N o) Co .o m r co < z < m QQQQco co a) a) :., a) Ici co co ttyy ccyy .cca ii < �L . o co EEEEEE Y ›.wEEO O o 0 0 0 0 0 0 00 'a 4- — 4— 4— 4— 4— v_ aaa=t� 4aan. aaa 7.7-• o 0 3 3 3 .0 3 3 3 3 3 3 0 a) a) .d r :=-L- co co T Q O No C co +n 0 to i .c 7 a)cp Y c I— +' C �o 7, to •O CL f0 co a) a) O C to rn m -10 -(5 a o rn U o C y -CI gyp � o , c0 - a) co o E ccoo ") c coo E E Ti N U. a) c ami CO c `m " m t� c �-- o 12 m P- H I-- Y 4- C a) N 0) rn 0 0 . tt O a) rn t 0O .Y 0 3 3 C j = Q) 0 7 0 o -o :3 c = 0 0 B O cn a` ti co -I _) CO o m 0 GUMIEN / FROST rBANKER5 , I C. u ANNUAL REPORT A TEXAS FINANCIAL SERVICES FAMILY CULLEN / FROST BANKERS , INC . ( NYSE : CFR ) is a financial holding company, headquartered in San Antonio, with $28.3 billion in assets at December 31, 2014. Among the top 50 largest U.S. banks and one of 24 banks included in the KBW Bank Index, Frost provides a wide range of banking, investments and insurance services to businesses and individuals across Texas in the Austin, Corpus Christi, Dallas, Fort Worth, Houston, Permian Basin, Rio Grande Valley and San Antonio regions. Founded in 1868, Frost has helped clients with their financial needs during three centuries. Additional information is available at frostbank.com. THE ANNUAL MEETING OF SHAREHOLDERS APRIL 30 , 2015 Frost Bank 100 West Houston Street / San Antonio, Texas II A. M . IN THE COMMANDERS ROOM FINANCIAL HIGHLIGHTS DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 2014 2013 NET INCOME AVAILABLE $ TO COMMON SHAREHOLDERS 269,911 $ 231,147 PER COMMON SHARE DATA Earnings per Common Share — Basic $ 4.32 $ 3.82 Earnings per Common Share — Diluted 4.29 3.80 Cash Dividends 2.03 1.98 Book Value 42.87 39.13 PERFORMANCE RATIOS Return on Average Assets 1.05 % 1.02 % Return on Average Common Equity 10.51 9.93 Net Interest Margin 3.41 3.41 Dividend Payout Ratio on Common Shares 47.12 51.75 YEAR-END BALANCE SHEET DATA Loans $ 10,987,535 $ 9,515,700 Securities 11,403,166 9,051,582 Earning Assets 26,052,339 22,238,286 Total Assets 28,277,775 24,312,939 Non-interest-bearing Demand Deposits 10,149,061 8,311,149 Interest-bearing Deposits 13,986,869 12,377,637 Total Deposits 24,135,930 20,688,786 Long-term Debt and Other Borrowings 237,115 223,712 Shareholders' Equity 2,851,403 2,514,161 'f_ .,zz;..-, r: --'.- 400,40x CULLEN/F'ROST BANKERS . INC . ff w ,,,;,,t,~ ,,.>6w ,, ax <:... :. To OUR SHAREHOLDERS : AM PLEASED TO REPORT THAT CULLEN/FROST GENERATED STRONG RESULTS in 2014, including record annual earnings and double-digit growth over 2013 in loans and deposits. Our assets have more than doubled in just seven years, topping $28 billion for the first time. We achieved all-time highs in three key areas: loans of $10.3 billion, deposits of $22.1 billion and trust assets at $30.5 billion. In spite of persistently low interest rates, our customer-focused approach is helping us to grow our business and produce solid results. Net income available to common shareholders for 2014 market, going back to 1881, when both Midland and was $269.9 million, representing a 16.8 percent increase Odessa were founded. Midland was an important cattle over 2013 earnings of$231.1 million.On a per-share basis, shipping center in the 1890s, and Odessa was a railway 2014 earnings were $4.29 per diluted common share, water stop for cattle shipping. The discovery of oil in compared with $3.80 per diluted common share reported the Permian Basin in 1923 changed the dynamic of in 2013. Returns on average assets and common equity the region's economy. Although the Permian Basin is were 1.05 percent and 10.51 percent respectively,compared responsible for 14 percent of the oil produced in the U.S. with 1.02 percent and 9.93 percent reported in 2013. and 57 percent of the oil produced in Texas,the region has The positive trend for credit quality that began five years diversified into the telecommunications, distribution and ago continued in 2014.The provision for loan losses for the medical industries. year was $16.3 million, compared with $20.6 million for We expanded into this region not primarily because of 2013. Net charge-offs as a,percentage of average loans for its strength in oil,but rather because WNB,like Frost,has the year were only 9 basis points, an extremely low level. always had a strong focus on relationships and operated Capital levels at Cullen/Frost remain strong,with both Tier 1 in much the same way as we do. The previous owners and Total Risk-Based Capital Ratios in excess of Basel III believed in building one-to-one relationships with all capital requirements. kinds of businesses, not only those in the energy sector. ADDING A REGION AND Interestingly, they built the company during the 1980s and OPPORTUNITIES FOR GROWTH have demonstrated their ability to manage through energy At the end of May 2014, we completed the acquisition cycles. We are providing opportunities for growth in the of WNB Bancshares, Inc. in Midland and Odessa. It region across a variety of industries and are introducing was our first acquisition since the merger with Summit our customers there to the range of other services we offer. Bancshares eight years earlier. Bringing WNB into Frost Because of our broad-based loan portfolio and our deep expanded our footprint into the Permian Basin region expertise in industries like medical, auto dealers and in West Texas. This extremely well-run bank is a great homebuilding, we are helping the Permian Basin region geographic, business and culture fit with our company. build its infrastructure across all kinds of businesses. At acquisition, WNB's $1.8 billion in assets represented With the conversion to Frost in June 2014, we added 6 percent of our company's total assets. This is a mature seven new Frost financial centers in Midland and Odessa erre. e ,,,,,/,. 0,,ve,,e4,,WA'soPAGE 2 w. ,,'- ,, _,.k mow., .,—.,,,f,, : -..rte*v, ,_ . r,,s,WI W h ra ,i v a,4 .:. _ , .tet -M, �..,, ANNUAL REPORT 2 O 1 4 xa a� :z 2o�1=^ a "ar a r:. 4,W;141-0341 and created our eighth region called Permian Basin.These $11.6 billion. New deposits this year represented a diverse new locations brought our total number of financial centers mix of consumer and business customers, with almost half statewide to 123. I am proud of everyone in the region for of the growth-47 percent—coming from new customers their hard work and commitment during the transition. we added in 2014 and the remainder coming from existing Approximately 60 Frost employees went to the Permian customers adding funds to their accounts. The continued Basin to serve as ambassadors to help their Midland and surge in deposits reflects customer confidence in Frost's Odessa colleagues learn our systems and processes and safety and in our value proposition. ensure a smooth transition. Many of these employees MAKING UP INCOME FROM and others across all lines of business also provided THE INTEREST RATE HEDGE post-conversion support. For 2014, net interest income on a taxable-equivalent DOUBLE-DIGIT GROWTH IN basis was $807.9 million, an increase of 13.7 percent over LOANS, DEPOSITS FUEL OUR SUCCESS 2013. It was quite an accomplishment to expand our net One of the things we learned from the 1980s in Texas interest income by double digits in a low-interest-rate was the importance of growing our business during the environment. In 2007, we entered into a seven-year prime downturn. Early on in the Great Recession, we initiated interest rate swap that paid us,on a pretax basis,more than an aggressive, strategic program to expand the number a quarter of a billion dollars over its original seven-year life. of new business customers, knowing that they would Over the last four years, the swap paid us approximately eventually help fuel loan growth when confidence returned. $9 million a quarter or$36 million a year.Naturally,there I am pleased to report that we are seeing the results of were a lot of questions about how we would replace that our disciplined team-calling effort. Average loans for the income when the amortization period for the swap gain year grew 11.6 percent, or $1.1 billion, to $10.3 billion, ended at the end of October 2014. All along, we said we "ALL ALONG , WE SAID WE WOULD OFFSET THE LOST INCOME FROM THE SWAP , AND WE DID JUST THAT . compared with the $9.2 billion we reported for 2013. would offset the lost income from the swap,and we did just Even excluding partial-year data from WNB, 2014 was that. As we've outlined in the past, we utilized excess our best year ever for new relationships and new loan liquidity that had built up in our balance sheet to invest in opportunities. It was our best year since 2007 for new loan municipal securities to continue to replace this income.Our commitments. New relationships we added since January investment team did a great job acquiring $717 million 2013 accounted for 56 percent of 2014 loan growth, in municipal securities during the fourth quarter,which affirming the benefit of our business development efforts made up the lion's share of the investments needed. Even during the downturn. with the double-digit increase in net interest income, the The deposit growth trend that began in 2008 continued margin continued to be pressured by the high level of in 2014, with average deposits growing 14.5 percent, or liquidity we maintain at the Federal Reserve. The net $2.8 billion,over the previous year to$22.1 billion. Since interest margin for 2014 was 3.41 percent, unchanged 2007, our deposits have more than doubled, growing by from 2013. <,.c .,; ,t. mss.;. FAG E 3 of ,r .._ ams<r ,. . 1,0 a • GULLEN/FROST HANKERS . INC . w04,0 A7x�uaz� e «„ ,� .-; MANAGING WELL THROUGH In addition,our executive team knows how to work through CYCLICAL ENERGY PRICES volatile times, with most having been with us in the There has been a great deal of talk in the media in 1980s. Comparisons to what happened in Texas during recent months about the possible impact of falling oil the 1980s, while tempting, are misplaced. Those were prices on Texas banks. It's still too early to know how very different times,and the Texas economy is much more low oil prices will go, and how long they will stay at diversified today. Because we have maintained our strong lower levels. Even so, we believe that our conservative underwriting standards and credit disciplines, we believe underwriting and strong credit disciplines position us any resulting problem loans could be addressed in the well for a challenging environment. Outstanding loans in normal course of business and that risk is manageable. the energy sector represent about 16 percent of our loan Although surprises can always happen, we believe we portfolio. That means that 84 percent of our loans are in are well-positioned to withstand turbulence from falling other sectors, so our portfolio is very well diversified. Let oil prices. me assure you that as we go through this price contraction INVESTMENTS, INSURANCE and volatility,we're staying close to our energy customers. ADD REVENUE Approximately 75 percent of our energy loans are in Non-interest income for 2014 was $320.1 million, a exploration and production (E&P), with 25 percent in 5.7 percent increase over the previous year. Income from the service area. Nearly half of our E&P customers are trust and investment management fees was $106.2 million hedged through 2015, with some of them hedged even for the year, an increase of $14.9 million from the $91.4 longer,through 2016. Service companies are preparing for million we reported in 2013.We have seen good growth in a reduction in revenues, and they have plans in place to the market value of funds we manage or hold in custody, " CUSTOMERS TELL US OVER AND OVER THAT WHAT THEY EXPERIENCE AT FROST IS DIFFERENT FROM OTHER FINANCIAL INSTITUTIONS . adjust overhead and personnel. Unlike what we saw in fueled by positive markets,good investment performance, the 1980s, there is no denial, but rather a focus on doing and an increase in the number of clients. Trust assets what has to be done. Although job losses are difficult for were $30.5 billion at year-end 2014, compared with $29 the individuals, I believe this is a healthy process. In fact, billion a year earlier. Frost Investment Advisors, LLC, the sector has been overheated in recent years, with too our registered investment advisor, launched the Frost much money chasing too few deals.We expect to help the Aggressive Allocation Fund, the third in a series of asset stronger players take advantage of opportunities for growth allocation funds Frost manages. This fund joins the Frost that will come as weaker,less-experienced companies are Moderate Allocation Fund, formerly the Frost Strategic pressured to sell property and equipment. Balanced Fund, and the Frost Conservative Allocation Over the last few years, we have added capacity in Fund, formerly the Frost Diversified Strategies Fund. The the energy sector, in part through the WNB acquisition. goal of the three funds is to provide investors with a suite PAGE 4AO- nv. ..rr xa, ,%74. < x ..xr xrvaa ANNUAL REPORT 2 O r 4 ...._ K',�¢,, vs�a...; ,�xr x,� ?<aenz�`t,��; , of funds targeted on balancing risk and return in order to lines of business.We operate our call center 24 hours a day, meet their long-term investment objectives. Once again, in so our customers can reach a real person at Frost at 2014,the star performer was the Frost Total Return Fund, any time, including by pushing a button on their Frost which topped$1.3 billion and was ranked in the top decile smartphone app. Through partnerships with Corner on a one-, three- and five-year basis against its peers in Stores, H-E-B' stores and ATMs at our financial centers industry rankings.Frost Investment Advisors offers a family and other locations, we have expanded our ATM network of 15 mutual funds that include both institutional and retail to more than 1,200 ATMs statewide.We now have one of shares.Our team has in-depth knowledge in a wide range of the largest ATM networks in most of our markets,allowing industries and offers an array of mutual fund and separately our customers to access their money free of charge. managed account strategies. In addition, Frost Investment THE PACE OF CHANGE, Advisors manages assets for Frost Wealth Advisors and INNOVATION ACCELERATING provides advisory services to institutional and high-net- Our customers rely on us to be innovative, to stay worth clients. current with the latest technology and to be better than Our insurance subsidiary, Frost Insurance, contributed the competition. Innovation leads to customer satisfaction $45 million in revenue to the company in 2014.During the because it improves their lives.We believe technology that's year, Pat Frost was named president of Frost Insurance, built the right way can make our customers' banking adding to his responsibilities as president of Frost Bank. experience and their lives better. Digital deposits made The team-selling disciplines in place for several years are through our Frost apps for iPhoneand Android"'devices working well,and now 25 percent of our insurance business now handle as many deposits as 21 financial centers comes from referrals made by banking and investment combined.Our apps continue to earn high customer ratings teams within Frost. In fact, we lead the nation in internal as we focus on delivering a great experience and adding referrals among bank-owned insurance agencies. Under new features. Understanding that our customers expect Pat's leadership, we expect our referral numbers to rise us to help them guard the security of their debit cards, even higher.A few years ago,we began placing insurance Frost launched industry-leading debit card alerts.We send professionals in some of our financial centers to facilitate that real-time text alerts to customers' phones, enabling them referral process. Frost Insurance is now 62nd in insurance to quickly detect and stop fraudulent use of their debit brokerage revenue among all insurance brokerage companies. card. A response to the text alert instantly blocks further Among bank-owned insurance agencies,we rank ninth. card usage.A knowledgeable Frost banker then follows up DELIVERING A CONSISTENT with a call. This is a tangible example of Frost blending FROST EXPERIENCE great technology with great people to serve our customers. Customers tell us over and over that what they experience In 2014,we had more than 41 million total logins to our at Frost is different from other financial institutions. Our mobile and online banking channels for consumers and goal is to deliver the Frost experience in every interaction small businesses, an increase of almost 25 percent. This —whether in person, on the phone, or through digital growth is primarily attributed to the popularity of Frost's channels—not only in words,but in actions.This is such a mobile offering.Mobile logins grew by 77 percent year over huge differentiator for Frost that we added it as a strategic year and now account for 63 percent of total logins.We are priority: "Ensure a consistent Frost Experience that delivers committed to continuous innovation. our value proposition to customers and prospects." POSITIONING THE EXECUTIVE TEAM We are committed to making advancements and adding FOR CONTINUED GROWTH functionality to our top-rated smartphone apps.Our bankers Cullen/Frost has more than doubled in asset size in the are sharing best practices and expertise across regions and last seven years.Our executive team has done an incredible , r c PAGE. 5 ,;.r,, ,t -;,, GULLEN/FROST BANKERS . INC. s os , ,. ,<s:-.4 cxrE„ar�ua, -�.r. . v .„.,-�N «,���..,,z, M... _ 0^$, ANNUAL REPORT 20 14 a,� ,.�� ���>-�„ .�„�, �<; .. . ,,,,.<, >.,��;�, ziow4w7 ha continues to be an advantage for Frost. With the state's Our exceptional employees are the secret to our success. well-diversified economy, its business-friendly environment To our staff, at all levels of the company, in all regions, and low taxes,Texas leads the nation in economic growth lines of business and support areas—you bring our culture and has been the top U.S. exporting state for 12 years. to life and deliver our value proposition every day. You Corporate relocations from across the U.S. helped make make the Frost experience happen.You take amazing care Dallas-Fort Worth the nation's No.1 market for job creation of our customers and bring in new ones to our family,and in 2014.The strong Texas cities we serve are consistently I thank you. " WE HAVE THE RIGHT PEOPLE TO DELIVER THE FROST EXPERIENCE TO OUR CUSTOMERS AND TO GROW OUR BUSINESS IN ALL CYCLES . ” on the lists of best cities for business,and 52 Fortune 500 I extend my warmest appreciation to our outstanding companies are headquartered here.Even with an anticipated directors,whose wise counsel,dedication and insight have impact if the price of oil continues to drop and stays at a helped our company make good decisions and operate as low level for some time,Texas will see job growth this year. one of the best banks in the nation. According to projections from the Federal Reserve Bank I am grateful to you,our shareholders,for your confidence of Dallas, 2015 job growth in Texas should still be on par and for the trust you have placed in Cullen/Frost. We with the U.S.The petrochemical industry actually benefits take that trust very seriously and remain committed to from lower oil prices, because its plants run on cheaper delivering long-term, consistent value. natural gas, and a petrochemical plant construction boom along the Gulf coast, including Houston, helps offset the loss of energy development jobs.In addition,lower gasoline prices are good for most businesses and consumers. MOVING FORWARD WITH CONFIDENCE As we approach our 150th anniversary in 2018—just a SINCERELY, few years from now—we can look back on our company's long history and accomplishments with pride, knowing / / we have built a solid framework that will enable us to '1/ �(/�,y./J move forward with confidence and strength. We have a ///��. value proposition,business model and culture that helped DICK EVANS us get through the recession and will continue to guide us. CHAIRMAN AND CHIEF EXECUTIVE OFFICE R We have the right people to deliver the Frost Experience to our customers and to grow our business in all cycles. In short, the way we operate continues to be the foundation of our success. We have paid, and even increased, the dividend to our shareholders for 20 consecutive years. , c&x^. ,. PAGE 7 r »rte, .. re ✓w,a_ ,, . „�•,-�_< � rr.. o- _ . - GULLEN/ FROST BANKERS . INC. am u , �.- >. ., THE BOARD OF DIRECTORS Or G U L L E N/FROST BANKERS. INC. AND FROST BAN K wrmra�„sv;,a > %t-ce3Ms w_ 0 4'2oO..xi4r:iuo_. ,. ixa�z ,tin,..330 tea,.•_ .,�3 033,r.,., ,.v.,._....gym.._....,.."3 ,'333.,.rn.334 a.:.�,w:,..,. ,<_a,..�.4.3 ns.x.., R. DENNY ALEXANDER DICK EVANS4 CHARLES W. MATTHEWS Owner Chairman and Chief Executive Officer Retired R.Denny Alexander&Company Cullen/Frost Bankers,Inc. Exxon Mobil Corporation CARLOS ALVAREZ PAT FROST IDA CLEMENT STEENS Chairman and Chief Executive Officer President Investments The Gambrinus Company Frost Bank HORACE WILKINS, JR.6 ROYCE S. CALDWELLt•2 DAVID J. HAEMISEGGER Retired Retired President AT&T Inc AT&T Inc. NorthPark Management Company JACK WOOD CRAWFORD H. EDWARDS KAREN E. JENNINGS Investments President Retired Partner,Permian Enterprises,Ltd. Cassco Land Co.,Inc. AT&T Inc. RUBEN M. ESCOBEDO3 RICHARD M. KLEBERG, III Retired Investments Ruben Escobedo&Co.,CPA TOM FROST Chairman Emeritus SENIOR OFFICERS DICK EVAN'S • Chairman and Chief Executive Officer,Cullen/Frost DAVE BECK PAT FROST PAUL OLIVIER President President Group Executive Vice President Chief Business Banking Officer,Frost Bank Frost Bank Chief Consumer Banking Officer,Frost Bank BOBBY BERMAN PHILLIP D. GREEN BILL PEROTTI Group Executive Vice President President Group Executive Vice President E-Commerce Operations Cullen/Frost Chief Risk Officer,Frost Bank Research and Strategy,Frost Bank RICHARD KARDYS JERRY SALINAS PAUL BRACHER Group Executive Vice President Group Executive Vice President Group Executive Vice President Frost Wealth Advisors.Frost Bank Chief Financial Officer,Cullen/Frost Chief Banking Officer,Frost Bank STAN MCCORMICK EMILY SKILLMAN Executive Vice President Group Executive Vice President Corporate Secretary,Cullen/Frost Chief Human Resources Officer,Frost Bank 1. Chair,Compensation& Benefits Committee— 2. Chair,Corporate Governance &Nominating Committee —3 Chair, Audit Committee 4.Chair, Strategic Planning Committee;Chair, Executive Committee— S.Chair,Trust Committee(Frost Bank)—6. Chair, Directors Risk Committee(Frost Bank) MitrAISCOMY*AeftrettentiOrt,,,. 3-,. r3.3'50 {,.. 40;., ..r,.. Y. :ze„ :S PAGE 8 #s UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington,D.C.20549 FORM 10-K gg Annual Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934 For the fiscal year ended: December 31,2014 Or 0 Transition Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934 For the transition period from to Commission file number: 001-13221 CULLEN/FROST BANKERS, INC. (Exact name of registrant as specified in its charter) Texas 74-1751768 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 100 W.Houston Street,San Antonio,Texas 78205 (Address of principal executive offices) (Zip code) (210)220-4011 (Registrant's telephone number,including area code) Securities registered pursuant to Section 12(b)of the Act: Common Stock,$.01 Par Value The New York Stock Exchange,Inc. 5.375%Non-Cumulative Perpetual Preferred Stock,Series A The New York Stock Exchange,Inc. (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g)of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Yes ® No 0 Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d)ofthe Act.Yes 0 No CgI Indicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and(2)has been subject to such filing requirements for the past 90 days.Yes 111 No 0 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website,if any,every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit and post such files).Yes RI No 0 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,and will not be contained,to the best of the registrant's knowledge,in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.Ca Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,or a non-accelerated filer.See definition of"accelerated filer and large accelerated filer"in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer 0 Non-accelerated filer 0 (Do not check if a smaller reporting company) Smaller reporting company 0 Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Act.)Yes 0 No Cgi As of June 30,2014,the last business day of the registrant's most recently completed second fiscal quarter,the aggregate market value of the shares of common stock held by non-affiliates,based upon the closing price per share of the registrant's common stock as reported on The New York Stock Exchange,Inc.,was approximately$4.8 billion. As of February 2,2015,there were 63,151,173 shares of the registrant's common stock,$.01 par value,outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 2015 Annual Meeting of Shareholders of Cullen/Frost Bankers,Inc.to be held on April 30, 2015 are incorporated by reference in this Form 10-K in response to Part III,Items 10, 11, 12, 13 and 14. CULLEN/FROST BANKERS,INC. ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS Page PART I Item 1. Business 3 Item 1A. Risk Factors 19 Item 1B. Unresolved Staff Comments 28 Item 2. Properties 28 Item 3. Legal Proceedings 28 Item 4. Mine Safety Disclosures 28 PART II Item 5. Market for Registrant's Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities 29 Item 6. Selected Financial Data 32 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 35 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 72 Item 8. Financial Statements and Supplementary Data 74 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 137 Item 9A. Controls and Procedures 137 Item 9B. Other Information 138 PART 111 Item 10. Directors,Executive Officers and Corporate Governance 139 Item 11. Executive Compensation 139 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 139 Item 13. Certain Relationships and Related Transactions,and Director Independence 139 Item 14. Principal Accounting Fees and Services 139 PART IV Item 15. Exhibits,Financial Statement Schedules 140 SIGNATURES 141 2 PART I ITEM 1.BUSINESS The disclosures set forth in this item are qualified by Item 1A. Risk Factors and the section captioned "Forward- Looking Statements and Factors that Could Affect Future Results"in Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations of this report and other cautionary statements set forth elsewhere in this report. The Corporation Cullen/Frost Bankers,Inc.("Cullen/Frost"),a Texas business corporation incorporated in 1977,is a financial holding company and a bank holding company headquartered in San Antonio, Texas that provides, through its subsidiaries (collectively referred to as the "Corporation"), a broad array of products and services throughout numerous Texas markets. The Corporation offers commercial and consumer banking services, as well as trust and investment management, mutual funds, investment banking, insurance, brokerage, leasing, treasury management and item processing services.At December 31,2014,Cullen/Frost had consolidated total assets of$28.3 billion and was one of the largest independent bank holding companies headquartered in the State of Texas. The Corporation's philosophy is to grow and prosper,building long-term relationships based on top quality service, high ethical standards,and safe,sound assets.The Corporation operates as a locally oriented,community-based financial services organization,augmented by experienced,centralized support in select critical areas.The Corporation's local market orientation is reflected in its regional management and regional advisory boards,which are comprised of local business persons,professionals and other community representatives that assist the Corporation's regional management in responding to local banking needs.Despite this local market,community-based focus,the Corporation offers many of the products available at much larger money-center financial institutions. The Corporation serves a wide variety of industries including, among others, energy, manufacturing, services, construction,retail,telecommunications, healthcare,military and transportation.The Corporation's customer base is similarly diverse.While the Corporation's loan portfolio has a significant concentration of energy-related loans totaling approximately 16.1%of total loans,the Corporation is not dependent upon any single industry or customer. The Corporation's operating objectives include expansion,diversification within its markets,growth of its fee-based income, and growth internally and through acquisitions of financial institutions, branches and financial services businesses. The Corporation generally seeks merger or acquisition partners that are culturally similar and have experienced management and possess either significant market presence or have potential for improved profitability through financial management,economies of scale and expanded services.The Corporation regularly evaluates merger and acquisition opportunities and conducts due diligence activities related to possible transactions with other financial institutions and financial services companies. As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving cash, debt or equity securities may occur. Acquisitions typically involve the payment of a premium over book and market values,and,therefore,some dilution of the Corporation's tangible book value and net income per common share may occur in connection with any future transaction. During 2014, the Corporation acquired WNB Bancshares, Inc., a privately-held bank holding company headquartered in Odessa, Texas ("WNB"). See Note 2 - Mergers and Acquisitions in the accompanying notes to consolidated financial statements included elsewhere in this report.During 2013,the Corporation acquired a Houston- based insurance agency specializing in commercial lines insurance products.During 2012,the Corporation acquired a Houston-based human resources consulting firm that specializes in compensation,benefits and outsourcing services. During 2011, the Corporation acquired an insurance agency in the San Antonio market area. The aforementioned acquisitions did not have a significant impact on the Corporation's financial statements during their respective reporting periods. The Corporation's ability to engage in certain merger or acquisition transactions, whether or not any regulatory approval is required,will be dependent upon the Corporation's bank regulators'views at the time as to the capital levels, quality of management and overall condition of the Corporation and their assessment of a variety of other factors. Certain merger or acquisition transactions,including those involving the acquisition of a depository institution or the assumption of the deposits of any depository institution, require formal approval from various bank regulatory authorities,which will be subject to a variety of factors and considerations.As part of the approval process in connection with the acquisition of WNB,the Corporation agreed with the Federal Reserve that before bringing them any further expansionary proposals,the Corporation would enhance certain compliance programs,including those related to fair 3 lending. The Corporation is currently working on these enhancements. See the section captioned"Supervision and Regulation"included elsewhere in this item for further discussion of these matters. Although Cullen/Frost is a corporate entity,legally separate and distinct from its affiliates,bank holding companies such as Cullen/Frost are required to act as a source of financial strength for their subsidiary banks.The principal source of Cullen/Frost's income is dividends from its subsidiaries.There are certain regulatory restrictions on the extent to which these subsidiaries can pay dividends or otherwise supply funds to Cullen/Frost. See the section captioned "Supervision and Regulation"included elsewhere in this item for further discussion of these matters. Cullen/Frost's executive offices are located at 100 W.Houston Street,San Antonio,Texas 78205,and its telephone number is(210)220-4011. Subsidiaries of Cullen/Frost Frost Bank Frost Bank,the principal operating subsidiary and sole banking subsidiary of Cullen/Frost,is primarily engaged in the business of commercial and consumer banking through approximately 123 financial centers across Texas in the Austin,Corpus Christi,Dallas,Fort Worth,Houston,Permian Basin,Rio Grande Valley and San Antonio regions.Frost Bank also operates approximately 1,190 automated-teller machines("ATMs")throughout the State of Texas,including approximately 625 ATMs operated in connection with a branding arrangement to be the exclusive cash-machine provider for CST Brands,Inc.Corner Stores in Texas.Frost Bank was chartered as a national banking association in 1899,but its origin can be traced to a mercantile partnership organized in 1868.At December 31,2014,Frost Bank had consolidated total assets of$28.3 billion and total deposits of$24.2 billion and was one ofthe largest commercial banks headquartered in the State of Texas. Significant services offered by Frost Bank include: • Commercial Banking.Frost Bank provides commercial banking services to corporations and other business clients. Loans are made for a wide variety of general corporate purposes,including financing for industrial and commercial properties and to a lesser extent,financing for interim construction related to industrial and commercial properties, financing for equipment, inventories and accounts receivable, and acquisition financing. The Corporation also originates commercial leases and offers treasury management services. • Consumer Services. Frost Bank provides a full range of consumer banking services, including checking accounts, savings programs,ATMs,overdraft facilities,installment and real estate loans,home equity loans and lines of credit, drive-in and night deposit services,safe deposit facilities and brokerage services. • International Banking. Frost Bank provides international banking services to customers residing in or dealing with businesses located in Mexico.These services consist of accepting deposits(generally only in U.S.dollars),making loans(generally only in U.S.dollars),issuing letters of credit,handling foreign collections,transmitting funds,and to a limited extent,dealing in foreign exchange. • Correspondent Banking. Frost Bank acts as correspondent for approximately 266 financial institutions,which are primarily banks in Texas.These banks maintain deposits with Frost Bank,which offers them a full range of services including check clearing,transfer of funds, fixed income security services, and securities custody and clearance services. • Trust Services. Frost Bank provides a wide range of trust,investment,agency and custodial services for individual and corporate clients. These services include the administration of estates and personal trusts, as well as the management of investment accounts for individuals, employee benefit plans and charitable foundations. At December 31,2014,the estimated fair value of trust assets was$30.5 billion, including managed assets of$13.0 billion and custody assets of$17.5 billion. • Capital Markets-Fixed-Income Services.Frost Bank's Capital Markets Division supports the transaction needs of fixed-income institutional investors. Services include sales and trading, new issue underwriting, money market trading,and securities safekeeping and clearance. • Global Trade Services. Frost Bank's Global Trade Services Division supports international business activities including foreign exchange,international letters of credit and export-import financing,among other things. 4 Frost Insurance Agency,Inc. Frost Insurance Agency,Inc.is a wholly-owned subsidiary of Frost Bank that provides insurance brokerage services to individuals and businesses covering corporate and personal property and casualty insurance products, as well as group health and life insurance products and consulting services. Frost Brokerage Services,Inc. Frost Brokerage Services,Inc.("FBS")is a wholly-owned subsidiary of Frost Bank that provides brokerage services and performs other transactions or operations related to the sale and purchase of securities of all types.FBS is registered as a fully disclosed introducing broker-dealer under the Securities Exchange Act of 1934 and,as such,does not hold any customer accounts. Frost Investment Advisors, LLC Frost Investment Advisors is a registered investment advisor and a wholly-owned subsidiary of Frost Bank that provides investment management services to Frost-managed mutual funds,institutions and individuals. Tri Frost Corporation Tri-Frost Corporation is a wholly-owned subsidiary of Frost Bank that primarily holds securities for investment purposes and the receipt of cash flows related to principal and interest on the securities until such time that the securities mature. Frost Securities, Inc. Frost Securities, Inc. is a wholly-owned subsidiary of Cullen/Frost that provides capital and advisory services to primarily private companies. Main Plaza Corporation Main Plaza Corporation is a wholly-owned subsidiary of Cullen/Frost that occasionally makes loans to qualified borrowers.Loans are funded with current cash or borrowings against internal credit lines. Cullen/Frost Capital Trust II and WNB Capital Trust I Cullen/Frost Capital Trust II("Trust II")is a Delaware statutory business trust formed in 2004 for the purpose of issuing$120.0 million in trust preferred securities and lending the proceeds to Cullen/Frost.Cullen/Frost guarantees, on a limited basis,payments of distributions on the trust preferred securities and payments on redemption of the trust preferred securities. WNB Capital Trust I("WNB Trust")is a Delaware statutory business trust formed in 2004 for the purpose of issuing $13.0 million in trust preferred securities and lending the proceeds to WNB. Cullen/Frost, as WNB's successor, guarantees,on a limited basis,payments of distributions on the trust preferred securities and payments on redemption of the trust preferred securities. Trust II and WNB Trust are variable interest entities for which the Corporation is not the primary beneficiary.As such,the accounts of Trust II and WNB Trust are not included in the Corporation's consolidated financial statements. See the Corporation's accounting policy related to consolidation in Note 1 -Summary of Significant Accounting Policies in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, which is located elsewhere in this report. Although the accounts of Trust II and WNB Trust are not included in the Corporation's consolidated financial statements,the$120.0 million in trust preferred securities issued by Trust II and the$13.0 million in trust preferred securities issued by WNB Trust were included in the Tier 1 capital of Cullen/Frost for regulatory capital purposes during the reported periods.See the section captioned"Supervision and Regulation-Capital Requirements"for a discussion of the regulatory capital treatment of the Corporation's trust preferred securities, including recent revisions to that treatment that will require the Corporation to phase-out the inclusion of trust preferred securities in Tier 1 capital. Other Subsidiaries Cullen/Frost has various other subsidiaries that are not significant to the consolidated entity. 5 Operating Segments Cullen/Frost's operations are managed along two reportable operating segments consisting of Banking and Frost Wealth Advisors. See the sections captioned"Results of Segment Operations" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 19-Operating Segments in the notes to consolidated financial statements included in Item 8.Financial Statements and Supplementary Data,which are located elsewhere in this report. Competition There is significant competition among commercial banks in the Corporation's market areas. In addition, the Corporation also competes with other providers of financial services, such as savings and loan associations, credit unions,consumer finance companies,securities firms,insurance companies,insurance agencies,commercial finance and leasing companies,full service brokerage firms and discount brokerage firms.Some ofthe Corporation's competitors have greater resources and,as such,may have higher lending limits and may offer other services that are not provided by the Corporation.The Corporation generally competes on the basis of customer service and responsiveness to customer needs,available loan and deposit products,the rates of interest charged on loans,the rates of interest paid for funds, and the availability and pricing of trust,brokerage and insurance services. Supervision and Regulation Cullen/Frost,Frost Bank and most of its non-banking subsidiaries are subject to extensive regulation under federal and state laws.The regulatory framework is intended primarily for the protection of depositors,federal deposit insurance funds and the banking system as a whole and not for the protection of shareholders and creditors. Significant elements of the laws and regulations applicable to Cullen/Frost and its subsidiaries are described below. The description is qualified in its entirety by reference to the full text of the statutes,regulations and policies that are described.Also,such statutes,regulations and policies are continually under review by Congress and state legislatures and federal and state regulatory agencies.A change in statutes,regulations or regulatory policies applicable to Cullen/ Frost and its subsidiaries could have a material effect on the business,financial condition and results of operations of the Corporation. Regulatory Agencies Cullen/Frost is a legal entity separate and distinct from Frost Bank and its other subsidiaries.As a financial holding company and a bank holding company,Cullen/Frost is regulated under the Bank Holding Company Act of 1956,as amended ("BHC Act"), and its subsidiaries are subject to inspection, examination and supervision by the Federal Reserve Board.The BHC Act provides generally for"umbrella"regulation of financial holding companies such as Cullen/Frost by the Federal Reserve Board, and for functional regulation of banking activities by bank regulators, securities activities by securities regulators,and insurance activities by insurance regulators.Cullen/Frost is also under the jurisdiction of the Securities and Exchange Commission("SEC")and is subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as administered by the SEC. Cullen/Frost's common stock is listed on the New York Stock Exchange("NYSE")under the trading symbol"CFR,"and is subject to the rules of the NYSE for listed companies. Prior to June 22,2012, Frost Bank was organized as a national banking association under the National Bank Act and was subject to regulation and examination by the Office of the Comptroller of the Currency("OCC").On June 22, 2012,Frost Bank became a Texas state chartered bank and a member of the Federal Reserve System.Accordingly,the Texas Department of Banking and the Federal Reserve are now the primary regulators of Frost Bank,and Frost Bank is no longer regulated by the OCC. Deposits at Frost Bank continue to be insured by the Federal Deposit Insurance Corporation("FDIC")up to applicable limits. Most of the Corporation's non-bank subsidiaries also are subject to regulation by the Federal Reserve Board and other federal and state agencies.Frost Securities,Inc.and Frost Brokerage Services,Inc.are regulated by the SEC,the Financial Industry Regulatory Authority("FINRA")and state securities regulators. Frost Investment Advisors,LLC is subject to the disclosure and regulatory requirements of the Investment Advisors Act of 1940,as administered by the SEC. The Corporation's insurance subsidiary is subject to regulation by applicable state insurance regulatory agencies. Other non-bank subsidiaries are subject to both federal and state laws and regulations. Frost Bank and its 6 affiliates are also subject to supervision,regulation,examination and enforcement by the Consumer Financial Protection Bureau("CFPB")with respect to consumer protection laws and regulations. Bank Holding Company Activities In general,the BHC Act limits the business of bank holding companies to banking,managing or controlling banks and other activities that the Federal Reserve Board has determined to be so closely related to banking as to be a proper incident thereto. In addition, bank holding companies that qualify and elect to be financial holding companies may engage in any activity,or acquire and retain the shares of a company engaged in any activity,that is either(i)financial in nature or incidental to such financial activity(as determined by the Federal Reserve Board in consultation with the Secretary of the Treasury)or(ii)complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally(as solely determined by the Federal Reserve Board),without prior approval of the Federal Reserve Board.Activities that are financial in nature include securities underwriting and dealing,insurance underwriting and making merchant banking investments. To maintain financial holding company status, a financial holding company and all of its depository institution subsidiaries must be"well capitalized" and "well managed."A depository institution subsidiary is considered to be "well capitalized"if it satisfies the requirements for this status discussed in the section captioned"Capital Adequacy and Prompt Corrective Action,"included elsewhere in this item.A depository institution subsidiary is considered"well managed" if it received a composite rating and management rating of at least "satisfactory" in its most recent examination.A financial holding company's status will also depend upon it maintaining its status as"well capitalized" and"well managed'under applicable Federal Reserve Board regulations.If a financial holding company ceases to meet these capital and management requirements,the Federal Reserve Board's regulations provide that the financial holding company must enter into an agreement with the Federal Reserve Board to comply with all applicable capital and management requirements.Until the financial holding company returns to compliance,the Federal Reserve Board may impose limitations or conditions on the conduct of its activities,and the company may not commence any of the broader financial activities permissible for financial holding companies or acquire a company engaged in such financial activities without prior approval of the Federal Reserve Board. If the company does not return to compliance within 180 days, the Federal Reserve Board may require divestiture of the holding company's depository institutions. Bank holding companies and banks must also be both well capitalized and well managed in order to acquire banks located outside their home state. In order for a financial holding company to commence any new activity permitted by the BHC Act or to acquire a company engaged in any new activity permitted by the BHC Act,each insured depository institution subsidiary of the financial holding company must have received a rating of at least"satisfactory"in its most recent examination under the Community Reinvestment Act. See the section captioned"Community Reinvestment Act"included elsewhere in this item. The Federal Reserve Board has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when the Federal Reserve Board has reasonable grounds to believe that continuation of such activity or such ownership or control constitutes a serious risk to the financial soundness,safety or stability of any bank subsidiary of the bank holding company. The BHC Act,the Bank Merger Act,the Texas Banking Code and other federal and state statutes regulate acquisitions of commercial banks and their parent holding companies. The BHC Act requires the prior approval of the Federal Reserve Board for the direct or indirect acquisition by a bank holding company of more than 5.0%of the voting shares of a commercial bank or its parent holding company. Under the Bank Merger Act,the prior approval of the Federal Reserve Board or other appropriate bank regulatory authority is required for a member bank to merge with another bank or purchase substantially all of the assets or assume any deposits of another bank. In reviewing applications seeking approval of merger and acquisition transactions,the bank regulatory authorities will consider, among other things,the competitive effect and public benefits of the transactions,the capital position of the combined organization, the risks to the stability of the U.S.banking or financial system,the applicant's performance record under the Community Reinvestment Act(see the section captioned"Community Reinvestment Act"included elsewhere in this item)and its compliance with fair housing and other consumer protection laws and the effectiveness of the subject organizations in combating money laundering activities.As part of the approval process in connection with the acquisition of WNB, the Corporation agreed with the Federal Reserve that before bringing them any further expansionary proposals,the Corporation would enhance certain compliance programs,including those related to fair lending.The Corporation is currently working on these enhancements. 7 Dividends The principal source of Cullen/Frost's liquidity is dividends from Frost Bank. The prior approval of the Federal Reserve is required if the total of all dividends declared by a state-chartered member bank in any calendar year would exceed the sum of the bank's net profits for that year and its retained net profits for the preceding two calendar years, less any required transfers to surplus or to fund the retirement of preferred stock. Federal law also prohibits a state- chartered,member bank from paying dividends that would be greater than the bank's undivided profits.Frost Bank is also subject to limitations under Texas state law regarding the level of dividends that may be paid.Under the foregoing dividend restrictions,and while maintaining its"well capitalized"status,Frost Bank could pay aggregate dividends of approximately$363.9 million to Cullen/Frost,without obtaining affirmative governmental approvals,at December 31, 2014.This amount is not necessarily indicative of amounts that may be paid or available to be paid in future periods. In addition, Cullen/Frost and Frost Bank are subject to other regulatory policies and requirements relating to the payment of dividends,including requirements to maintain adequate capital above regulatory minimums.The appropriate federal regulatory authority is authorized to determine under certain circumstances relating to the financial condition of a bank holding company or a bank that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof.The appropriate federal regulatory authorities have stated that paying dividends that deplete a bank's capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings.In addition,in the current financial and economic environment,the Federal Reserve Board has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong. In October 2012,as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act(the"Dodd-Frank Act" or"Dodd-Frank"),the Federal Reserve Board published final rules regarding company-run stress testing. The rules require institutions, such as Cullen/Frost and Frost Bank, with average total consolidated assets greater than $10 billion to conduct an annual company-run stress test of capital,consolidated earnings and losses under one base and at least two stress scenarios provided by the federal bank regulators. Implementation of the rules for covered institutions with total consolidated assets between$10 billion and$50 billion began in 2013.The company-run stress tests are conducted using data as of September 30th and scenarios released by the agencies.Stress test results must be reported to the agencies by the following March 31st.Public disclosure of summary stress test results under the severely adverse scenario will begin in June 2015 for stress tests commencing in 2014.The Corporation's capital ratios reflected in the stress test calculations will be an important factor considered by the Federal Reserve Board in evaluating the capital adequacy ofCullen/Frost and Frost Bank and whether the appropriateness of any proposed payments of dividends or stock repurchases may be an unsafe or unsound practice. Transactions with Affiliates Transactions between Frost Bank and its subsidiaries,on the one hand,and Cullen/Frost or any other subsidiary,on the other hand,are regulated under federal banking law.The Federal Reserve Act imposes quantitative and qualitative requirements and collateral requirements on covered transactions by Frost Bank with,or for the benefit of,its affiliates, and generally requires those transactions to be on terms at least as favorable to Frost Bank as if the transaction were conducted with an unaffiliated third party.Covered transactions are defined by statute to include a loan or extension of credit,as well as a purchase of securities issued by an affiliate,a purchase of assets(unless otherwise exempted by the Federal Reserve)from the affiliate,certain derivative transactions that create a credit exposure to an affiliate,the acceptance of securities issued by the affiliate as collateral for a loan,and the issuance of a guarantee,acceptance or letter of credit on behalf of an affiliate.In general,any such transaction by Frost Bank or its subsidiaries must be limited to certain thresholds on an individual and aggregate basis and,for credit transactions with any affiliate,must be secured by designated amounts of specified collateral. Federal law also limits a bank's authority to extend credit to its directors,executive officers and 10%stockholders, as well as to entities controlled by such persons.Among other things,extensions of credit to insiders are required to be made on terms that are substantially the same as,and follow credit underwriting procedures that are not less stringent than,those prevailing for comparable transactions with unaffiliated persons.Also,the terms of such extensions of credit may not involve more than the normal risk of non-repayment or present other unfavorable features and may not exceed certain limitations on the amount of credit extended to such persons individually and in the aggregate. 8 Source of Strength Doctrine Federal Reserve Board policy and federal law require bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. Under this requirement,Cullen/Frost is expected to commit resources to support Frost Bank,including at times when Cullen/Frost may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company's bankruptcy,any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment. Capital Requirements Regulatory Capital Requirements in Effect as of December 31,2014.Cullen/Frost and Frost Bank are subject to the regulatory capital requirements administered by the Federal Reserve Board,and,for Frost Bank,the FDIC.The federal regulatory authorities'risk-based capital guidelines in effect as of December 31,2014 were based upon the 1988 capital accord("Basel I")of the Basel Committee on Banking Supervision(the`Basel Committee").The Basel Committee is a committee of central banks and bank supervisors/regulators from the major industrialized countries that develops broad policy guidelines for use by each country's supervisors in determining the supervisory policies they apply.The requirements were intended to ensure that banking organizations have adequate capital given the risk levels of assets and off-balance sheet financial instruments.Under the requirements,banking organizations were required to maintain minimum ratios for Tier 1 capital and total capital to risk-weighted assets(including certain off-balance sheet items, such as letters of credit).For purposes of calculating the ratios,a banking organization's assets and some of its specified off-balance sheet commitments and obligations were assigned to various risk categories.A depository institution's or holding company's capital,in turn,was classified in one of two tiers,depending on type: • Core Capital(Tier 1).Tier 1 capital included common equity,retained earnings,qualifying non-cumulative perpetual preferred stock,minority interests in equity accounts of consolidated subsidiaries(and,under existing standards,a limited amount of qualifying trust preferred securities and qualifying cumulative perpetual preferred stock at the holding company level),less goodwill,most intangible assets and certain other assets. • Supplementary Capital(Tier 2). Tier 2 capital included, among other things, perpetual preferred stock and trust preferred securities not meeting the Tier 1 definition,qualifying mandatory convertible debt securities,qualifying subordinated debt,and allowances for loan and lease losses,subject to limitations. Cullen/Frost,like other bank holding companies,was required to maintain Tier 1 capital and"total capital"(the sum of Tier 1 and Tier 2 capital)equal to at least 4.0%and 8.0%,respectively,of its total risk-weighted assets(including various off-balance-sheet items,such as letters of credit).Frost Bank,like other depository institutions,was required to maintain similar capital levels under capital adequacy guidelines. In addition, for a depository institution to be considered"well capitalized"under the regulatory framework for prompt corrective action,its Tier 1 and total capital ratios had to be at least 6.0%and 10.0%on a risk-adjusted basis,respectively. Bank holding companies and banks were also required to comply with minimum leverage ratio requirements.The leverage ratio is the ratio of a banking organization's Tier 1 capital to its total adjusted quarterly average assets(as defined for regulatory purposes).The requirements necessitated a minimum leverage ratio of 3.0%for bank holding companies and member banks that either have the highest supervisory rating or have implemented the appropriate federal regulatory authority's risk-adjusted measure for market risk.All other bank holding companies and member banks were required to maintain a minimum leverage ratio of 4.0%,unless a different minimum was specified by an appropriate regulatory authority.In addition,for a depository institution to be considered"well capitalized"under the regulatory framework for prompt corrective action,its leverage ratio had to be at least 5.0%.As of December 31,2014, the Federal Reserve Board had not advised Cullen/Frost or Frost Bank,of any specific minimum leverage ratio applicable to either entity. Basel III Capital Rules Effective January 1, 2015. In July 2013, Cullen/Frost's and Frost Bank's primary federal regulator, the Federal Reserve, published the Basel III Capital Rules establishing a new comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee's December 2010 framework known as"Basel III"for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act.The Basel III Capital Rules substantially revise the risk-based capital requirements applicable to bank holding companies and depository institutions,including Cullen/Frost and Frost Bank,compared to the current U.S.risk-based capital rules. The Basel III Capital Rules define the components of capital and address other issues affecting the 9 numerator in banking institutions'regulatory capital ratios.The Basel III Capital Rules also address risk weights and other issues affecting the denominator in banking institutions'regulatory capital ratios and replace the existing risk- weighting approach, which was derived from the Basel I capital accords of the Basel Committee,with a more risk- sensitive approach based,in part,on the standardized approach in the Basel Committee's 2004`Basel II"capital accords. The Basel III Capital Rules also implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies'rules.The Basel III Capital Rules became effective for Cullen/Frost and Frost Bank on January 1,2015(subject to a phase-in period for certain provisions). The Basel III Capital Rules, among other things, (i)introduce a new capital measure called "Common Equity Tier 1"("CETI"),(ii)specify that Tier 1 capital consists of CETI and"Additional Tier I capital"instruments meeting specified requirements,(iii)define CETI narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CETI and not to the other components of capital and(iv)expand the scope of the deductions/ adjustments as compared to existing regulations. When fully phased in on January 1,2019,the Basel III Capital Rules will require Cullen/Frost and Frost Bank to maintain (i)a minimum ratio of CETI to risk-weighted assets of at least 4.5%, plus a 2.5% "capital conservation buffer"(which is added to the 4.5%CETI ratio as that buffer is phased in,effectively resulting in a minimum ratio of CETI to risk-weighted assets of at least 7%upon full implementation),(ii)a minimum ratio of Tier 1 capital to risk- weighted assets of at least 6.0%,plus the capital conservation buffer(which is added to the 6.0%Tier 1 capital ratio as that buffer is phased in,effectively resulting in a minimum Tier 1 capital ratio of 8.5%upon full implementation), (iii)a minimum ratio of Total capital(that is,Tier 1 plus Tier 2)to risk-weighted assets of at least 8.0%,plus the capital conservation buffer(which is added to the 8.0%total capital ratio as that buffer is phased in,effectively resulting in a minimum total capital ratio of 10.5%upon full implementation)and(iv)a minimum leverage ratio of 4%,calculated as the ratio of Tier 1 capital to average quarterly assets(as compared to a current minimum leverage ratio of 3%for banking organizations that either have the highest supervisory rating or have implemented the appropriate federal regulatory authority's risk-adjusted measure for market risk). The Basel III Capital Rules also provide for a"countercyclical capital buffer" that is applicable to only certain covered institutions and does not have any current applicability to Cullen/Frost or Frost Bank. The aforementioned capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CETI to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer,when the latter is applied)will face constraints on dividends,equity repurchases and compensation based on the amount of the shortfall. Under the Basel III Capital Rules,the initial minimum capital ratios that became effective on January 1,2015 are as follows: • 4.5%CETI to risk-weighted assets. • 6.0%Tier 1 capital to risk-weighted assets. • 8.0%Total capital to risk-weighted assets. • 4.0%Tier 1 capital to average quarterly assets The Basel III Capital Rules provide for a number of deductions from and adjustments to CETI.These include,for example,the requirement that mortgage servicing rights, deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks and significant investments in non-consolidated financial entities be deducted from CETI to the extent that any one such category exceeds 10%of CETI or all such categories in the aggregate exceed 15% of CETI. Under capital standards in effect as of December 31, 2014, the effects of accumulated other comprehensive income items included in capital are excluded for the purposes of determining regulatory capital ratios. Under the Basel III Capital Rules,the effects of certain accumulated other comprehensive items are not excluded;however,non-advanced approaches banking organizations, including Cullen/Frost and Frost Bank,may make a one-time permanent election to continue to exclude these items.Cullen/Frost and Frost Bank expect to make this election in order to avoid significant variations in the level of capital depending upon the impact of interest rate fluctuations on the fair value of the Corporation's available-for-sale securities portfolio.The Basel III Capital Rules also preclude certain hybrid securities,such as trust preferred securities,as Tier I capital of bank holding companies, subject to phase-out.Trust preferred securities no longer included in the Corporation's Tier 1 capital may nonetheless be included as a component of Tier 2 capital on a permanent basis without phase-out. 10 Implementation of the deductions and other adjustments to CET1 began on January 1,2015 and will be phased-in over a four-year period (beginning at 40% on January 1, 2015 and an additional 20%per year thereafter). The implementation of the capital conservation buffer will begin on January 1,2016 at the 0.625%level and be phased in over a four-year period(increasing by that amount on each subsequent January 1,until it reaches 2.5%on January 1, 2019). With respect to Frost Bank,the Basel III Capital Rules also revise the"prompt corrective action"regulations pursuant to Section 38 of the Federal Deposit Insurance Act,as discussed below under"Prompt Corrective Action." The Basel III Capital Rules prescribe a standardized approach for risk weightings that expand the risk-weighting categories from the four Basel I-derived categories(0%,20%,50%and 100%)to a much larger and more risk-sensitive number of categories,depending on the nature of the assets,generally ranging from 0%for U.S.government and agency securities,to 600%for certain equity exposures,and resulting in higher risk weights for a variety of asset categories. Specific changes to the rules impacting the Corporation's determination of risk-weighted assets include,among other things: • Applying a 150% risk weight instead of a 100% risk weight for certain high volatility commercial real estate acquisition,development and construction loans. • Assigning a 150%risk weight to exposures(other than residential mortgage exposures)that are 90 days past due. • Providing for a 20%credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable(currently set at 0%). • Providing for a risk weight,generally not less than 20%with certain exceptions,for securities lending transactions based on the risk weight category of the underlying collateral securing the transaction. • Providing for a 100%risk weight for claims on securities firms. • Eliminating the current 50%cap on the risk weight for OTC derivatives. In addition,the Basel III Capital Rules provide more advantageous risk weights for derivatives and repurchase- style transactions cleared through a qualifying central counterparty and increase the scope of eligible guarantors and eligible collateral for purposes of credit risk mitigation. Management believes that,as of December 31,2014,Cullen/Frost and Frost Bank would meet all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis as if such requirements had been in effect. Liquidity Requirements Historically, the regulation and monitoring of bank and bank holding company liquidity has been addressed as a supervisory matter,without required formulaic measures.Liquidity risk management has become increasingly important since the financial crisis. The Basel III liquidity framework requires banks and bank holding companies to measure their liquidity against specific liquidity tests that, although similar in some respects to liquidity measures historically applied by banks and regulators for management and supervisory purposes, going forward would be required by regulation. One test,referred to as the liquidity coverage ratio("LCR"),is designed to ensure that the banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to the entity's expected net cash outflow for a 30-day time horizon(or,if greater,25%of its expected total cash outflow)under an acute liquidity stress scenario. The other test,referred to as the net stable funding ratio("NSFR"), is designed to promote more medium-and long- term funding of the assets and activities of banking entities over a one-year time horizon. These requirements will incent banking entities to increase their holdings of U.S.Treasury securities and other sovereign debt as a component of assets and increase the use of long-term debt as a funding source. In September 2014,the federal bank regulators approved final rules implementing the LCR for advanced approaches banking organizations(i.e.,banking organizations with$250 billion or more in total consolidated assets or$10 billion or more in total on-balance sheet foreign exposure)and a modified version of the LCR for bank holding companies with at least$50 billion in total consolidated assets that are not advanced approach banking organizations,neither of which would apply to Cullen/Frost or Frost Bank.The federal bank regulators have not yet proposed rules to implement the NSFR or addressed the scope of bank organizations to which it will apply. The Basel Committee's final NSFR document states that the NSFR applies to internationally active banks,as did its final LCR document as to that ratio. 11 Prompt Corrective Action The Federal Deposit Insurance Act,as amended("FDIA"),requires among other things,the federal banking agencies to take"prompt corrective action"in respect of depository institutions that do not meet minimum capital requirements. The FDIA includes the following five capital tiers: "well capitalized," "adequately capitalized,""undercapitalized," "significantly undercapitalized" and "critically undercapitalized."A depository institution's capital tier will depend upon how its capital levels compare with various relevant capital measures and certain other factors,as established by regulation.The relevant capital measures,which reflect changes under the Basel III Capital Rules that became effective on January 1,2015,are the total capital ratio,the CETI capital ratio(a new ratio requirement under the Basel III Capital Rules),the Tier 1 capital ratio and the leverage ratio. A bank will be(i)"well capitalized"if the institution has a total risk-based capital ratio of 10.0%or greater,a CETI capital ratio of 6.5%or greater,a Tier 1 risk-based capital ratio of 8.0%or greater(6.0%prior to January 1,2015),and a leverage ratio of 5.0%or greater,and is not subject to any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure;(ii)"adequately capitalized"if the institution has a total risk-based capital ratio of 8.0%or greater,a CETI capital ratio of 4.5%or greater,a Tier 1 risk-based capital ratio of 6.0% or greater (4.0% prior to January 1, 2015), and a leverage ratio of 4.0% or greater and is not "well capitalized";(iii)"undercapitalized"if the institution has a total risk-based capital ratio that is less than 8.0%,a CETI capital ratio less than 4.5%, a Tier 1 risk-based capital ratio of less than 6.0%(4.0%prior to January 1, 2015) or a leverage ratio of less than 4.0%;(iv)"significantly undercapitalized"if the institution has a total risk-based capital ratio of less than 6.0%,a CETI capital ratio less than 3%,a Tier 1 risk-based capital ratio of less than 4.0%(3.0%prior to January 1,2015)or a leverage ratio of less than 3.0%;and(v)"critically undercapitalized"if the institution's tangible equity is equal to or less than 2.0%of average quarterly tangible assets.An institution may be downgraded to,or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.A bank's capital category is determined solely for the purpose of applying prompt corrective action regulations,and the capital category may not constitute an accurate representation of the bank's overall financial condition or prospects for other purposes. The FDIA generally prohibits a depository institution from making any capital distributions(including payment of a dividend)or paying any management fee to its parent holding company if the depository institution would thereafter be"undercapitalized.""Undercapitalized" institutions are subject to growth limitations and are required to submit a capital restoration plan.The agencies may not accept such a plan without determining, among other things,that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital.In addition, for a capital restoration plan to be acceptable,the depository institution's parent holding company must guarantee that the institution will comply with such capital restoration plan.The bank holding company must also provide appropriate assurances of performance.The aggregate liability of the parent holding company is limited to the lesser of(i)an amount equal to 5.0%of the depository institution's total assets at the time it became undercapitalized and(ii)the amount which is necessary(or would have been necessary)to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan.If a depository institution fails to submit an acceptable plan,it is treated as if it is"significantly undercapitalized." "Significantly undercapitalized"depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become"adequately capitalized,"requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks."Critically undercapitalized"institutions are subject to the appointment of a receiver or conservator. The appropriate federal banking agency may, under certain circumstances, reclassify a well capitalized insured depository institution as adequately capitalized. The FDIA provides that an institution may be reclassified if the appropriate federal banking agency determines(after notice and opportunity for hearing)that the institution is in an unsafe or unsound condition or deems the institution to be engaging in an unsafe or unsound practice. The appropriate agency is also permitted to require an adequately capitalized or undercapitalized institution to comply with the supervisory provisions as if the institution were in the next lower category(but not treat a significantly undercapitalized institution as critically undercapitalized)based on supervisory information other than the capital levels of the institution. Cullen/Frost believes that,as of December 31,2014,its bank subsidiary,Frost Bank,was"well capitalized"based on the aforementioned ratios. For further information regarding the capital ratios and leverage ratio of Cullen/Frost and Frost Bank see the discussion under the section captioned"Capital and Liquidity"included in Item 7.Management's 12 Discussion and Analysis of Financial Condition and Results of Operations and Note 10-Capital and Regulatory Matters in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, elsewhere in this report. Safety and Soundness Standards The FDIA requires the federal bank regulatory agencies to prescribe standards,by regulations or guidelines,relating to internal controls,information systems and internal audit systems,loan documentation,credit underwriting,interest rate risk exposure,asset growth,asset quality,earnings,stock valuation and compensation,fees and benefits,and such other operational and managerial standards as the agencies deem appropriate.Guidelines adopted by the federal bank regulatory agencies establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits.In general,the guidelines require,among other things,appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines.The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer,employee,director or principal stockholder.In addition,the agencies adopted regulations that authorize,but do not require,an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified,an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan,the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the "prompt corrective action"provisions of the FDIA.See"Prompt Corrective Action"above.If an institution fails to comply with such an order,the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties. Deposit Insurance Substantially all of the deposits of Frost Bank are insured up to applicable limits by the Deposit Insurance Fund ("DIF")ofthe FDIC and are subject to deposit insurance assessments to maintain the DIF.Deposit insurance assessments are based on average total assets minus average tangible equity. For larger institutions,such as Frost Bank,the FDIC uses a performance score and a loss-severity score that are used to calculate an initial assessment rate. In calculating these scores,the FDIC uses a bank's capital level and supervisory ratings(its"CAMELS ratings")and certain financial measures to assess an institution's ability to withstand asset-related stress and funding-related stress.The FDIC has the ability to make discretionary adjustments to the total score based upon significant risk factors that are not adequately captured in the calculations. The initial base assessment rate ranges from 5 to 35 basis points on an annualized basis.After the effect of potential base-rate adjustments,the total base assessment rate could range from 2.5 to 45 basis points on an annualized basis. As the DIF reserve ratio grows,the rate schedule will be adjusted downward.Additionally,an institution must pay an additional premium equal to 50 basis points on every dollar(above 3%of an institution's Tier 1 capital)of long-term, unsecured debt held that was issued by another insured depository institution. In October 2010,the FDIC adopted a new DIF restoration plan to ensure that the fund reserve ratio reaches 1.35% by September 30,2020,as required by the Dodd-Frank Act.At least semi-annually,the FDIC will update its loss and income projections for the fund and,ifneeded,will increase or decrease assessment rates,following notice-and-comment rulemaking if required. FDIC deposit insurance expense totaled $13.2 million, $11.7 million and $11.1 million in 2014, 2013 and 2012, respectively. FDIC deposit insurance expense includes deposit insurance assessments and Financing Corporation ("FICO")assessments related to outstanding FICO bonds. The FICO is a mixed-ownership government corporation established by the Competitive Equality Banking Act of 1987 whose sole purpose was to function as a financing vehicle for the now defunct Federal Savings&Loan Insurance Corporation. Under the FDIA,the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices,is in an unsafe or unsound condition to continue operations,or has violated any applicable law, regulation,rule,order or condition imposed by the FDIC. 13 The Volcker Rule The Dodd-Frank Act prohibits banks and their affiliates from engaging in proprietary trading and investing in and sponsoring hedge funds and private equity funds.Although the Corporation is continuing to evaluate the impact of the Volcker Rule and the final rules adopted thereunder,the Corporation does not currently anticipate that the Volcker Rule will have a material effect on the operations of Cullen/Frost and its subsidiaries,as the Corporation does not have any significant engagement in the businesses prohibited by the Volcker Rule. The Corporation may incur costs to adopt additional policies and systems to ensure compliance with the Volcker Rule,but any such costs are not expected to be material. Depositor Preference The FDIA provides that,in the event of the"liquidation or other resolution"of an insured depository institution,the claims of depositors of the institution,including the claims of the FDIC as subrogee of insured depositors,and certain claims for administrative expenses of the FDIC as a receiver,will have priority over other general unsecured claims against the institution.If an insured depository institution fails,insured and uninsured depositors,along with the FDIC, will have priority in payment ahead of unsecured,non-deposit creditors,including depositors whose deposits are payable only outside of the United States and the parent bank holding company,with respect to any extensions of credit they have made to such insured depository institution. Interchange Fees Under the Durbin Amendment to the Dodd-Frank Act,the Federal Reserve adopted rules establishing standards for assessing whether the interchange fees that may be charged with respect to certain electronic debit transactions are "reasonable and proportional"to the costs incurred by issuers for processing such transactions. Interchange fees,or"swipe"fees,are charges that merchants pay to the Corporation and other card-issuing banks for processing electronic payment transactions.Federal Reserve rules applicable to financial institutions that have assets of$10 billion or more provide that the maximum permissible interchange fee for an electronic debit transaction is the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction.An upward adjustment of no more than 1 cent to an issuer's debit card interchange fee is allowed if the card issuer develops and implements policies and procedures reasonably designed to achieve certain fraud-prevention standards.The Federal Reserve also has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product. Consumer Financial Protection The Corporation is subject to a number of federal and state consumer protection laws that extensively govern its relationship with its customers.These laws include the Equal Credit Opportunity Act,the Fair Credit Reporting Act, the Truth in Lending Act,the Truth in Savings Act,the Electronic Fund Transfer Act,the Expedited Funds Availability Act,the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act,the Fair Debt Collection Practices Act,the Service Members Civil Relief Act and these laws'respective state-law counterparts, as well as state usury laws and laws regarding unfair and deceptive acts and practices.These and other federal laws, among other things,require disclosures of the cost of credit and terms of deposit accounts,provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections,prohibit unfair,deceptive and abusive practices,restrict the Corporation's ability to raise interest rates and subject the Corporation to substantial regulatory oversight.Violations of applicable consumer protection laws can result in significant potential liability from litigation brought by customers, including actual damages,restitution and attorneys'fees. Federal bank regulators,state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies,including regulatory sanctions,customer rescission rights,action by the state and local attorneys general in each jurisdiction in which we operate and civil money penalties. Failure to comply with consumer protection requirements may also result in our failure to obtain any required bank regulatory approval for merger or acquisition transactions the Corporation may wish to pursue or our prohibition from engaging in such transactions even if approval is not required. 14 The Dodd-Frank Act centralized responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau ("CFPB"), and giving it responsibility for implementing, examining and enforcing compliance with federal consumer protection laws.The CFPB focuses on: • Risks to consumers and compliance with the federal consumer financial laws, when it evaluates the policies and practices of a financial institution. • The markets in which firms operate and risks to consumers posed by activities in those markets. • Depository institutions that offer a wide variety of consumer financial products and services;depository institutions with a more specialized focus. • Non-depository companies that offer one or more consumer financial products or services. The CFPB has broad rulemaking authority for a wide range of consumer financial laws that apply to all banks, including,among other things,the authority to prohibit"unfair,deceptive or abusive"acts and practices.Abusive acts or practices are defined as those that materially interfere with a consumer's ability to understand a term or condition of a consumer financial product or service or take unreasonable advantage of a consumer's(i)lack of financial savvy, (ii)inability to protect himself in the selection or use of consumer financial products or services, or(iii)reasonable reliance on a covered entity to act in the consumer's interests. The CFPB can issue cease-and-desist orders against banks and other entities that violate consumer financial laws. The CFPB may also institute a civil action against an entity in violation of federal consumer financial law in order to impose a civil penalty or injunction.The CFPB has examination and enforcement authority over all banks with more than$10 billion in assets,as well as their affiliates. Banking regulators take into account compliance with consumer protection laws when considering approval of a proposed transaction. Community Reinvestment Act The Community Reinvestment Act of 1977("CRA")requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice.Under the CRA,each depository institution is required to help meet the credit needs of its market areas by,among other things,providing credit to low-and moderate- income individuals and communities.Depository institutions are periodically examined for compliance with the CRA and are assigned ratings.In order for a financial holding company to commence any new activity permitted by the BHC Act, or to acquire any company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the financial holding company must have received a rating of at least"satisfactory"in its most recent examination under the CRA.Furthermore,banking regulators take into account CRA ratings when considering approval of a proposed transaction.Frost Bank received a rating of"satisfactory"in its most recent CRA examination in 2013. Financial Privacy The federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties.These limitations require disclosure of privacy policies to consumers and,in some circumstances,allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. Anti-Money Laundering and the USA Patriot Act A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing.The USA PATRIOT Act of 2001, or the USA Patriot Act,substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States.Financial institutions are also prohibited from entering into specified financial transactions and account relationships and must use enhanced due diligence procedures in their dealings with certain types of high-risk customers and implement a written customer identification program. Financial institutions must take certain steps to assist government agencies in detecting and preventing money laundering and report certain types of suspicious transactions. Regulatory authorities routinely examine financial institutions for compliance with these obligations,and failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for 15 the institution,including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations. Office of Foreign Assets Control Regulation The U.S.Treasury Department's Office of Foreign Assets Control, or OFAC, administers and enforces economic and trade sanctions against targeted foreign countries and regimes,under authority of various laws,including designated foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries. The Corporation is responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence. Failure to comply with these sanctions could have serious legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Incentive Compensation The Dodd-Frank Act requires the federal bank regulatory agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities, such as the Corporation and Frost Bank,having at least$1 billion in total assets that encourage inappropriate risks by providing an executive officer, employee,director or principal shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. In addition,these regulators must establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-based compensation arrangements.Officials from the Federal Reserve have recently indicated that they are preparing a new rule on incentive compensation. In June 2010, the Federal Reserve Board, OCC and FDIC issued a comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking.The guidance,which covers all employees that have the ability to materially affect the risk profile of an organization,either individually or as part of a group,is based upon the key principles that a banking organization's incentive compensation arrangements should(i)provide incentives that do not encourage risk-taking beyond the organization's ability to effectively identify and manage risks, (ii)be compatible with effective internal controls and risk management, and(iii)be supported by strong corporate governance, including active and effective oversight by the organization's board of directors.These three principles are incorporated into the proposed joint compensation regulations under the Dodd-Frank Act,discussed above. The Federal Reserve Board will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Corporation,that are not"large,complex banking organizations." These reviews will be tailored to each organization based on the scope and complexity of the organization's activities and the prevalence of incentive compensation arrangements.The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization's supervisory ratings,which can affect the organization's ability to make acquisitions and take other actions.Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk- management control or governance processes,pose a risk to the organization's safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies. Future Legislation and Regulation Congress may enact legislation from time to time that affects the regulation of the financial services industry,and state legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states.Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied. The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation could impact the regulatory structure under which the Corporation operates and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to the Corporation's business strategy,and limit the Corporation's ability to pursue business opportunities in an efficient manner.A change in statutes,regulations or regulatory policies applicable to Cullen/Frost or any of its 16 subsidiaries could have a material, adverse effect on the Corporation's business, financial condition and results of operations. Employees At December 31,2014,the Corporation employed 4,154 full-time equivalent employees.None of the Corporation's employees are represented by collective bargaining agreements.The Corporation believes its employee relations to be good. Executive Officers of the Registrant The names,ages as of December 31,2014,recent business experience and positions or offices held by each of the executive officers of Cullen/Frost are as follows: Name and Position Held Age Recent Business Experience Richard W.Evans,Jr. 68 Officer of Frost Bank since 1973. Chairman of the Board and Chairman of the Board,Chief Executive Chief Executive Officer of Cullen/Frost from October 1997 to Officer and Director of Cullen/Frost present. Patrick B.Frost 54 Officer of Frost Bank since 1985.President of Frost Bank from President of Frost Bank August 1993 to present.Director of Cullen/Frost from May 1997 and Director to present. Phillip D.Green 60 Officer of Frost Bank since July 1980. Group Executive Vice President of Cullen/Frost President,Chief Financial Officer of Cullen/Frost from October 1995 to January 2015. President of Cullen/Frost from January 2015 to present. Jerry Salinas 56 Officer of Frost Bank since January 1986.Senior Executive Vice Group Executive Vice President,Chief President,Treasurer of Cullen/Frost from 1997 to January 2015. Financial Officer of Cullen/Frost Group Executive Vice President, Chief Financial Officer of Cullen/Frost from January 2015 to present. David W.Beck 64 Officer of Frost Bank since July 1973.President,Chief Business President,Chief Business Banking Officer of Frost Bank from February 2001 to present. Banking Officer of Frost Bank Robert A.Berman 52 Officer of Frost Bank since January 1989.Group Executive Vice Group Executive Vice President, President, E-Commerce Operations Research and Strategy of E-Commerce Operations,Research Frost Bank from May 2001 to present. and Strategy of Frost Bank Paul H.Bracher 58 Officer of Frost Bank since January 1982. President, State Group Executive Vice President,Chief Regions of Frost Bank from February 2001 to January 2015. Banking Officer of Frost Bank Group Executive Vice President,Chief Banking Officer of Frost Bank from January 2015 to present. Richard Kardys 68 Officer of Frost Bank since January 1977.Group Executive Vice Group Executive Vice President,Frost President,Frost Wealth Advisors of Frost Bank from May 2001 Wealth Advisors of Frost Bank to present. Paul J.Olivier 62 Officer of Frost Bank since August 1976.Group Executive Vice Group Executive Vice President,Chief President,Chief Consumer Banking Officer of Frost Bank from Consumer Banking Officer of Frost Bank May 2001 to present. William L.Perotti 57 Officer of Frost Bank since December 1982. Group Executive Group Executive Vice President,Chief Vice President, Chief Credit Officer of Frost Bank from May Risk Officer of Frost Bank 2001 to January 2015. Chief Risk Officer of Frost Bank from April 2005 to present. Emily A. Skillman 70 Officer of Frost Bank since January 1998.Group Executive Vice Group Executive Vice President,Chief President,Chief Human Resources Officer of Frost Bank from Human Resources Officer of Frost Bank October 2003 to present. There are no arrangements or understandings between any executive officer of Cullen/Frost and any other person pursuant to which such executive officer was or is to be selected as an officer. 17 Available Information Under the Securities Exchange Act of 1934, Cullen/Frost is required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission("SEC").You may read and copy any document Cullen/Frost files with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room.The SEC maintains a website at http://www.sec.gov that contains reports,proxy and information statements,and other information regarding issuers that file electronically with the SEC.Cullen/Frost files electronically with the SEC. Cullen/Frost makes available, free of charge through its website, its reports on Forms 10-K, 10-Q and 8-K, and amendments to those reports,as soon as reasonably practicable after such reports are filed with or furnished to the SEC. Additionally,the Corporation has adopted and posted on its website a code of ethics that applies to its principal executive officer,principal financial officer and principal accounting officer.The Corporation's website also includes its corporate governance guidelines and the charters for its audit committee, its compensation and benefits committee, and its corporate governance and nominating committee. The address for the Corporation's website is http:// www.frostbank.com. The Corporation will provide a printed copy of any of the aforementioned documents to any requesting shareholder. 18 ITEM IA.RISK FACTORS An investment in the Corporation's common stock is subject to risks inherent to the Corporation's business. The material risks and uncertainties that management believes affect the Corporation are described below.Before making an investment decision,you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report.The risks and uncertainties described below are not the only ones facing the Corporation.Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair the Corporation's business operations. This report is qualified in its entirety by these risk factors. If any of the following risks actually occur,the Corporation's business,financial condition and results of operations could be materially and adversely affected.If this were to happen,the market price of the Corporation's common stock could decline significantly,and you could lose all or part of your investment. Risks Related To The Corporation's Business The Corporation's Business May Be Adversely Affected By Conditions In The Financial Markets and Economic Conditions Generally In recent years,economic growth and business activity across a wide range of industries and regions in the U.S.has been slow and uneven. Furthermore,there are continuing concerns related to the level of U.S. government debt and fiscal actions that may be taken to address that debt.There can be no assurance that economic conditions will continue to improve,and these conditions could worsen.In addition,declining oil prices,on-going federal budget negotiations, the implementation of the employer mandate under the Patient Protection and Affordable Care Act and the level of U.S.debt may have a destabilizing effect on financial markets. The Corporation's financial performance generally,and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans,as well as demand for loans and other products and services the Corporation offers,is highly dependent upon the business environment in the markets where the Corporation operates, in the State of Texas and in the United States as a whole. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth,business activity or investor or business confidence;limitations on the availability or increases in the cost of credit and capital;increases in inflation or interest rates;high unemployment,natural disasters;or a combination of these or other factors. Overall,during recent years,the business environment has been adverse for many households and businesses in the United States and worldwide.While economic conditions in the State of Texas,the United States and worldwide have shown signs of improvement,there can be no assurance that this improvement will continue. Economic pressure on consumers and uncertainty regarding continuing economic improvement may result in changes in consumer and business spending,borrowing and savings habits.Such conditions could have a material adverse effect on the credit quality of the Corporation's loans and the Corporation'business,financial condition and results of operations. The Corporation Is Subject To Lending Risk There are inherent risks associated with the Corporation's lending activities.These risks include,among other things, the impact of changes in interest rates and changes in the economic conditions in the markets where the Corporation operates as well as those across the State of Texas and the United States.Increases in interest rates and/or weakening economic conditions could adversely impact the ability of borrowers to repay outstanding loans or the value of the collateral securing these loans.The Corporation is also subject to various laws and regulations that affect its lending activities. Failure to comply with applicable laws and regulations could subject the Corporation to regulatory enforcement action that could result in the assessment of significant civil money penalties against the Corporation. As of December 31, 2014, approximately 88.9%of the Corporation's loan portfolio consisted of commercial and industrial,construction and commercial real estate mortgage loans.These types of loans are generally viewed as having more risk of default than residential real estate loans or consumer loans.These types of loans are also typically larger than residential real estate loans and consumer loans. Because the Corporation's loan portfolio contains a significant number of commercial and industrial,construction and commercial real estate loans with relatively large balances,the deterioration of one or a few of these loans could cause a significant increase in non-performing loans.An increase in 19 non-performing loans could result in a net loss of earnings from these loans,an increase in the provision for loan losses and an increase in loan charge-offs,all of which could have a material adverse effect on the Corporation's business, financial condition and results of operations. See the section captioned"Loans" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations located elsewhere in this report for further discussion related to commercial and industrial, construction and commercial real estate loans. The Corporation Is Subject To Interest Rate Risk The Corporation's earnings and cash flows are largely dependent upon its net interest income.Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond the Corporation's control,including general economic conditions and policies of various governmental and regulatory agencies and, in particular,the Federal Open Market Committee. Changes in monetary policy,including changes in interest rates,could influence not only the interest the Corporation receives on loans and securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect(i)the Corporation's ability to originate loans and obtain deposits,(ii)the fair value of the Corporation's financial assets and liabilities,and(iii)the average duration of the Corporation's mortgage-backed securities portfolio.If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments,the Corporation's net interest income,and therefore earnings,could be adversely affected.Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on the Corporation's business,financial condition and results of operations. See the section captioned "Net Interest Income" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations located elsewhere in this report for further discussion related to the Corporation's management of interest rate risk. The Corporation's Allowance For Loan Losses May Be Insufficient The Corporation maintains an allowance for loan losses,which is a reserve established through a provision for loan losses charged to expense,which represents management's best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio.The level ofthe allowance reflects management's continuing evaluation of industry concentrations;specific credit risks;loan loss experience;current loan portfolio quality;present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires the Corporation to make significant estimates of current credit risks and future trends,all of which may undergo material changes. Continuing deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of the Corporation's control,may require an increase in the allowance for loan losses.In addition,bank regulatory agencies periodically review the Corporation's allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. Furthermore,if charge-offs in future periods exceed the allowance for loan losses,the Corporation will need additional provisions to increase the allowance for loan losses.Any increases in the allowance for loan losses will result in a decrease in net income and,possibly, capital, and may have a material adverse effect on the Corporation's business, financial condition and results of operations. See the section captioned "Allowance for Loan Losses" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations located elsewhere in this report for further discussion related to the Corporation's process for determining the appropriate level of the allowance for loan losses. The Corporation's Profitability Depends Significantly On Economic Conditions In The State Of Texas The Corporation's success depends primarily on the general economic conditions of the State of Texas and the specific local markets in which the Corporation operates.Unlike larger national or other regional banks that are more geographically diversified,the Corporation provides banking and financial services to customers across Texas through financial centers in the Austin, Corpus Christi, Dallas, Fort Worth, Houston, Permian Basin, Rio Grande Valley and 20 San Antonio regions. The local economic conditions in these areas have a significant impact on the demand for the Corporation's products and services as well as the ability of the Corporation's customers to repay loans,the value of the collateral securing loans and the stability of the Corporation's deposit funding sources.Moreover,approximately 97.4%of the securities in the Corporation's municipal bond portfolio were issued by political subdivisions or agencies within the State of Texas.A significant decline in general economic conditions in Texas,whether caused by recession, inflation,unemployment,changes in oil prices,changes in securities markets,acts of terrorism,outbreak of hostilities or other international or domestic occurrences or other factors could impact these local economic conditions and, in turn,have a material adverse effect on the Corporation's business,financial condition and results of operations. The Corporation May Be Adversely Affected By Declining Crude Oil Prices Recent decisions by certain members the Organization of Petroleum Exporting Countries ("OPEC")to maintain higher crude oil production levels have led to increased global oil supplies which has resulted in significant declines in market oil prices.Decreased market oil prices have compressed margins for many U.S.and Texas-based oil producers, particularly those that utilize higher-cost production technologies such as hydraulic fracking and horizontal drilling, as well as oilfield service providers, energy equipment manufacturers and transportation suppliers,among others.As of December 31,2014,energy loans comprised approximately 16.1%of the Corporation's loan portfolio.Furthermore, energy production and related industries represent a large part of the economies in some of the Corporation's primary markets.As of December 31,2014,the price per barrel of crude oil was approximately$53 compared to approximately $98 as of December 31, 2013. While many of the Corporation's customers have hedged their exposure to oil price changes in the near term,if oil prices remain at these low levels for an extended period,the Corporation could experience weaker energy loan demand and increased losses within its energy portfolio.Furthermore,a prolonged period of low oil prices could also have a negative impact on the U.S.economy and,in particular,the economies of energy-dominant states such as Texas.Accordingly, a prolonged period of low oil prices could have a material adverse effect on the Corporation's business,financial condition and results of operations. The Corporation May Be Adversely Affected By The Soundness Of Other Financial Institutions Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. The Corporation has exposure to many different industries and counterparties,and routinely executes transactions with counterparties in the financial services industry,including commercial banks,brokers and dealers, investment banks, and other institutional clients.Many of these transactions expose the Corporation to credit risk in the event of a default by a counterparty or client. In addition,the Corporation's credit risk may be exacerbated when the collateral held by the Corporation cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to the Corporation.Any such losses could have a material adverse effect on the Corporation's business,financial condition and results of operations. The Corporation Operates In A Highly Competitive Industry and Market Area The Corporation faces substantial competition in all areas of its operations from a variety of different competitors, many of which are larger and may have more financial resources.Such competitors primarily include national,regional, and community banks within the various markets where the Corporation operates. The Corporation also faces competition from many other types of financial institutions, including, without limitation, savings and loans, credit unions, finance companies, brokerage firms, insurance companies and other financial intermediaries. The financial services industry could become even more competitive as a result of legislative,regulatory and technological changes and continued consolidation.Also,technology and other changes have lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks. For example, consumers can maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds.Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks.The process of eliminating banks as intermediaries,known as"disintermediation,"could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. Further, many of the Corporation's competitors have fewer regulatory constraints and may have lower cost structures.Additionally,due to their size,many competitors may be able to achieve economies of scale and,as a result,may offer a broader range of products and services as well as better pricing for those products and services than the Corporation can. The Corporation's ability to compete successfully depends on a number of factors,including,among other things: • The ability to develop,maintain and build long-term customer relationships based on top quality service,high ethical standards and safe,sound assets. 21 • The ability to expand the Corporation's market position. • The scope,relevance and pricing of products and services offered to meet customer needs and demands. • The rate at which the Corporation introduces new products and services relative to its competitors. • Customer satisfaction with the Corporation's level of service. • Industry and general economic trends. Failure to perform in any of these areas could significantly weaken the Corporation's competitive position,which could adversely affect the Corporation's growth and profitability,which,in turn,could have a material adverse effect on the Corporation's business,financial condition and results of operations. The Corporation Is Subject To Extensive Government Regulation and Supervision and Possible Enforcement and Other Legal Actions The Corporation, primarily through Cullen/Frost, Frost Bank and certain non-bank subsidiaries, is subject to extensive federal and state regulation and supervision,which vests a significant amount of discretion in the various regulatory authorities.Banking regulations are primarily intended to protect depositors'funds,federal deposit insurance funds and the banking system as a whole,not security holders.These regulations and supervisory guidance affect the Corporation's lending practices,capital structure,investment practices,dividend policy and growth,among other things. Congress and federal regulatory agencies continually review banking laws,regulations and policies for possible changes. The Dodd-Frank Act,enacted in July 2010,instituted major changes to the banking and financial institutions regulatory regimes. Other changes to statutes, regulations or regulatory policies or supervisory guidance, including changes in interpretation or implementation of statutes,regulations,policies or supervisory guidance,could affect the Corporation in substantial and unpredictable ways. Such changes could subject the Corporation to additional costs,limit the types of financial services and products the Corporation may offer and/or increase the ability of non-banks to offer competing financial services and products,among other things.Failure to comply with laws,regulations,policies or supervisory guidance could result in enforcement and other legal actions by Federal or state authorities,including criminal and civil penalties,the loss of FDIC insurance,the revocation of a banking charter,other sanctions by regulatory agencies,civil money penalties and/or reputational damage. In this regard, government authorities, including the bank regulatory agencies, are pursuing aggressive enforcement actions with respect to compliance and other legal matters involving financial activities, which heightens the risks associated with actual and perceived compliance failures.Any of the foregoing could have a material adverse effect on the Corporation's business, financial condition and results of operations. See the sections captioned"Supervision and Regulation" included in Item 1. Business and Note 10 - Capital and Regulatory Matters in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data,which are located elsewhere in this report. The Corporation's Accounting Estimates and Risk Management Processes Rely On Analytical and Forecasting Models The processes the Corporation uses to estimate its probable loan losses and to measure the fair value of financial instruments,as well as the processes used to estimate the effects of changing interest rates and other market measures on the Corporation's financial condition and results of operations,depends upon the use of analytical and forecasting models. These models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances.Even if these assumptions are adequate,the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation.If the models the Corporation uses for interest rate risk and asset-liability management are inadequate,the Corporation may incur increased or unexpected losses upon changes in market interest rates or other market measures.If the models the Corporation uses for determining its probable loan losses are inadequate,the allowance for loan losses may not be sufficient to support future charge-offs.If the models the Corporation uses to measure the fair value of financial instruments are inadequate,the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what the Corporation could realize upon sale or settlement of such financial instruments.Any such failure in the Corporation's analytical or forecasting models could have a material adverse effect on the Corporation's business,financial condition and results of operations. 22 The Repeal Of Federal Prohibitions On Payment Of Interest On Demand Deposits Could Increase The Corporation's Interest Expense All federal prohibitions on the ability of financial institutions to pay interest on demand deposit accounts were repealed as part of the Dodd-Frank Act beginning on July 21, 2011. As a result, some financial institutions have commenced offering interest on demand deposits to compete for customers.The Corporation does not yet know what interest rates other institutions may offer as market interest rates begin to increase.The Corporation's interest expense will increase and its net interest margin will decrease if it begins offering interest on demand deposits to attract additional customers or maintain current customers, which could have a material adverse effect on the Corporation's business, financial condition and results of operations. The Corporation May Need To Raise Additional Capital In The Future, and Such Capital May Not Be Available When Needed Or At All The Corporation may need to raise additional capital in the future to provide it with sufficient capital resources and liquidity to meet its commitments and business needs, particularly if its asset quality or earnings were to deteriorate significantly. The Corporation's ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time,which are outside of its control, and its financial condition. Economic conditions and the loss of confidence in financial institutions may increase the Corporation's cost of funding and limit access to certain customary sources of capital,including inter-bank borrowings,repurchase agreements and borrowings from the discount window of the Federal Reserve Board. The Corporation cannot assure that such capital will be available on acceptable terms or at all.Any occurrence that may limit the Corporation's access to the capital markets, such as a decline in the confidence of debt purchasers, depositors of Frost Bank or counterparties participating in the capital markets, or a downgrade of Cullen/Frost's or Frost Bank's debt ratings, may adversely affect the Corporation's capital costs and its ability to raise capital and, in turn, its liquidity. Moreover, if the Corporation needs to raise capital in the future, it may have to do so when many other financial institutions are also seeking to raise capital and would have to compete with those institutions for investors.An inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on the Corporation's business,financial condition and results of operations. The Value Of The Corporation's Goodwill and Other Intangible Assets May Decline In The Future As of December 31,2014,the Corporation had$666.1 million of goodwill and other intangible assets.A significant decline in the Corporation's expected future cash flows,a significant adverse change in the business climate, slower growth rates or a significant and sustained decline in the price of Cullen/Frost's common stock may necessitate taking charges in the future related to the impairment of the Corporation's goodwill and other intangible assets. If the Corporation were to conclude that a future write-down of goodwill and other intangible assets is necessary, the Corporation would record the appropriate charge, which could have a material adverse effect on the Corporation's business,financial condition and results of operations. The Corporation's Controls and Procedures May Fail or Be Circumvented The Corporation's internal controls, disclosure controls and procedures, and corporate governance policies and procedures are based in part on certain assumptions and can provide only reasonable,not absolute,assurances that the objectives of the system are met.Any failure or circumvention of the Corporation's controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Corporation's business,financial condition and results of operations. New Lines Of Business Or New Products and Services May Subject The Corporation To Additional Risks From time to time,the Corporation may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services the Corporation may invest significant time and resources.Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences,may also impact the successful implementation of a new line of business or a new product or service.Furthermore,any new line of business and/or new product or service could have a significant impact on the 23 effectiveness of the Corporation's system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on the Corporation's business,financial condition and results of operations. Cullen/Frost Relies On Dividends From Its Subsidiaries For Most Of Its Revenue Cullen/Frost is a separate and distinct legal entity from its subsidiaries. It receives substantially all of its revenue from dividends from its subsidiaries.These dividends are the principal source of funds to pay dividends on Cullen/ Frost's common stock and interest and principal on Cullen/Frost's debt.Various federal and state laws and regulations limit the amount of dividends that Frost Bank and certain non-bank subsidiaries may pay to Cullen/Frost.Also,Cullen/ Frost's right to participate in a distribution of assets upon a subsidiary's liquidation or reorganization is subject to the prior claims of the subsidiary's creditors. In the event Frost Bank is unable to pay dividends to Cullen/Frost, Cullen/ Frost may not be able to service debt,pay obligations or pay dividends on the Corporation's common stock.The inability to receive dividends from Frost Bank could have a material adverse effect on the Corporation's business, financial condition and results of operations. See the section captioned"Supervision and Regulation"in Item 1.Business and Note 10-Capital and Regulatory Matters in the notes to consolidated financial statements included in Item 8.Financial Statements and Supplementary Data,which are located elsewhere in this report. Potential Acquisitions May Disrupt The Corporation's Business and Dilute Stockholder Value The Corporation generally seeks merger or acquisition partners that are culturally similar and have experienced management and possess either significant market presence or have potential for improved profitability through financial management,economies of scale or expanded services.Acquiring other banks,businesses,or branches involves various risks commonly associated with acquisitions,including,among other things: • Potential exposure to unknown or contingent liabilities of the target company. • Exposure to potential asset quality issues of the target company. • Potential disruption to the Corporation's business. • Potential diversion of the Corporation's management's time and attention. • The possible loss of key employees and customers of the target company. • Difficulty in estimating the value of the target company. • Potential changes in banking or tax laws or regulations that may affect the target company. Acquisitions typically involve the payment of a premium over book and market values,and,therefore,some dilution of the Corporation's tangible book value and net income per common share may occur in connection with any future transaction. Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on the Corporation's business,financial condition and results of operations. As part of the approval process in connection with the acquisition of WNB,the Corporation agreed with the Federal Reserve that before bringing them any further expansionary proposals, the Corporation would enhance certain compliance programs, including those related to fair lending. The Corporation is currently working on these enhancements. The Corporation Is Subject To Liquidity Risk The Corporation requires liquidity to meet its deposit and debt obligations as they come due. The Corporation's access to funding sources in amounts adequate to finance its activities or on terms that are acceptable to it could be impaired by factors that affect it specifically or the financial services industry or economy generally.Factors that could reduce its access to liquidity sources include a downturn in the Texas market,difficult credit markets or adverse regulatory actions against the Corporation.The Corporation's access to deposits may also be affected by the liquidity needs of its depositors. In particular,a substantial majority of the Corporation's liabilities are demand, savings, interest checking and money market deposits, which are payable on demand or upon several days' notice, while by comparison, a substantial portion of its assets are loans,which cannot be called or sold in the same time frame.The Corporation may not be able to replace maturing deposits and advances as necessary in the future, especially if a large number of its 24 depositors sought to withdraw their accounts,regardless of the reason.A failure to maintain adequate liquidity could have a material adverse effect on the Corporation's business,financial condition and results of operations. The Corporation May Not Be Able To Attract and Retain Skilled People The Corporation's success depends,in large part,on its ability to attract and retain key people.Competition for the best people in most activities engaged in by the Corporation can be intense and the Corporation may not be able to hire people or to retain them. The Corporation does not currently have employment agreements or non-competition agreements with any of its senior officers.The unexpected loss of services of key personnel of the Corporation could have a material adverse impact on the Corporation's business,financial condition and results of operations because of their skills,knowledge of the Corporation's market,years of industry experience and the difficulty of promptly finding qualified replacement personnel. The Corporation's Information Systems May Experience An Interruption Or Breach In Security The Corporation relies heavily on communications and information systems to conduct its business.Any failure, interruption or breach in security of these systems could result in failures or disruptions in the Corporation's customer relationship management,general ledger,deposit,loan and other systems.Moreover,if any such failures,interruptions or security breaches do occur,they may not be adequately addressed.The occurrence of any failures,interruptions or security breaches of the Corporation's information systems could damage the Corporation's reputation,result in a loss of customer business, subject the Corporation to additional regulatory scrutiny, or expose the Corporation to civil litigation and possible financial liability,any of which could have a material adverse effect on the Corporation's business, financial condition and results of operations. The Corporation Continually Encounters Technological Change The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services.The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.The Corporation's future success depends, in part,upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands,as well as to create additional efficiencies in the Corporation's operations.Many ofthe Corporation's competitors have substantially greater resources to invest in technological improvements.The Corporation may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers.Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse effect on the Corporation's business,financial condition and results of operations. The Corporation Is Subject To Claims and Litigation Pertaining To Fiduciary Responsibility From time to time,customers make claims and take legal action pertaining to the Corporation's performance of its fiduciary responsibilities. Whether customer claims and legal action related to the Corporation's performance of its fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to the Corporation they may result in significant financial liability and/or adversely affect the market perception of the Corporation and its products and services as well as impact customer demand for those products and services. Any financial liability or reputational damage could have a material adverse effect on the Corporation's business, financial condition and results of operations. The Corporation's Operations Rely On Certain External Vendors The Corporation relies on certain external vendors to provide products and services necessary to maintain day-to- day operations of the Corporation.Accordingly,the Corporation's operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements. The failure of an external vendor to perform in accordance with the contracted arrangements under service level agreements,because of changes in the vendor's organizational structure,financial condition, support for existing products and services or strategic focus or for any other reason,could be disruptive to the Corporation's operations,which could have a material adverse effect on the Corporation's business and,in turn,the Corporation's financial condition and results of operations. 25 The Corporation Is Subject to Claims and Litigation Pertaining to Intellectual Property Banking and other financial services companies,such as the Corporation,rely on technology companies to provide information technology products and services necessary to support the Corporations'day-to-day operations.Technology companies frequently enter into litigation based on allegations of patent infringement or other violations of intellectual property rights. In addition, patent holding companies seek to monetize patents they have purchased or otherwise obtained.Competitors of the Corporation's vendors,or other individuals or companies,have from time to time claimed to hold intellectual property sold to the Corporation by its vendors. Such claims may increase in the future as the financial services sector becomes more reliant on information technology vendors. The plaintiffs in these actions frequently seek injunctions and substantial damages. Regardless of the scope or validity of such patents or other intellectual property rights,or the merits of any claims by potential or actual litigants, the Corporation may have to engage in protracted litigation. Such litigation is often expensive, time-consuming, disruptive to the Corporation's operations, and distracting to management. If the Corporation is found to infringe upon one or more patents or other intellectual property rights, it may be required to pay substantial damages or royalties to a third-party. In certain cases, the Corporation may consider entering into licensing agreements for disputed intellectual property,although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur. These licenses may also significantly increase the Corporation's operating expenses. If legal matters related to intellectual property claims were resolved against the Corporation or settled, the Corporation could be required to make payments in amounts that could have a material adverse effect on its business,financial condition and results of operations. The Corporation Is Subject To Environmental Liability Risk Associated With Lending Activities A significant portion of the Corporation's loan portfolio is secured by real property. During the ordinary course of business,the Corporation may foreclose on and take title to properties securing certain loans. In doing so,there is a risk that hazardous or toxic substances could be found on these properties.If hazardous or toxic substances are found, the Corporation may be liable for remediation costs,as well as for personal injury and property damage.Environmental laws may require the Corporation to incur substantial expenses and may materially reduce the affected property's value or limit the Corporation's ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase the Corporation's exposure to environmental liability.Environmental reviews of real property before initiating foreclosure actions may not be sufficient to detect all potential environmental hazards.The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on the Corporation's business, financial condition and results of operations. Severe Weather, Natural Disasters,Acts Of War Or Terrorism and Other External Events Could Significantly Impact The Corporation's Business Severe weather,natural disasters,acts of war or terrorism and other adverse external events could have a significant impact on the Corporation's ability to conduct business. In addition, such events could affect the stability of the Corporation's deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause the Corporation to incur additional expenses. The occurrence of any such event in the future could have a material adverse effect on the Corporation's business,which, in turn, could have a material adverse effect on the Corporation's business, financial condition and results of operations. Financial Services Companies Depend On The Accuracy and Completeness Of Information About Customers and Counterparties In deciding whether to extend credit or enter into other transactions, the Corporation may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. The Corporation may also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements,credit reports or other financial information could have a material adverse impact on the Corporation's business,financial condition and results of operations. 26 Risks Associated With The Corporation's Common Stock The Corporation's Stock Price Can Be Volatile Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive.The Corporation's stock price can fluctuate significantly in response to a variety of factors including, among other things: • Actual or anticipated variations in quarterly results of operations. • Recommendations by securities analysts. • Operating and stock price performance of other companies that investors deem comparable to the Corporation. • News reports relating to trends,concerns and other issues in the financial services industry. • Perceptions in the marketplace regarding the Corporation and/or its competitors. • New technology used,or services offered,by competitors. • Significant acquisitions or business combinations,strategic partnerships,joint ventures or capital commitments by or involving the Corporation or its competitors. • Failure to integrate acquisitions or realize anticipated benefits from acquisitions. • Changes in government regulations. • Geopolitical conditions such as acts or threats of terrorism or military conflicts. General market fluctuations, including real or anticipated changes in the strength of the Texas economy; industry factors and general economic and political conditions and events,such as economic slowdowns or recessions;interest rate changes or credit loss trends could also cause the Corporation's stock price to decrease regardless of operating results. The Trading Volume In The Corporation's Common Stock Is Less Than That Of Other Larger Financial Services Companies Although the Corporation's common stock is listed for trading on the New York Stock Exchange(NYSE),the trading volume in its common stock is less than that of other, larger financial services companies.A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of the Corporation's common stock at any given time.This presence depends on the individual decisions of investors and general economic and market conditions over which the Corporation has no control.Given the lower trading volume of the Corporation's common stock,significant sales of the Corporation's common stock,or the expectation of these sales,could cause the Corporation's stock price to fall. Cullen/Frost May Not Continue To Pay Dividends On Its Common Stock In The Future Holders of Cullen/Frost common stock are only entitled to receive such dividends as its board of directors may declare out of funds legally available for such payments.Although Cullen/Frost has historically declared cash dividends on its common stock,it is not required to do so and may reduce or eliminate its common stock dividend in the future. This could adversely affect the market price of Cullen/Frost's common stock.Also, Cullen/Frost is a bank holding company,and its ability to declare and pay dividends is dependent on certain federal regulatory considerations,including the guidelines of the Federal Reserve Board regarding capital adequacy and dividends. As more fully discussed in Note 10-Capital and Regulatory Matters in the notes to consolidated financial statements included in Item 8.Financial Statements and Supplementary Data,which are located elsewhere in this report,the ability of the Corporation to declare or pay dividends on its common stock may also be subject to certain restrictions in the event that the Corporation elects to defer the payment of interest on its junior subordinated deferrable interest debentures or does not declare and pay dividends on its Series A Preferred Stock. 27 An Investment In The Corporation's Common Stock Is Not An Insured Deposit The Corporation's common stock is not a bank deposit and, therefore, is not insured against loss by the Federal Deposit Insurance Corporation (FDIC), any other deposit insurance fund or by any other public or private entity. Investment in the Corporation's common stock is inherently risky for the reasons described in this "Risk Factors" section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company.As a result,ifyou acquire the Corporation's common stock,you could lose some or all ofyour investment. Certain Banking Laws May Have An Anti-Takeover Effect Provisions of federal banking laws, including regulatory approval requirements,could make it more difficult for a third party to acquire the Corporation, even if doing so would be perceived to be beneficial to the Corporation's shareholders.These provisions effectively inhibit a non-negotiated merger or other business combination, which, in turn,could adversely affect the market price of the Corporation's common stock. ITEM 1B.UNRESOLVED STAFF COMMENTS None ITEM 2.PROPERTIES The Corporation's headquarters are located in downtown San Antonio,Texas.These facilities,which are owned by the Corporation,house the Corporation's executive and primary administrative offices,as well as the principal banking headquarters of Frost Bank.The Corporation also owns or leases other facilities within its primary market areas in the regions of Austin,Corpus Christi, Dallas,Fort Worth, Houston, Permian Basin, Rio Grande Valley and San Antonio. The Corporation considers its properties to be suitable and adequate for its present needs. ITEM 3.LEGAL PROCEEDINGS The Corporation is subject to various claims and legal actions that have arisen in the course of conducting business. Management does not expect the ultimate disposition of these matters to have a material adverse effect on the Corporation's business,financial condition and results of operations. ITEM 4.MINE SAFETY DISCLOSURES None 28 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock Market Prices and Dividends The Corporation's common stock is traded on the New York Stock Exchange, Inc. ("NYSE") under the symbol "CFR".The tables below set forth for each quarter of 2014 and 2013 the high and low intra-day sales prices per share of Cullen/Frost's common stock and the cash dividends declared per share. 2014 2013 Sales Price Per Share High Low High Low First quarter $ 78.96 $ 69.87 $ 62.62 $ 54.91 Second quarter 80.38 72.37 67.20 59.11 Third quarter 81.73 75.32 76.36 66.96 Fourth quarter 82.00 67.46 74.67 69.12 Cash Dividends Per Share 2014 2013 First quarter $ 0.50 $ 0.48 Second quarter 0.51 0.50 Third quarter 0.51 0.50 Fourth quarter 0.51 0.50 Total $ 2.03 $ 1.98 As of December 31, 2014,there were 63,149,423 shares of the Corporation's common stock outstanding held by 1,335 holders of record.The closing price per share of common stock on December 31,2014,the last trading day of the Corporation's fiscal year,was$70.64. The Corporation's management is currently committed to continuing to pay regular cash dividends;however,there can be no assurance as to future dividends because they are dependent on the Corporation's future earnings, capital requirements and financial condition. See the section captioned "Supervision and Regulation" included in Item 1. Business,the section captioned"Capital and Liquidity"included in Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 10-Capital and Regulatory Matters in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, all of which are included elsewhere in this report. Stock-Based Compensation Plans Information regarding stock-based compensation awards outstanding and available for future grants as of December 31,2014, segregated between stock-based compensation plans approved by shareholders and stock-based compensation plans not approved by shareholders, is presented in the table below.Additional information regarding stock-based compensation plans is presented in Note 12-Employee Benefit Plans in the notes to consolidated financial statements included in Item 8.Financial Statements and Supplementary Data located elsewhere in this report. Weighted-Average Number of Shares Exercise to be Issued Upon Price of Number of Shares Exercise of Outstanding Available for Plan Category Outstanding Awards Awards Future Grants Plans approved by shareholders 5,029,882 58.99 1,973,427 Plans not approved by shareholders - Total 5,029,882 58.99 1,973,427 29 Stock Repurchase Plans From time to time,the Corporation has maintained several stock repurchase plans authorized by the Corporation's board of directors. In general,stock repurchase plans allow the Corporation to proactively manage its capital position and return excess capital to shareholders.Shares purchased under such plans also provide the Corporation with shares of common stock necessary to satisfy obligations related to stock compensation awards.During 2013,the Corporation implemented an accelerated share repurchase as a part of stock repurchase program authorized by the Corporation's board of directors in December 2012 to buy up to$150.0 million of the Corporation's common stock.The Corporation repurchased 2,236,748 shares at a total cost of$144.0 million under the accelerated share repurchase.No shares were repurchased under stock repurchase plans during 2014 or 2012.As of December 31,2014,the Corporation did not have any active stock repurchase plans. The following table provides information with respect to purchases made by or on behalf of the Corporation or any "affiliated purchaser"(as defined in Rule 10b-18(a)(3)under the Securities Exchange Act of 1934),of the Corporation's common stock during the fourth quarter of 2014. Maximum Number (or Approximate Dollar Value)of Total Number of Shares That May Yet Shares Purchased Be Purchased Under Total Number of Average Price as Part of Publicly the Plans at Period Shares Purchased Paid Per Share Announced Plans the End of the Period October 1,2014 to October 31,2014 18,871 (I) $ 77.19 — $ November 1,2014 to November 30,2014 — — —December 1,2014 to December 31,2014 — — — — Total 18,871 $ 77.19 — (1) All of these repurchases were made in connection with the vesting of certain share awards. 30 Performance Graph The performance graph below compares the cumulative total shareholder return on Cullen/Frost Common Stock with the cumulative total return on the equity securities of companies included in the Standard& Poor's 500 Stock Index and the Standard and Poor's 500 Bank Index,measured at the last trading day of each year shown.The graph assumes an investment of$100 on December 31,2009 and reinvestment of dividends on the date of payment without commissions.The performance graph represents past performance and should not be considered to be an indication of future performance. Cumulative Total Returns on $100 Investment Made on December 31, 2009 —f— CulkrvFrost —IF— S&P 500 ---- S&P 500 Banks 220 - 200 180 160 - 140 170 �- 0111 100 80 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 Cullen/Frost $ 100.00 $ 126.35 $ 113.20 $ 120.10 $ 169.66 $ 165.35 S&P 500 100.00 115.06 117.49 136.30 180.44 205.14 S&P 500 Banks 100.00 119.84 107.00 132.92 180.41 208.39 31 ITEM 6.SELECTED FINANCIAL DATA The following consolidated selected financial data is derived from the Corporation's audited financial statements as of and for the five years ended December 31, 2014. The following consolidated financial data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes included elsewhere in this report. All of the Corporation's acquisitions during the five years ended December 31,2014 were accounted for using the purchase method.Accordingly, the operating results of the acquired companies are included with the Corporation's results of operations since their respective dates of acquisition.Dollar amounts,except per share data,and common shares outstanding are in thousands. Year Ended December 31, 2014 2013 2012 2011 2010 Consolidated Statements of Income Interest income: Loans,including fees $ 440,958 $ 415,230 $ 401,364 $ 397,855 $ 409,651 Securities 249,705 219,904 225,844 218,744 202,713 Interest-bearing deposits 10,725 7,284 4,300 6,357 4,901 Federal funds sold and resell agreements 83 82 104 61 74 Total interest income 701,471 642,500 631,612 623,017 617,339 Interest expense: Deposits 11,022 14,459 18,099 22,179 29,973 Federal funds purchased and repurchase agreements 134 121 140 312 437 Junior subordinated deferrable interest debentures 2,488 6,426 6,806 6,783 6,982 Subordinated notes payable and other borrowings 893 939 1,706 11,967 16,488 Total interest expense 14,537 21,945 26,751 41,241 53,880 Net interest income 686,934 620,555 604,861 581,776 563,459 Provision for loan losses 16,314 20,582 10,080 27,445 43,611 Net interest income after provision for loan losses 670,620 599,973 594,781 554,331 519,848 Non-interest income: Trust and investment management fees 106,237 91,375 83,317 78,297 72,321 Service charges on deposit accounts 81,946 81,432 83,392 86,125 91,025 Insurance commissions and fees 45,115 43,140 39,948 35,421 34,015 Interchange and debit card transaction fees 18,372 16,979 16,933 29,625 30,542 Other charges,commissions and fees 36,180 34,185 30,180 27,750 25,380 Net gain(loss)on securities transactions 38 1,176 4,314 6,414 6 Other 32,256 34,531 30,703 26,370 28,744 Total non-interest income 320,144 302,818 288,787 290,002 282,033 Non-interest expense: Salaries and wages 292,349 273,692 258,752 252,028 239,589 Employee benefits 60,151 62,407 57,635 52,939 52,352 Net occupancy 55,745 50,468 48,975 46,968 46,166 Furniture and equipment 62,087 58,443 55,279 51,469 47,651 Deposit insurance 13,232 11,682 11,087 12,714 20,451 Intangible amortization 3,520 3,141 3,896 4,387 5,125 Other 167,656 152,077 139,469 137,593 124,207 Total non-interest expense 654,740 611,910 575,093 558,098 535,541 Income before income taxes 336,024 290,881 308,475 286,235 266,340 Income taxes 58,047 53,015 70,523 68,700 57,576 Net income 277,977 237,866 237,952 217,535 208,764 Preferred stock dividends 8,063 6,719 - - - Net income available to common shareholders $ 269,914 $ 231,147 $ 237,952 $ 217,535 $ 208,764 32 As of or for the Year Ended December 31, 2014 2013 2012 2011 2010 Per Common Share Data Net income-basic $ 4.32 $ 3.82 $ 3.87 $ 3.55 $ 3.44 Net income-diluted 4.29 3.80 3.86 3.54 3.44 Cash dividends declared and paid 2.03 1.98 1.90 1.83 1.78 Book value 42.87 39.13 39.32 37.27 33.74 Common Shares Outstanding Period-end 63,149 60,566 61,479 61,264 61,108 Weighted-average shares-basic 62,072 60,350 61,298 61,101 60,411 Dilutive effect of stock compensation 902 766 345 177 175 Weighted-average shares-diluted 62,974 61,116 61,643 61,278 60,586 Performance Ratios Return on average assets 1.05% 1.02% 1.14% 1.17% 1.21% Return on average common equity 10.51 9.93 10.03 10.01 10.30 Net interest income to average earning assets 3.41 3.41 3.59 3.88 4.08 Dividend pay-out ratio 47.12 51.75 49.11 51.58 51.75 Balance Sheet Data Period-end: Loans $10,987,535 $ 9,515,700 $ 9,223,848 $ 7,995,129 $ 8,117,020 Earning assets 26,052,339 22,238,286 21,148,475 18,497,987 15,806,350 Total assets 28,277,775 24,312,939 23,124,069 20,317,245 17,617,092 Non-interest-bearing demand deposits 10,149,061 8,311,149 8,096,937 6,672,555 5,360,436 Interest-bearing deposits 13,986,869 12,377,637 11,400,429 10,084,193 9,118,906 Total deposits 24,135,930 20,688,786 19,497,366 16,756,748 14,479,342 Long-term debt and other borrowings 237,115 223,712 223,719 223,738 373,757 Shareholders'equity 2,851,403 2,514,161 2,417,482 2,283,537 2,061,680 Average: Loans $10,299,025 $ 9,229,574 $ 8,456,818 $ 8,042,968 $ 8,125,150 Earning assets 23,877,476 20,991,221 19,015,707 16,769,028 15,333,348 Total assets 25,767,738 22,752,037 20,826,885 18,568,967 17,186,572 Non-interest-bearing demand deposits 9,125,030 7,657,774 7,021,927 5,738,982 5,023,780 Interest-bearing deposits 12,927,729 11,610,320 10,270,173 9,483,633 9,023,839 Total deposits 22,052,759 19,268,094 17,292,100 15,222,615 14,047,619 Long-term debt and other borrowings 231,607 223,713 223,728 310,870 382,651 Shareholders'equity 2,712,226 2,455,041 2,372,745 2,172,096 2,027,699 Asset Quality Allowance for loan losses $ 99,542 $ 92,438 $ 104,453 $ 110,147 $ 126,316 Allowance for losses to year-end loans 0.91% 0.97% 1.13% 1.38% 1.56% Net loan charge-offs $ 9,210 $ 32,597 $ 15,774 $ 43,614 $ 42,604 Net loan charge-offs to average loans 0.09% 0.35% 0.19% 0.54% 0.52% Non-performing assets $ 65,176 $ 69,773 $ 105,246 $ 120,946 $ 164,950 Non-performing assets to: Total loans plus foreclosed assets 0.59% 0.73% 1.14% 1.51% 2.03% Total assets 0.23 0.29 0.46 0.60 0.94 Consolidated Capital Ratios Tier 1 risk-based capital ratio 13.68% 14.39% 13.68% 14.38% 13.82% Total risk-based capital ratio 14.55 15.52 15.11 16.24 15.91 Leverage ratio 8.16 8.49 8.28 8.66 8.68 Average shareholders'equity to average total assets 10.53 10.79 11.39 11.70 11.80 33 The following tables set forth unaudited consolidated selected quarterly statement of operations data for the years ended December 31,2014 and 2013.Dollar amounts are in thousands,except per share data. Year Ended December 31,2014 4th 3rd 2nd 1st Quarter Quarter Quarter Quarter Interest income $ 182,825 $ 181,885 $ 173,055 $ 163,706 Interest expense 3,833 3,907 3,426 3,371 Net interest income 178,992 177,978 169,629 160,335 Provision for loan losses 4,400 390 4,924 6,600 Non-interest income ) 82,642 80,862 79,150 77,490 Non-interest expense 169,001 163,828 163,970 157,941 Income before income taxes 88,233 94,622 79,885 73,284 Income taxes 15,529 17,007 13,415 12,096 Net income 72,704 77,615 66,470 61,188 Preferred stock dividends 2,016 2,016 2,015 2,016 Net income available to common shareholders $ 70,688 $ 75,599 $ 64,455 $ 59,172 Net income per common share: Basic $ 1.12 $ 1.20 $ 1.03 $ 0.97 Diluted 1.11 1.19 1.02 0.96 Year Ended December 31,2013 4th 3rd 2nd 1st Quarter Quarter Quarter Quarter Interest income $ 163,869 $ 160,851 $ 159,018 $ 158,762 Interest expense 4,661 5,498 5,837 5,949 Net interest income 159,208 155,353 153,181 152,813 Provision for loan losses 5,899 5,108 3,575 6,000 Non-interest income(2) 78,538 73,991 72,509 77,780 Non-interest expense 154,515 151,823 149,758 155,814 Income before income taxes 77,332 72,413 72,357 68,779 Income taxes 14,761 11,969 12,694 13,591 Net income 62,571 60,444 59,663 55,188 Preferred stock dividends 2,016 2,015 2,688 - Net income available to common shareholders $ 60,555 $ 58.429 $ 56,975 $ 55,188 Net income per common share: Basic $ 1.00 $ 0.96 $ 0.95 $ 0.91 Diluted 0.99 0.96 0.94 0.91 (1) Includes net gains on securities transactions of$3 thousand,$33 thousand and$2 thousand during the fourth, third and second quarters of 2014,respectively. (2) Includes net gains on securities transactions of$1.2 million, $6 thousand and$5 thousand during the fourth, second and first quarters of 2013,respectively,and net losses on securities transactions of$14 thousand during the third quarter of 2013. 34 ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements and Factors that Could Affect Future Results Certain statements contained in this Annual Report on Form 10-K that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the"Act"), notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in the Corporation's future filings with the SEC,in press releases,and in oral and written statements made by or with the approval of the Corporation that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i)projections ofrevenues,expenses,income or loss,earnings or loss per share,the payment or nonpayment ofdividends, capital structure and other financial items;(ii)statements of plans,objectives and expectations of Cullen/Frost or its management or Board of Directors,including those relating to products or services;(iii)statements of future economic performance;and(iv)statements of assumptions underlying such statements.Words such as"believes","anticipates", "expects", "intends", "targeted", "continue", "remain", "will", "should", "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements.Factors that could cause actual results to differ from those discussed in the forward-looking statements include,but are not limited to: • Local,regional,national and international economic conditions and the impact they may have on the Corporation and its customers and the Corporation's assessment of that impact. • Volatility and disruption in national and international financial markets. • Government intervention in the U.S.financial system. • Changes in the mix of loan geographies,sectors and types or the level of non-performing assets and charge-offs. • Changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements. • The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board. • Inflation,interest rate,crude oil price,securities market and monetary fluctuations. • The effect of changes in laws and regulations(including laws and regulations concerning taxes,banking,securities and insurance)with which the Corporation and its subsidiaries must comply. • The soundness of other financial institutions. • Political instability. • Impairment of the Corporation's goodwill or other intangible assets. • Acts of God or of war or terrorism. • The timely development and acceptance of new products and services and perceived overall value of these products and services by users. • Changes in consumer spending,borrowings and savings habits. • Changes in the financial performance and/or condition of the Corporation's borrowers. • Technological changes. • Acquisitions and integration of acquired businesses. • The ability to increase market share and control expenses. • The Corporation's ability to attract and retain qualified employees. • Changes in the competitive environment in the Corporation's markets and among banking organizations and other financial service providers. • The effect of changes in accounting policies and practices,as may be adopted by the regulatory agencies,as well as the Public Company Accounting Oversight Board,the Financial Accounting Standards Board and other accounting standard setters. • Changes in the reliability of the Corporation's vendors,internal control systems or information systems. • Changes in the Corporation's liquidity position. • Changes in the Corporation's organization,compensation and benefit plans. • The costs and effects of legal and regulatory developments, the resolution of legal proceedings or regulatory or other governmental inquiries,the results of regulatory examinations or reviews and the ability to obtain required regulatory approvals. • Greater than expected costs or difficulties related to the integration of new products and lines of business. • The Corporation's success at managing the risks involved in the foregoing items. 35 Forward-looking statements speak only as ofthe date on which such statements are made.The Corporation undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made,or to reflect the occurrence of unanticipated events. Application of Critical Accounting Policies and Accounting Estimates The accounting and reporting policies followed by the Corporation conform,in all material respects,to accounting principles generally accepted in the United States and to general practices within the financial services industry.The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.While the Corporation bases estimates on historical experience,current information and other factors deemed to be relevant,actual results could differ from those estimates. The Corporation considers accounting estimates to be critical to reported financial results if(i)the accounting estimate requires management to make assumptions about matters that are highly uncertain and(ii)different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the Corporation's financial statements. Accounting policies related to the allowance for loan losses are considered to be critical,as these policies involve considerable subjective judgment and estimation by management.The allowance for loan losses is a reserve established through a provision for loan losses charged to expense,which represents management's best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio.The Corporation's allowance for loan loss methodology includes allowance allocations calculated in accordance with Accounting Standards Codification (ASC) Topic 310, "Receivables" and allowance allocations calculated in accordance with ASC Topic 450, "Contingencies."The level of the allowance reflects management's continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio,as well as trends in the foregoing.Portions of the allowance may be allocated for specific credits; however,the entire allowance is available for any credit that, in management's judgment,should be charged off.While management utilizes its best judgment and information available, the ultimate adequacy ofthe allowance is dependent upon avariety of factors beyond the Corporation's control,including the performance of the Corporation's loan portfolio,the economy,changes in interest rates and the view of the regulatory authorities toward loan classifications. See the section captioned "Allowance for Loan Losses" elsewhere in this discussion and Note 4-Loans in the notes to consolidated financial statements included in Item 8.Financial Statements and Supplementary Data elsewhere in this report for further details of the risk factors considered by management in estimating the necessary level of the allowance for loan losses. Overview The following discussion and analysis presents the more significant factors affecting the Corporation's financial condition as of December 31,2014 and 2013 and results of operations for each of the years in the three-year period ended December 31, 2014. This discussion and analysis should be read in conjunction with the Corporation's consolidated financial statements,notes thereto and other financial information appearing elsewhere in this report.The Corporation acquired WNB Bancshares,Inc.,a privately-held bank holding company located in Odessa,Texas("WNB") during 2014,a Houston-based insurance agency specializing in commercial lines insurance products during 2013 and a human resources consulting firm in the Houston market area,with offices in Dallas and Austin,in 2012.All of the Corporation's acquisitions during the reported periods were accounted for as purchase transactions,and as such,their related results of operations are included from the date of acquisition,though none of these acquisitions had a significant impact on the Corporation's financial statements during their respective reporting periods. Taxable-equivalent adjustments are the result of increasing income from tax-free loans and investments by an amount equal to the taxes that would be paid if the income were fully taxable based on a 35%federal tax rate,thus making tax- exempt yields comparable to taxable asset yields. Dollar amounts in tables are stated in thousands,except for per share amounts. 36 Results of Operations Net income available to common shareholders totaled$269.9 million,or$4.29 diluted per common share,in 2014 compared to $231.1 million, or$3.80 diluted per common share, in 2013 and $238.0 million, or $3.86 diluted per common share,in 2012.During the second quarter of 2014,the Corporation acquired WNB Bancshares,Inc.("WNB"). Accordingly,the operating results of WNB are included with the Corporation's results of operations since May 30, 2014.See Note 2-Mergers and Acquisitions in the accompanying consolidated financial statements. Selected income statement data, returns on average assets and average equity and dividends per share for the comparable periods were as follows: 2014 2013 2012 Taxable-equivalent net interest income $ 807,937 $ 710,850 $ 668,176 Taxable-equivalent adjustment 121,003 90,295 63,315 Net interest income 686,934 620,555 604,861 Provision for loan losses 16,314 20,582 10,080 Non-interest income 320,144 302,818 288,787 Non-interest expense 654,740 611,910 575,093 Income before income taxes 336,024 290,881 308,475 Income taxes 58,047 53,015 70,523 Net income 277,977 237,866 237,952 Preferred stock dividends 8,063 6,719 Net income available to common shareholders $ 269,914 $ 231,147 $ 237,952 Earnings per common share-basic $ 4.32 $ 3.82 $ 3.87 Earnings per common share-diluted 4.29 3.80 3.86 Dividends per common share 2.03 1.98 1.90 Return on average assets 1.05% 1.02% 1.14% Return on average common equity 10.51 9.93 10.03 Average shareholders'equity to average assets 10.53 10.79 11.39 Net income available to common shareholders increased$38.8 million for 2014 compared to 2013.The increase was primarily the result of a$66.4 million increase in net interest income, a$17.3 million increase in non-interest income and a$4.3 million decrease in the provision for loan losses partly offset by a$42.8 million increase in non- interest expense,a$5.0 million increase in income tax expense and a$1.3 million increase in preferred stock dividends. Net income available to common shareholders decreased$6.8 million for 2013 compared to 2012.The decrease was primarily the result of a$36.8 million increase in non-interest expense,a$10.5 million increase in the provision for loan losses and$6.7 million related to preferred stock dividends partly offset by a$17.5 million decrease in income tax expense,a$15.7 million increase in net interest income and a$14.0 million increase in non-interest income. The Corporation's preferred stock was issued on February 15,2013.The initial quarterly dividend payment during the second quarter of 2013 occurred on June 15,2013.This dividend payment included an additional amount applicable to the period from the issuance date through March 15, 2013,the start date of the normal quarterly dividend cycle. Future dividends payments on preferred stock are expected to continue at a rate of$8.1 million per year,paid over four equal,quarterly installments. Details of the changes in the various components of net income are further discussed below. 37 Net Interest Income Net interest income is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities,such as deposits and borrowings,which are used to fund those assets.Net interest income is the Corporation's largest source of revenue,representing 68.2%of total revenue during 2014.Net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period.The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and net interest margin. The Federal Reserve influences the general market rates of interest,including the deposit and loan rates offered by many financial institutions.The Corporation's loan portfolio is significantly affected by changes in the prime interest rate. The prime interest rate, which is the rate offered on loans to borrowers with strong credit, remained at 3.25% during 2014,2013 and 2012.The Corporation's loan portfolio is also impacted,to a lesser extent,by changes in the London Interbank Offered Rate(LIBOR).At December 31,2014,the one-month and three-month U.S.dollar LIBOR rates were 0.15%and 0.23%,respectively,while at December 31,2013,the one-month and three-month U.S. dollar LIBOR rates were 0.17%and 0.25%,respectively.The intended federal funds rate,which is the cost of immediately available overnight funds,remained at zero to 0.25%during 2014,2013 and 2012. The Corporation's balance sheet has historically been asset sensitive,meaning that earning assets generally reprice more quickly than interest-bearing liabilities.Therefore,the Corporation's net interest margin was likely to increase in sustained periods of rising interest rates and decrease in sustained periods of declining interest rates.During the fourth quarter of 2007, in an effort to make the Corporation's balance sheet less sensitive to changes in interest rates, the Corporation entered into various interest rate swaps which effectively converted certain variable-rate loans into fixed- rate instruments for a period of seven years. During the fourth quarter of 2008,the Corporation also entered into an interest rate swap which effectively converted variable-rate debt into fixed-rate debt for a period of five years.As a result of these actions,the Corporation's balance sheet was more interest-rate neutral and changes in interest rates had a less significant impact on the Corporation's net interest margin than would have otherwise been the case.During the fourth quarter of 2009,a portion of the interest rate swaps on variable-rate loans were terminated,while the remaining interest rate swaps on variable-rate loans were terminated during the fourth quarter of 2010.These actions increased the asset sensitivity of the Corporation's balance sheet.The accumulated gain on the interest rate swaps upon settlement was deferred and amortized over the original lives of the underlying swap contracts.The amortization of the deferred accumulated gain ended in October 2014.As of December 31,2013,the deferred accumulated gain applicable to the settled interest rate swap contracts included in accumulated other comprehensive income totaled$30.6 million($19.9 million on an after-tax basis), all of which was recognized in interest income during 2014. See Note 16-Derivative Financial Instruments in the accompanying notes to consolidated financial statements included elsewhere in this report for additional information related to these interest rate swaps. The Corporation is primarily funded by core deposits,with non-interest-bearing demand deposits historically being a significant source of funds.This lower-cost funding base is expected to have a positive impact on the Corporation's net interest income and net interest margin in a rising interest rate environment.The Dodd-Frank Wall Street Reform and Consumer Protection Act(the"Dodd-Frank Act")repealed the federal prohibition on the payment of interest on demand deposits,thereby permitting depository institutions to pay interest on business transaction and other accounts beginning July 21, 2011. To date, the Corporation has not experienced any significant additional interest costs as a result of the repeal;however,the Corporation may begin to incur interest costs associated with certain demand deposits in the future as market conditions warrant.See Item 7A.Quantitative and Qualitative Disclosures About Market Risk elsewhere in this report for information about the expected impact of this legislation on the Corporation's sensitivity to interest rates.Further analysis of the components of the Corporation's net interest margin is presented below. 38 The following table presents the changes in taxable-equivalent net interest income and identifies the changes due to differences in the average volume of earning assets and interest-bearing liabilities and the changes due to changes in the average interest rate on those assets and liabilities.The changes in net interest income due to changes in both average volume and average interest rate have been allocated to the average volume change or the average interest rate change in proportion to the absolute amounts of the change in each.The Corporation's consolidated average balance sheets along with an analysis of taxable-equivalent net interest income are presented in Item 8.Financial Statements and Supplementary Data of this report. 2014 vs.2013 2013 vs.2012 Increase(Decrease)Due Increase(Decrease)Due to Change in to Change in Rate Volume Total Rate Volume Total Interest-bearing deposits $ — $ 3,441 $ 3,441 $ (171) $ 3,155 $ 2,984 Federal funds sold and resell agreements (10) 11 1 16 (38) (22) Securities: Taxable 11,531 (16,317) (4,786) (11,862) (22,697) (34,559) Tax-exempt (6,249) 71,350 65,101 (23,392) 79,027 55,635 Loans,net of unearned discounts (21,052) 46,974 25,922 (22,518) 36,348 13,830 Total earning assets (15,780) 105,459 89,679 (57,927) 95,795 37,868 Savings and interest checking (659) 262 (397) (449) 152 (297) Money market deposit accounts (3,144) 905 (2,239) (3,565) 1,571 (1,994) Time accounts (404) (11) (415) (1,131) (184) (1,315) Public funds (351) (35) (386) (107) 73 (34) Federal funds purchased and repurchase agreements — 13 13 — (19) (19) Junior subordinated deferrable interest debentures (4,324) 386 (3,938) (380) — (380) Subordinated notes payable and other notes (46) — (46) (766) — (766) Federal Home Loan Bank advances — — (1) (1) Total interest-bearing liabilities (8,928) 1,520 (7,408) (6,398) 1,592 (4,806) Net change $ (6,852) $ 103,939 $ 97,087 $ (51,529) $ 94,203 $ 42,674 Taxable-equivalent net interest income for 2014 increased.$97.1 million,or 13.7%,compared to 2013.The increase primarily related to an increase in the average volume of interest-earning assets.The average volume of interest-earning assets for 2014 increased$2.9 billion or 13.7%compared to 2013.The increase in earning assets was primarily due to a$1.3 billion increase in average interest-bearing deposits,a$1.1 billion increase in average loans and a$474.7 million increase in average securities. The increase in the average volume of interest-earning assets during 2014 was partly related to the aforementioned acquisition of WNB during the second quarter of 2014.The Corporation acquired cash and cash equivalents totaling $879.7 million, loans totaling $670.6 million and securities totaling $154.2 million in connection with this acquisition. The net interest margin remained flat at 3.41%during 2014 and 2013.The net interest margin during 2014 was positively impacted by an increase in the average yield on securities,which resulted from an increase in the relative proportion of higher-yielding tax-exempt municipal securities relative to lower-yielding taxable securities,combined with a decrease in the average cost of funds.The net interest margin was negatively impacted by an increase in the relative proportion of average interest-earning assets invested in lower-yielding,interest-bearing deposits during 2014 compared to 2013 while the relative proportion of interest-earning assets invested in higher-yielding securities and loans decreased. The net interest margin was also negatively impacted by a decrease in the average yield on loans. These items are more fully discussed below.The average yield on interest-earning assets decreased 5 basis points to 3.47%during 2014 from 3.52%during 2013 while the average cost of interest-bearing funds decreased 7 basis points from 0.18%during 2013 to 0.11%during 2014.The average yield on interest-earning assets is primarily impacted by changes in market interest rates as well as changes in the volume and relative mix of interest-earning assets.As stated above,market interest rates have remained at historically low levels during the reported periods.The effect of lower average market interest rates during the reported periods on the average yield on average interest-earning assets was partly limited by the aforementioned interest rate swaps on variable-rate loans. 39 Taxable-equivalent net interest income for 2013 increased$42.7 million,or 6.4%,compared to 2012.The increase primarily related to an increase in the average volume of interest-earning assets partly offset by a decrease in the net interest margin.The average volume of interest-earning assets for 2013 increased$2.0 billion or 10.4%compared to 2012.The net interest margin decreased 18 basis points from 3.59%during 2012 to 3.41%during 2013.The decrease in the net interest margin was partly due to an increase in the relative proportion of average interest-earning assets invested in lower-yielding, interest-bearing deposits during 2013 compared to 2012 while the relative proportion of average interest-earning assets invested in higher-yielding securities and loans decreased.The net interest margin was also negatively impacted by a decrease in the average yield on loans.The net interest margin was positively impacted by an increase in the average yield on securities which resulted from an increase in the relative proportion of higher- yielding tax-exempt municipal securities relative to lower-yielding taxable securities.The average yield on interest- earning assets decreased 21 basis points to 3.52% during 2013 from 3.73% during 2012 while the average cost of interest-bearing funds decreased 6 basis points from 0.24%during 2012 to 0.18%during 2013. The average volume of loans increased $1.1 billion, or 11.6%, in 2014 compared to 2013 and increased $772.8 million,or 9.1%,in 2013 compared to 2012.As discussed above,the Corporation acquired$670.6 million in loans in connection with the acquisition of WNB during the second quarter of 2014. Loans made up approximately 43.1%of average interest-earning assets during 2014 compared to 44.0%during 2013 and 44.5%in 2012.Loans generally have significantly higher yields compared to securities,interest-bearing deposits and federal funds sold and resell agreements and,as such,have a more positive effect on the net interest margin.The average yield on loans was 4.34%during 2014 compared to 4.56%during 2013 and 4.82%during 2012.The average yield on loans decreased 22 basis points during 2014 compared to 2013.The average yield on loans was negatively impacted by lower average spreads due to increased competition in loan pricing during 2014 compared to 2013.Furthermore,approximately 7 basis points of the decrease in the average yield on loans during 2014 was related to the aforementioned completion of the amortization of the deferred accumulated gain applicable to the settled interest rate swap contracts in October 2014.The amortization of the deferred accumulated gain positively impacted the Corporation's average yield on loans by 30 basis points in 2014, 40 basis points in 2013 and 45 basis points in 2012. In an effort to offset the loss of the amortization and its positive effect on the Corporation's net interest income,the Corporation utilized$840 million in excess liquidity to purchase municipal securities during the third and fourth quarters of 2014. The higher yields associated with these securities relative to the yield that would have been received had these funds continued to be held as interest-bearing deposits and federal funds sold is expected to replace the revenue stream from the amortization of the deferred accumulated gain applicable to the settled interest rate swaps so that the Corporation's net interest income is not significantly impacted. The average volume of securities increased $474.7 million, or 5.3%, in 2014 compared to 2013 and did not significantly fluctuate during 2013 compared to 2012. Securities made up approximately 39.3%of average interest- earning assets in 2014 compared to 42.4%in 2013 and 47.0%in 2012.The average yield on securities was 3.96%in 2014 compared to 3.48%in 2013 and 3.31%in 2012.The average yield on securities increased 48 basis points during 2014 compared to 2013 as the Corporation increased the relative proportion of investments held in higher-yielding, tax-exempt municipal securities. The relative proportion of higher-yielding,tax-exempt municipal securities to total average securities totaled 52.6%in 2014 compared to 40.7%in 2013 and 27.4%in 2012.The average yield on taxable securities was 2.14% in 2014 compared to 1.90% in 2013 and 2.10%in 2012, while the average taxable-equivalent yield on tax-exempt securities was 5.58%in 2014 compared to 5.75%in 2013 and 6.68%in 2012. Average federal funds sold,resell agreements and interest-bearing deposits during 2014 increased$1.3 billion,or 46.8%,compared to 2013 and increased$1.3 billion,or 77.6%, in 2013 compared to 2012. Federal funds sold,resell agreements and interest-bearing deposits made up approximately 17.6% of average interest-earning assets in 2014 compared to approximately 13.7%in 2013 and 8.5%in 2012.The combined average yield on federal funds sold,resell agreements and interest-bearing deposits was 0.26%in both 2014 and 2013 and 0.27%in 2012.The increases in average federal funds sold,resell agreements and interest-bearing deposits for the periods reported were primarily related to excess liquidity from deposit growth. Average deposits increased$2.8 billion,or 14.5%, in 2014 compared to 2013 and$2.0 billion, or 11.4%, in 2013 compared to 2012.Average deposits in 2014 were impacted by the acquisition of$1.6 billion in deposits in connection with the acquisition of WNB during the second quarter of 2014.Average interest-bearing deposits increased$1.3 billion in 2014 compared to 2013 and $1.3 billion in 2013 compared to 2012, while average non-interest-bearing deposits increased$1.5 billion in 2014 compared to 2013 and$635.8 million in 2013 compared to 2012.The ratio of average interest-bearing deposits to total average deposits was 58.6%in 2014 compared to 60.3%in 2013 and 59.4%in 2012. The average cost of interest-bearing deposits and total deposits was 0.09%and 0.05%in 2014 compared to 0.12%and 0.08%in 2013 and 0.18%and 0.10%in 2012.The decrease in the average cost of interest-bearing deposits during the comparable periods was primarily the result of decreases in interest rates offered on certain deposit products due to 40 decreases in average market interest rates and decreases in renewal interest rates on maturing certificates of deposit given the current low interest rate environment.Additionally,the relative proportion ofhigher-cost certificates of deposit to total average interest-bearing deposits decreased to 7.5%in 2014 from 8.4%in 2013 and 10.0%in 2012. The Corporation's net interest spread,which represents the difference between the average rate earned on earning assets and the average rate paid on interest-bearing liabilities, was 3.36%in 2014 compared to 3.34%in 2013 and 3.49%in 2012.The net interest spread,as well as the net interest margin,will be impacted by future changes in short- term and long-term interest rate levels, as well as the impact from the competitive environment.A discussion of the effects of changing interest rates on net interest income is set forth in Item 7A.Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report. The Corporation's hedging policies permit the use of various derivative financial instruments,including interest rate swaps, swaptions, caps and floors, to manage exposure to changes in interest rates. Details of the Corporation's derivatives and hedging activities are set forth in Note 16-Derivative Financial Instruments in the accompanying notes to consolidated financial statements included elsewhere in this report.Information regarding the impact of fluctuations in interest rates on the Corporation's derivative financial instruments is set forth in Item 7A.Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report. Provision for Loan Losses The provision for loan losses is determined by management as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level which,in management's best estimate, is necessary to absorb probable losses within the existing loan portfolio.The provision for loan losses totaled$16.3 million in 2014 compared to$20.6 million in 2013 and$10.1 million in 2012. See the section captioned"Allowance for Loan Losses"elsewhere in this discussion for further analysis of the provision for loan losses. Non-Interest Income The components of non-interest income were as follows: 2014 2013 2012 Trust and investment management fees $ 106,237 $ 91,375 $ 83,317 Service charges on deposit accounts 81,946 81,432 83,392 Insurance commissions and fees 45,115 43,140 39,948 Interchange and debit card transaction fees 18,372 16,979 16,933 Other charges,commissions and fees 36,180 34,185 30,180 Net gain(loss)on securities transactions 38 1,176 4,314 Other 32,256 34,531 30,703 Total $ 320,144 $ 302,818 $ 288,787 Total non-interest income for 2014 increased $17.3 million, or 5.7%, compared to 2013 while total non-interest income for 2013 increased $14.0 million, or 4.9%, compared to 2012. Changes in the various components of non- interest income are discussed in more detail below. Trust and Investment Management Fees. Trust and investment management fee income for 2014 increased$14.9 million, or 16.3%, compared to 2013 while trust and investment management fee income for 2013 increased $8.1 million, or 9.7%, compared to 2012. Investment fees are the most significant component of trust and investment management fees, making up approximately 75%, 76% and 74%of total trust and investment management fees in 2014,2013 and 2012,respectively.Investment and other custodial account fees are generally based on the market value of assets within a trust account.Volatility in the equity and bond markets impacts the market value of trust assets and the related investment fees. The increase in trust and investment management fee income during 2014 compared to 2013 was primarily the result of an increase in investment fees(up$9.8 million),oil and gas fees(up$2.7 million),estate fees(up$1.4 million)and real estate fees(up$743 thousand).The increase in investment fees during 2014 was partly due to higher average equity valuations during 2014 relative to 2013,business development efforts and a change in the fee schedule beginning in the fourth quarter of 2013.The increase in oil and gas fees during 2014 was partly related to increased mineral production. Estate fees and real estate fees are transactional in nature and can vary from period to period. 41 The increase in trust and investment management fee income during 2013 compared to 2012 was primarily the result of an increase in investment fees(up$7.4 million),oil and gas fees(up$757 thousand)and securities lending income (up$620 thousand)partly offset by a decrease in estate fees(down$532 thousand).The increase in investment fees was partly due to higher average equity valuations during 2013 relative to 2012,the aforementioned change in the fee schedule and an increase in the number of accounts from the comparable period. The increase in securities lending income was partly related to new business and increased loan spreads.The increase in oil and gas fees was partly related to increased mineral production and new lease bonus fees. At December 31,2014,trust assets,including both managed assets and custody assets,were primarily composed of equity securities(46.3%of trust assets),fixed income securities(39.1%of trust assets)and cash equivalents(8.5%of trust assets).The estimated fair value of trust assets was$30.5 billion(including managed assets of$13.0 billion and custody assets of$17.5 billion)at December 31,2014 compared to$29.0 billion(including managed assets of$11.9 billion and custody assets of$17.1 billion)at December 31,2013 and$26.2 billion(including managed assets of$10.9 billion and custody assets of$15.3 billion)at December 31,2012. Service Charges on Deposit Accounts. Service charges on deposit accounts for 2014 increased$514 thousand,or 0.6%,compared to 2013.The increase was primarily due to an increase in service charges on commercial accounts(up $1.5 million) partly offset by decreases in overdraft/insufficient funds charges on consumer accounts (down $782 thousand)and service charges on consumer accounts(down$226 thousand).Service charges on deposit accounts for 2013 decreased$2.0 million,or 2.4%,compared to 2012.The decrease was primarily due to decreases in overdraft/ insufficient funds charges on consumer accounts (down $1.2 million) and service charges on commercial accounts (down$943 thousand).The fluctuations in service charges on commercial accounts during the comparable periods was partly related to fluctuations in service volumes for billable services.Overdraft/insufficient funds charges totaled$32.3 million during 2014 compared to$33.0 million during 2013 and$34.1 million in 2012. Overdraft/insufficient funds charges included$25.0 million,$25.8 million and$27.0 million related to consumer accounts during 2014,2013 and 2012,respectively,and$7.3 million,$7.2 million and$7.1 million related to commercial accounts during 2014,2013 and 2012,respectively. Insurance Commissions and Fees. Insurance commissions and fees for 2014 increased $2.0 million, or 4.6%, compared to 2013 and increased$3.2 million,or 8.0%,in 2013 compared to 2012.The increases were primarily related to increases in commission income(up$2.1 million in 2014 compared to 2013 and$3.2 million in 2013 compared to 2012).The increase in commission income during 2014 was primarily related to an increase in commercial lines property and casualty commissions resulting from new business,the impact of the acquisition of Kolkhorst Insurance Agency during the fourth quarter of 2013 and,to a lesser extent,higher rates,partly offset by decreases in contingent commissions and employee benefit commissions and fees. The decrease in employee benefit commissions and fees (down $131 thousand)during 2014 was partly related to customers electing to early renew policies during the fourth quarter of 2013 as a result of the Affordable Care Act.The increase in commission income during 2013 was largely due to the increase in employee benefit commissions and fees resulting from these early renewals.The increase in commission income in 2013 was also partly related to increases in commercial lines and personal lines property and casualty commissions resulting from normal variation in the market demand for insurance products and rate increases. Insurance commissions and fees include contingent commissions which totaled$3.6 million in 2014 and$3.8 million in both 2013 and 2012. Contingent commissions primarily consist of amounts received from various property and casualty insurance carriers related to the loss performance of insurance policies previously placed. Such commissions are seasonal in nature and are mostly received during the first quarter of each year.These commissions totaled $2.0 million in 2014,$2.2 million in 2013 and$2.1 million in 2012.Contingent commissions also include amounts received from various benefit plan insurance companies related to the volume of business generated and/or the subsequent retention of such business.These commissions totaled$1.6 million in both 2014 and 2013 and$1.7 million in 2012. Interchange and Debit Card Transaction Fees. Interchange fees,or"swipe"fees,are charges that merchants pay to the Corporation and other card-issuing banks for processing electronic payment transactions. Interchange and debit card transaction fees consist of income from check card usage, point of sale income from PIN-based debit card transactions and ATM service fees.Interchange and debit card transaction fees for 2014 increased$1.4 million,or 8.2% compared to 2013 and did not significantly fluctuate in 2013 compared to 2012. Income from debit card transactions totaled approximately $16.0 million in 2014 compared to $14.7 million in 2013 and $14.1 million in 2012. Income from ATM service fees totaled approximately$2.4 million in 2014 compared to$2.3 million in 2013 and$2.8 million in 2012. 42 Federal Reserve rules applicable to financial institutions that have assets of$10 billion or more provide that the maximum permissible interchange fee for an electronic debit transaction is the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction.An upward adjustment of no more than 1 cent to an issuer's debit card interchange fee is allowed if the card issuer develops and implements policies and procedures reasonably designed to achieve certain fraud-prevention standards. The Federal Reserve also has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product. Other Charges, Commissions and Fees. Other charges, commissions and fees for 2014 increased$2.0 million, or 5.8%,compared to 2013.The increase in other charges,commissions and fees during 2014 included increases in wire transfer fees (up $1.6 million), investment banking and capital markets fees related to advisory services (up $1.2 million),loan processing fees(up$658 thousand),income from the sale of mutual funds(up$476 thousand)and unused balance fees on loan commitments (up $418 thousand). These increases were partly offset by decreases in income related to the sale of annuities(down $1.3 million),other service charges(down$632 thousand)and human resources consulting fee income(down$514 thousand).The increase in wire transfer fees during the comparable periods was partly related to a new fee schedule. Investment banking and capital markets advisory services are transactional in nature and,as such,fees for such services can vary significantly from period to period.The increase in commission income related to the sale of mutual funds during the comparable periods reflects customers continued investment in equities as market conditions have continued to improve.The decrease in income related to the sale of annuities was related to a decrease in interest rates and a lower volume of business.The decrease in other service charges during the comparable periods was partly related to a decrease in fees associated with asset based lending services.The decrease in human resources consulting fee income was related to a decline in service volumes. Other charges,commissions and fees for 2013 increased$4.0 million or 13.3%,compared to 2012.The increase in other charges, commissions and fees during 2013 included increases in income related to the sale of annuities (up $1.8 million),income from the sale of mutual funds(up$1.5 million),unused balance fees on loan commitments(up $541 thousand), loan processing fees(up $518 thousand)and referral fees from the Corporation's merchant services payment processor(up$343 thousand).These increases were partly offset by decreases in other service charges(down $349 thousand), investment banking fees related to corporate advisory services (down$219 thousand) and letter of credit fees(down$166 thousand). Net Gain/Loss on Securities Transactions.During 2014,the Corporation sold available-for-sale securities with an amortized cost totaling $12.2 billion and realized a net gain of$38 thousand on those sales. The majority of these securities were primarily purchased during 2014 and subsequently sold in connection with the Corporation's tax planning strategies related to the Texas franchise tax.The gross proceeds from the sales of these securities outside of Texas are included in total revenues/receipts from all sources reported for Texas franchise tax purposes,which results in a reduction in the overall percentage of revenues/receipts apportioned to Texas and subjected to taxation under the Texas franchise tax. The Corporation also sold approximately $2.0 million of municipal securities acquired in connection with the acquisition of WNB during the second quarter of 2014. During 2013,the Corporation realized a net gain of$1.2 million on the sale of available-for-sale securities.During 2013,the Corporation sold certain municipal securities with an amortized cost totaling$29.1 million and realized a net gain of$1.2 million on those sales. The sales were made for the purpose of divesting of certain securities issued by municipalities outside of Texas. The Corporation also sold U.S. Treasury securities with an amortized cost totaling $10.0 billion and realized a net loss of$2 thousand on those sales.These securities were primarily purchased during 2013 and subsequently sold in connection with the Corporation's aforementioned tax planning strategies related to the Texas franchise tax. During 2012,the Corporation realized a net gain of$4.3 million on the sale of available-for-sale securities.During January 2012, the Corporation purchased $996.4 million of U.S. Treasury securities utilizing excess liquidity as a defensive strategy to lock in the yield on those funds in case the Federal Reserve lowered the rate paid on funds deposited in the Corporation's Federal Reserve account. Shortly thereafter,U.S.Treasury prices rallied and the Corporation sold the securities, realizing a $2.1 million gain, and concurrently purchased $998.4 million of U.S. Treasury securities having a shorter term to maturity. In March 2012, U.S. Treasury yields increased and the Corporation sold the aforementioned position in U.S.Treasury securities and recognized a$2.6 million loss.The proceeds were concurrently reinvested in U.S.Treasury securities that had a similar yield to the original,longer-term position purchased in January 2012,but with a shorter term to maturity.During the second quarter of 2012,the Corporation sold a municipal security with an amortized cost totaling$5.6 million and realized a$367 thousand gain on the sale. During the fourth quarter 43 of 2012,the Corporation sold U.S.Treasury securities with an amortized cost totaling$595.6 million and realized a $4.4 million gain on the sale. The Corporation purchased the securities during the fourth quarter of 2012. Shortly thereafter,U.S.Treasury prices rallied and the Corporation sold the securities to capitalize on the gain as management believed the increase in U.S.Treasury prices would be temporary. During 2012,the Corporation also sold available- for-sale securities with an amortized cost totaling$14.0 billion and realized a net gain of$2 thousand on those sales. These securities were primarily purchased during 2012 and subsequently sold in connection with the Corporation's aforementioned tax planning strategies related to the Texas franchise tax. Other Non-Interest Income. Other non-interest income for 2014 decreased$2.3 million,or 6.6%,compared to 2013. Other non-interest income during 2013 included$4.8 million related to the sale of a building and parking garage, as further discussed below.Excluding the impact of the prior-year gain,other non-interest income effectively increased $2.5 million. This effective increase in other non-interest income during 2014 included increases in sundry income from various miscellaneous items (up $2.7 million) and income from securities trading and customer derivatives transactions(up$335 thousand).The increase from these items was partly offset by a decrease in income from public finance underwriting(down$293 thousand). Sundry income from various miscellaneous items during 2014 included $2.4 million related to distributions received on a small business investment company("SBIC")investment,$2.1 million related to recovery of interest on loans charged-off in previous years and$2.0 million in VISA check card incentives related to business volumes.The increase in income from securities trading and customer derivative transactions was primarily related to an increase in customer interest rate swap transaction fees. During the first quarter of 2013,the Corporation realized a$5.6 million gain related to the sale of a building and parking garage.The Corporation leased back portions of the building through the third quarter of 2013 and the first quarter of 2015.As a result,a portion of the gain was deferred and only$4.8 million of the total$5.6 million gain was recognized during 2013. During 2014, other non-interest income included$614 thousand related to the amortization of the deferred gain.The remaining deferred portion of the gain,which totaled$154 thousand at December 31,2014, will be recognized during the first quarter of 2015. Other non-interest income for 2013 increased$3.8 million,or 12.5%,compared to 2012.The increase during 2013 was primarily related to increases in gains on the sale of assets/foreclosed assets (up $5.2 million), mineral interest income (up $950 thousand), income from municipal bond underwriting discounts/fees (up $935 thousand), sundry income from various miscellaneous items(up$790 thousand)and income from customer foreign currency transactions (up approximately $630 thousand). The increase from the aforementioned items was partly offset by a decrease in income from securities trading and customer derivative transactions (down $3.3 million) and earnings on the cash surrender value of life insurance policies (down$935 thousand). The increase in gains on sale of assets/foreclosed assets was primarily related to the aforementioned sale of a building and parking garage. Mineral interest income is related to bonus, rental and shut-in payments and oil and gas royalties received from severed mineral interests on property owned by Main Plaza Corporation,a wholly owned non-banking subsidiary of the Corporation.During 2013, sundry income from various miscellaneous items included a$1.8 million reversal of an accrual related to an acquisition contingency, $1.8 million related to the recovery of interest on loans charged-off in previous years, $553 thousand related to a refund of prior deposit insurance premiums and $312 thousand related to a distribution from a limited partnership investment.The decrease in income from securities trading and customer derivative transactions during 2013 was primarily related to a decrease in customer interest rate swap transaction fees. Non-Interest Expense The components of non-interest expense were as follows: 2014 2013 2012 Salaries and wages $ 292,349 $ 273,692 $ 258,752 Employee benefits 60,151 62,407 57,635 Net occupancy 55,745 50,468 48,975 Furniture and equipment 62,087 58,443 55,279 Deposit insurance 13,232 11,682 11,087 Intangible amortization 3,520 3,141 3,896 Other 167,656 152,077 139,469 Total $ 654,740 $ 611,910 $ 575,093 44 Total non-interest expense for 2014 increased $42.8 million, or 7.0%, compared to 2013 while total non-interest expense for 2013 increased $36.8 million, or 6.4%,compared to 2012. Other non-interest expense during 2014 was particularly impacted by the acquisition of WNB during the second quarter of 2014.Changes in the various components of non-interest expense are discussed below. Salaries and Wages. Salaries and wages increased$18.7 million,or 6.8%,in 2014 compared to 2013 and increased $14.9 million, or 5.8%, in 2013 compared to 2012.The increase during 2014 was primarily related to an increase in the number of employees(partly related to the acquisition of WNB),normal annual merit and market increases,increased overtime and increased stock-based compensation expense. The increase during 2013 was primarily related to an increase in the number of employees, normal annual merit and market increases, increased commissions related to higher insurance revenues and increased incentive compensation expense partly offset by a decrease in stock-based compensation expense and an increase in cost deferrals related to lending activity. Employee Benefits.Employee benefits expense for 2014 decreased$2.3 million,or 3.6%,compared to 2013.The decrease was primarily related to a decrease in expenses related to the Corporation's defined benefit retirement plans (down$4.6 million).The Corporation recognized a combined net periodic pension benefit of$1.8 million on its defined benefit retirement plans during 2014 compared to a combined net periodic pension expense of$2.8 million during 2013.This decrease was partly offset by increases in payroll taxes(up$1.1 million), medical insurance expense(up $834 thousand)and expenses related to the Corporation's 401(k)and profit sharing plans(up$247 thousand). Employee benefits expense for 2013 increased$4.8 million,or 8.3%,compared to 2012.The increase during 2013 was primarily related to increases in expenses related to the Corporation's 401(k) and profit sharing plans (up $690 thousand and $2.1 million, respectively), payroll taxes (up $1.4 million) and medical insurance expense (up $738 thousand) partly offset by a decrease in expenses related to the Corporation's defined benefit retirement plans (down$286 thousand). The Corporation's defined benefit retirement and restoration plans were frozen effective as of December 31,2001 and were replaced by the profit sharing plan.Management believes these actions help reduce the volatility in retirement plan expense.However,the Corporation still has funding obligations related to the defined benefit and restoration plans and could recognize retirement expense related to these plans in future years,which would be dependent on the return earned on plan assets,the level of interest rates and employee turnover.As stated above,the Corporation recognized a net benefit related to the defined benefit retirement and restoration plans totaling$1.8 million in 2014 compared to net expense of$2.8 million in 2013 and a net expense of$3.1 million in 2012. Future expense/benefits related to these plans is dependent upon a variety of factors, including the actual return on plan assets. For additional information related to the Corporation's employee benefit plans, see Note 12-Employee Benefit Plans in the accompanying notes to consolidated financial statements included elsewhere in this report. Net Occupancy.Net occupancy expense for 2014 increased$5.3 million,or 10.5%,compared to 2013.The increase was primarily related to increases in lease expense(up$3.4 million),repairs and maintenance expense(up$1.5 million) and building depreciation(up$356 thousand).The increases in these items were partly related to new leases,increased rental rates and the additional facilities added in connection with the acquisition of WNB. Net occupancy expense for 2013 increased$1.5 million,or 3.0%, compared to 2012.The increase was primarily related to increases in lease expense(up$1.5 million),a decrease in rental income(down$410 thousand),an increase in depreciation on leasehold improvements (up $383 thousand) and a decrease in parking garage income (down $288 thousand).These items were partly offset by a decrease in legal and other professional services expense(down $207 thousand),building depreciation(down$199 thousand)and utilities expense(down$195 thousand),among other things. Furniture and Equipment. Furniture and equipment expense for 2014 increased$3.6 million,or 6.2%,compared to 2013.The increase was primarily related to increases in software maintenance(up$2.7 million),furniture and fixtures depreciation(up$768 thousand)and service contracts expense(up$309 thousand). Furniture and equipment expense for 2013 increased $3.2 million, or 5.7%, compared to 2012.The increase was primarily related to increases in software maintenance(up$1.1 million), software amortization (up$771 thousand), repairs expense (up $455 thousand), furniture and fixtures depreciation (up $420 thousand) and equipment rental expense(up$312 thousand). 45 Deposit Insurance. Deposit insurance expense totaled$13.2 million in 2014 compared to$11.7 million in 2013 and $11.1 million in 2012.The increase in deposit insurance expense during 2014 was primarily related to an increase in assets.The increase in deposit insurance expense during 2013 compared to 2012 was primarily related to an increase in assets,partly offset by the impact of a decrease in the assessment rate. Intangible Amortization. Intangible amortization is primarily related to core deposit intangibles and, to a lesser extent,intangibles related to customer relationships and non-compete agreements.Intangible amortization totaled$3.5 million in 2014 compared to$3.1 million in 2013 and$3.9 million in 2012. The increase in intangible amortization during 2014 compared to 2013 was impacted by the additional amortization related to intangible assets recorded in connection with the acquisition of the Kolkhorst Insurance Agency,Inc.during the fourth quarter of 2013 and the core deposit intangible recorded in connection with the acquisition of WNB during the second quarter of 2014.The impact of this additional amortization was partly offset by the completion of amortization of certain previously recognized intangible assets as well as a reduction in the annual amortization rate of certain previously recognized intangible assets as the Corporation uses an accelerated amortization approach which results in higher amortization rates during the earlier years of the useful lives on intangible assets.The decrease in amortization expense during 2013 compared to 2012 was primarily the result of the completion of amortization of certain intangible assets,as well as a reduction in the annual amortization rate of certain intangible assets.The decreases in amortization were partly offset by the additional amortization related to intangible assets recorded in connection with the acquisition Kolkhorst Insurance Agency,Inc. during the fourth quarter of 2013. See Note 6-Goodwill and Other Intangible Assets in the accompanying notes to consolidated financial statements included elsewhere in this report. Other Non-Interest Expense. Other non-interest expense for 2014 increased$15.6 million,or 10.2%,compared to 2013.The increase was impacted by expenses related to the acquisition of WNB during the second quarter of 2014. See Note 2 - Mergers and Acquisitions in the accompanying notes to consolidated financial statements included elsewhere in this report.Acquisition related expenses included in other non-interest expenses totaled$7.1 million during 2014.Such amounts included$3.5 million in professional services expenses,$1.3 million in severance and$2.3 million in various other expenses.Additionally,during 2013 the Corporation wrote down certain land and other assets totaling $7.2 million.Approximately$6.2 million of this amount was related to the write-down of certain long-term bank-owned property in downtown San Antonio that was made available for sale.Excluding the aforementioned acquisition related expenses during 2014 and the write downs in 2013, other non-interest expense for 2014 effectively increased $17.1 million,or 11.9%.The effective increase during 2014 compared to 2013 was partly related to increases in check card expense (up $4.2 million), sundry and other miscellaneous expenses (up $3.3 million), advertising/promotions expense (up $2.7 million), amortization of net deferred cost related to loan commitments (up $1.9 million), guard services expense(up $842 thousand) and travel, meals and entertainment expense(up $787 thousand), among other things,partly offset by a decrease in professional services expense(down$976 thousand),among other things.During 2014,sundry and other miscellaneous expenses included an accrual of$2.2 million related to a settlement. Other non-interest expense for 2013 increased$12.6 million,or 9.0%,compared to 2012.The increase during 2013 was primarily related to the aforementioned write-down of certain land and other assets totaling$7.2 million during the first quarter of 2013.Additionally,other components of other non-interest expense with significant increases during 2013 included professional services expense(up $3.8 million),ATM expense(up $3.4 million), check card expense (up$1.6 million)and travel,meals and entertainment expense(up$522 thousand).The increases in the aforementioned items were partly offset by decreases in sundry losses from various miscellaneous items(down$1.0 million),advertising/ promotions/public relations expense (down $962 thousand), amortization of net deferred costs related to loan commitments (down $665 thousand) and regulatory examination fees (down$373 thousand). In 2013, professional services expense included$1.3 million and travel,meals and entertainment expense included$130 thousand in costs related to the then pending acquisition of WNB Bancshares.The increase in ATM expense was related to a branding arrangement entered into in 2012 to be the exclusive cash-machine provider for CST Brands, Inc. Corner Stores in Texas that more than doubled the number of ATM machines the Corporation operated.Advertising/promotions expenses were higher in 2012 in part due to an expanded marketing campaign that began in 2011. 46 Results of Segment Operations The Corporation's operations are managed along two operating segments: Banking and Frost Wealth Advisors.A description of each business and the methodologies used to measure financial performance is described in Note 19- Operating Segments in the accompanying notes to consolidated financial statements included elsewhere in this report. Net income(loss)by operating segment is presented below: 2014 2013 2012 Banking $ 259,457 $ 226,783 $ 229,312 Frost Wealth Advisors 21,232 15,653 14,198 Non-Banks (2,712) (4,570) (5,558) Consolidated net income $ 277,977 $ 237,866 $ 237,952 Banking Net income for 2014 increased$32.7 million,or 14.4%,compared to 2013.The increase was primarily the result of a $62.2 million increase in net interest income, a $4.3 million decrease in the provision for loan losses and a $3.1 million increase in non-interest income partly offset by a$35.9 million increase in non-interest expense and a $1.1 million increase in income tax expense.Net income for 2013 decreased$2.5 million,or 1.1%,compared to 2012. The decrease was primarily the result of a$28.6 million increase in non-interest expense and a$10.5 million increase in the provision for loan losses partly offset by a$18.3 million decrease in income tax expense,a$16.0 million increase in net interest income and a$2.3 million increase in non-interest income. Net interest income for 2014 increased$62.2 million,or 10.0%, compared to 2013 while net interest income for 2013 increased $16.0 million, or 2.6%, compared to 2012. The increases were primarily related to increases in the average volume of interest-earning assets.The increase in 2013 compared to 2012 was partly limited by a decrease in the net interest margin.See the analysis of net interest income included in the section captioned"Net Interest Income" included elsewhere in this discussion. The provision for loan losses for 2014 totaled$16.3 million compared to$20.6 million in 2013 and$10.1 million in 2012.See the analysis of the provision for loan losses included in the section captioned"Allowance for Loan Losses" included elsewhere in this discussion. Non-interest income for 2014 increased$3.1 million,or 1.6%,compared to 2013.The increase was primarily related to increases in other charges, commissions and fees, insurance commissions and fees, interchange and debit card transaction fees and service charges on deposit accounts partly offset by decreases in other non-interest income and the net gain on securities transactions.The increase in other charges, commissions and fees was primarily related to increases in wire transfer fees,investment banking and capital markets fees related to advisory services,loan processing fees and unused balance fees on loan commitments partly offset by decreases in other service charges and human resources consulting fee income.The increase in insurance commissions and fees was primarily related to increases in commercial lines property and casualty commissions resulting from new business, the impact of the acquisition of Kolkhorst Insurance Agency during the fourth quarter of 2013 and, to a lesser extent, higher rates, partly offset by decreases in contingent commissions and employee benefit commissions and fees. The increase in interchange and debit card transaction fees was primarily due to an increase in income from check card usage and an increase in income from ATM service fees partly offset by a decrease in point of sale income from PIN-based debit card transactions.The increase in service charges on deposit accounts was primarily due to an increase in service charges on commercial accounts partly offset by decreases in overdraft/insufficient funds charges on consumer accounts and service charges on consumer accounts.The decrease in other non-interest income was primarily related to a non-recurring gain realized on the sale of a building and parking garage during 2013. See the analysis of these categories of non-interest income included in the section captioned"Non-Interest Income"included elsewhere in this discussion. Non-interest income for 2013 increased$2.3 million,or 1.2%,compared to 2012.The increase was primarily due to increases in other non-interest income, insurance commissions and fees and other charges, commissions and fees partly offset by a decrease in the net gain on securities transactions and a decrease in service charges on deposits.The increase in other non-interest income was primarily related to a gain realized on the sale of a building and parking garage.The increase in insurance commissions and fees was primarily due to increased commission income in large part due to an increase in employee benefit commissions and fees and,to a lesser extent,increases in commercial lines and personal lines property and casualty commissions resulting from normal variation in the market demand for 47 insurance products and rate increases.The decrease in service charges on deposit accounts was mostly due to a decrease in overdraft/insufficient funds charges on consumer accounts and a decrease in service charges on commercial accounts. See the analysis of these categories of non-interest income included in the section captioned"Non-Interest Income" included elsewhere in this discussion. Non-interest expense for 2014 increased$35.9 million,or 7.0%,compared to 2013.The increase was primarily due to increases in salaries and wages, other non-interest expense, net occupancy, furniture and equipment expense and deposit insurance expense partly offset by a decrease in employee benefits expense.The increase in salaries and wages was primarily related to an increase in the number of employees(partly related to the acquisition of WNB), normal annual merit and market increases,increased overtime and increased stock-based compensation expense.The increase in other non-interest expense was partly related to increases in check card expense; sundry and other miscellaneous expenses;advertising/promotion expense;amortization of net deferred cost related to loan commitments;guard expense; and travel,meals and entertainment expense,among other things.The increase in net occupancy expense was primarily related to increases in lease expense,repairs and maintenance expense and building depreciation.Net occupancy expense was also partly impacted by the additional facilities added in connection with the acquisition of WNB during the second quarter of 2014. The increase in furniture and equipment expense was primarily related to increases in software maintenance,furniture and fixtures depreciation and service contracts expense.See the analysis of these items included in the section captioned"Non-Interest Expense"included elsewhere in this discussion. Non-interest expense for 2013 increased$28.6 million,or 5.9%,compared to 2012.The increase during 2013 was primarily due to increases in salaries and wages and employee benefits, other non-interest expense, furniture and equipment expense and net occupancy expense.The increase in salaries and wages was primarily related to normal annual merit and market increases,increased commissions related to higher insurance revenues and increased incentive compensation partly offset by a decrease in stock-based compensation expense and an increase in cost deferrals related to lending activity.The increase in employee benefits expense was primarily related to increases in expenses related to the Corporation's 401(k)and profit sharing plans,payroll taxes and medical insurance expense.The increase in other non-interest expense during 2013 was primarily related to the write-down of certain land and other assets during the first quarter of 2013,the majority of which was related to the write-down of certain long-term bank-owned property in downtown San Antonio that was made available for sale.Other non-interest expense during 2013 was also impacted by increases in professional services expense,ATM expense and overhead cost allocations,among other things.The increase in furniture and equipment expense was primarily due to increases in software maintenance, software amortization, repairs expense, furniture and fixtures depreciation and equipment rental expense. The increase in net occupancy was primarily related to increases in lease expense,a decrease in rental income,an increase in depreciation on leasehold improvements and a decrease in parking garage income. See the analysis of these items included in the section captioned"Non-Interest Expense"included elsewhere in this discussion. Income tax expense for 2014 increased$1.1 million, or 2.1%, compared to 2013. The increase was related to an increase in pre-tax net income partly offset by a decrease in the effective tax rate.Income tax expense for 2013 decreased $18.3 million,or 26.4%,compared to 2012.The decrease was related to a decrease in pre-tax net income combined with a decrease in the effective tax rate.See the section captioned"Income Taxes"included elsewhere in this discussion. Frost Insurance Agency, which is included in the Banking operating segment, had gross commission revenues of $45.8 million during 2014 compared to$43.8 million during 2013 and$40.6 million in 2012. Insurance commission revenues increased$2.0 million,or 4.6%,during 2014 compared to 2013 and increased$3.2 million,or 7.9%,during 2013 compared to 2012. See the analysis of insurance commissions and fees included in the section captioned"Non- Interest Income"included elsewhere in this discussion.Frost Insurance Agency also had consulting revenues totaling $1.0 million during 2014, $1.5 million during 2013 and$1.7 million during 2012. Consulting revenues are primarily related to human resources consulting services and are reported as a component of other charges, commissions and fees. Frost Wealth Advisors Net income for 2014 increased $5.6 million, or 35.6%, compared to 2013. The increase was primarily due to a $14.5 million increase in non-interest income partly offset by a$6.2 million increase in non-interest expense and a $2.9 million increase in income tax expense.Net income for 2013 increased$1.5 million,or 10.2%,compared to 2012. The increase was primarily due to a$11.2 million increase in non-interest income partly offset by a$7.4 million increase in non-interest expense, a $1.4 million decrease in net interest income and a$917 thousand increase in income tax expense. 48 Net interest income for 2014 increased $148 thousand, or 2.2%, compared to 2013. The increase was due to an increase in the average volume of funds provided due to an increase in the average volume of Frost Wealth Advisor's repurchase agreements.Net interest income for 2013 decreased$1.4 million,or 17.8%,compared to 2012.The decrease was partly due to a decrease in the funds transfer price received for providing funds. Non-interest income for 2014 increased $14.5 million, or 13.5%, compared to 2013.The increase was primarily related to an increase in trust and investment management fees.Trust and investment management fee income is the most significant income component for Frost Wealth Advisors.Investment fees are the most significant component of trust and investment management fees, making up approximately 75%, 76%and 74%of total trust and investment management fees in 2014,2013 and 2012,respectively.Investment and other custodial account fees are generally based on the market value of assets within a trust account.Volatility in the equity and bond markets impacts the market value of trust assets and the related investment fees. The increase in trust and investment management fee income during 2014 was primarily the result of an increase in investment fees,oil and gas fees, estate fees and real estate fees.The increase in investment fees was primarily due to higher average equity valuations during 2014,business development efforts and a change in the fee schedule beginning in the fourth quarter of 2013.See the analysis of trust and investment management fees included in the section captioned"Non-Interest Income"included elsewhere in this discussion. Non-interest income for 2013 increased$11.2 million,or 11.6%,compared to 2012.The increase was primarily due to increases in trust and investment management fees and increases in other charges,commissions and fees.The increase in trust and investment management fee income was primarily the result of an increase in investment fees,oil and gas trust management fees and securities lending income.The increase in other charges,commissions and fees was primarily due to an increase in income related to the sale of annuities and mutual funds. See the analysis of trust and investment management fees and other charges, commissions and fees included in the section captioned"Non-Interest Income" included elsewhere in this discussion. Non-interest expense for 2014 increased$6.2 million,or 6.9%,compared to 2013.The increase was primarily due to increases in other non-interest expense(up$4.4 million),and salaries and wages(up$1.6 million).The increase in other non-interest expense was related to increases in various miscellaneous categories of expense and overhead cost allocations.The increase in salaries and wages were primarily related to normal annual merit and market increases. Non-interest expense for 2013 increased$7.4 million,or 8.9%,compared to 2012.The increase was primarily due to an increase in salaries and wages (up $4.3 million), other non-interest expense (up $2.2 million) and employee benefits(up$752 thousand).The increases in salaries and wages were primarily related to normal annual merit and market increases.The increase in other non-interest expense was related to an increase in professional services expense as well as increases in various miscellaneous categories of expense and overhead cost allocation. The increase in employee benefits was related to increased payroll taxes,401(k)and profit sharing plan expenses and medical insurance expense. Non-Banks The Non-Banks operating segment had a net loss of$2.7 million for 2014 compared to a net loss of$4.6 million in 2013.The decrease in net loss was primarily due to a$4.0 million decrease in net interest expense partly offset by a $1.1 million decrease in income tax benefit and a$729 thousand increase in non-interest expense.The decrease in net interest expense was primarily related to a decrease in the interest rate paid on the Corporation's junior subordinated deferrable interest debentures as a result of the termination of an interest rate swap on the debentures in December of 2013. See Note 9- Derivative Financial Instruments in the accompanying notes to consolidated financial statements included elsewhere in this report for additional information related to the interest rate swap.The decrease in the income tax benefit was primarily due to a decrease in the pre-tax net loss.The increase in non-interest expense was primarily related to expenses associated with the acquisition of WNB which included approximately $3.0 million, primarily related to professional services,that were included in the non-banks segment.(See Note 2-Mergers and Acquisitions). The Non-Banks segment had a net loss of$4.6 million in 2013,decreasing$988 thousand,or 17.8%,compared to $5.6 million in 2012.The decrease in the net loss during 2013 was primarily due to a decrease in net interest expense (down$1.1 million),an increase in non-interest income(up$522 thousand)and an increase in the net income tax benefit (up$170 thousand), partly offset by an$822 thousand increase in non-interest expense.The decrease in net interest expense was related to a decrease in the interest rate paid on the Corporation's $100 million fixed-to-floating rate subordinated notes, which changed to a floating interest rate during the first quarter of 2012. The increase in non- interest income was primarily related to increased mineral interest income related to bonus,rental and shut-in payments and oil and gas royalties received from severed mineral interests on property owned by Main Plaza Corporation, a 49 wholly-owned non-banking subsidiary of the Corporation.The increase in non-interest expense was primarily related to an increase in professional services expense which included$1.3 million in costs incurred during the third and fourth quarters of 2013 associated with the then pending acquisition of WNB. Income Taxes The Corporation recognized income tax expense of$58.0 million,for an effective tax rate of 17.3%,in 2014 compared to$53.0 million,for an effective tax rate of 18.2%,in 2013 and$70.5 million,for an effective rate of 22.9%,in 2012. The effective income tax rates differed from the U.S. statutory rate of 35%during the comparable periods primarily due to the effect of tax-exempt income from loans,securities and life insurance policies.The decline in the effective tax rate since 2012 is partly related to an increase in the relative proportion of tax-exempt income as the Corporation purchased additional tax-exempt municipal securities. Sources and Uses of Funds The following table illustrates, during the years presented,the mix of the Corporation's funding sources and the assets in which those funds are invested as a percentage of the Corporation's average total assets for the period indicated. Average assets totaled$25.8 billion in 2014 compared to$22.8 billion in 2013 and$20.8 billion in 2012. 2014 2013 2012 Sources of Funds: Deposits: Non-interest-bearing 35.4% 33.6% 33.7% Interest-bearing 50.2 51.0 49.3 Federal funds purchased and repurchase agreements 2.2 2.4 2.9 Long-term debt and other borrowings 0.9 1.0 1.1 Other non-interest-bearing liabilities 0.8 1.2 1.6 Equity capital 10.5 10.8 11.4 Total 100.0% 100.0% 100.0% Uses of Funds: Loans 40.0% 40.6% 40.6% Securities 36.4 39.1 42.9 Federal funds sold,resell agreements and interest-bearing deposits 16.3 12.6 7.8 Other non-interest-earning assets 7.3 7.7 8.7 Total 100.0% 100.0% 100.0% Deposits continue to be the Corporation's primary source of funding.Average deposits increased$2.8 billion, or 14.5%,in 2014 compared to 2013 and$2.0 billion,or 11.4%in 2013 compared to 2012.Average deposits in 2014 were impacted by the acquisition of$1.6 billion in deposits in connection with the acquisition of WNB during the second quarter of 2014.Non-interest-bearing deposits remain a significant source of funding,which has been a key factor in maintaining the Corporation's relatively low cost of funds.Average non-interest-bearing deposits totaled 41.4%of total average deposits in 2014 compared to 39.7%in 2013, and 40.6%in 2012.The Dodd-Frank Act repealed the federal prohibitions on the payment of interest on demand deposits,thereby permitting depository institutions to pay interest on business transaction and other accounts beginning July 21,2011.To date,the Corporation has not experienced any significant additional interest costs as a result of the repeal;however,the Corporation may begin to incur interest costs associated with certain demand deposits in the future as market conditions warrant,in which case,the relative proportion of non-interest-bearing deposits to total deposits would be expected to decrease. The Corporation primarily invests funds in loans and securities. Loans continue to be a large component of the Corporation's mix of invested assets.Average loans increased$1.1 billion, or 11.6%, in 2014 compared to 2013 and increased$772.8 million,or 9.1%in 2013 compared to 2012.Average securities increased$474.7 million,or 5.3%,in 2014 compared to 2013 and increased$49.5 million,or 0.6%,in 2013 compared to 2012.Average federal funds sold, resell agreements and interest-bearing deposits increased$1.3 billion,or 46.8%,in 2014 compared to 2013 and increased $1.3 billion, or 77.6%, in 2013 compared to 2012. The Corporation acquired cash and cash equivalents totaling $879.7 million,loans totaling$670.6 million and securities totaling$154.2 million in connection with the acquisition of WNB during the second quarter of 2014. 50 Loans Year-end loans were as follows: Percentage 2014 of Total 2013 2012 2011 2010 Commercial and industrial: Commercial $ 5,429,206 49.4% $4,587,499 $4,550,077 $3,723,455 $3,602,215 Leases 338,537 3.1 319,577 278,535 193,412 186,443 Total commercial and industrial 5,767,743 52.5 4,907,076 4,828,612 3,916,867 3,788,658 Commercial real estate: Commercial mortgages 3,080,202 28.0 2,800,760 2,495,481 2,383,479 2,374,542 Construction 629,988 5.7 426,639 608,306 434,870 593,273 Land 291,907 2.7 239,937 216,008 202,478 234,952 Total commercial real estate 4,002,097 36.4 3,467,336 3,319,795 3,020,827 3,202,767 Consumer real estate: Home equity loans 342,725 3.1 329,853 310,675 282,244 275,806 Home equity lines of credit 220,128 2.0 195,132 186,522 191,960 186,465 Other 286,198 2.6 283,219 280,150 288,605 335,993 Total consumer real estate 849,051 7.7 808,204 777,347 762,809 798,264 Total real estate 4,851,148 44.1 4,275,540 4,097,142 3,783,636 4,001,031 Consumer and other: Consumer installment 385,479 3.5 350,827 311,310 301,518 319,384 Other 8,122 0.1 7,289 8,435 11,018 28,234 Total consumer and other 393,601 3.6 358,116 319,745 312,536 347,618 Unearned discounts (24,957) (0.2) (25,032) (21,651) (17,910) (20,287) Total $10,987,535 100.0% $9,515,700 $9,223,848 $7,995,129 $8,117,020 Overview.Year-end total loans increased$1.5 billion,or 15.5%,during 2014 compared to 2013, increased$291.9 million,or 3.2%during 2013 compared to 2012,increased$1.2 billion,or 15.4%during 2012 compared to 2011 and decreased$121.9 million,or 1.5%during 2011 compared to 2010.The Corporation acquired$670.6 million of loans in connection with the acquisition of WNB during the second quarter of 2014. The majority of the Corporation's loan portfolio is comprised of commercial and industrial loans and real estate loans.Commercial and industrial loans made up 52.5%and 51.6%of total loans at December 31,2014 and 2013 while real estate loans made up 44.1%and 44.9%of total loans at December 31,2014 and 2013. Real estate loans include both commercial and consumer balances. Loan Origination/Risk Management. The Corporation has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk.Management reviews and approves these policies and procedures on a regular basis.A reporting system supplements the review process by providing management with frequent reports related to loan production,loan quality,concentrations of credit,loan delinquencies and non-performing and potential problem loans.Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions. See Note 4-Loans in the accompanying notes to consolidated financial statements included elsewhere in this report for further details of the Corporation's policies and procedures related to loan origination and risk management. Commercial and Industrial Loans.Commercial and industrial loans increased$860.7 million,or 17.5%,during 2014 compared to 2013 and$78.5 million, or 1.6%, from in 2013 compared to 2012.At December 31,2012, commercial and industrial loans included$95.3 million related to an overdraft by a correspondent bank customer. The overdraft cleared subsequent to year-end.Excluding the effect of this overdraft,commercial and industrial loans increased$173.8 million,or 3.6%,in 2013 compared to 2012.The Corporation acquired approximately$437.0 million of commercial and industrial loans in connection with the acquisition of WNB.This amount included approximately$319.1 million in energy-related loans, which was partly responsible for the increased concentration of such loans as shown in the table below in the section captioned"Industry Concentrations."The Corporation's commercial and industrial loans are 51 a diverse group of loans to small, medium and large businesses. The purpose of these loans varies from supporting seasonal working capital needs to term financing of equipment. While some short-term loans may be made on an unsecured basis, most are secured by the assets being financed with collateral margins that are consistent with the Corporation's loan policy guidelines.The commercial and industrial loan portfolio also includes the commercial lease and purchased shared national credits("SNCs"),which are discussed in more detail below. Industry Concentrations.As of December 31,2014 and 2013,other than energy loans,there were no concentrations of loans within any single industry in excess of 10%of total loans,as segregated by Standard Industrial Classification code ("SIC code"). The SIC code system is a federally designed standard industrial numbering system used by the Corporation to categorize loans by the borrower's type of business. The following table summarizes the industry concentrations of the Corporation's loan portfolio,as segregated by SIC code. Industry concentrations are stated as a percentage of year-end total loans as of December 31,2014 and 2013 are presented below: 2014 2013 Industry concentrations: Energy 16.1% 11.7% Medical services 5.0 5.7 Public finance 5.0 5.6 Manufacturing,other 3.8 3.2 General and specific trade contractors 3.5 2.7 Services 2.7 2.8 Religion 2.5 2.9 Legal services 2.2 2.6 Transportation 2.1 2.6 Automobile dealers 2.1 2.3 Insurance 2.1 2.1 All other(36 categories in 2014 and 2013) 52.9 55.8 Total loans 100.0% 100.0% The Corporation's largest concentration in any single industry is in energy.Year-end energy loans were as follows: 2014 2013 Energy loans: Production $ 1,067,971 $ 616,893 Service 319,122 236,766 Private client 214,631 192,197 Transportation 85,508 23,281 Manufacturing 76,687 31,507 Refining 7,439 5,303 Traders 2,587 9,462 Total energy loans $ 1,773,945 $ 1,115,409 Large Credit Relationships.The market areas served by the Corporation include three of the top ten most populated cities in the United States.These market areas are also home to a significant number of Fortune 500 companies.As a result,the Corporation originates and maintains large credit relationships with numerous commercial customers in the ordinary course of business.The Corporation considers large credit relationships to be those with commitments equal to or in excess of$10.0 million,excluding treasury management lines exposure,prior to any portion being sold.Large relationships also include loan participations purchased if the credit relationship with the agent is equal to or in excess of$10.0 million. In addition to the Corporation's normal policies and procedures related to the origination of large credits,the Corporation's Central Credit Committee(CCC)must approve all new and renewed credit facilities which are part of large credit relationships.The CCC meets regularly and reviews large credit relationship activity and discusses the current pipeline,among other things. 52 The following table provides additional information on the Corporation's large credit relationships outstanding at year-end. 2014 2013 Number of Period-End Balances Number of Period-End Balances Relationships Committed Outstanding Relationships Committed Outstanding Committed amount: $20.0 million and greater 207 $ 8,256,802 $ 4,183,110 178 $ 6,859,052 $ 3,283,355 $10.0 million to$19.9 million 180 2,528,186 1,483,055 165 2,267,864 1,307,519 The average commitment per large credit relationship in excess of $20.0 million totaled $39.9 million at December 31, 2014 and $38.5 million at December 31, 2013. The average outstanding balance per large credit relationship with a commitment in excess of$20.0 million totaled$20.2 million at December 31,2014 and$18.4 million at December 31,2013.The average commitment per large credit relationship between$10.0 million and$19.9 million totaled$14.0 million at December 31,2014 and$13.7 million at December 31,2013.The average outstanding balance per large credit relationship with a commitment between $10 million and $19.9 million totaled $8.2 million at December 31,2014 and$7.9 million at December 31,2013. Purchased Shared National Credits. Purchased SNCs are participations purchased from upstream financial organizations and tend to be larger in size than the Corporation's originated portfolio. The Corporation's purchased SNC portfolio totaled$738.2 million at December 31,2014 increasing$152.0 million,or 25.9%,from$586.2 million at December 31,2013.At December 31,2014,63.8%of outstanding purchased SNCs were related to the energy industry. The remaining purchased SNCs were diversified throughout various other industries, with no other single industry exceeding 10%of the total purchased SNC portfolio.Additionally,almost all of the outstanding balance of purchased SNCs was included in the commercial and industrial portfolio,with the remainder included in the real estate categories. SNC participations are originated in the normal course of business to meet the needs of the Corporation's customers. As a matter of policy,the Corporation generally only participates in SNCs for companies headquartered in or which have significant operations within the Corporation's market areas.In addition,the Corporation must have direct access to the company's management,an existing banking relationship or the expectation of broadening the relationship with other banking products and services within the following 12 to 24 months. SNCs are reviewed at least quarterly for credit quality and business development successes.The following table provides additional information about certain credits within the Corporation's purchased SNCs portfolio as of year-end. 2014 2013 Number of Period-End Balances Number of Period-End Balances Relationships Committed Outstanding Relationships Committed Outstanding Purchased shared national credits: $20.0 million and greater 48 $ 1,622,974 $ 619,418 40 $ 1,329,601 $ 451,306 $10.0 million to$19.9 million 12 182,620 93,775 15 224,354 114,297 Real Estate Loans. Real estate loans totaled$4.9 billion at December 31,2014 increasing$575.6 million,or 13.5%, compared to$4.3 billion at December 31,2013.The Corporation acquired approximately$227.9 million of real estate loans (including approximately $135.4 million of commercial real estate, approximately $73.2 million of real estate construction and approximately $19.3 million of consumer real estate) in connection with the acquisition of WNB. Real estate loans include both commercial and consumer balances.Commercial real estate loans totaled$4.0 billion, or 82.5% of total real estate loans, at December 31, 2014 and $3.5 billion, or 81.1% of total real estate loans, at December 31,2013.The majority of this portfolio consists of commercial real estate mortgages,which includes both permanent and intermediate term loans.The Corporation's primary focus for the commercial real estate portfolio has been growth in loans secured by owner-occupied properties.These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Consequently, these loans must undergo the analysis and underwriting process of a commercial and industrial loan,as well as that of a real estate loan. 53 The following tables summarize the Corporation's commercial real estate loan portfolio, as segregated by (i)the type of property securing the credit and(ii)the geographic region in which the loans were originated. Property type concentrations are stated as a percentage of year-end total commercial real estate loans as of December 31,2014 and 2013: 2014 2013 Property type: Office building 17.1% 17.1% Office/warehouse 16.4 15.2 Non-farm/non-residential 8.8 7.4 Medical offices and services 7.3 9.2 Religious 6.4 7.6 Multifamily 6.0 6.8 1-4 Family 5.3 4.9 Retail 5.2 4.6 All other 27.5 27.2 Total commercial real estate loans 100.0% 100.0% Geographic region: San Antonio 26.0% 24.7% Fort Worth 20.7 23.9 Houston 17.9 19.3 Dallas 13.2 12.5 Austin 9.3 10.0 Rio Grande Valley 4.9 5.6 Permian Basin 4.8 Corpus Christi 3.2 4.0 Total commercial real estate loans 100.0% 100.0% Consumer Loans.The consumer loan portfolio,including all consumer real estate,increased$75.5 million,or 6.5%, from December 31, 2013.As the following table illustrates, the consumer loan portfolio has two distinct segments, including consumer real estate and consumer installment. 2014 2013 Consumer real estate: Home equity loans $ 342,725 $ 329,853 Home equity lines of credit 220,128 195,132 Other 286,198 283,219 Total consumer real estate 849,051 808,204 Consumer installment 385,479 350,827 Total consumer loans $ 1,234,530 $ 1,159,031 Consumer real estate loans, increased$40.8 million, or 5.1%, from December 31, 2013. Combined, home equity loans and lines of credit made up 66.3%and 65.0%of the consumer real estate loan total at December 31,2014 and 2013,respectively.The Corporation offers home equity loans up to 80%of the estimated value of the personal residence of the borrower, less the value of existing mortgages and home improvement loans. In general,the Corporation does not originate 1-4 family mortgage loans;however,from time to time,the Corporation may invest in such loans to meet the needs of its customers. The consumer installment loan portfolio primarily consists of automobile loans,unsecured revolving credit products, personal loans secured by cash and cash equivalents,and other similar types of credit facilities. Foreign Loans.The Corporation makes U.S.dollar-denominated loans and commitments to borrowers in Mexico. The outstanding balance of these loans and the unfunded amounts available under these commitments were not significant at December 31,2014 or 2013. 54 Maturities and Sensitivities of Loans to Changes in Interest Rates. The following table presents the maturity distribution of the Corporation's commercial and industrial loans(excluding leases),real estate construction loans and commercial real estate loans at December 31,2014.The table also presents the portion of loans that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index such as the prime rate or LIBOR. Due in After One, One Year but Within After or Less Five Years Five Years Total Commercial and industrial $ 2,669,919 $ 2,258,621 $ 500,666 $ 5,429,206 Real estate construction 159,264 317,925 152,799 629,988 Commercial real estate 525,127 1,567,545 1,279,437 3,372,109 Total $ 3,354,310 $ 4,144,091 $ 1,932,902 $ 9,431,303 Loans with fixed interest rates $ 1,137,840 $ 1,131,542 $ 895,399 $ 3,164,781 Loans with floating interest rates 2,216,470 3,012,549 1,037,503 6,266,522 Total $ 3,354,310 $ 4,144,091 $ 1,932,902 $ 9,431,303 The Corporation generally structures commercial loans with shorter-term maturities in order to match the Corporation's funding sources and to enable the Corporation to effectively manage the loan portfolio by providing the flexibility to respond to liquidity needs, changes in interest rates and changes in underwriting standards and loan structures, among other things. Due to the shorter-term nature of such loans, from time to time and in the ordinary course of business, the Corporation will renew/extend maturing lines of credit or refinance existing loans at their maturity dates.Some loans may renew multiple times in a given year as a result of general customer practice and need. These renewals,extensions and refinancings are made in the ordinary course of business for customers that meet the Corporation's normal level of credit standards. Such borrowers typically request renewals to support their on-going working capital needs to finance their operations. Such borrowers are not experiencing financial difficulties and generally could obtain similar financing from another financial institution.In connection with each renewal,extension or refinancing,the Corporation may require a principal reduction,adjust the rate of interest and/or modify the structure and other terms to reflect the current market pricing/structuring for such loans or to maintain competitiveness with other financial institutions. In such cases,the Corporation does not generally grant concessions,and,except for those reported in Note 4 - Loans, any such renewals, extensions or refinancings that occurred during the reported periods were not deemed to be troubled debt restructurings pursuant to applicable accounting guidance. Loans exceeding $1.0 million undergo a complete underwriting process at each renewal. 55 Non-Performing Assets and Potential Problem Loans Non-Performing Assets.Year-end non-performing assets and accruing past due loans were as follows: 2014 2013 2012 2011 2010 Non-accrual loans: Commercial and industrial $ 34,744 $ 26,733 $ 46,308 $ 43,874 $ 60,408 Real estate 24,643 29,242 42,504 49,736 76,270 Consumer and other 538 745 932 728 462 Total non-accrual loans 59,925 56,720 89,744 94,338 137,140 Restructured loans - 1,137 - - - Foreclosed assets: Real estate 5,251 11,916 15,152 26,608 27,339 Other - - 350 - 471 Total foreclosed assets 5,251 11,916 15,502 26,608 27,810 Total non-performing assets $ 65,176 $ 69,773 $ 105,246 $ 120,946 $ 164,950 Ratio of non-performing assets to: Total loans and foreclosed assets 0.59% 0.73% 1.14% 1.51% 2.03% Total assets 0.23 0.29 0.46 0.60 0.94 Accruing past due loans: 30 to 89 days past due $ 42,881 $ 31,297 $ 35,969 $ 42,463 $ 55,045 90 or more days past due 20,941 7,635 6,994 17,417 26,922 Total accruing past due loans $ 63,822 $ 38,932 $ 42,963 $ 59,880 $ 81,967 Ratio of accruing past due loans to total loans: 30 to 89 days past due 0.39% 0.33% 0.39% 0.53% 0.68% 90 or more days past due 0.19 0.08 0.08 0.22 0.33 Total accruing past due loans 0.58% 0.41% 0.47% 0.75% 1.01% Non-performing assets include non-accrual loans,trouble debt restructurings and foreclosed assets.Non-performing assets at December 31,2014 decreased$4.6 million from December 31,2013.While down in 2014 and 2013,in general, the level of non-performing assets in previous years was reflective of the weaker economic conditions which began in the latter part of 2008. Non-accrual commercial and industrial loans included one credit relationship in excess of $5 million totaling$15.5 million at December 31, 2014 and one credit relationships in excess of$5 million totaling $6.3 million at December 31, 2013.Non-accrual real estate loans primarily consist of land development, 1-4 family residential construction credit relationships and loans secured by office buildings and religious facilities.Non-accrual commercial real estate loans included one credit relationships in excess of $5 million totaling $5.6 million at December 31, 2014 and one credit relationship in excess of$5 million totaling $7.3 million at December 31, 2013. One credit relationship totaling$5.6 million at December 31,2014 and$7.9 million at December 31,2013 was included in both non-accrual commercial and industrial loans ($2.7 million at December 31, 2014 and $4.7 million at December 31,2013)and non-accrual commercial real estate loans($2.9 million at December 31,2014 and$3.2 million at December 31,2013). Non-accrual commercial and industrial loans included three credit relationships in excess of$5 million totaling $27.8 million at December 31, 2012, two credit relationships in excess of $5 million totaling $17.3 million at December 31,2011 and three credit relationships in excess of$5 million totaling$25.8 million at December 31,2010. Non-accrual commercial real estate loans included two credit relationships in excess of$5 million totaling$18.2 million at December 31,2012 and one credit relationship in excess of$5 million totaling$5.8 million at December 31,2011. Approximately$15.0 million of the non-accrual commercial and industrial loans and$12.6 million of the non-accrual commercial real estate loans at December 31, 2012 pertained to the same customer. Non-accrual commercial and industrial and real estate loans also included$6.5 million to certain Mexican borrowers at December 31,2010 primarily related to deterioration in the U.S.dollar exchange rate of the Mexican peso. Generally,loans are placed on non-accrual status if principal or interest payments become 90 days past due and/or management deems the collectibility of the principal and/or interest to be in question, as well as when required by regulatory requirements.Once interest accruals are discontinued,accrued but uncollected interest is charged to current year operations.Subsequent receipts on non-accrual loans are recorded as a reduction of principal,and interest income 56 is recorded only after principal recovery is reasonably assured.Classification of a loan as non-accrual does not preclude the ultimate collection of loan principal or interest. Foreclosed assets represent property acquired as a result of borrower defaults on loans.Foreclosed assets are recorded at estimated fair value, less estimated selling costs, at the time of foreclosure. Write-downs occurring at foreclosure are charged against the allowance for loan losses.Regulatory guidelines require the Corporation to reevaluate the fair value offoreclosed assets on at least an annual basis.The Corporation's policy is to comply with the regulatory guidelines. Write-downs are provided for subsequent declines in value and are included in other non-interest expense along with other expenses related to maintaining the properties. During 2014 and 2013, foreclosed assets, particularly among certain classes of property(primarily land),experienced significant deterioration in fair values as a result ofthe prevailing weaker economic conditions. Write-downs of foreclosed assets totaled$1.2 million and$895 thousand, during 2014 and 2013,respectively. During 2014,the Corporation recognized write-downs on12 different properties/relationships with the average write-down totaling$107 thousand and the largest individual write-down totaling$595 thousand.The weighted-average percentage write-down was 25.6%. During 2013, the Corporation recognized write-downs on 13 different properties/relationships with the average write-down totaling$69 thousand and the largest individual write- down totaling $490 thousand. The weighted-average percentage write-down was 18.0%. There were no significant concentrations of any properties,to which the aforementioned write-downs relate, in any single geographic region. Potential problem loans consist of loans that are performing in accordance with contractual terms but for which management has concerns about the ability of an obligor to continue to comply with repayment terms because of the obligor's potential operating or financial difficulties. Management monitors these loans closely and reviews their performance on a regular basis.At December 31,2014 and 2013,the Corporation had$15.1 million and$13.8 million in loans of this type which are not included in any one ofthe non-accrual,restructured or 90 days past due loan categories. At December 31,2014,potential problem loans consisted of six credit relationships. Of the total outstanding balance at December 31,2014,32.4%related to a general contractor,28.7%related to two customers in the aviation industry, 18.5%related to a municipality and 10.8%related to a customer in commercial real estate/real estate development. Weakness in these borrowers' operating performance has caused the Corporation to heighten the attention given to these credits. Allowance For Loan Losses The allowance for loan losses is a reserve established through a provision for loan losses charged to expense,which represents management's best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance,in the judgment of management,is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio.The Corporation's allowance for loan loss methodology includes allowance allocations calculated in accordance with ASC Topic 310, "Receivables" and allowance allocations calculated in accordance with ASC Topic 450,"Contingencies."Accordingly,the methodology is based on historical loss experience by type of credit and internal risk grade,specific homogeneous risk pools and specific loss allocations,with adjustments for current events and conditions. The Corporation's process for determining the appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs. The provision for loan losses reflects loan quality trends, including the levels of and trends related to non-accrual loans,past due loans,potential problem loans,classified and criticized loans and net charge-offs or recoveries,among other factors.The provision for loan losses also reflects the totality of actions taken on all loans for a particular period. In other words,the amount of the provision reflects not only the necessary increases in the allowance for loan losses related to newly identified criticized loans, but it also reflects actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans or loan pools. See Note 4-Loans in the accompanying notes to consolidated financial statements included elsewhere in this report for further details regarding the Corporation's methodology for estimating the appropriate level of the allowance for loan losses. 57 The table below provides an allocation of the year-end allowance for loan losses by loan type;however,allocation of a portion ofthe allowance to one category of loans does not preclude its availability to absorb losses in other categories. Certain general valuation allowances were not allocated to specific loan portfolio segments and were included in unallocated allowances in years prior to 2014.See Note 4-Loans for details of amounts allocated to specific portfolio segments. 2014 2013 2012 2011 2010 Percentage Percentage Percentage Percentage Percentage of Loans of Loans of Loans of Loans of Loans Allowance in each Allowance in each Allowance in each Allowance in each Allowance in each for Category for Category for Category for Category for Category Loan to Total Loan to Total Loan to Total Loan to Total Loan to Total Losses Loans Losses Loans Losses Loans Losses Loans Losses Loans Commercial and industrial $ 59,192 52.5% $ 52,790 51.6% $ 54,164 52.3% $ 42,774 49.0% $ 57,789 46.7% Commercial real estate 27,163 36.4 22,590 36.4 29,346 36.0 20,912 37.8 28,534 39.5 Consumer real estate 5,178 7.7 5,230 8.5 5,252 8.4 3,540 9.5 3,223 9.8 Consumer and other 8,009 3.4 5,010 3.5 3,507 3.3 12,635 3.7 11,974 4.0 Unallocated 6,818 - 12,184 - 30,286 - 24,796 - Total $ 99,542 100.0% $ 92,438 100.0% $ 104,453 100.0% $ 110,147 100.0% $ 126,316 100.0% The reserve allocated to commercial and industrial loans at December 31,2014 increased$6.4 million compared to December 31,2013.At December 31,2014,the reserve allocated to commercial and industrial loans included reserves allocated for policy exceptions ($1.9 million), credit and collateral exceptions ($1.5 million) and general macroeconomic risk ($7.6 million) which were previously reported as components of unallocated reserves at December 31, 2013. Excluding the effect of these items, the reserve allocated to commercial and industrial loans at December 31, 2014 decreased$4.7 million compared to December 31, 2013. This decrease was primarily related to decreases in the distressed industries allocation and allocations for specific loans and an increase in the adjustment for recoveries partly offset by increases in historical valuation allowances and the environmental risk adjustment. The distressed industries allocation related to commercial and industrial loans decreased$4.7 million from$7.8 million at December 31,2013 to$3.1 million at December 31,2014.The decrease was primarily related to improvements in the weighted-average risk grades of certain segments of the contractors industry to a level below that of the weighted- average risk grade for all pass-grade loans within the overall loan portfolio segment.As a result,additional distressed industry allocations were no longer necessary for these segments of the contractors industry.Allocations for specific loans decreased $2.5 million from $4.1 million at December 31, 2013 to $1.6 million at December 31, 2014. The adjustment for recoveries increased$2.6 million from$3.6 million at December 31,2013 to$6.2 million at December 31, 2014 primarily due to the higher level of recoveries experienced in 2014 relative to 2013.Historical valuation allowances increased$3.1 million from$29.3 million at December 31,2013 to$32.4 million at December 31,2014.The increase in historical valuation allowances was primarily due to an increase in the volume of non-classified commercial and industrial loans and increases in the historical loss allocation factors applied to certain categories of non-classified and classified commercial and industrial loans partly offset by a decrease in classified loans. The environmental risk adjustment increased $1.3 million from $5.5 million at December 31, 2013 to $6.8 million at December 31, 2014. Although the environmental risk adjustment factor decreased at December 31,2014 compared to December 31,2013, the dollar amount of the environmental risk adjustment increased as a result of the aforementioned increases in the base historical allowances to which the environmental risk adjustment factor is applied.Classified commercial and industrial loans(loans having a risk grade of 11,12 or 13)totaled$95.0 million at December 31,2014 compared to$120.2 million at December 31,2013. The reserve allocated to commercial real estate loans at December 31, 2014 increased $4.6 million compared to December 31, 2013.At December 31, 2014, the reserve allocated to commercial real estate loans included reserves allocated for policy exceptions ($875 thousand), credit and collateral exceptions ($681 thousand) and general macroeconomic risk ($3.5 million) which were previously reported as components of unallocated reserves at December 31, 2013. Excluding the effect of these items, the reserve allocated to commercial real estate loans at December 31,2014 decreased$521 thousand compared to December 31,2013.This decrease was primarily related to a decrease in allocations for specific loans,an increase in the adjustment for recoveries and a decrease in the distressed industries allocation mostly offset by increases in historical valuation allowances, the reserve allocated for highly 58 leveraged credit relationships and the reserve allocated for large credit relationships.Allocations for specific loans decreased$2.7 million from$2.8 million at December 31,2013 to$67 thousand at December 31,2014.The adjustment for recoveries increased$596 thousand from$1.2 million at December 31,2013 to$1.8 million at December 31,2014 primarily due to the higher level of recoveries experienced in 2014 relative to 2013.The distressed industries allocation related to commercial real estate loans decreased $381 thousand.As mentioned above, the decrease was primarily related to improvements in the weighted-average risk grades of certain segments of the contractors industry.Historical valuation allowances increased$1.6 million from$13.0 million at December 31,2013 to$14.6 million at December 31, 2014 primarily due to an increase in the volume of pass grade commercial real estate loans.The reserve allocated for highly leveraged credit relationships and the reserve allocated for large credit relationships increased$728 thousand and $478 thousand, respectively, from December 31, 2013 to December 31, 2014 primarily due to increases in the volumes of such credit relationships. Classified commercial real estate loans totaled $65.8 million at December 31, 2014 compared to$80.8 million at December 31,2013. The reserve allocated to consumer real estate loans at December 31, 2014 decreased $52 thousand compared to December 31, 2013. At December 31, 2014, the reserve allocated to consumer real estate loans included reserves allocated for general macroeconomic risk ($715 thousand) which were previously reported as a component of unallocated reserves at December 31,2013.Excluding the effect of this allocation,the reserve allocated to consumer real estate loans at December 31,2014 decreased$767 thousand compared to December 31,2013.This decrease was primarily due to a decrease in historical valuation allowances which decreased $627 thousand from $2.6 million at December 31,2013 to$2.0 million at December 31,2014.The decrease in historical valuation allowances was primarily related to a decrease in the historical loss allocation factor applied to pass grade consumer real estate loans.A decrease in the environmental risk adjustment and an increase in the adjustment for recoveries were partly offset by an increase in the allocation for loans not reviewed by concurrence. The reserve allocated to consumer and other loans at December 31, 2014 increased $3.0 million compared to December 31, 2013. At December 31, 2014, the reserve allocated to consumer and other loans included reserves allocated for general macroeconomic risk($1.1 million)which were previously reported as a component of unallocated reserves at December 31, 2013. Excluding the effect of this allocation, the reserve allocated to consumer and other loans at December 31,2014 increased$1.9 million compared to December 31,2013.The increase was primarily related to an increase in the historical valuation allowances due to an increase in the historical loss allocation factor applied to consumer and other loans and an increase in the volume of such loans combined with an increase in the environmental risk adjustment. There was no unallocated portion of the allowance for loan losses at December 31,2014.At December 31,2013, the unallocated portion of the allowance for loan losses totaled$6.8 million.As discussed above,as of December 31, 2014,reserves allocated for loans originated with policy,credit and/or collateral exceptions that exceed specified risk grades and reserves allocated for general macroeconomic risk have been allocated to specific loan portfolio segments, rather than left unallocated.The aggregate reserve allocated to specific loan portfolio segments for policy exceptions totaled$2.8 million at December 31,2014 compared to$2.5 million in reserves for policy exceptions reported as a part of the unallocated portion of the allowance for loan losses at December 31,2013.The aggregate reserve allocated to specific loan portfolio segments for credit and collateral exceptions totaled$2.2 million at December 31,2014 compared to $1.4 million in reserves for credit and collateral exceptions reported as a part of the unallocated portion of the allowance for loan losses at December 31,2013.The aggregate reserve allocated to specific loan portfolio segments for general macroeconomic risk totaled$13.1 million at December 31,2014 compared to$2.9 million in reserves for general macroeconomic risk reported as a part ofthe unallocated portion ofthe allowance for loan losses at December 31, 2013.The overall increase in the reserves allocated to specific loan portfolio segments for general macroeconomic risk is reflective of loan growth that is occurring in a positively trending but uncertain economic environment as reflected in recent market volatility and decreasing oil prices.The Corporation has also experienced an increase in past due loans, though the overall level of classified commercial and industrial and commercial real estate loans has decreased $40.1 million since December 31, 2013 while the weighted-average risk grades of these portfolios was 6.29% at December 31,2014 compared to 6.40%at December 31,2013. The reserve allocated to commercial and industrial loans at December 31,2013 decreased$1.4 million compared to December 31,2012.The decrease was primarily related to a decreases in the reserve allocated for excessive industry concentrations,historical valuation allowances,the environmental risk adjustment and specific valuation allowances, partly offset by increases in the distressed industries allocation and the reserve allocated for highly leveraged credit relationships and a decrease in the adjustment for recoveries.The decrease in the reserve allocated for excessive industry concentrations was primarily related to a decrease in the volumes of industry concentrations combined with a decrease 59 in the allocation factors applied to certain categories of industry concentrations. The decrease in historical valuation allowances was primarily due to decreases in the historical loss allocation factors applied to certain categories of non- classified and classified commercial and industrial loans. The environmental risk adjustment decreased$1.1 million from $6.6 million at December 31, 2012 to $5.5 million at December 31, 2013. Although the environmental risk adjustment factor increased at December 31, 2013 compared to December 31, 2012, the dollar amount of the environmental risk adjustment decreased as a result ofthe aforementioned decreases in the base historical loss allocation factors to which the environmental risk adjustment factor is applied. The distressed industries allocation related to commercial and industrial loans increased $1.9 million from $5.9 million at December 31, 2012 to $7.8 million at December 31,2013.The increase was primarily related to an increase in the volume of loans to contractors combined with an increase in the spread by which the weighted-average risk grade of this portfolio exceeds the weighted-average risk grade of the commercial and industrial loan portfolio as a whole.The reserve allocated for highly leveraged credit relationships increased $1.6 million from $2.9 million at December 31, 2012 to $4.5 million at December 31, 2013 primarily due to an increase in the volume of such credit relationships. The adjustment for recoveries decreased $1.3 million from$4.9 million at December 31,2012 to$3.6 million at December 31,2013 primarily due to the lower level of recoveries experienced in 2013 relative to 2012. Classified commercial and industrial loans (loans having a risk grade of 11, 12 or 13)totaled $120.2 million at December 31,2013 compared to$100.1 million at December 31,2012. Specific allocations of the allowance for loan losses related to commercial and industrial loans totaled$4.1 million at December 31,2013 compared to$5.1 million at December 31,2012. The reserve allocated to commercial real estate loans at December 31, 2013 decreased $6.8 million compared to December 31,2012.The decrease was primarily related to decreases in the historical valuation allowances related to pass and watch grade commercial real estate loans due, in part, to decreases in the historical loss allocation factors applied to such loans. The reserve allocated to commercial real estate loans at December 31, 2013 compared to December 31, 2012 was also partly impacted by a decrease in the allocation for excessive industry concentrations (down$2.4 million),a decrease in the reserve allocation for distressed industries(down$798 thousand)and a decrease in the environmental risk adjustment(down$368 thousand). Classified commercial real estate loans totaled$80.8 million at December 31,2013 compared to$118.1 million at December 31,2012.Specific allocations of the allowance for loan losses related to commercial real estate loans totaled $2.8 million at December 31, 2013 compared to$3.1 million at December 31, 2012.The environmental adjustment factor resulted in additional general valuation allowances for commercial real estate loans totaling $3.3 million at December 31,2013 and$3.7 million at December 31,2012.The distressed industries allocation related to commercial real estate loans totaled$384 thousand at December 31,2013 and$1.2 million at December 31,2012. The reserve allocated to consumer real estate loans at December 31,2013 did not significantly fluctuate compared to December 31,2012 as decreases in historical valuation allowances as well as decreases in the allocation for loans that did not undergo a separate,independent concurrence review during the underwriting process and the environmental risk adjustment were mostly offset by a decrease in the adjustment for recoveries. The reserve allocated to consumer and other loans at December 31, 2013 increased $1.5 million compared to December 31, 2012. The increase was primarily related to an increase in historical valuation allowances due to an increase in the historical loss allocation factor applied to consumer and other loans,combined with the effect of a higher volume of such loans,and an increase in the environmental risk adjustment.The increase from these items was partly offset by a decrease in the allocation for loans that did not undergo a separate,independent concurrence review during the underwriting process and an increase in the adjustment for recoveries. The unallocated portion of the allowance for loan losses at December 31, 2013 decreased$5.4 million compared to December 31,2012.This decrease was primarily due to a decrease in the allocation for general macroeconomic risk (down$5.2 million).This was reflective of improving trends in certain components of the Texas Leading Index and, aside from$18.8 million in charge-offs related to a single customer relationship which was not considered to be indicative of a decline in the overall credit quality of the Corporation's loan portfolio,the trend in net charge-offs had stabilized at improved levels compared to recent years.The overall level of classified commercial and industrial and commercial real estate loans decreased approximately $17.3 million,or 7.9%, at December 31,2013 compared to December 31, 2012 while the overall weighted-average risk grades of these portfolios was 6.40%at December 31,2013 and 6.39% December 31,2012. 60 As of December 31,2012,the reserve allocated to commercial and industrial loans increased$11.4 million compared to December 31,2011.As of December 31, 2012,the reserve allocated to commercial and industrial loans included $6.0 million related to certain general valuation allowances that were previously reported as components of the unallocated portion of the allowance for loan losses. Excluding the impact of this reclassification of certain general valuation allowances, the reserve allocated to commercial and industrial loans at December 31, 2012 increased $5.4 million from December 31,2011.The increase was primarily related to increases in historical valuation allowances due to an increase in the volume of non-classified commercial and industrial loans,an increase in allocations for specific loans,an increase in the allocation for distressed industries and an increase in the environmental risk adjustment partly offset by a decrease in classified loans. As of December 31,2012,the reserve allocated to commercial real estate loans increased$8.4 million compared to December 31, 2011.The reserve allocated to commercial real estate loans included$5.7 million related to certain general valuation allowances that were previously reported as components of the unallocated portion of the allowance for loan losses.Excluding the impact ofthis reclassification of certain general valuation allowances,the reserve allocated to commercial real estate loans at December 31, 2012 increased $2.8 million compared to December 31, 2011. The increase was primarily related to an increase in allocations for specific loans, an increase in historical valuation allowances due to an increase in the volume of non-classified commercial real estate loans and an increase in the allocation for distressed industries partly offset by the effect of a decrease in classified loans.The allowance allocated to commercial real estate loans at December 31,2012 was also impacted by a decrease in the historical loss allocation factors applied to certain categories of non-classified and classified commercial real estate loans compared to the historical loss allocation factors used in 2011. The reserve allocated to consumer real estate loans at December 31, 2012 increased $1.7 million compared to December 31,2011.The reserve allocated to consumer real estate loans included$1.6 million related to certain general valuation allowances that were previously reported as components of the unallocated portion of the allowance for loan losses. Excluding the impact of this reclassification of certain general valuation allowances,the reserve allocated to consumer real estate loans at December 31,2012 did not significantly fluctuate compared to December 31,2011 as the impact of factors requiring an increase in the level of allowance required for consumer real estate loans were for the most part offset by the impact of factors requiring a decrease in the level of allowance required for consumer real estate loans. The reserve allocated to consumer and other loans at December 31, 2012 decreased $9.1 million compared to December 31,2011.As of December 31,2012,the reserve allocated to consumer and other loans included a reduction of$5.7 million related to certain general valuation allowances that were previously reported as components of the unallocated portion of the allowance for loan losses. Excluding the impact of this reclassification of certain general valuation allowances,the reserve allocated to consumer and other loans at December 31,2012 decreased$3.5 million compared to December 31,2011.The decrease was primarily related to a decrease in the historical loss allocation factor applied to consumer and other loans combined with a decrease in the environmental risk adjustment factor partly offset by the effect of an increase in the volume of consumer and other loans. The unallocated portion of the allowance for loan losses at December 31,2012 decreased$18.1 million compared to December 31,2011.Excluding certain general valuation allowances that were reclassified to specific loan portfolio segments,as discussed above,the unallocated portion of the allowance for loan losses at December 31,2012 would have decreased$9.4 million compared to December 31,2011 primarily due to a decrease in the allocation for general macroeconomic risk,down$9.8 million at December 31,2012 compared to December 31,2011.The decrease in the allocation for general macroeconomic risk was reflective of improving trends in certain components of the Texas Leading Index and an improved outlook on the credit quality of the Corporation's loan portfolio. During 2011,the reserve allocated to commercial and industrial loans and commercial real estate loans decreased $15.0 million and $7.6 million, respectively, compared to 2010 primarily due to decreases in the level of classified loans and allocations for specific loans.The decreases in reserves allocated to commercial and industrial and commercial real estate loans were also partly due to decreases in the historical loss allocation factors applied to non-classified loans in these loan categories.The impact of these reductions was partly offset by the effect of a new allocation for distressed industries,which was implemented in 2011,and an increase in the environmental adjustment factor.The reserve allocated to consumer real estate loans increased$317 thousand in 2011 compared to 2010,while the reserve allocated to consumer and other loans increased$661 thousand in 2011 compared to 2010.The increases in the reserves allocated to consumer real estate loans and consumer and other loans were primarily related to increases in the historical loss allocation factors applied to these loan segments and an increase in the environmental adjustment factor,partly offset by the effect of a 61 decrease in the volume of loans in each of these segments.The unallocated portion of the allowance for loan losses increased$5.5 million in 2011 compared to 2010.This fluctuation was primarily due to an increase in the allocation for excessive industry concentrations which totaled $7.0 million at December 31, 2011 compared to $1.7 million at December 31,2010.The increase was primarily related to new industry concentrations that were not considered to be excessive industry concentrations in 2010. In addition,during 2011,the Corporation refined its methodology for the determination of general valuation allowances to (i)provide additional allocations for loans that did not undergo a separate, independent concurrence review during the underwriting process(generally those loans under$1.0 million at origination), (ii)reduce the minimum balance/commitment threshold for which allocations are made for highly leveraged credit relationships that exceed specified risk grades,(iii)lower the maximum risk grade thresholds for highly leveraged credit relationships,and(iv)include a reduction factor for recoveries of prior charge-offs to compensate for the fact that historical loss allocations are based upon gross charge-offs rather than net.The net effect of these changes to the Corporation's methodology for the determination of general valuation allowances did not significantly impact the level of the unallocated portion of the allowance for loan losses at December 31,2011 compared to December 31, 2010. Activity in the allowance for loan losses is presented in the following table. 2014 2013 2012 2011 2010 Balance of allowance for loan losses at beginning of year $ 92,438 $ 104,453 $ 110,147 $ 126,316 $ 125,309 Provision for loan losses 16,314 20,582 10,080 27,445 43,611 Charge-offs: Commercial and industrial (13,820) (32,932) (18,493) (33,678) (31,324) Commercial real estate (3,800) (1,329) (3,951) (10,776) (7,524) Consumer real estate (1,097) (1,047) (1,495) (2,789) (2,682) Consumer and other (9,768) (9,489) (9,101) (9,442) (11,893) Total charge-offs (28,485) (44,797) (33,040) (56,685) (53,423) Recoveries: Commercial and industrial 9,672 3,588 4,870 4,526 2,794 Commercial real estate 1,800 1,204 4,727 1,342 980 Consumer real estate 364 328 857 496 623 Consumer and other 7,439 7,080 6,812 6,707 6,422 Total recoveries 19,275 12,200 17,266 13,071 10,819 Net charge-offs (9,210) (32,597) (15,774) (43,614) (42,604) Balance at end of year $ 99,542 $ 92,438 $ 104,453 $ 110,147 $ 126,316 Net loan charge-offs to average loans 0.09% 0.35% 0.19% 0.54% 0.52% Allowance for loan losses to year- end loans 0.91 0.97 1.13 1.38 1.56 Allowance for loan losses to year- end non-accrual loans 166.11 162.97 116.39 116.76 92.11 Average loans $10,299,025 $9,229,574 $8,456,818 $8,042,968 $8,125,150 Year-end loans 10,987,535 9,515,700 9,223,848 7,995,129 8,117,020 Year-end non-accrual loans 59,925 56,720 89,744 94,338 137,140 The provision for loan losses decreased $4.3 million, or 20.7%, in 2014 compared to 2013. The decrease was primarily due to a$23.4 million decrease in net charge-offs and a decrease in the level of classified loans partly offset by the impact of an increase in the overall volume of loans.Net charge-offs to average loans totaled 0.09%during 2014 decreasing 26 basis points compared to 0.35%during 2013.Net-charge-offs during 2014 were impacted by a higher level of commercial and industrial loan recoveries which included a$3.4 million recovery related to a single commercial and industrial loan relationship.Net charge-offs and the level of the provision for loan losses in 2013,were impacted charge-offs totaling$18.8 million related to a single commercial and industrial loan relationship.The loan was not past due or previously considered to be a non-performing,impaired or potential problem loan prior to the initial charge-off in the first quarter of 2013;however,in April 2013,the borrower entered into bankruptcy proceedings. The ratio of the allowance for loan losses to total loans was 0.91%at December 31, 2014 compared to 0.97%at December 31, 2013. The acquisition of WNB during the second quarter of 2014 did not significantly impact 62 management's determination of the allowance for loan losses in 2014. Management believes the recorded amount of the allowance for loan losses is appropriate based upon management's best estimate of probable losses that have been incurred within the existing portfolio of loans. Should any of the factors considered by management in evaluating the appropriate level of the allowance for loan losses change,the Corporation's estimate of probable loan losses could also change,which could affect the level of future provisions for loan losses. The provision for loan losses increased$10.5 million in 2013 compared to 2012.As mentioned above,during 2013, the Corporation recognized charge-offs totaling $18.8 million related to a single commercial and industrial loan relationship, which impacted the level of the provision for loan losses. The provision for loan losses decreased $17.4 million in 2012 compared to 2011,which was reflective of the decreasing trend in classified loans and a decrease in net charge-offs.The provision for loan losses decreased$16.2 million in 2011 compared to 2010,which was reflective of the decreasing trend in classified loans. Net charge-offs during 2013 increased$16.8 million compared to 2012.Excluding the aforementioned$18.8 million in charge-offs related to a single commercial and industrial loan relationship, net charge-offs would have been $13.8 million,or 0.15%of average loans during 2013.This compares to net charge-offs of$15.8 million,or 0.19%of average loans during 2012,evidencing the otherwise positive trend in net charge-offs and the overall credit quality of the Corporation's loan portfolio.Net charge-offs for 2012 decreased$27.8 million compared to 2011 and net charge- offs for 2011 increased $1.0 million compared to 2010.As a percentage of average loans, net charge-offs increased 16 basis points in 2013 compared to 2012(or decreased 4 basis points in 2013 compared to 2012 when excluding the aforementioned$18.8 million in charge-offs related to a single commercial and industrial loan relationship),decreased 35 basis points in 2012 compared to 2011 and increased 2 basis points in 2011 compared to 2010. The level of net charge-offs in 2011 was partly related to the charge-off of several large credit relationships.Aside from these charge- offs and the $18.8 million charge-off in 2013, the overall trend in net charge-offs since 2010 reflects the continued improvement in the level of classified loans since the deterioration of economic conditions which began in 2009. The ratio of the allowance for loan losses to total loans decreased 6 basis points from 0.97%at December 31,2013 to 0.91% at December 31, 2014 and decreased 16 basis points from 1.13% at December 31, 2012 to 0.97% at December 31,2013,which is reflective of continued improvement in the level of classified loans.Management believes the recorded amount of the allowance for loan losses is appropriate based upon management's best estimate of probable losses that have been incurred within the existing portfolio of loans.Should any of the factors considered by management in evaluating the appropriate level of the allowance for loan losses change,the Corporation's estimate of probable loan losses could also change,which could affect the level of future provisions for loan losses and charge-offs. 63 Securities Year-end securities were as follows: 2014 2013 2012 Percentage Percentage Percentage Amount of Total Amount of Total Amount of Total Held to maturity: U.S.Treasury $ 249,009 2.2% $ 248,592 2.7% $ 248,188 2.7% Residential mortgage-backed securities 8,012 0.1 9,674 0.1 10,725 0.1 States and political subdivisions 2,668,115 23.4 2,880,482 31.8 2,696,468 29.4 Other 1,350 - 1,000 - 1,000 - Total 2,926,486 25.7 3,139,748 34.6 2,956,381 32.2 Available for sale: U.S.Treasury 3,811,252 33.4 2,540,554 28.1 3,057,921 33.3 U.S.government agencies/ corporations 53,980 0.6 Residential mortgage-backed securities 1,398,724 12.3 1,776,016 19.6 2,518,003 27.4 States and political subdivisions 3,208,907 28.1 1,488,914 16.5 591,483 6.4 Other 42,371 0.4 35,972 0.4 35,892 0.4 Total 8,461,254 74.2 5,895,436 65.2 6,203,299 67.5 Trading: U.S.Treasury 15,339 0.1 15,389 0.2 14,038 0.1 States and political subdivisions 87 - 1,009 - 16,036 0.2 Total 15,426 0.1 16,398 0.2 30,074 0.3 Total securities $11,403,166 100.0% $ 9,051,582 100.0% $ 9,189,754 100.0% The following tables summarize the maturity distribution schedule with corresponding weighted-average yields of securities held to maturity and securities available for sale as of December 31, 2014. Weighted-average yields have been computed on a fully taxable-equivalent basis using a tax rate of 35%.Mortgage-backed securities are included in maturity categories based on their stated maturity date. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.Other securities classified as available for sale include stock in the Federal Reserve Bank and the Federal Home Loan Bank,which have no maturity date.These securities have been included in the total column only. Within 1 Year 1-5 Years 5-10 Years After 10 Years Total Weighted Weighted Weighted Weighted Weighted Average Average Average Average Average Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Held to maturity: U.S.Treasury $ % $ 249,009 3.44% $ -% $ - -% $ 249,009 3.44% Residential mortgage- backed securities 5 12.78 201 3.47 1,887 1.59 5,919 1.67 8,012 1.70 States and political subdivisions 152,351 6.60 284,981 6.21 172,371 5.28 2,058,412 5.43 2,668,115 5.57 Other 1,350 1.17 - - - 1,350 1.17 Total $ 153,706 6.55 $ 534,191 4.92 $ 174,258 5.24 $2,064,331 5.42 $2,926,486 5.38 Available for sale: U.S.Treasury $ 500,631 1.65% $2,198,777 1.45% $1,111,844 2.27% $ -% $3,811,252 1.71% Residential mortgage- backed securities 1,321 4.99 83,429 4.60 607,048 2.34 706,926 4.00 1,398,724 3.30 States and political subdivisions 16,851 6.28 287,711 3.60 865,436 3.35 2,038,909 5.19 3,208,907 4.55 Other - - - - - 42,371 Total $ 518,803 1.81 $2,569,917 1.79 $2,584,328 2,65 $2,745,835 4.89 $8,461,254 3.04 64 Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity.Securities available for sale are carried at fair value,with unrealized holding gains and losses reported in other comprehensive income,net oftax.The remaining securities are classified as trading.Trading securities are held primarily for sale in the near term and are carried at their fair values,with unrealized gains and losses included immediately in other income. Management determines the appropriate classification of securities at the time of purchase. Securities with limited marketability,such as stock in the Federal Reserve Bank and the Federal Home Loan Bank,are carried at cost. All mortgage-backed securities included in the above tables were issued by U.S. government agencies and corporations. At December 31, 2014, approximately 97.4% of the securities in the Corporation's municipal bond portfolio were issued by political subdivisions or agencies within the State of Texas, of which approximately 64.9% are either guaranteed by the Texas Permanent School Fund,which has a"triple-A"insurer financial strength rating,or secured by U.S.Treasury securities via defeasance of the debt by the issuers.At December 31,2014,the Corporation held securities with an aggregate carrying value of$597.6 million and an aggregate fair value of$598.7 million of general obligation bonds issued by the State of Texas. Such amounts were in excess of 10% of the Corporation's shareholders' equity at December 31, 2014. At such date, all of these securities carried a "triple-A" rating. At December 31,2014,there were no other holdings of any one issuer,other than the U.S.government and its agencies, in an amount greater than 10%of the Corporation's shareholders'equity. The average taxable-equivalent yield on the securities portfolio was 3.96%in 2014 compared to 3.48%in 2013 and 3.31%in 2012.The increases in the average taxable-equivalent yield during the comparable periods were primarily related to increases in the relative proportion of investments held in higher-yielding,tax-exempt municipal securities. The increase in 2014 compared to 2013 was also partly related to an increase in the average yield on taxable securities. Tax-exempt municipal securities totaled 52.6%of average securities in 2014 compared to 40.7%in 2013 and 27.4% in 2012.The average yield on taxable securities was 2.14%in 2014 compared to 1.90%in 2013 and 2.10%in 2012, while the average taxable-equivalent yield on tax-exempt securities was 5.58%in 2014 compared to 5.75% in 2013 and 6.68%in 2012.See the section captioned"Net Interest Income"included elsewhere in this discussion.The overall growth in the securities portfolio since 2012 was primarily funded by deposit growth. Deposits The table below presents the daily average balances of deposits by type and weighted-average rates paid thereon during the years presented: 2014 2013 2012 Average Average Average Average Average Average Balance Rate Paid Balance Rate Paid Balance Rate Paid Non-interest-bearing demand deposits: Commercial and individual $ 8,384,376 $ 6,967,933 $ 6,300,944 Correspondent banks 351,803 323,706 332,136 Public funds 388,851 366,135 388,847 Total 9,125,030 7,657,774 7,021,927 Interest-bearing deposits: Private accounts: Savings and interest checking 4,211,336 0.02% 3,608,273 0.04% 3,018,116 0.05% Money market accounts 7,342,967 0.11 6,596,764 0.15 5,834,822 0.21 Time accounts of$100,000 or more 515,339 0.28 520,769 0.30 533,944 0.41 Time accounts under$100,000 451,081 0.14 450,215 0.22 491,078 0.33 Public funds 407,006 0.05 434,299 0.13 392,213 0.16 Total 12,927,729 0.09 11,610,320 0.12 10,270,173 0.18 Total deposits $ 22,052,759 0.05 $ 19,268,094 0.08 $ 17,292,100 0.10 Average deposits increased$2.8 billion,or 14.5%,in 2014 compared to 2013 and increased$2.0 billion,or 11.4%, in 2013 compared to 2012. The most significant volume growth during the comparable years was in non-interest- bearing commercial and individual accounts, money market accounts and savings and interest checking accounts. Average deposits in 2014 were impacted by the acquisition of$1.6 billion in deposits(approximately$827.8 million 65 in non-interest-bearing and$796.2 million in interest-bearing)in connection with the acquisition of WNB during the second quarter of 2014.Deposit growth was also driven by new customer relationships as well as increased balances from existing customers.The ratio of average interest-bearing deposits to total average deposits was 58.6% in 2014 compared to 60.3%in 2013 and 59.4%in 2012.The average cost of interest-bearing deposits and total deposits was 0.09%and 0.05%during 2014 compared to 0.12%and 0.08%during 2013 and 0.18%and 0.10%during 2012.The decrease in the average cost of interest-bearing deposits during the comparable periods was primarily the result of decreases in interest rates offered on certain deposit products due to decreases in average market interest rates and decreases in renewal interest rates on maturing certificates of deposit given the current low interest rate environment. Additionally,the relative proportion of higher-cost time accounts to total average interest-bearing deposits decreased from 10.0%in 2012 to 8.4%in 2013 and 7.5%in 2014.The Dodd-Frank Act repealed the federal prohibitions on the payment of interest on demand deposits,thereby permitting depository institutions to pay interest on business transaction and other accounts beginning July 21, 2011. To date, the Corporation has not experienced any significant additional interest costs as a result ofthe repeal;however,the Corporation may begin to incur interest costs associated with certain demand deposits in the future as market conditions warrant. The following table presents the proportion of each component of average non-interest-bearing deposits to the total of such non-interest-bearing deposits during the years presented: 2014 2013 2012 Commercial and individual 91.9% 91.0% 89.7% Correspondent banks 3.8 4.2 4.7 Public funds 4.3 4.8 5.6 Total 100.0% 100.0% 100.0% Average non-interest-bearing deposits increased $1.5 billion, or 19.2%, in 2014 compared to 2013 while average non-interest-bearing deposits increased $635.8 million, or 9.1% in 2013 compared to 2012. The increase in 2014 compared to 2013 was primarily due to a$1.4 billion,or 20.3%increase in average commercial and individual deposits. This increase was partly related to the acquisition of approximately$827.8 million of such deposits in connection with the acquisition of WNB. The increase in 2013 compared to 2012 was primarily due to a $667.0 million, or 10.6% increase in average commercial and individual deposits. The following table presents the proportion of each component of average interest-bearing deposits to the total of such interest-bearing deposits during the years presented: 2014 2013 2012 Private accounts: Savings and interest checking 32.6% 31.1% 29.4% Money market accounts 56.8 56.8 56.8 Time accounts of$100,000 or more 4.0 4.5 5.2 Time accounts under$100,000 3.5 3.9 4.8 Public funds 3.1 3.7 3.8 Total 100.0% 100.0% 100.0% Total average interest-bearing deposits increased$1.3 billion, or 11.3%, in 2014 compared to 2013 and increased $1.3 billion,or 13.0%,in 2013 compared to 2012.The relative proportion of time accounts to total average interest- bearing deposits decreased from 10.0% in 2012 to 8.4% in 2013 and 7.5%in 2014, in favor of savings and interest checking accounts.The shift in relative proportions toward savings and interest checking accounts appears to be related to the lower interest rate environment experienced during recent years as many customers appear to have become less inclined to invest their funds for extended periods.The Corporation acquired approximately$796.2 million of interest- bearing deposits in connection with the acquisition of WNB including approximately $166.1 million of savings and interest checking,$473.2 million of money market accounts,$153.1 million of time accounts and$3.8 million of public funds. Some of the Corporation's interest-bearing deposits were obtained through brokered transactions,the Corporation's participation in the Certificate of Deposit Account Registry Service("CDARS") and deposits from the Promontory Interfinancial Network Insured Cash Sweep Service("Promontory Cash Sweep deposits"). The Corporation had no brokered money market accounts during 2014 and 2013, while average brokered money market deposits totaled 66 $1.2 million in 2012.Average CDARS deposits totaled $21.7 million in 2014 compared to$1.0 million in 2013 and $19.4 million in 2012. In late 2011,the Corporation discontinued reciprocal,matched-funds CDARs transactions, in favor of one-way sell transactions.Average CDARs in 2013 and 2012 relate to reciprocal transactions executed prior to 2012.The increase in average CDARS in 2014 was related to the acquisition of$45.5 million of such deposits in connection with the acquisition of WNB during the second quarter of 2014.Average Promontory Cash Sweep deposits totaled$70.9 million in 2014,while there were no Promontory Cash Sweep deposits in 2013 or 2012.The Corporation acquired$114.1 million of Promontory Cash Sweep deposits in connection with the acquisition of WNB. Geographic Concentrations.The following table summarizes the Corporation's average total deposit portfolio,as segregated by the geographic region from which the deposit accounts were originated. Certain accounts, such as correspondent bank deposits and deposits allocated to certain statewide operational units,are recorded at the statewide level.Geographic concentrations are stated as a percentage of average total deposits during the years presented. 2014 2013 2012 San Antonio 31.7% 32.5% 31.5% Houston 18.1 18.7 18.7 Fort Worth 17.9 18.9 19.0 Austin 11.2 11.5 11.4 Dallas 7.2 6.9 7.0 Corpus Christi 5.9 6.1 6.2 Permian Basin 3.1 Rio Grande Valley 3.0 3.2 3.2 Statewide 1.9 2.2 3.0 Total 100.0% 100.0% 100.0% The Corporation experienced deposit growth in all regions,except for the Statewide region,during 2014 compared to 2013. The San Antonio region had the largest dollar volume increase during 2014, increasing $711.6 million, or 11.3%.The Dallas region had the largest percentage increase during 2014,increasing$270.8 million,or 20.5%.Average deposits for the Houston region increased $378.4 million, or 10.5%, while average deposits for the Fort Worth and Austin regions increased$298.2 million,or 8.2%,and$254.1 million,or 11.5%,respectively.The Permian Basin region is a new region established with the acquisition of WNB during the second quarter of 2014.Average deposits for the Permian Basin region were approximately $677.6 million during 2014.Average deposits for the Corpus Christi and Rio Grande Valley regions increased$141.1 million,or 12.1%,and$56.2 million,or 9.2%,respectively.The Statewide region decreased$3.5 million,or 0.8%. The Corporation experienced deposit growth in all regions,except for the Statewide region,during 2013 compared to 2012. The San Antonio region had the largest dollar volume and percentage increase during 2013, increasing $830.5 million,or 15.3%.Average deposits for the Houston region increased$369.9 million,or 11.4%,while average deposits for the Fort Worth and Dallas regions increased $362.8 million, or 11.1%, and $112.7 million, or 9.3%, respectively. Average deposits for the Austin region increased $244.2 million, or 12.4%. Average deposits for the Corpus Christi and Rio Grande Valley regions increased $102.0 million, or 9.6%, and $46.3 million, or 8.2%, respectively. The Statewide region decreased $92.3 million, or 17.6%, primarily due to a decrease in correspondent banking balances. Foreign Deposits. Mexico has historically been considered a part of the natural trade territory of the Corporation's banking offices.Accordingly,U.S.dollar-denominated foreign deposits from sources within Mexico have traditionally been a significant source of funding.Average deposits from foreign sources,primarily Mexico,totaled$766.3 million in 2014,$777.5 million in 2013 and$789.5 million in 2012. Short-Term Borrowings The Corporation's primary source of short-term borrowings is federal funds purchased from correspondent banks and repurchase agreements in the natural trade territory of the Corporation, as well as from upstream banks. Federal funds purchased and repurchase agreements totaled$803.1 million,$668.3 million and$561.1 million at December 31, 2014,2013 and 2012.The maximum amount of these borrowings outstanding at any month-end was$803.1 million in 2014, $668.3 million in 2013 and $659.8 million in 2012. The weighted-average interest rate on federal funds 67 purchased and repurchase agreements was 0.02%at both December 31, 2014 and December 31, 2013 and 0.01%at December 31,2012. The following table presents the Corporation's average net funding position during the years indicated: 2014 2013 2012 Average Average Average Average Average Average Balance Rate Balance Rate Balance Rate Federal funds sold and resell agreements $ 19,683 0.42% $ 17,259 0.48% $ 25,364 0.41% Federal funds purchased and repurchase agreements (560,841) 0.02 (538,656) 0.02 (603,934) 0.02 Net funds position $(541,158) $(521,397) $(578,570) The net funds purchased position increased$19.8 million in 2014 compared to 2013 and decreased$57.2 million in 2013 compared to 2012.Average interest-bearing deposits totaled$4.2 billion in 2014 compared to$2.8 billion in 2013 and $1.6 billion in 2012. During the reported periods, the Corporation has maintained excess liquid funds in interest-bearing deposits with the Federal Reserve rather than federal funds sold in order to capitalize on higher available yields. Off Balance Sheet Arrangements,Commitments,Guarantees,and Contractual Obligations The following table summarizes the Corporation's contractual obligations and other commitments to make future payments as of December 31,2014. Payments for borrowings do not include interest.Payments related to leases are based on actual payments specified in the underlying contracts. Loan commitments and standby letters of credit are presented at contractual amounts;however, since many of these commitments are expected to expire unused or only partially used,the total amounts of these commitments do not necessarily reflect future cash requirements. Payments Due by Period More than 1 3 Years or Year but Less More but Less 5 Years or 1 Year or Less than 3 Years than 5 Years More Total Contractual obligations: Subordinated notes payable $ — $ 100,000 $ — $ — $ 100,000 Junior subordinated deferrable interest debentures — — — 137,115 137,115 Operating leases 21,373 38,337 30,336 77,000 167,046 Deposits with stated maturity dates 857,857 141,261 150 — 999,268 879,230 279,598 30,486 214,115 1,403,429 Other commitments: Commitments to extend credit 36,461 5,420,941 1,423,087 1,075,290 7,955,779 Standby letters of credit 4,365 231,754 2,011 10,230 248,360 40,826 5,652,695 1,425,098 1,085,520 8,204,139 Total contractual obligations and other commitments $ 920,056 $ 5,932,293 $ 1,455,584 $ 1,299,635 $ 9,607,568 Financial Instruments with Off-Balance-Sheet Risk. In the normal course of business,the Corporation enters into various transactions,which, in accordance with accounting principles generally accepted in the United States,are not included in its consolidated balance sheets.The Corporation enters into these transactions to meet the financing needs of its customers.These transactions include commitments to extend credit and standby letters of credit,which involve, to varying degrees,elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.The Corporation minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.The Corporation also holds certain assets which are not included in its consolidated balance sheets including assets held in fiduciary or custodial capacity on behalf of its trust customers and certain collateral funds resulting from acting as an agent in its securities lending program. Commitments to Extend Credit. The Corporation enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses,at specified rates and for specific purposes. Substantially all of the 68 Corporation's commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding.Commitments to extend credit outstanding at December 31,2014 are included in the table above. Standby Letters of Credit. Standby letters of credit are written conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party.In the event the customer does not perform in accordance with the terms of the agreement with the third party,the Corporation would be required to fund the commitment.The maximum potential amount of future payments the Corporation could be required to make is represented by the contractual amount of the commitment.If the commitment is funded,the Corporation would be entitled to seek recovery from the customer. The Corporation's policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements. Standby letters of credit outstanding at December 31,2014 are included in the table above. Trust Accounts. The Corporation also holds certain assets in fiduciary or custodial capacity on behalf of its trust customers.The estimated fair value of trust assets was approximately$30.5 billion(including managed assets of$13.0 billion and custody assets of$17.5 billion) at December 31, 2014. These assets were primarily composed of equity securities(46.3%of trust assets), fixed income securities(39.1%of trust assets)and cash equivalents (8.5%of trust assets). Securities Lending. The Corporation lends certain customer securities to creditworthy brokers on behalf of those customers.If the borrower fails to return these securities,the Corporation indemnifies its customers based on the then current net realizable fair value of the securities. The Corporation holds collateral received in securities lending transactions as an agent.Accordingly,such collateral assets are not assets of the Corporation.The Corporation requires borrowers to provide collateral equal to or in excess of 100%of the fair value of the securities borrowed.The collateral is valued daily and additional collateral is requested as necessary.The maximum future payments guaranteed by the Corporation under these contractual agreements(representing the fair value of securities lent to brokers)totaled$2.5 billion at December 31,2014.At December 31,2014,the Corporation held pledged liquid assets with a fair value of $2.5 billion as collateral for these agreements. Capital and Liquidity Capital.At December 31,2014,shareholders'equity totaled$2.9 billion compared to$2.5 billion at December 31, 2013. In addition to net income of$278.0 million, other sources of capital during 2014 included $149.7 million in common stock issued in connection with the acquisition of WNB,$29.2 million in proceeds from stock option exercises and the related tax benefits of$3.2 million,$12.5 million related to stock-based compensation and other comprehensive income,net of tax,of$1.4 million.Uses of capital during 2014 included$135.2 million of dividends paid on preferred and common stock and purchases of treasury stock totaling$1.5 million. The accumulated other comprehensive income/loss component of shareholders' equity totaled a net, after-tax, unrealized gain of$141.8 million at December 31,2014 compared to a net,after-tax,unrealized gain of$140.4 million at December 31, 2013.The increase was primarily due to a$43.9 million net after-tax increase in the net unrealized gain on securities available for sale and securities transferred to held to maturity partly offset by a$22.6 million net after-tax increase in the net actuarial loss on the Corporation's defined benefit post-retirement benefit plans and a$19.9 million net after-tax decrease on the accumulated net gain on effective cash flow hedges. Under regulatory requirements applicable as of December 31, 2014, amounts reported as accumulated other comprehensive income/loss related to securities available for sale,effective cash flow hedges and defined benefit post- retirement benefit plans do not increase or reduce regulatory capital and are not included in the calculation of risk- based capital and leverage ratios.Regulatory agencies for banks and bank holding companies utilize capital guidelines designed to measure Tier 1 and total capital and take into consideration the risk inherent in both on-balance sheet and off-balance sheet items. See Note 10 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report. On February 15,2013,the Corporation issued and sold 6,000,000 shares,or$150.0 million in aggregate liquidation preference, of its 5.375% Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 and liquidation preference $25 per share ("Series A Preferred Stock"). The net proceeds from the offering were used to fund an accelerated share repurchase.See Note 10-Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report. 69 The Corporation paid quarterly dividends of$0.50,$0.51,$0.51 and$0.51 per common share during the first,second, third and fourth quarters of 2014,respectively,and quarterly dividends of$0.48,$0.50,$0.50 and$0.50 per common share during the first,second,third and fourth quarters of 2013, respectively.This equates to a dividend payout ratio of 47.1%in 2014 and 51.8% in 2013. 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 any time or from time to time for an extension period not exceeding 20 consecutive quarterly periods with respect to each extension period.The ability of the Corporation to declare or pay dividends on,or purchase,redeem or otherwise acquire,shares of its capital stock is subject to certain restrictions during any such extension period. Under the terms of the Series A Preferred Stock,the ability of the Corporation to declare or pay dividends on, or purchase,redeem or otherwise acquire,shares of its common stock or any securities of the Corporation that rank junior to the Series A Preferred Stock is subject to certain restrictions in the event that the Corporation does not declare and pay dividends on the Series A Preferred Stock for the most recent dividend period. From time to time, the Corporation's board of directors has authorized stock repurchase plans. Stock repurchase plans allow the Corporation to proactively manage its capital position and return excess capital to shareholders.Shares purchased under such plans also provide the Corporation with shares of common stock necessary to satisfy obligations related to stock compensation awards.The aforementioned accelerated share repurchase was part ofthe stock repurchase program that was authorized by the Corporation's board of directors in December 2012 to buy up to$150.0 million of the Corporation's common stock.During 2013,the Corporation repurchased 2,236,748 shares(1,905,077 shares in the first quarter and 331,671 during the third quarter)under the stock repurchase plan.No shares were repurchased under stock repurchase plans during 2014 or 2012. See Part II, Item 5-Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,included elsewhere in this report. Basel III Capital Rules.In July 2013,Cullen/Frost's and Frost Bank's primary federal regulator,the Federal Reserve, published final rules (the "Basel III Capital Rules") establishing a new comprehensive capital framework for U.S. banking organizations.The rules are discussed under"Supervision and Regulation-Capital Requirements-Basel III Capital Rules." Liquidity.Liquidity measures the ability to meet current and future cash flow needs as they become due.The liquidity of a financial institution reflects its ability to meet loan requests,to accommodate possible outflows in deposits and to take advantage of interest rate market opportunities.The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure,its ability to liquidate assets and its access to alternative sources of funds. The objective of the Corporation's liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund the Corporation's operations and to meet obligations and other commitments on a timely basis and at a reasonable cost.The Corporation seeks to achieve this objective and ensure that funding needs are met by maintaining an appropriate level of liquid funds through asset/liability management,which includes managing the mix and time to maturity of financial assets and financial liabilities on the Corporation's balance sheet.The Company's liquidity position is enhanced by its ability to raise additional funds as needed in the wholesale markets. Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will mature in the near future.Liquid assets include cash, interest-bearing deposits in banks,securities available for sale,maturities and cash flow from securities held to maturity,and federal funds sold and resell agreements. Liability liquidity is provided by access to funding sources which include core deposits and correspondent banks in the Corporation's natural trade area that maintain accounts with and sell federal funds to Frost Bank,as well as federal funds purchased and repurchase agreements from upstream banks and deposits obtained through financial intermediaries. The liquidity position of the Corporation is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate.Liquidity risk management is an important element in the Corporation's asset/liability management process. The Corporation regularly models liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management.These scenarios are incorporated into the Corporation's contingency funding plan, which provides the basis for the identification of the Corporation's liquidity needs.As of December 31,2014,management is not aware of any events that are reasonably likely to have a material adverse effect on the Corporation's liquidity, capital resources or operations. In addition, 70 management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on the Corporation. Since Cullen/Frost is a holding company and does not conduct operations, its primary sources of liquidity are dividends upstreamed from Frost Bank and borrowings from outside sources.Banking regulations may limit the amount of dividends that may be paid by Frost Bank.See Note 10-Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report regarding such dividends.At December 31,2014, Cullen/Frost had liquid assets, including cash and resell agreements,totaling$294.0 million. Impact of Inflation and Changing Prices The Corporation's financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). GAAP presently requires the Corporation to measure financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered.The primary effect of inflation on the operations of the Corporation is reflected in increased operating costs.In management's opinion,changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate,they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond the control of the Corporation, including changes in the expected rate of inflation, the influence of general and local economic conditions and the monetary and fiscal policies of the United States government,its agencies and various other governmental regulatory authorities,among other things,as further discussed in the next section. Regulatory and Economic Policies The Corporation's business and earnings are affected by general and local economic conditions and by the monetary and fiscal policies of the United States government,its agencies and various other governmental regulatory authorities, among other things.The Federal Reserve Board regulates the supply of money in order to influence general economic conditions. Among the instruments of monetary policy historically available to the Federal Reserve Board are (i)conducting open market operations in United States government obligations, (ii)changing the discount rate on financial institution borrowings,(iii)imposing or changing reserve requirements against financial institution deposits, and(iv)restricting certain borrowings and imposing or changing reserve requirements against certain borrowings by financial institutions and their affiliates. In addition,the Federal Reserve Board has taken a variety of extraordinary actions during the current economic climate that have had a material expansionary effect on the money supply.These methods are used in varying degrees and combinations to affect directly the availability of bank loans and deposits,as well as the interest rates charged on loans and paid on deposits.For that reason alone,the policies ofthe Federal Reserve Board have a material effect on the earnings of the Corporation. Governmental policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future; however,the Corporation cannot accurately predict the nature,timing or extent of any effect such policies may have on its future business and earnings. Accounting Standards Updates See Note 21 -Accounting Standards Updates in the accompanying notes to consolidated financial statements included elsewhere in this report for details of recently issued accounting pronouncements and their expected impact on the Corporation's financial statements. 71 ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The disclosures set forth in this item are qualified by Item IA. Risk Factors and the section captioned "Forward- Looking Statements and Factors that Could Affect Future Results"included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, of this report, and other cautionary statements set forth elsewhere in this report. Market risk refers to the risk of loss arising from adverse changes in interest rates,foreign currency exchange rates, commodity prices, and other relevant market rates and prices, such as equity prices.The risk of loss can be assessed from the perspective of adverse changes in fair values,cash flows,and future earnings.Due to the nature of its operations, the Corporation is primarily exposed to interest rate risk and,to a lesser extent,liquidity risk. Interest rate risk on the Corporation's balance sheets consists of reprice,option,and basis risks.Reprice risk results from differences in the maturity, or repricing, of asset and liability portfolios. Option risk arises from "embedded options"present in many financial instruments such as loan prepayment options,deposit early withdrawal options and interest rate options.These options allow customers opportunities to benefit when market interest rates change,which typically results in higher costs or lower revenue for the Corporation.Basis risk refers to the potential for changes in the underlying relationship between market rates and indices,which subsequently result in a narrowing of the profit spread on an earning asset or liability.Basis risk is also present in administered rate liabilities,such as savings accounts, negotiable order of withdrawal accounts,and money market accounts where historical pricing relationships to market rates may change due to the level or directional change in market interest rates. The Corporation seeks to avoid fluctuations in its net interest margin and to maximize net interest income within acceptable levels of risk through periods of changing interest rates. Accordingly, the Corporation's interest rate sensitivity and liquidity are monitored on an ongoing basis by its Asset and Liability Committee("ALCO"), which oversees market risk management and establishes risk measures,limits and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital.A variety of measures are used to provide for a comprehensive view of the magnitude of interest rate risk,the distribution of risk,the level of risk over time and the exposure to changes in certain interest rate relationships. The Corporation utilizes an earnings simulation model as the primary quantitative tool in measuring the amount of interest rate risk associated with changing market rates.The model quantifies the effects of various interest rate scenarios on projected net interest income and net income over the next 12 months.The model measures the impact on net interest income relative to a flat-rate case scenario of hypothetical fluctuations in interest rates over the next 12 months.These simulations incorporate assumptions regarding balance sheet growth and mix,pricing and the repricing and maturity characteristics of the existing and projected balance sheet.The impact of interest rate derivatives,such as interest rate swaps,caps and floors, is also included in the model. Other interest rate-related risks such as prepayment, basis and option risk are also considered. ALCO continuously monitors and manages the balance between interest rate-sensitive assets and liabilities. The objective is to manage the impact of fluctuating market rates on net interest income within acceptable levels.In order to meet this objective,management may lengthen or shorten the duration of assets or liabilities or enter into derivative contracts to mitigate potential market risk. For modeling purposes, as of December 31, 2014, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in negative variances in net interest income of0.6%and 0.2%,respectively, relative to the flat-rate case over the next 12 months,while a decrease in interest rates of 25 basis points would result in a negative variance in net interest income of 2.6% relative to the flat-rate case over the next 12 months. The December 31,2014 model simulations were impacted by the assumption,for modeling purposes,that the Corporation will begin to pay interest on demand deposits(those not already receiving an earnings credit rate)in the first quarter of 2015,as further discussed below.As of December 31,2013,the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of 0.2%and 1.4%, respectively,relative to the flat-rate case over the next 12 months,while a decrease in interest rates of 25 basis points would result in a negative variance in net interest income of 3.0%relative to the flat-rate case over the next 12 months. The December 31, 2013 model simulations were impacted by the assumption, for modeling purposes, that the Corporation would begin to pay interest on demand deposits in the first quarter of 2014,as further discussed below. The likelihood of a decrease in interest rates beyond 25 basis points as of December 31,2014 and 2013 was considered to be remote given prevailing interest rate levels. 72 The model simulations as of December 31,2014 indicate that the Corporation's balance sheet is liability sensitive in comparison to the asset sensitive balance sheet as of December 31, 2013.The shift to a liability sensitive position is primarily due to an increase in the relative proportion of interest-earning assets invested in fixed rate securities and a decrease in the relative proportion of interest-earning assets invested in variable rate interest-bearing deposits,which generally reprice as market interest rates change.The growth in the Corporation's balance sheet was partly funded by significant deposit growth during 2013 and 2014.Additionally, during the second quarter of 2014, the Corporation acquired WNB Bancshares,Inc.(See Note 2-Mergers and Acquisitions included in the notes to consolidated financial statements elsewhere in this report). In connection with the acquisition, the Corporation acquired cash and cash equivalents totaling$879.7 million and loans totaling$670.6 million.The Corporation also acquired deposits totaling $1.6 billion.The acquisition of WNB did not significantly impact the Corporation's sensitivity to interest rate changes relative to it's exposure prior to the acquisition. As mentioned above, financial regulatory reform legislation entitled the "Dodd-Frank Wall Street Reform and Consumer Protection Act"(the"Dodd-Frank Act")repealed the federal prohibition on the payment of interest on demand deposits,thereby permitting depository institutions to pay interest on business transaction and other accounts beginning July 21,2011.To date,the Corporation has not experienced any significant additional interest costs as a result of the repeal;however,the Corporation may begin to incur interest costs associated with certain demand deposits in the future as market conditions warrant.If this were to occur,the Corporation's balance sheet would likely become more liability sensitive. Because the interest rate that will ultimately be paid on these demand deposits depends upon a variety of factors,some of which are beyond the Corporation's control,the Corporation assumed an aggressive pricing structure for the purposes of the model simulations discussed above with interest payments beginning in the first quarter of 2015. Should the actual interest rate paid on demand deposits be less than the rate assumed in the model simulations,or should the interest rate paid for demand deposits become an administered rate with less direct correlation to movements in general market interest rates,the Corporation's balance sheet could be more asset sensitive than the model simulations might otherwise indicate. As of December 31,2014,the effects of a 200 basis point increase and a 25 basis point decrease in interest rates on the Corporation's derivative holdings would not result in a significant variance in the Corporation's net interest income. The effects of hypothetical fluctuations in interest rates on the Corporation's securities classified as"trading"under ASC Topic 320, "Investments - Debt and Equity Securities" are not significant, and, as such, separate quantitative disclosure is not presented. 73 ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders Cullen/Frost Bankers,Inc. We have audited the accompanying consolidated balance sheets of Cullen/Frost Bankers,Inc. (the"Corporation") as of December 31,2014 and 2013,and the related consolidated statements of income,comprehensive income,changes in shareholders'equity and cash flows for each ofthe three years in the period ended December 31,2014.These financial statements are the responsibility of the Corporation'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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used and significant estimates made by management, as well as 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 consolidated financial position of Cullen/Frost Bankers,Inc.at December 31,2014 and 2013,and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31,2014,in conformity with U.S.generally accepted accounting principles. We also have audited,in accordance with the standards of the Public Company Accounting Oversight Board(United States),Cullen/Frost Bankers,Inc.'s internal control over financial reporting as of December 31,2014,based on criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission("2013 framework"),and our report dated February 5,2015 expressed an unqualified opinion thereon. # rdritLLP San Antonio,Texas February 5,2015 74 Cullen/Frost Bankers,Inc. Consolidated Balance Sheets (Dollars in thousands,except per share amounts) December 31, 2014 2013 Assets: Cash and due from banks $ 702,485 $ 885,121 Interest-bearing deposits 3,630,846 3,646,756 Federal funds sold and resell agreements 30,792 24,248 Total cash and cash equivalents 4,364,123 4,556,125 Securities held to maturity,at amortized cost 2,926,486 3,139,748 Securities available for sale,at estimated fair value 8,461,254 5,895,436 Trading account securities 15,426 16,398 Loans,net of unearned discounts 10,987,535 9,515,700 Less:Allowance for loan losses (99,542) (92,438) Net loans 10,887,993 9,423,262 Premises and equipment,net 442,888 313,331 Goodwill 653,950 536,649 Other intangible assets,net 12,125 6,345 Cash surrender value of life insurance policies 172,050 141,108 Accrued interest receivable and other assets 341,480 284,537 Total assets $ 28,277,775 $ 24,312,939 Liabilities: Deposits: Non-interest-bearing demand deposits $ 10,149,061 $ 8,311,149 Interest-bearing deposits 13,986,869 12,377,637 Total deposits 24,135,930 20,688,786 Federal funds purchased and repurchase agreements 803,119 668,253 Junior subordinated deferrable interest debentures 137,115 123,712 Other long-term borrowings 100,000 100,000 Accrued interest payable and other liabilities 250,208 218,027 Total liabilities 25,426,372 21,798,778 Shareholders'Equity: Preferred stock,par value$0.01 per share; 10,000,000 shares authorized; 6,000,000 Series A shares($25 liquidation preference)issued in both 2014 and 2013 144,486 144,486 Common stock,par value$0.01 per share;210,000,000 shares authorized; 63,632,464 shares issued in 2014 and 61,632,464 shares issued in 2013 637 617 Additional paid-in capital 886,476 724,197 Retained earnings 1,710,324 1,575,282 Accumulated other comprehensive income,net of tax 141,814 140,434 Treasury stock,at cost;483,041 shares in 2014 and 1,066,021 in 2013 (32,334) (70,855) Total shareholders' equity 2,851,403 2,514,161 Total liabilities and shareholders' equity $ 28,277,775 $ 24,312,939 See accompanying Notes to Consolidated Financial Statements. 75 Cullen/Frost Bankers,Inc. Consolidated Statements of Income (Dollars in thousands,except per share amounts) Year Ended December 31, 2014 2013 2012 Interest income: Loans, including fees $ 440,958 $ 415,230 $ 401,364 Securities: Taxable 93,087 97,873 132,432 Tax-exempt 156,618 122,031 93,412 Interest-bearing deposits 10,725 7,284 4,300 Federal funds sold and resell agreements 83 82 104 Total interest income 701,471 642,500 631,612 Interest expense: Deposits 11,022 14,459 18,099 Federal funds purchased and repurchase agreements 134 121 140 Junior subordinated deferrable interest debentures 2,488 6,426 6,806 Other long-term borrowings 893 939 1,706 Total interest expense 14,537 21,945 26,751 Net interest income 686,934 620,555 604,861 Provision for loan losses 16,314 20,582 10,080 Net interest income after provision for loan losses 670,620 599,973 594,781 Non-interest income: Trust and investment management fees 106,237 91,375 83,317 Service charges on deposit accounts 81,946 81,432 83,392 Insurance commissions and fees 45,115 43,140 39,948 Interchange and debit card transaction fees 18,372 16,979 16,933 Other charges,commissions and fees 36,180 34,185 30,180 Net gain(loss)on securities transactions 38 1,176 4,314 Other 32,256 34,531 30,703 Total non-interest income 320,144 302,818 288,787 Non-interest expense: Salaries and wages 292,349 273,692 258,752 Employee benefits 60,151 62,407 57,635 Net occupancy 55,745 50,468 48,975 Furniture and equipment 62,087 58,443 55,279 Deposit insurance 13,232 11,682 11,087 Intangible amortization 3,520 3,141 3,896 Other 167,656 152,077 139,469 Total non-interest expense 654,740 611,910 575,093 Income before income taxes 336,024 290,881 308,475 Income taxes 58,047 53,015 70,523 Net income 277,977 237,866 237,952 Preferred stock dividends 8,063 6,719 - Net income available to common shareholders $ 269,914 $ 231,147 $ 237,952 Earnings per common share: Basic $ 4.32 $ 3.82 $ 3.87 Diluted 4.29 3.80 3.86 See accompanying Notes to Consolidated Financial Statements. 76 Cullen/Frost Bankers,Inc. Consolidated Statements of Comprehensive Income (Dollars in thousands) Year Ended December 31, 2014 2013 2012 Net income $ 277,977 $ 237,866 $ 237,952 Other comprehensive income(loss),before tax: Securities available for sale and transferred securities: Change in net unrealized gain/loss during the period 103,044 (115,245) 33,412 Change in net unrealized gain on securities transferred to held to maturity (35,441) (35,682) (657) Reclassification adjustment for net(gains)losses included in net income (38) (1,176) (4,314) Total securities available for sale and transferred securities 67,565 (152,103) 28,441 Defined-benefit post-retirement benefit plans: Change in the net actuarial gain/loss (34,837) 35,293 (9,405) Derivatives: Change in the accumulated gain/loss on effective cash flow hedge derivatives — (49) (783) Reclassification adjustments for(gains)losses included in net income: Interest rate swaps on variable-rate loans (30,604) (37,380) (37,380) Interest rate swap on junior subordinated deferrable interest debentures — 4,064 4,224 Total derivatives (30,604) (33,365) (33,939) Other comprehensive income(loss),before tax 2,124 (150,175) (14,903) Deferred tax expense(benefit)related to other comprehensive income 744 (52,561) (5,217) Other comprehensive income(loss),net of tax 1,380 (97,614) (9,686) Comprehensive income $ 279,357 $ 140,252 $ 228,266 See accompanying Notes to Consolidated Financial Statements. 77 Cullen/Frost Bankers,Inc. Consolidated Statement of Changes in Shareholders'Equity (Dollars in thousands,except per share amounts) Accumulated Other Additional Comprehensive Preferred Common Paid-In Retained Income(Loss), Treasury Stock Stock Capital Earnings Net of Tax Stock Total Balance at January 1,2012 $ - $ 613 $680,803 $1,354,759 $ 247,734 $ (372) $2,283,537 Net income - - - 237,952 - - 237,952 Other comprehensive loss,net of tax - - (9,686) - (9,686) Stock option exercises/deferred stock unit conversions(206,366 shares) - 2 10,100 (6) - 420 10,516 Tax benefits from stock-based compensation - - (384) - (384) Stock-based compensation expense recognized in earnings - - 12,836 - - - 12,836 Non-vested stock awards(16,850 shares)and stock units(32,280 units) - - (387) (1) - 388 - Purchase of treasury stock(7,960 shares) - - - (436) (436) Cash dividends-common stock($1.90 per share) - (116,853) - - (116,853) Balance at December 31,2012 - 615 702,968 1,475,851 238,048 - 2,417,482 Net income - - - 237,866 - - 237,866 Other comprehensive loss,net of tax - - (97,614) - (97,614) Stock option exercises/deferred stock unit conversions(1,319,786 shares) - 2 7,839 (12,097) - 72,909 68,653 Tax benefits from stock-based compensation - - 2,293 - - - 2,293 Stock-based compensation expense recognized in earnings 11,963 - 11,963 Non-vested stock awards(13,040 shares)and stock units(24,970 units) (866) - - 866 - Issuance of preferred stock(6,000,000 shares) 144,486 - - - 144,486 Purchase of treasury stock(2,245,572 shares) - - - (144,630) (144,630) Cash dividends-preferred stock (approximately$1.12 per share) - - - (6,719) (6,719) Cash dividends-common stock($1.98 per share) - (119,619) (119,619) Balance at December 31,2013 144,486 617 724,197 1,575,282 140,434 (70,855) 2,514,161 Net income - - - 277,977 277,977 Other comprehensive income,net of tax - - - - 1,380 - 1,380 Stock option exercises/deferred stock unit conversions(594,231 shares) - - (2,620) (7,694) - 39,472 29,158 Tax benefits from stock-based compensation - - 3,202 - - - 3,202 Stock-based compensation expense recognized in earnings 12,503 - - - 12,503 Non-vested stock awards(7,620 shares)and stock units(24,430 units) (506) - - 506 - Common stock issued in acquisition of WNB Bancshares(2,000,000 shares) - 20 149,700 - 149,720 Purchase of treasury stock(18,871 shares) - - - (1,457) (1,457) Cash dividends-preferred stock (approximately$1.34 per share) - (8,063) (8,063) Cash dividends-common stock($2.03 per share) - (127,178) - - (127,178) Balance at December 31,2014 $ 144,486 $ 637 $886,476 $1,710,324 $ 141,814 $ (32,334) $2,851,403 See accompanying Notes to Consolidated Financial Statements 78 Cullen/Frost Bankers,Inc. Consolidated Statements of Cash Flows (Dollars in thousands) Year Ended December 31, 2014 2013 2012 Operating Activities: Net income $ 277,977 $ 237,866 $ 237,952 Adjustments to reconcile net income to net cash from operating activities: Provision for loan losses 16,314 . 20,582 10,080 Deferred tax expense(benefit) (4,130) 3,279 (6,405) Accretion of loan discounts (14,567) (12,654) (10,888) Securities premium amortization(discount accretion),net 61,268 41,921 21,701 Net(gain)loss on securities transactions (38) (1,176) (4,314) Depreciation and amortization 39,694 38,471 37,776 Net loss on sale/write-down of assets/foreclosed assets 761 3,235 4,603 Stock-based compensation 12,503 11,963 12,836 Net tax benefit(deficiency)from stock-based compensation 19 (393) (555) Excess tax benefits from stock-based compensation (3,183) (2,686) (171) Earnings on life insurance policies (3,218) (3,103) (4,038) Net change in: Trading account securities 972 14,686 (16,465) Accrued interest receivable and other assets (73,184) (7,996) 48,176 Accrued interest payable and other liabilities (24,518) (170,389) (30,289) Net cash from operating activities 286,670 173,606 299,999 Investing Activities: Securities held to maturity: Purchases - (257,571) (237,503) Maturities,calls and principal repayments 153,523 14,891 2,100 Securities available for sale: Purchases (19,484,433) (11,178,144) (18,328,058) Sales 12,151,287 10,056,060 16,587,482 Maturities,calls and principal repayments 4,987,629 1,311,643 1,073,122 Net change in loans (800,120) (317,987) (1,241,422) Net cash received(paid)in acquisitions 830,661 (1,896) (7,199) Proceeds from sales of premises and equipment 49 18,481 5,085 Purchases of premises and equipment (131,970) (39,599) (24,891) Proceeds from sales of repossessed properties 11,281 8,200 15,816 Net cash from investing activities (2,282,093) (385,922) (2,155,468) Financing Activities: Net change in deposits 1,823,101 1,191,420 2,740,618 Net change in short-term borrowings 84,677 107,192 (161,141) Principal payments on long-term borrowings - (7) (19) Proceeds from stock option exercises 29,158 68,653 10,516 Excess tax benefits from stock-based compensation 3,183 2,686 171 Proceeds from issuance of preferred stock - 144,486 Purchase of treasury stock (1,457) (144,630) (436) Cash dividends paid on preferred stock (8,063) (6,719) Cash dividends paid on common stock (127,178) (119,619) (116,853) Net cash from financing activities 1,803,421 1,243,462 2,472,856 Net change in cash and cash equivalents (192,002) 1,031,146 617,387 Cash and cash equivalents at beginning of year 4,556,125 3,524,979 2,907,592 Cash and cash equivalents at end of year $ 4,364,123 $ 4,556,125 $ 3,524,979 See accompanying Notes to Consolidated Financial Statements. 79 Cullen/Frost Bankers,Inc. Notes To Consolidated Financial Statements (Table amounts in thousands,except share and per share amounts) Note 1-Summary of Significant Accounting Policies Nature of Operations.Cullen/Frost Bankers,Inc.("Cullen/Frost")is a financial holding company and a bank holding company headquartered in San Antonio,Texas that provides,through its subsidiaries, a broad array of products and services throughout numerous Texas markets.In addition to general commercial and consumer banking,other products and services offered include trust and investment management, investment banking, insurance, brokerage, leasing, treasury management and item processing. Basis ofPresentation.The consolidated financial statements include the accounts of Cullen/Frost and all other entities in which Cullen/Frost has a controlling financial interest(collectively referred to as the"Corporation").All significant intercompany balances and transactions have been eliminated in consolidation.The accounting and financial reporting policies the Corporation follows conform, in all material respects,to accounting principles generally accepted in the United States and to general practices within the financial services industry. The Corporation determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity("VIE")under accounting principles generally accepted in the United States.Voting interest entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses,the right to receive residual returns and the right to make decisions about the entity's activities.The Corporation consolidates voting interest entities in which it has all,or at least a majority of,the voting interest.As defined in applicable accounting standards,VIEs are entities that lack one or more of the characteristics of a voting interest entity.A controlling financial interest in a VIE is present when an enterprise has both the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The enterprise with a controlling financial interest, known as the primary beneficiary,consolidates the VIE.The Corporation's wholly owned subsidiaries Cullen/Frost Capital Trust II and WNB Capital Trust I are VIEs for which the Corporation is not the primary beneficiary.Accordingly,the accounts of these trusts are not included in the Corporation's consolidated financial statements. The Corporation has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.All acquisitions during the reported periods were accounted for using the purchase method.Accordingly,the operating results of the acquired companies are included with the Corporation's results of operations since their respective dates of acquisition. Use ofEstimates.The preparation offinancial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements.Actual results could differ from those estimates.The allowance for loan losses and the fair values of financial instruments and the status of contingencies are particularly subject to change. 80 Cash Flow Reporting.Cash and cash equivalents include cash, deposits with other financial institutions that have an initial maturity of less than 90 days when acquired by the Corporation, federal funds sold and resell agreements. Net cash flows are reported for loans,deposit transactions and short-term borrowings.Additional cash flow information was as follows: Year Ended December 31, 2014 2013 2012 Cash paid for interest $ 14,705 $ 22,449 $ 29,378 Cash paid for income tax 62,976 49,514 58,950 Significant non-cash transactions: Transfer of securities from available for sale to held to maturity — — 2,266,195 Unsettled purchases of securities — 16,241 90,073 Loans foreclosed and transferred to other real estate owned and foreclosed assets 4,363 6,870 7,817 Premises and equipment transferred to other real estate owned and foreclosed assets 1,740 Loans to facilitate the sale of other real estate owned 102 678 — Deferred gain on sale of building and parking garage — 768 — Concentrations and Restrictions on Cash and Cash Equivalents. The Corporation maintains deposits with other financial institutions in amounts that exceed federal deposit insurance coverage. Furthermore, federal funds sold are essentially uncollateralized loans to other financial institutions. Management regularly evaluates the credit risk associated with the counterparties to these transactions and believes that the Corporation is not exposed to any significant credit risks on cash and cash equivalents. The Corporation was required to have $175.6 million and$116.6 million of cash on hand or on deposit with the Federal Reserve Bank to meet regulatory reserve and clearing requirements at December 31, 2014 and 2013.These deposits with the Federal Reserve Bank do not earn interest.Additionally,as of December 31,2014,the Corporation had $12.1 million in cash collateral on deposit with other financial institution counterparties to interest rate swap transactions. Repurchase/Resell Agreements. The Corporation purchases certain securities under agreements to resell. The amounts advanced under these agreements represent short-term loans and are reflected as assets in the accompanying consolidated balance sheets. The securities underlying these agreements are book-entry securities. The Corporation also sells certain securities under agreements to repurchase. The agreements are treated as collateralized financing transactions and the obligations to repurchase securities sold are reflected as a liability in the accompanying consolidated balance sheets.The dollar amount of the securities underlying the agreements remain in the asset accounts. Securities. Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them until maturity. Securities to be held for indefinite periods of time are classified as available for sale and carried at fair value,with the unrealized holding gains and losses reported as a component of other comprehensive income,net of tax.Securities held for resale in anticipation of short-term market movements are classified as trading and are carried at fair value,with changes in unrealized holding gains and losses included in income. Management determines the appropriate classification of securities at the time of purchase. Securities with limited marketability,such as stock in the Federal Reserve Bank and the Federal Home Loan Bank,are carried at cost. Purchase premiums and discounts on securities are amortized or accreted to interest income over the expected lives of the securities using the interest method with a constant effective yield. Expectations related to prepayments are considered in the calculation of the constant effective yield necessary to apply the interest method for mortgage-backed securities and certain pools of municipal securities.Premium amortization and discount accretion for mortgage-backed securities and pools of municipal securities is adjusted for changes in prepayment estimates,as applicable. Realized gains and losses are derived from the amortized cost of the security sold.Declines in the fair value of held- to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers,among other things, (i)the length of time and the extent to which the fair value has been less than cost, (ii)the financial condition and near-term prospects of the issuer and(iii)the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. 81 Loans.Loans are reported at the principal balance outstanding net of unearned discounts.Interest income on loans is reported on the level-yield method and includes amortization of deferred loan fees and costs over the loan term.Net loan commitment fees or costs for commitment periods greater than one year are deferred and amortized into fee income or other expense on a straight-line basis over the commitment period.Income on direct financing leases is recognized on a basis that achieves a constant periodic rate of return on the outstanding investment.Further information regarding the Corporation's accounting policies related to past due loans, non-accrual loans, impaired loans and troubled-debt restructurings is presented in Note 4-Loans. Loans Acquired Through Transfer. Loans acquired through the completion of a transfer, including loans acquired in a business combination,are initially recorded at fair value. Acquired loans that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition,that the Corporation will be unable to collect all contractually required payments receivable are considered to be purchased credit-impaired. For purchased credit-impaired loans,the difference between the undiscounted cash flows expected at acquisition and the recorded fair value of the loan,or the"accretable yield,"is recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition,or the"nonaccretable difference,"are not recognized as a yield adjustment or as a loss accrual or a valuation allowance.Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairment.Valuation allowances on these impaired loans reflect only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that ultimately are not to be received). For acquired loans that are not deemed to be purchased credit-impaired at acquisition,the difference between the initial fair value and the unpaid principal balance is recognized as interest income on a level-yield basis over the lives of the related loans. Subsequent to acquisition, any valuation allowance on these loans reflects only the portion of probable losses that exceeds any unaccreted purchase discounts on these loans as of the measurement date. Allowance forLoan Losses.The allowance for loan losses is a reserve established through a provision for loan losses charged to expense,which represents management's best estimate of probable losses that have been incurred within the existing portfolio of loans.The allowance, in the judgment of management, is necessary to reserve for estimated loan losses inherent in the loan portfolio. The allowance for loan losses includes allowance allocations calculated in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 310,"Receivables"and allowance allocations calculated in accordance with ASC Topic 450,"Contingencies." Further information regarding the Corporation's policies and methodology used to estimate the allowance for loan losses is presented in Note 4-Loans. Premises and Equipment. Land is carried at cost. Building and improvements, and furniture and equipment are carried at cost,less accumulated depreciation,computed principally by the straight-line method based on the estimated useful lives of the related property.Leasehold improvements are generally depreciated over the lesser of the term of the respective leases or the estimated useful lives of the improvements. Foreclosed Assets.Assets acquired through or instead of loan foreclosure are held for sale and are initially recorded at fair value less estimated selling costs when acquired,establishing a new cost basis.Costs after acquisition are generally expensed.If the fair value of the asset declines,a write-down is recorded through expense.The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in economic conditions.Foreclosed assets are included in other assets in the accompanying consolidated balance sheets and totaled$5.3 million and$11.9 million at December 31,2014 and 2013. Goodwill. Goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired.Goodwill is assigned to reporting units and tested for impairment at least annually,or on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. See Note 6-Goodwill and Other Intangible Assets. Intangibles and Other Long-Lived Assets.Intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract,asset,or liability.The Corporation's intangible assets relate to core deposits,non-compete agreements and customer relationships.Intangible assets with definite useful lives are amortized on an accelerated basis over their estimated life. Intangible assets with indefinite useful lives are 82 not amortized until their lives are determined to be definite.Intangible assets,premises and equipment and other long- lived assets are tested for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable from future undiscounted cash flows.If impaired,the assets are recorded at fair value. See Note 6-Goodwill and Other Intangible Assets. Insurance Commissions and Fees.Commission revenue is recognized as of the effective date of the insurance policy. The Corporation also receives contingent commissions from insurance companies as additional incentive for achieving specified premium volume goals and/or the loss experience of the insurance placed by the Corporation. Contingent commissions from insurance companies are recognized when determinable,which is generally when such commissions are received or when the Corporation receives data from the insurance companies that allows the reasonable estimation of these amounts. The Corporation maintains a reserve for commission adjustments based on estimated policy cancellations.This reserve was not significant at December 31,2014 or 2013. Stock-Based Compensation. Compensation expense for stock options, non-vested stock awards/stock units and deferred stock units is based on the fair value of the award on the measurement date,which,for the Corporation,is the date of the grant and is recognized ratably over the service period of the award. The fair value of stock options is estimated using a binomial lattice-based valuation model.The fair value of stock options granted prior to the fourth quarter of 2006 was estimated using the Black-Scholes option-pricing model.The fair value of non-vested stock awards/ stock units and deferred stock units is generally the market price of the Corporation's stock on the date of grant. Advertising Costs.Advertising costs are expensed as incurred. Income Taxes. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities (excluding deferred tax assets and liabilities related to business combinations or components of other comprehensive income). Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities,computed using enacted tax rates.A valuation allowance,ifneeded,reduces deferred tax assets to the expected amount most likely to be realized. Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income and recoverable taxes paid in prior years.Although realization is not assured,management believes it is more likely than not that all of the deferred tax assets will be realized. Interest and/or penalties related to income taxes are reported as a component of income tax expense. The Corporation files a consolidated income tax return with its subsidiaries.Federal income tax expense or benefit has been allocated to subsidiaries on a separate return basis. Basic and Diluted Earnings Per Common Share.Earnings per common share is computed using the two-class method prescribed under ASC Topic 260,"Earnings Per Share."ASC Topic 260 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents(whether paid or unpaid)are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The Corporation has determined that its outstanding non-vested stock awards/stock units and deferred stock units are participating securities. Under the two-class method,basic earnings per common share is computed by dividing net earnings allocated to common stock by the weighted-average number of common shares outstanding during the applicable period,excluding outstanding participating securities. Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method. A reconciliation of the weighted-average shares used in calculating basic earnings per common share and the weighted average common shares used in calculating diluted earnings per common share for the reported periods is provided in Note 11 -Earnings Per Common Share. Comprehensive Income.Comprehensive income includes all changes in shareholders'equity during a period,except those resulting from transactions with shareholders. Besides net income, other components of the Corporation's comprehensive income include the after tax effect of changes in the net unrealized gain/loss on securities available for sale,changes in the net unrealized gain on securities transferred to held to maturity,changes in the net actuarial gain/ loss on defined benefit post-retirement benefit plans and changes in the accumulated gain/loss on effective cash flow hedging instruments. See Note 15-Other Comprehensive Income(Loss). 83 Derivative Financial Instruments.The Corporation's hedging policies permit the use of various derivative financial instruments to manage interest rate risk or to hedge specified assets and liabilities.All derivatives are recorded at fair value on the Corporation's balance sheet. Derivatives executed with the same counterparty are generally subject to master netting arrangements,however,fair value amounts recognized for derivatives and fair value amounts recognized for the right/obligation to reclaim/return cash collateral are not offset for financial reporting purposes.The Corporation may be required to recognize certain contracts and commitments as derivatives when the characteristics ofthose contracts and commitments meet the definition of a derivative. To qualify for hedge accounting,derivatives must be highly effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the derivative contract.The Corporation considers a hedge to be highly effective if the change in fair value of the derivative hedging instrument is within 80%to 125% of the opposite change in the fair value of the hedged item attributable to the hedged risk.If derivative instruments are designated as hedges of fair values,and such hedges are highly effective,both the change in the fair value of the hedge and the hedged item are included in current earnings.Fair value adjustments related to cash flow hedges are recorded in other comprehensive income and are reclassified to earnings when the hedged transaction is reflected in earnings. Ineffective portions of hedges are reflected in earnings as they occur.Actual cash receipts and/or payments and related accruals on derivatives related to hedges are recorded as adjustments to the interest income or interest expense associated with the hedged item. During the life of the hedge,the Corporation formally assesses whether derivatives designated as hedging instruments continue to be highly effective in offsetting changes in the fair value or cash flows of hedged items.If it is determined that a hedge has ceased to be highly effective,the Corporation will discontinue hedge accounting prospectively.At such time, previous adjustments to the carrying value of the hedged item are reversed into current earnings and the derivative instrument is reclassified to a trading position recorded at fair value. Fair Value Measurements. In general, fair values of financial instruments are based upon quoted market prices, where available. If such quoted market prices are not available,fair value is based upon internally developed models that primarily use,as inputs,observable market-based parameters.Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.These adjustments may include amounts to reflect counterparty credit quality and the Corporation's creditworthiness, among other things, as well as unobservable parameters.Any such valuation adjustments are applied consistently over time. Transfers of Financial Assets.Transfers of financial assets are accounted for as sales when control over the assets has been surrendered.Control over transferred assets is deemed to be surrendered when(i)the assets have been isolated from the Corporation,(ii)the transferee obtains the right(free of conditions that constrain it from taking advantage of that right)to pledge or exchange the transferred assets, and (iii)the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Loss Contingencies.Loss contingencies,including claims and legal actions arising in the ordinary course of business are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Trust Assets.Assets of the Corporation's trust department,other than cash on deposit at Frost Bank,are not included in the accompanying financial statements because they are not assets of the Corporation. Reclassifications. Certain items in prior financial statements have been reclassified to conform to the current presentation. 84 Note 2-Mergers and Acquisition On May 30, 2014, the Corporation acquired WNB Bancshares, Inc. ("WNB"), including its subsidiary Western National Bank("Western"),a privately-held bank holding company and bank located in the Permian Basin region of Texas.The Corporation purchased all of the outstanding shares of WNB for approximately$198.8 million.The total purchase price included $149.7 million of the Corporation's common stock (2 million shares) and $49.1 million in cash.Western was integrated into Frost Bank as of the close of business on June 20,2014. The acquisition of WNB was accounted for using the acquisition method with all cash consideration funded through internal sources.The operating results of WNB are included with the Corporation's results of operations since the date of acquisition.The total purchase price paid for the acquisition of WNB was allocated based on the estimated fair values of the assets acquired and liabilities assumed as set forth below.The purchase price allocation is preliminary and is subject to final determination and valuation of the fair value of assets acquired and liabilities assumed. Cash and cash equivalents $ 879,740 Securities available for sale 154,227 Loans 670,619 Premises and equipment 22,853 Core deposit intangible asset 9,300 Goodwill 117,301 Other assets 33,644 Deposits (1,624,043) Other borrowings (63,592) Other liabilities (1,251) $ 198,798 The loans acquired in this transaction were recorded at fair value with no carryover of any existing allowance for loan losses. Purchased credit-impaired loans, meaning those loans with evidence of credit quality deterioration at acquisition,were not significant.The core deposit intangible asset acquired in this transaction will be amortized using an accelerated method over a period of 10 years. Pro forma condensed consolidated results of operations assuming WNB had been acquired at the beginning of the reported periods are not presented because the effect of this acquisition was not considered significant based on the SEC significance tests. Expenditures related to the acquisition of WNB totaled $7.1 million and $1.4 million during 2014 and 2013, respectively,and are reported as a component of other non-interest expense in the accompanying consolidated income statements. As part of the approval process in connection with the acquisition of WNB,the Corporation agreed with the Federal Reserve that before bringing it any further expansionary proposals,the Corporation would enhance certain compliance programs,including those related to fair lending.The Corporation is currently working on these enhancements. 85 Note 3-Securities Year-end securities held to maturity and available for sale consisted of the following: 2014 2013 Gross Gross Gross Gross Amortized Unrealized Unrealized Estimated Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value Cost Gains Losses Fair Value Held to Maturity: U.S.Treasury $ 249,009 $ 14,604 $ - $ 263,613 $ 248,592 $ 20,139 $ - $ 268,731 Residential mortgage- backed securities 8,012 92 - 8,104 9,674 89 143 9,620 States and political subdivisions 2,668,115 34,243 9,035 2,693,323 2,880,482 7,691 137,861 2,750,312 Other 1,350 - - 1,350 1,000 1,000 Total $2,926,486 $ 48,939 $ 9,035 $2,966,390 $3,139,748 $ 27,919 $ 138,004 $3,029,663 Available for Sale: U.S.Treasury $3,783,899 $ 30,594 $ 3,241 $3,811,252 $2,522,159 $ 18,395 $ - $2,540,554 U.S.government agencies/corporations - - 54,024 - 44 53,980 Residential mortgage- backed securities 1,331,114 68,027 417 1,398,724 1,710,664 66,791 1,439 1,776,016 States and political subdivisions 3,104,563 104,500 156 3,208,907 1,476,316 20,090 7,492 1,488,914 Other 42,371 - - 42,371 35,972 - - 35,972 Total $8,261,947 $ 203,121 $ 3,814 $8,461,254 $5,799,135 $ 105,276 $ 8,975 $5,895,436 All mortgage-backed securities included in the above table were issued by U.S.government agencies and corporations. At December 31,2014,approximately 97.4%of the securities in the Corporation's municipal bond portfolio were issued by political subdivisions or agencies within the State of Texas, of which approximately 64.9%are either guaranteed by the Texas Permanent School Fund,which has a"triple-A" insurer financial strength rating, or secured by U.S.Treasury securities via defeasance of the debt by the issuers. Securities with limited marketability, such as stock in the Federal Reserve Bank and the Federal Home Loan Bank,are carried at cost and are reported as other available for sale securities in the table above.The carrying value of securities pledged to secure public funds,trust deposits,repurchase agreements and for other purposes,as required or permitted by law was$3.0 billion at both December 31,2014 and 2013. During the fourth quarter of 2012, the Corporation reclassified certain securities from available for sale to held to maturity.The securities had an aggregate fair value of$2.3 billion with an aggregate net unrealized gain of$165.7 million ($107.7 million,net of tax)on the date of the transfer.The net unamortized,unrealized gain on the transferred securities included in accumulated other comprehensive income in the accompanying balance sheet totaled $93.9 million ($61.0 million,net of tax)at December 31,2014 and$129.3 million($84.1 million,net of tax)at December 31,2013.This amount will be amortized out of accumulated other comprehensive income over the remaining life of the underlying securities as an adjustment of the yield on those securities. 86 Year-end securities with unrealized losses,segregated by length of impairment,were as follows: Less than 12 Months More than 12 Months Total Estimated Unrealized Estimated Unrealized Estimated Unrealized Fair Value Losses Fair Value Losses Fair Value Losses 2014 Held to Maturity: States and political subdivisions $ 68,024 $ 144 $ 683,251 $ 8,891 $ 751,275 $ 9,035 Total $ 68,024 $ 144 $ 683,251 $ 8,891 $ 751,275 $ 9,035 Available for Sale: U.S.Treasury $1,019,230 $ 3,241 $ - $ - $1,019,230 $ 3,241 Residential mortgage-backed securities 8,550 42 16,944 375 25,494 417 States and political subdivisions 65,751 156 65,751 156 Total $1,093,531 $ 3,439 $ 16,944 $ 375 $1,110,475 $ 3,814 2013 Held to Maturity: Residential mortgage-backed securities $ 6,934 $ 143 $ - $ - $ 6,934 $ 143 States and political subdivisions 2,071,521 113,512 266,566 24,349 2,338,087 137,861 Total $2,078,455 $ 113,655 $ 266,566 $ 24,349 $2,345,021 $ 138,004 Available for Sale: U.S.government agencies/ corporations $ 53,980 $ 44 $ - $ - $ 53,980 $ 44 Residential mortgage-backed securities 33,001 1,157 2,713 282 35,714 1,439 States and political subdivisions 679,923 7,492 - - 679,923 7,492 Total $ 766,904 $ 8,693 $ 2,713 $ 282 $ 769,617 $ 8,975 Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses.The amount of the impairment related to other factors is recognized in other comprehensive income.In estimating other-than- temporary impairment losses,management considers,among other things, (i)the length of time and the extent to which the fair value has been less than cost,(ii)the financial condition and near-term prospects of the issuer,and(iii)the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in cost. Management has the ability and intent to hold the securities classified as held to maturity in the table above until they mature, at which time the Corporation will receive full value for the securities. Furthermore, as of December 31, 2014, management does not have the intent to sell any of the securities classified as available for sale in the table above and believes that it is more likely than not that the Corporation will not have to sell any such securities before a recovery of cost.Any unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased.The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality.Accordingly,as of December 31,2014,management believes the impairments detailed in the table above are temporary and no impairment loss has been realized in the Corporation's consolidated income statement. 87 The amortized cost and estimated fair value of securities, excluding trading securities, at December 31, 2014 are presented below by contractual maturity.Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential mortgage-backed securities and equity securities are shown separately since they are not due at a single maturity date. Held to Maturity Available for Sale Amortized Estimated Amortized Estimated Cost Fair Value Cost Fair Value Due in one year or less $ 153,701 $ 155,505 $ 515,567 $ 517,482 Due after one year through five years 533,990 564,854 2,474,795 2,486,488 Due after five years through ten years 172,371 172,240 1,937,104 1,977,280 Due after ten years 2,058,412 2,065,687 1,960,996 2,038,909 Residential mortgage-backed securities 8,012 8,104 1,331,114 1,398,724 Equity securities — — 42,371 42,371 Total $ 2,926,486 $ 2,966,390 $ 8,261,947 $ 8,461,254 Sales of securities available for sale were as follows: 2014 2013 2012 Proceeds from sales $ 12,151,287 $ 10,056,060 $ 16,587,482 Gross realized gains 39 1,206 6,943 Gross realized losses (1) (30) (2,629) Tax(expense)benefit of securities gains/losses (13) (412) (1,510) Premium amortization and discount accretion included in interest income on securities was as follows: 2014 2013 2012 Premium amortization $ (68,070) $ (49,112) $ (28,364) Discount accretion 6,802 7,191 6,663 Net(premium amortization)discount accretion $ (61,268) $ (41,921) $ (21,701) Year-end trading account securities,at estimated fair value,were as follows: 2014 2013 U.S.Treasury $ 15,339 $ 15,389 States and political subdivisions 87 1,009 Total $ 15,426 $ 16,398 Net gains and losses on trading account securities were as follows: 2014 2013 2012 Net gain on sales transactions $ 829 $ 878 $ 1,219 Net mark-to-market gains(losses) — (429) (161) Net gain on trading account securities $ 829 $ 449 $ 1,058 88 Note 4-Loans Year-end loans consisted of the following: 2014 2013 Commercial and industrial: Commercial $ 5,429,206 $ 4,587,499 Leases 338,537 319,577 Total commercial and industrial 5,767,743 4,907,076 Commercial real estate: Commercial mortgages 3,080,202 2,800,760 Construction 629,988 426,639 Land 291,907 239,937 Total commercial real estate 4,002,097 3,467,336 Consumer real estate: Home equity loans 342,725 329,853 Home equity lines of credit 220,128 195,132 Other 286,198 283,219 Total consumer real estate 849,051 808,204 Total real estate 4,851,148 4,275,540 Consumer and other: Consumer installment 385,479 350,827 Other 8,122 7,289 Total consumer and other 393,601 358,116 Unearned discounts (24,957) (25,032) Total loans $ 10,987,535 $ 9,515,700 Loan Origination/Risk Management. The Corporation has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk.Management reviews and approves these policies and procedures on a regular basis.A reporting system supplements the review process by providing management with frequent reports related to loan production,loan quality,concentrations of credit,loan delinquencies and non-performing and potential problem loans.Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions. Commercial and industrial loans are underwritten after evaluating and understanding the borrower's ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. Once it is determined that the borrower's management possesses sound ethics and solid business acumen, the Corporation's management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed.Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however,may not be as expected and the collateral securing these loans may fluctuate in value.Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee;however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable,the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans,in addition to those of real estate loans.These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.The properties securing the Corporation's commercial real estate portfolio are diverse in terms of type and geographic location.This diversity helps reduce the Corporation's exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral,geography and risk grade criteria.As a general rule,the 89 Corporation avoids financing single-purpose projects unless other underwriting factors are present to help mitigate risk.The Corporation also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting market areas it serves. In addition,management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans.At December 31,2014,approximately 55%of the outstanding principal balance of the Corporation's commercial real estate loans were secured by owner-occupied properties. With respect to loans to developers and builders that are secured by non-owner occupied properties that the Corporation may originate from time to time,the Corporation generally requires the borrower to have had an existing relationship with the Corporation and have a proven record of success.Construction loans are underwritten utilizing feasibility studies,independent appraisal reviews,sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success ofthe ultimate project.Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders,sales of developed property or an interim loan commitment from the Corporation until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes,governmental regulation of real property, general economic conditions and the availability of long-term financing. The Corporation originates consumer loans utilizing a computer-based credit scoring analysis to supplement the underwriting process.To monitor and manage consumer loan risk,policies and procedures are developed and modified, as needed,jointly by line and staff personnel.This activity,coupled with relatively small loan amounts that are spread across many individual borrowers,minimizes risk.Additionally,trend and outlook reports are reviewed by management on a regular basis. Underwriting standards for home equity loans are heavily influenced by statutory requirements, which include,but are not limited to,a maximum loan-to-value percentage of 80%, collection remedies,the number of such loans a borrower can have at one time and documentation requirements. The Corporation maintains an independent loan review department that reviews and validates the credit risk program on a periodic basis.Results of these reviews are presented to management.The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Corporation's policies and procedures. Concentrations of Credit. Most of the Corporation's lending activity occurs within the State of Texas,including the four largest metropolitan areas of Austin, Dallas/Ft. Worth, Houston and San Antonio, as well as other markets.The majority of the Corporation's loan portfolio consists of commercial and industrial and commercial real estate loans.As of December 31,2014 and 2013,there were no concentrations of loans related to any single industry in excess of 10% of total loans other than energy loans,which totaled 16.1%and 11.7%of total loans,respectively. Foreign Loans.The Corporation has U.S.dollar denominated loans and commitments to borrowers in Mexico.The outstanding balance of these loans and the unfunded amounts available under these commitments were not significant at December 31,2014 or 2013. Overdrafts.Deposit account overdrafts reported as loans totaled$7.7 million and$6.8 million at December 31,2014 and 2013. Related Party Loans. In the ordinary course of business, the Corporation has granted loans to certain directors, executive officers and their affiliates (collectively referred to as "related parties"). These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other unaffiliated persons and do not involve more than normal risk of collectibility.Activity in related party loans during 2014 is presented in the following table.Other changes were primarily related to changes in related- party status. Balance outstanding at December 31,2013 $ 76,672 Principal additions 127,347 Principal reductions (165,963) Other changes 644 Balance outstanding at December 31,2014 $ 38,700 90 Non-Accrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when, in management's opinion,the borrower may be unable to meet payment obligations as they become due,as well as when required by regulatory provisions.In determining whether or not a borrower may be unable to meet payment obligations for each class of loans,the Corporation considers the borrower's debt service capacity through the analysis of current financial information, if available, and/or current information with regards to the Corporation's collateral position. Regulatory provisions would typically require the placement of a loan on non-accrual status if(i)principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or(ii)full payment of principal and interest is not expected.Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on non-accrual loans is recognized only to the extent that cash payments are received in excess ofprincipal due.A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured,which is typically evidenced by a sustained period(at least six months)of repayment performance by the borrower. Year-end non-accrual loans,segregated by class of loans,were as follows: 2014 2013 Commercial and industrial: Energy $ 636 $ 590 Other commercial 34,108 26,143 Commercial real estate: Buildings,land and other 19,639 27,035 Construction 2,792 - Consumer real estate 2,212 2,207 Consumer and other 538 745 Total $ 59,925 $ 56,720 As of December 31,2014 and 2013,non-accrual loans reported in the table above included$8.3 million and$10.1 million related to loans that were restructured as"troubled debt restructurings"during 2014 and 2013, respectively. See the section captioned"Troubled Debt Restructurings"elsewhere in this note. Had non-accrual loans performed in accordance with their original contract terms, the Corporation would have recognized additional interest income,net of tax,of approximately$1.5 million in 2014,$2.2 million in 2013 and$2.6 million in 2012. An age analysis of past due loans(including both accruing and non-accruing loans),segregated by class of loans, as of December 31,2014 was as follows: Loans Accruing Loans 90 or More Loans 90 or 30-89 Days Days Total Past Current More Days Past Due Past Due Due Loans Loans Total Loans Past Due Commercial and industrial: Energy $ 7,278 $ - $ 7,278 $ 1,766,667 $ 1,773,945 $ Other commercial 16,350 33,998 50,348 3,943,450 3,993,798 14,254 Commercial real estate: Buildings,land and other 6,535 11,308 17,843 3,354,266 3,372,109 3,333 Construction 5,081 1,327 6,408 623,580 629,988 1,042 Consumer real estate 4,560 2,148 6,708 842,343 849,051 1,910 Consumer and other 5,706 476 6,182 387,419 393,601 402 Unearned discounts - (24,957) (24,957) - Total $ 45,510 $ 49,257 $ 94,767 $10,892,768 $10,987,535 $ 20,941 91 Impaired Loans. Loans are considered impaired when,based on current information and events, it is probable the Corporation will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated,if necessary,so that the loan is reported net,at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral.Interest payments on impaired loans are typically applied to principal unless collectibility of the principal amount is reasonably assured,in which case interest is recognized on a cash basis.Impaired loans,or portions thereof,are charged off when deemed uncollectible. Regulatory guidelines require the Corporation to reevaluate the fair value of collateral supporting impaired collateral dependent loans on at least an annual basis.While the Corporation's policy is to comply with the regulatory guidelines, the Corporation's general practice is to reevaluate the fair value of collateral supporting impaired collateral dependent loans on a quarterly basis.Thus,appraisals are never considered to be outdated,and the Corporation does not need to make any adjustments to the appraised values.The fair value of collateral supporting impaired collateral dependent loans is evaluated by the Corporation's internal appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. The fair value of collateral supporting impaired collateral dependent construction loans is based on an"as is"valuation. Year-end impaired loans are set forth in the following table.No interest income was recognized on impaired loans subsequent to their classification as impaired. Unpaid Recorded Recorded Contractual Investment Investment Total Average Principal With No With Recorded Related Recorded Balance Allowance Allowance Investment Allowance Investment 2014 Commercial and industrial: Energy $ 706 $ 636 $ - $ 636 $ - $ 571 Other commercial 42,212 29,007 2,853 31,860 1,613 27,154 Commercial real estate: Buildings,land and other 22,919 17,441 265 17,706 67 20,339 Construction 3,007 2,793 - 2,793 - 739 Consumer real estate 812 596 - 596 - 674 Consumer and other - - 159 Total $ 69,656 $ 50,473 $ 3,118 $ 53,591 $ 1,680 $ 49,636 2013 Commercial and industrial: Energy $ 545 $ 531 $ - $ 531 $ - $ 428 Other commercial 31,429 15,337 7,004 22,341 4,140 34,894 Commercial real estate: Buildings, land and other 27,792 15,697 8,870 24,567 2,786 34,633 Construction - 634 Consumer real estate 907 745 - 745 - 804 Consumer and other 334 278 - 278 - 348 Total $ 61,007 $ 32,588 $ 15,874 $ 48,462 $ 6,926 $ 71,741 2012 Commercial and industrial: Energy $ 1,255 $ - $ 1,069 $ 1,069 $ 900 $ 214 Other commercial 56,784 21,709 19,096 40,805 4,200 42,630 Commercial real estate: Buildings,land and other 44,652 19,010 17,149 36,159 3,137 40,258 Construction 1,497 1,100 - 1,100 - 1,392 Consumer real estate 961 864 - 864 - 1,617 Consumer and other 428 400 - 400 - 469 Total $ 105,577 $ 43,083 $ 37,314 $ 80,397 $ 8,237 $ 86,580 92 Troubled Debt Restructurings.The restructuring of a loan is considered a"troubled debt restructuring"if both(i)the borrower is experiencing financial difficulties and(ii)the creditor has granted a concession.Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules, reductions in collateral and other actions intended to minimize potential losses. Troubled debt restructurings during 2014,2013 and 2012 are set forth in the following table. 2014 2013 2012 Balance at Balance at Balance at Balance at Balance at Balance at Restructure Year-end Restructure Year-end Restructure Year-end Commercial and industrial: Energy $ — $ — $ 528 $ 531 $ — $ Other commercial 5,795 5,391 6,334 4,937 1,602 1,478 Commercial real estate: Buildings,land and other 3,121 2,948 7,964 5,747 714 710 Consumer real estate — — — — Consumer — — 7 — — — $ 8,916 $ 8,339 $ 14,833 $ 11,215 $ 2,316 $ 2,188 The modifications during the reported periods primarily related to extending the amortization periods,converting the loans to interest only for a limited period of time,consolidating notes and/or reducing collateral or interest rates. The modifications did not significantly impact the Corporation's determination of the allowance for loan losses. Approximately$2.7 million of commercial and industrial loans and$2.9 million of the commercial real estate loans restructured during 2014 were related to a single relationship that was previously restructured during 2013.As of December 31,2014,there were no loans restructured during 2014 that were in excess of 90 days past due.During 2014, the Corporation charged off$627 thousand of commercial and industrial loans that were related to loans restructured during 2013. During 2014, the Corporation also foreclosed upon certain commercial real estate loans that were restructured during 2013.The Corporation recognized$500 thousand of other real estate owned and no charge-offs in connection with these foreclosures.The aforementioned charge-offs and foreclosures did not significantly impact the Corporation's determination of the allowance for loan losses. As of December 31, 2014, $8.3 million of the loans restructured in 2014 were on non-accrual status,while as of December 31,2013,$10.1 million of the loans restructured in 2013 were on non-accrual status. See the section captioned"Non-accrual Loans"elsewhere in this note. Credit Quality Indicators.As part of the on-going monitoring of the credit quality of the Corporation's loan portfolio, management tracks certain credit quality indicators including trends related to(i)the weighted-average risk grade of commercial loans, (ii)the level of classified commercial loans, (iii)the delinquency status of consumer loans (see details above)(iv)net charge-offs,(v)non-performing loans(see details above)and(vi)the general economic conditions in the State of Texas. The Corporation utilizes a risk grading matrix to assign a risk grade to each of its commercial loans. Loans are graded on a scale of 1 to 14.A description of the general characteristics of the 14 risk grades is as follows: • Grades 1, 2 and 3 -These grades include loans to very high credit quality borrowers of investment or near investment grade. These borrowers are generally publicly traded (grades 1 and 2), have significant capital strength,moderate leverage,stable earnings and growth,and readily available financing alternatives.Smaller entities,regardless of strength,would generally not fit in these grades. • Grades 4 and 5-These grades include loans to borrowers of solid credit quality with moderate risk.Borrowers in these grades are differentiated from higher grades on the basis of size (capital and/or revenue), leverage, asset quality and the stability of the industry or market area. • Grades 6, 7 and 8-These grades include"pass grade"loans to borrowers of acceptable credit quality and risk. Such borrowers are differentiated from Grades 4 and 5 in terms of size,secondary sources of repayment or they are of lesser stature in other key credit metrics in that they may be over-leveraged,under capitalized,inconsistent in performance or in an industry or an economic area that is known to have a higher level of risk,volatility,or susceptibility to weaknesses in the economy. • Grade 9-This grade includes loans on management's"watch list"and is intended to be utilized on a temporary basis for pass grade borrowers where a significant risk-modifying action is anticipated in the near term. 93 • Grade 10-This grade is for"Other Assets Especially Mentioned" in accordance with regulatory guidelines. This grade is intended to be temporary and includes loans to borrowers whose credit quality has clearly deteriorated and are at risk of further decline unless active measures are taken to correct the situation. • Grade 11 -This grade includes"Substandard" loans, in accordance with regulatory guidelines, for which the accrual of interest has not been stopped. By definition under regulatory guidelines,a"Substandard"loan has defined weaknesses which make payment default or principal exposure likely,but not yet certain. Such loans are apt to be dependent upon collateral liquidation,a secondary source of repayment or an event outside of the normal course of business. • Grade 12-This grade includes"Substandard"loans, in accordance with regulatory guidelines, for which the accrual of interest has been stopped.This grade includes loans where interest is more than 120 days past due and not fully secured and loans where a specific valuation allowance may be necessary,but generally does not exceed 30%of the principal balance. • Grade 13 - This grade includes "Doubtful" loans in accordance with regulatory guidelines. Such loans are placed on non-accrual status and may be dependent upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty.Additionally,these loans generally have a specific valuation allowance in excess of 30%of the principal balance. • Grade 14-This grade includes"Loss" loans in accordance with regulatory guidelines. Such loans are to be charged-off or charged-down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined."Loss"is not intended to imply that the loan or some portion of it will never be paid,nor does it in any way imply that there has been a forgiveness of debt. 94 In monitoring credit quality trends in the context of assessing the appropriate level of the allowance for loan losses, the Corporation monitors portfolio credit quality by the weighted-average risk grade of each class of commercial loan. Individual relationship managers review updated financial information for all pass grade loans to recalculate the risk grade on at least an annual basis.When a loan has a calculated risk grade of 9,it is still considered a pass grade loan; however,it is considered to be on management's"watch list,"where a significant risk-modifying action is anticipated in the near term.When a loan has a calculated risk grade of 10 or higher,a special assets officer monitors the loan on an on-going basis.The following table presents weighted average risk grades for all commercial loans by class. December 31,2014 December 31,2013 Weighted Weighted Average Average Risk Grade Loans Risk Grade Loans Commercial and industrial: Energy Risk grades 1-8 5.37 $ 1,740,455 5.37 $ 1,106,348 Risk grade 9 9.00 27,313 9.00 7,726 Risk grade 10 10.00 161 10.00 245 Risk grade 11 11.00 5,380 11.00 500 Risk grade 12 12.00 636 12.00 590 Risk grade 13 13.00 - 13.00 Total energy 5.45 $ 1,773,945 5.40 $ 1,115,409 Other commercial Risk grades 1-8 5.93 $ 3,785,171 5.95 $ 3,507,963 Risk grade 9 9.00 65,166 9.00 74,766 Risk grade 10 10.00 54,519 10.00 89,878 Risk grade 11 11.00 55,034 11.00 92,917 Risk grade 12 12.00 31,683 12.00 21,389 Risk grade 13 13.00 2,225 13.00 4,754 Total other commercial 6.16 $ 3,993,798 6.27 $ 3,791,667 Commercial real estate: Buildings,land and other Risk grades 1-8 6.53 $ 3,148,339 6.59 $ 2,844,665 Risk grade 9 9.00 72,906 9.00 65,770 Risk grade 10 10.00 87,889 10.00 49,881 Risk grade 11 11.00 43,336 11.00 53,208 Risk grade 12 12.00 19,501 12.00 24,387 Risk grade 13 13.00 138 13.00 2,786 Total commercial real estate 6.76 $ 3,372,109 6.83 $ 3,040,697 Construction Risk grades 1-8 6.91 $ 617,805 7.05 $ 418,999 Risk grade 9 9.00 8,003 9.00 1,301 Risk grade 10 10.00 1,323 10.00 5,931 Risk grade 11 11.00 64 11.00 408 Risk grade 12 12.00 2,793 12.00 Risk grade 13 13.00 - 13.00 - Total construction 6.97 $ 629,988 7.10 $ 426,639 The Corporation has established maximum loan to value standards to be applied during the origination process of commercial and consumer real estate loans.The Corporation does not subsequently monitor loan-to-value ratios(either individually or on a weighted-average basis)for loans that are subsequently considered to be of a pass grade(grades 9 or better) and/or current with respect to principal and interest payments. As stated above, when an individual commercial real estate loan has a calculated risk grade of 10 or higher, a special assets officer analyzes the loan to determine whether the loan is impaired.At that time,the Corporation reassesses the loan to value position in the loan. If the loan is determined to be collateral dependent,specific allocations of the allowance for loan losses are made for the amount of any collateral deficiency.If a collateral deficiency is ultimately deemed to be uncollectible,the amount 95 is charged-off.These loans and related assessments of collateral position are monitored on an individual,case-by-case basis.The Corporation does not monitor loan-to-value ratios on a weighted-average basis for commercial real estate loans having a calculated risk grade of 10 or higher.Nonetheless,there were six commercial real estate loans having a calculated risk grade of 10 or higher in excess of$5 million as of December 31,2014,which totaled$44.4 million and had a weighted-average loan-to-value ratio of 53.7%.When an individual consumer real estate loan becomes past due by more than 10 days, the assigned relationship manager will begin collection efforts. The Corporation only reassesses the loan to value position in a consumer real estate loan if,during the course of the collections process,it is determined that the loan has become collateral dependent,and any collateral deficiency is recognized as a charge-off to the allowance for loan losses.Accordingly, the Corporation does not monitor loan-to-value ratios on a weighted- average basis for collateral dependent consumer real estate loans. Generally,a commercial loan, or a portion thereof, is charged-off immediately when it is determined,through the analysis of any available current financial information with regards to the borrower,that the borrower is incapable of servicing unsecured debt,there is little or no prospect for near term improvement and no realistic strengthening action of significance is pending or,in the case of secured debt,when it is determined,through analysis of current information with regards to the Corporation's collateral position,that amounts due from the borrower are in excess of the calculated current fair value of the collateral.Notwithstanding the foregoing,generally,commercial loans that become past due 180 cumulative days are charged-off. Generally, a consumer loan, or a portion thereof, is charged-off in accordance with regulatory guidelines which provide that such loans be charged-off when the Corporation becomes aware of the loss,such as from a triggering event that may include new information about a borrower's intent/ability to repay the loan,bankruptcy,fraud or death,among other things,but in no case should the charge-off exceed specified delinquency time frames. Such delinquency time frames state that closed-end retail loans(loans with pre-defined maturity dates, such as real estate mortgages,home equity loans and consumer installment loans)that become past due 120 cumulative days and open-end retail loans(loans that roll-over at the end of each term, such as home equity lines of credit)that become past due 180 cumulative days should be classified as a loss and charged-off. Net(charge-offs)/recoveries,segregated by class of loan,were as follows: 2014 2013 2012 Commercial and industrial: Energy $ (1,237) $ (913) $ 4 Other commercial (2,911) (28,431) (13,627) Commercial real estate: Buildings, land and other (2,348) (381) 698 Construction 348 256 78 Consumer real estate (733) (719) (638) Consumer and other (2,329) (2,409) (2,289) Total $ (9,210) $ (32,597) $ (15,774) In assessing the general economic conditions in the State of Texas, management monitors and tracks the Texas Leading Index("TLI"),which is produced by the Federal Reserve Bank of Dallas.The TLI is a single summary statistic that is designed to signal the likelihood of the Texas economy's transition from expansion to recession and vice versa. Management believes this index provides a reliable indication of the direction of overall credit quality.The TLI is a composite of the following eight leading indicators:(i)Texas Value of the Dollar,(ii)U.S.Leading Index,(iii)real oil prices(iv)well permits,(v)initial claims for unemployment insurance,(vi)Texas Stock Index,(vii)Help-Wanted Index and(viii)average weekly hours worked in manufacturing.The TLI totaled 131.4 at November 30,2014(most recent date available)and 129.1 at December 31,2013.A higher TLI value implies more favorable economic conditions. 96 Allowance for Loan Losses.The allowance for loan losses is a reserve established through a provision for loan losses charged to expense,which represents management's best estimate of probable losses that have been incurred within the existing portfolio of loans.The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio.The Corporation's allowance for loan loss methodology follows the accounting guidance set forth in U.S.generally accepted accounting principles and the Interagency Policy Statement on the Allowance for Loan and Lease Losses,which was jointly issued by U.S.bank regulatory agencies.In that regard, the Corporation's allowance for loan losses includes allowance allocations calculated in accordance with ASC Topic 310, "Receivables"and allowance allocations calculated in accordance with ASC Topic 450,"Contingencies."Accordingly, the methodology is based on historical loss experience by type of credit and internal risk grade,specific homogeneous risk pools and specific loss allocations,with adjustments for current events and conditions.The Corporation's process for determining the appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs.The provision for loan losses reflects loan quality trends, including the levels of and trends related to non- accrual loans,past due loans,potential problem loans,criticized loans and net charge-offs or recoveries,among other factors.The provision for loan losses also reflects the totality of actions taken on all loans for a particular period. In other words, the amount of the provision reflects not only the necessary increases in the allowance for loan losses related to newly identified criticized loans, but it also reflects actions taken related to other loans including, among other things,any necessary increases or decreases in required allowances for specific loans or loan pools. The level of the allowance reflects management's continuing evaluation of industry concentrations,specific credit risks, loan loss and recovery experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio.Portions of the allowance may be allocated for specific credits;however,the entire allowance is available for any credit that, in management's judgment, should be charged off.While management utilizes its best judgment and information available,the ultimate determination of the appropriate level of the allowance is dependent upon a variety of factors beyond the Corporation's control,including, among other things,the performance of the Corporation's loan portfolio,the economy, changes in interest rates and the view ofthe regulatory authorities toward loan classifications.The Corporation monitors whether or not the allowance for loan loss allocation model,as a whole, calculates an appropriate level of allowance for loan losses that moves in direct correlation to the general macroeconomic and loan portfolio conditions the Corporation experiences over time. The Corporation's allowance for loan losses consists of three elements:(i)specific valuation allowances determined in accordance with ASC Topic 310 based on probable losses on specific loans; (ii)historical valuation allowances determined in accordance with ASC Topic 450 based on historical loan loss experience for similar loans with similar characteristics and trends,adjusted,as necessary,to reflect the impact of current conditions;and(iii)general valuation allowances determined in accordance with ASC Topic 450 based on general economic conditions and other risk factors both internal and external to the Corporation. The allowances established for probable losses on specific loans are based on a regular analysis and evaluation of problem loans.Loans are classified based on an internal credit risk grading process that evaluates,among other things: (i)the obligor's ability to repay;(ii)the underlying collateral,if any;and(iii)the economic environment and industry in which the borrower operates.This analysis is performed at the relationship manager level for all commercial loans. When a loan has a calculated grade of 10 or higher,a special assets officer analyzes the loan to determine whether the loan is impaired and,if impaired,the need to specifically allocate a portion of the allowance for loan losses to the loan. Specific valuation allowances are determined by analyzing the borrower's ability to repay amounts owed, collateral deficiencies,the relative risk grade of the loan and economic conditions affecting the borrower's industry,among other things. Historical valuation allowances are calculated based on the historical gross loss experience of specific types of loans and the internal risk grade of such loans at the time they were charged-off.The Corporation calculates historical gross loss ratios for pools of similar loans with similar characteristics based on the proportion of actual charge-offs experienced to the total population of loans in the pool. The historical gross loss ratios are periodically (no less than annually) updated based on actual charge-off experience.A historical valuation allowance is established for each pool of similar loans based upon the product of the historical gross loss ratio and the total dollar amount of the loans in the pool.The Corporation's pools of similar loans include similarly risk-graded groups ofcommercial and industrial loans,commercial real estate loans,consumer real estate loans and consumer and other loans. 97 The components ofthe general valuation allowance include(i)the additional reserves allocated as a result of applying an environmental risk adjustment factor to the base historical loss allocation,(ii)the additional reserves allocated for loans to borrowers in distressed industries and(iii)the additional reserves allocated for groups of similar loans with risk characteristics that exceed certain concentration limits established by management. The environmental adjustment factor is based upon a more qualitative analysis of risk and is calculated through a survey of senior officers who are involved in credit making decisions at a corporate-wide and/or regional level.On a quarterly basis, survey participants rate the degree of various risks utilizing a numeric scale that translates to varying grades of high,moderate or low levels of risk.The results are then input into a risk-weighting matrix to determine an appropriate environmental risk adjustment factor.The various risks that may be considered in the determination of the environmental adjustment factor include,among other things,(i)the experience,ability and effectiveness of the bank's lending management and staff;(ii)the effectiveness of the Corporation's loan policies,procedures and internal controls; (iii)changes in asset quality; (iv)the impact of legislative and governmental influences affecting industry sectors; (v)the effectiveness of the internal loan review function;(vi)the impact of competition on loan structuring and pricing; and(vii)the impact of rising interest rates on portfolio risk. In periods where the surveyed risks are perceived to be higher,the risk-weighting matrix will generally result in a higher environmental adjustment factor,which,in turn will result in higher levels of general valuation allowance allocations.The opposite holds true in periods where the surveyed risks are perceived to be lower. General valuation allowances also include amounts allocated for loans to borrowers in distressed industries. To determine the amount of the allocation for each loan portfolio segment,management calculates the weighted-average risk grade for all loans to borrowers in distressed industries by loan portfolio segment.A multiple is then applied to the amount by which the weighted-average risk grade for loans to borrowers in distressed industries exceeds the weighted- average risk grade for all pass-grade loans within the loan portfolio segment to derive an allocation factor for loans to borrowers in distressed industries.The amount of the allocation for each loan portfolio segment is the product of this allocation factor and the outstanding balance of pass-grade loans within the identified distressed industries that have a risk grade of 6 or higher.Management identifies potential distressed industries by analyzing industry trends related to delinquencies,classifications and charge-offs.At December 31,2014 and 2013,certain segments of contractors were considered to be a distressed industry based on elevated levels of delinquencies,classifications and charge-offs relative to other industries within the Corporation's loan portfolio.Furthermore,the Corporation determined,through a review of borrower financial information that, as a whole, contractors have experienced, among other things, decreased revenues,reduced backlog of work,compressed margins and little,if any,net income. General valuation allowances also include allocations for groups of loans with similar risk characteristics that exceed certain concentration limits established by management and/or the Corporation's board of directors.Concentration risk limits have been established,among other things,for certain industry concentrations,large balance and highly leveraged credit relationships that exceed specified risk grades,and loans originated with policy,credit and/or collateral exceptions that exceed specified risk grades.Additionally,general valuation allowances are provided for loans that did not undergo a separate,independent concurrence review during the underwriting process(generally those loans under$1.0 million at origination).The Corporation's allowance methodology for general valuation allowances also includes a reduction factor for recoveries of prior charge-offs to compensate for the fact that historical loss allocations are based upon gross charge-offs rather than net. The adjustment for recoveries is based on the lower of annualized, year-to-date gross recoveries or the total gross recoveries for the preceding four quarters,adjusted,when necessary, for expected future trends in recoveries.General valuation allowances are also allocated for general macroeconomic risk related to current economic trends and other quantitative and qualitative factors that could impact the Corporation's loan portfolio segments. 98 The following table presents details of the allowance for loan losses,segregated by loan portfolio segment. Commercial and Commercial Consumer Consumer Industrial Real Estate Real Estate and Other Unallocated Total December 31,2014 Historical valuation allowances $ 32,421 $ 14,684 $ 2,017 $ 10,482 $ - $ 59,604 Specific valuation allowances 1,613 67 - - - 1,680 General valuation allowances: Environmental risk adjustment 6,773 3,547 474 2,683 - 13,477 Distressed industries 3,090 3 - - - 3,093 Excessive industry concentrations 2,114 378 - - - 2,492 Large relationship concentrations 2,248 1,559 - - - 3,807 Highly-leveraged credit relationships 3,958 1,347 - - - 5,305 Policy exceptions 1,907 875 - - - 2,782 Credit and collateral exceptions 1,483 681 - - - 2,164 Loans not reviewed by concurrence 2,110 2,284 2,336 1,176 - 7,906 Adjustment for recoveries (6,234) (1,800) (364) (7,439) - (15,837) General macroeconomic risk 7,709 3,538 715 1,107 - 13,069 Total $ 59,192 $ 27,163 $ 5,178 $ 8,009 $ - $ 99,542 December 31,2013 Historical valuation allowances $ 29,357 $ 13,042 $ 2,644 $ 8,695 $ - $ 53,738 Specific valuation allowances 4,140 2,786 - - - 6,926 General valuation allowances: Environmental risk adjustment 5,497 3,314 664 2,331 - 11,806 Distressed industries 7,812 384 - - - 8,196 Excessive industry concentrations 1,499 367 - - - 1,866 Large relationship concentrations 1,529 1,081 - 2,610 Highly-leveraged credit relationships 4,535 619 - 5,154 Policy exceptions - - 2,492 2,492 Credit and collateral exceptions - 1,398 1,398 Loans not reviewed by concurrence 2,009 2,201 2,250 1,064 - 7,524 Adjustment for recoveries (3,588) (1,204) (328) (7,080) - (12,200) General macroeconomic risk - - - - 2,928 2,928 Total $ 52,790 $ 22,590 $ 5,230 $ 5,010 $ 6,818 $ 92,438 The Corporation monitors whether or not the allowance for loan loss allocation model, as a whole, calculates an appropriate level of allowance for loan losses that moves in direct correlation to the general macroeconomic and loan portfolio conditions the Corporation experiences over time.In assessing the general macroeconomic trends/conditions, the Corporation analyzes trends in the components of the TLI,as well as any available information related to regional, national and international economic conditions and events and the impact such conditions and events may have on the Corporation and its customers.With regard to assessing loan portfolio conditions,the Corporation analyzes trends in weighted-average portfolio risk-grades,classified and non-performing loans and charge-off activity.In periods where general macroeconomic and loan portfolio conditions are in a deteriorating trend or remain at deteriorated levels,based on historical trends,the Corporation would expect to see the allowance for loan loss allocation model, as a whole, calculate higher levels of required allowances than in periods where general macroeconomic and loan portfolio conditions are in an improving trend or remain at an elevated level,based on historical trends. 99 The following table details activity in the allowance for loan losses by portfolio segment for 2014,2013 and 2012. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. Commercial and Commercial Consumer Consumer Industrial Real Estate Real Estate and Other Unallocated Total 2014 Beginning balance $ 52,790 $ 22,590 $ 5,230 $ 5,010 $ 6,818 $ 92,438 Provision for loan losses 10,550 6,573 681 5,328 (6,818) 16,314 Charge-offs (13,820) (3,800) (1,097) (9,768) - (28,485) Recoveries 9,672 1,800 364 7,439 - 19,275 Net charge-offs (4,148) (2,000) (733) (2,329) - (9,210) Ending balance $ 59,192 $ 27,163 $ 5,178 8,009 $ - $ 99,542 Period-end amount allocated to: Loans individually evaluated for impairment $ 11,836 $ 1,164 $ - $ - $ - $ 13,000 Loans collectively evaluated for impairment 47,356 25,999 5,178 8,009 - 86,542 Ending balance $ 59,192 $ 27,163 $ 5,178 $ 8,009 $ - $ 99,542 2013 Beginning balance $ 54,164 $ 29,346 $ 5,252 $ 3,507 $ 12,184 $ 104,453 Provision for loan losses 27,970 (6,631) 697 3,912 (5,366) 20,582 Charge-offs (32,932) (1,329) (1,047) (9,489) - (44,797) Recoveries 3,588 1,204 328 7,080 - 12,200 Net charge-offs (29,344) (125) (719) (2,409) - (32,597) Ending balance $ 52,790 $ 22,590 $ 5,230 $ 5,010 $ 6,818 $ 92,438 Period-end amount allocated to: Loans individually evaluated for impairment $ 16,682 $ 3,914 $ - $ - $ - $ 20,596 Loans collectively evaluated for impairment 36,108 18,676 5,230 5,010 6,818 71,842 Ending balance $ 52,790 $ 22,590 $ 5,230 $ 5,010 $ 6,818 $ 92,438 2012 Beginning balance $ 42,774 $ 20,912 $ 3,540 $ 12,635 $ 30,286 $ 110,147 Provision for loan losses 25,013 7,658 2,350 (6,839) (18,102) 10,080 Charge-offs (18,493) (3,951) (1,495) (9,101) - (33,040) Recoveries 4,870 4,727 857 6,812 - 17,266 Net charge-offs (13,623) 776 (638) (2,289) - (15,774) Ending balance $ 54,164 $ 29,346 $ 5,252 $ 3,507 $ 12,184 $ 104,453 Period-end amount allocated to: Loans individually evaluated for impairment $ 13,171 $ 4,366 $ - $ - $ - $ 17,537 Loans collectively evaluated for impairment 40,993 24,980 5,252 3,507 12,184 86,916 Ending balance $ 54,164 $ 29,346 $ 5,252 $ 3,507 $ 12,184 $ 104,453 100 The Corporation's recorded investment in loans as of December 31,2014 and 2013 related to each balance in the allowance for loan losses by portfolio segment and detailed on the basis of the impairment methodology used by the Corporation was as follows: Commercial and Commercial Consumer Consumer Unearned Industrial Real Estate Real Estate and Other Discounts Total 2014 Loans individually evaluated for impairment $ 149,638 $ 155,044 $ 596 $ — $ — $ 305,278 Loans collectively evaluated for impairment 5,618,105 3,847,053 848,455 393,601 (24,957) 10,682,257 Ending balance $ 5,767,743 $ 4,002,097 $ 849,051 $ 393,601 $ (24,957) $10,987,535 2013 Loans individually evaluated for impairment $ 210,273 $ 136,601 $ 745 $ 278 $ — $ 347,897 Loans collectively evaluated for impairment 4,696,803 3,330,735 807,459 357,838 (25,032) 9,167,803 Ending balance $ 4,907,076 $ 3,467,336 $ 808,204 $ 358,116 $ (25,032) $ 9,515,700 Note 5-Premises and Equipment Year-end premises and equipment were as follows: 2014 2013 Land $ 102,334 $ 97,095 Buildings 240,430 231,066 Furniture and equipment 103,603 212,169 Leasehold improvements 60,902 61,221 Construction in progress 118,367 10,074 625,636 611,625 Less accumulated depreciation and amortization (182,748) (298,294) Total premises and equipment,net $ 442,888 $ 313,331 Depreciation and amortization of premises and equipment totaled$23.5 million in 2014,$22.5 million in 2013 and $21.8 million in 2012. Note 6-Goodwill and Other Intangible Assets Goodwill and other intangible assets are presented in the table below. During 2014,the Corporation preliminarily recorded goodwill totaling$117.3 million and a core deposit intangible asset totaling$9.3 million in connection with the acquisition of WNB. See Note 2-Mergers and Acquisitions. Goodwill.Year-end goodwill was as follows: 2014 2013 Goodwill $ 653,950 $ 536,649 101 Other Intangible Assets. Year-end other intangible assets were as follows: Gross Net Intangible Accumulated Intangible Assets Amortization Assets 2014 Core deposits $ 44,266 $ (34,591) $ 9,675 Customer relationships 5,771 (3,643) 2,128 Non-compete agreements 725 (403) 322 $ 50,762 $ (38,637) $ 12,125 2013 Core deposits $ 34,966 $ (31,961) $ 3,005 Customer relationships 7,870 (5,042) 2,828 Non-compete agreements 1,135 (623) 512 $ 43,971 $ (37,626) $ 6,345 Other intangible assets are amortized on an accelerated basis over their estimated lives, which range from 5 to 10 years.Amortization expense related to intangible assets totaled$3.5 million in 2014,$3.1 million in 2013,and$3.9 million in 2012.The estimated aggregate future amortization expense for intangible assets remaining as ofDecember 31, 2014 is as follows: 2015 $ 3,324 2016 2,413 2017 1,619 2018 1,346 2019 1,102 Thereafter 2,321 $ 12,125 Note 7-Deposits Year-end deposits were as follows: 2014 2013 Non-interest-bearing demand deposits: Commercial and individual $ 9,256,045 $ 7,445,656 Correspondent banks 429,000 427,134 Public funds 464,016 438,359 Total non-interest-bearing demand deposits 10,149,061 8,311,149 Interest-bearing deposits: Private accounts: Savings and interest checking 4,743,963 4,020,313 Money market accounts 7,860,403 6,883,869 Time accounts of$100,000 or more 490,209 508,441 Time accounts under$100,000 454,220 438,800 Total private accounts 13,548,795 11,851,423 Public funds: Savings and interest checking 326,090 305,976 Money market accounts 57,145 56,015 Time accounts of$100,000 or more 53,684 160,637 Time accounts under$100,000 1,155 3,586 Total public funds 438,074 526,214 Total interest-bearing deposits 13,986,869 12,377,637 Total deposits $ 24,135,930 $ 20,688,786 102 The following table presents additional information about the Corporation's year-end deposits: 2014 2013 Deposits from the Certificate of Deposit Account Registry Service(CDARS) $ 22 $ 200 Deposits from the Promontory Interfinancial Network Insured Cash Sweep Service(acquired in the acquisition of WNB) 149 — Deposits from foreign sources(primarily Mexico) 744,295 769,970 Deposits from certain directors,executive officers and their affiliates 176,821 144,216 Scheduled maturities of time deposits, including both private and public funds, at December 31, 2014 were as follows: 2015 $ 857,857 2016 140,882 2017 379 2018 92 2019 58 $ 999,268 Scheduled maturities of time deposits in amounts of$100,000 or more, including both private and public funds,at December 31,2014,were as follows: Due within 3 months or less $ 228,010 Due after 3 months and within 6 months 97,194 Due after 6 months and within 12 months 142,973 Due after 12 months 75,716 $ 543,893 Note 8-Borrowed Funds Federal Funds Purchased and Securities Sold Under Agreements to Repurchase.Federal funds purchased are short- term borrowings that typically mature within one to ninety days. Federal funds purchased totaled $12.0 million and $200 thousand at December 31,2014 and 2013.Securities sold under agreements to repurchase are secured short-term borrowings that typically mature within thirty to ninety days.Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction.The Corporation may be required to provide additional collateral based on the fair value of the underlying securities. Securities sold under agreements to repurchase totaled $791.1 million and$668.1 million at December 31,2014 and 2013. Subordinated Notes Payable. In February 2007,the Corporation issued$100 million of 5.75%fixed-to-floating rate subordinated notes that mature on February 15,2017.The notes,which qualify as Tier 2 capital for Cullen/Frost under the capital rules in effect at December 31,2014(see Note 10-Capital and Regulatory Matters),had an interest rate of 5.75%per annum,payable semi-annually on each February 15 and August 15,commencing on August 15,2007 until February 15, 2012. From February 15, 2012, to but excluding the maturity date or date of earlier redemption and commencing on May 15,2012,the notes bear interest at a rate per annum equal to three-month LIBOR for the related interest period plus 0.53%(0.76%and 0.77%at December 31,2014 and 2013),payable quarterly on each February 15, May 15,August 15 and November 15.The notes are subordinated in right of payment to all of the Corporation's senior indebtedness and effectively subordinated to all existing and future debt and all other liabilities of the Corporation's subsidiaries.The notes cannot be accelerated except in the event of bankruptcy or the occurrence of certain other events of bankruptcy, insolvency or reorganization.The notes mature on February 15, 2017.The Corporation may elect to redeem the notes (subject to regulatory approval), in whole or in part, on any interest payment date on or after February 15,2012 at a redemption price equal to 100%of the principal amount plus any accrued and unpaid interest. Unamortized debt issuance costs related to these notes,which are included in other assets,totaled$250 thousand and $370 thousand at December 31, 2014 and 2013. Proceeds from sale of the notes were used to fund a portion of the redemption of certain junior subordinated deferrable interest debentures. 103 Junior Subordinated Deferrable Interest Debentures.At December 31,2014 and 2013,the Corporation had$123.7 million ofjunior subordinated deferrable interest debentures issued to Cullen/Frost Capital Trust II("Trust II"),a wholly owned Delaware statutory business trust. Unamortized debt issuance costs related to Trust II, which are included in other assets, totaled $1.1 million and $1.2 million at December 31, 2014 and 2013. At December 31, 2014, the Corporation also had$13.4 million ofjunior subordinated deferrable interest debentures issued to WNB Capital Trust I ("WNB Trust"),a wholly owned Delaware statutory business trust acquired in connection with the acquisition of WNB during the second quarter of 2014.Trust II and WNB Trust are variable interest entities for which the Corporation is not the primary beneficiary.As such, the accounts of Trust II and WNB Trust are not included in the Corporation's consolidated financial statements.See Note 1 -Summary of Significant Accounting Policies for additional information about the Corporation's consolidation policy.Details ofthe Corporation's transactions with the capital trust are presented below. Trust II was formed in 2004 for the purpose of issuing $120 million of floating rate (three-month LIBOR plus a margin of 1.55%) trust preferred securities, which represent beneficial interests in the assets of the trust. The trust preferred securities will mature on March 1,2034 and are redeemable with the approval of the Federal Reserve Board in whole or in part at the option of the Corporation at any time after March 1,2009 and in whole at any time upon the occurrence of certain events affecting their tax or regulatory capital treatment. Distributions on the trust preferred securities are payable quarterly in arrears on March 1,June 1,September 1 and December 1 of each year.Trust II also issued $3.7 million of common equity securities to Cullen/Frost. The proceeds of the offering of the trust preferred securities and common equity securities were used to purchase$123.7 million of floating rate(three-month LIBOR plus a margin of 1.55%,which was equal to 1.78%and 1.79%at December 31,2014 and 2013)junior subordinated deferrable interest debentures issued by the Corporation,which have terms substantially similar to the trust preferred securities. In October 2008, the Corporation entered into an interest rate swap contract on the junior subordinated deferrable interest debentures that effectively fixed the interest rate on the debentures for a period of five years, terminating in October 2013. See Note 16-Derivative Financial Instruments. WNB Trust was formed in 2004 by WNB for the purpose of issuing $13.0 million of floating rate (three-month LIBOR plus a margin of 2.35%)trust preferred securities,which represent beneficial interests in the assets of the trust. The trust preferred securities will mature on July 23,2034 and are redeemable with the approval of the Federal Reserve Board in whole or in part at the option of the Corporation at any time after July 23,2009 and in whole at any time upon the occurrence of certain events affecting their tax or regulatory capital treatment. Distributions on the trust preferred securities are payable quarterly in arrears on January 23,April 23, July 23 and October 23 of each year. WNB Trust also issued$403 thousand of common equity securities to WNB.The proceeds of the offering of the trust preferred securities and common equity securities were used to purchase$13.4 million of floating rate(three-month LIBOR plus a margin of 2.35%,which was equal to 2.58%at December 31,2014)junior subordinated deferrable interest debentures issued by WNB,which have terms substantially similar to the trust preferred securities. The Corporation has the right at any time during the term of the debentures issued to Trust II and WNB Trust to defer payments 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. Under the terms of the debentures, in the event that under certain circumstances there is an event of default under the debentures or the Corporation has elected to defer interest on the debentures,the Corporation may not,with certain exceptions,declare or pay any dividends or distributions on its capital stock or purchase or acquire any of its capital stock. Payments ofdistributions on the trust preferred securities and payments on redemption ofthe trust preferred securities are guaranteed by the Corporation on a limited basis. The Corporation is obligated by agreement to pay any costs, expenses or liabilities of Trust II and WNB Trust other than those arising under the trust preferred securities. The obligations of the Corporation under the junior subordinated debentures,the related indentures,the trust agreements establishing the trusts,the guarantees and the agreements as to expenses and liabilities,in the aggregate,constitute a full and unconditional guarantee by the Corporation of Trust II's and WNB Trust's obligations under the trust preferred securities. Although the accounts of Trust II and WNB Trust are not included in the Corporation's consolidated financial statements,the$120.0 million in trust preferred securities issued by Trust II and the $13.0 million in trust preferred securities issued by WNB Trust are included in the Tier 1 capital of Cullen/Frost for regulatory capital purposes as of December 31, 2014 and, in the case of Trust II, December 31, 2013. Federal Reserve Board rules applicable as of December 31, 2014 limit the aggregate amount of restricted core capital elements (which includes trust preferred securities,among other things)that may be included in the Tier 1 capital of most bank holding companies to 25%of 104 all core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability.Amounts of restricted core capital elements in excess of these limits generally may be included in Tier 2 capital. This quantitative limit did not preclude the Corporation from including the aggregate$133.0 million in trust preferred securities outstanding in Tier 1 capital as of December 31, 2014.As more fully discussed in Note 10 - Capital and Regulatory Matters,new rules related to the implementation of the Basel III capital framework will require the phase- out of certain hybrid securities,such as trust preferred securities,as Tier 1 capital of bank holding companies beginning January 1,2015. Note 9-Off-Balance-Sheet Arrangements,Commitments,Guarantees and Contingencies Financial Instruments with Off-Balance-Sheet Risk. In the normal course of business,the Corporation enters into various transactions, which, in accordance with generally accepted accounting principles are not included in its consolidated balance sheets.The Corporation enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and standby letters of credit,which involve,to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Corporation minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures. The Corporation enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses,at specified rates and for specific purposes.Substantially all of the Corporation's commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding.Standby letters of credit are written conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party,the Corporation would be required to fund the commitment.The maximum potential amount of future payments the Corporation could be required to make is represented by the contractual amount of the commitment. Ifthe commitment were funded,the Corporation would be entitled to seek recovery from the customer.The Corporation's policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements. The Corporation considers the fees collected in connection with the issuance of standby letters of credit to be representative of the fair value of its obligation undertaken in issuing the guarantee. In accordance with applicable accounting standards related to guarantees,the Corporation defers fees collected in connection with the issuance of standby letters of credit.The fees are then recognized in income proportionately over the life of the standby letter of credit agreement. The deferred standby letter of credit fees represent the fair value of the Corporation's potential obligations under the standby letter of credit guarantees. Year-end financial instruments with off-balance-sheet risk were as follows: 2014 2013 Commitments to extend credit $ 7,955,779 $ 6,919,942 Standby letters of credit 248,360 186,857 Deferred standby letter of credit fees 1,942 1,450 Credit Card Guarantees.The Corporation guarantees the credit card debt of certain customers to the merchant bank that issues the cards. At December 31, 2014 and 2013, the guarantees totaled approximately $8.9 million and $8.4 million,of which amounts, $1.5 million and$1.2 million were fully collateralized. Securities Lending. The Corporation lends certain customer securities to creditworthy brokers on behalf of those customers.If the borrower fails to return these securities,the Corporation indemnifies its customers based on the then current net realizable fair value of the securities. The Corporation holds collateral received in securities lending transactions as an agent.Accordingly,such collateral assets are not assets of the Corporation.The Corporation requires borrowers to provide collateral equal to or in excess of 100%of the fair value of the securities borrowed.The collateral is valued daily and additional collateral is requested as necessary.The maximum future payments guaranteed by the Corporation under these contractual agreements(representing the fair value of securities lent to brokers)totaled$2.5 billion at December 31,2014.At December 31,2014,the Corporation held pledged liquid assets with a fair value of $2.5 billion as collateral for these agreements. 105 Lease Commitments. The Corporation leases certain office facilities and office equipment under operating leases. Rent expense for all operating leases totaled$28.2 million in 2014,$24.6 million in 2013 and$22.7 million in 2012. Future minimum lease payments due under non-cancelable operating leases at December 31,2014 were as follows: 2015 $ 21,373 2016 19,834 2017 18,503 2018 17,067 2019 13,269 Thereafter 77,000 $ 167,046 It is expected that certain leases will be renewed,or equipment replaced with new leased equipment,as these leases expire.Aggregate future minimum rentals to be received under non-cancelable subleases greater than one year at December 31,2014,were$209 thousand. The Corporation leases a branch facility from a partnership interest of a director. Payments related to this lease totaled$925 thousand in 2014,$871 thousand in 2013,and$902 thousand in 2012.The terms ofthe lease are substantially the same as those offered for comparable transactions with non-related parties at the time the lease transaction was consummated. Change in Control Agreements.The Corporation has change-in-control agreements with certain executive officers. Under these agreements,each covered person could receive,upon the effectiveness of a change-in-control,two to three times(depending on the person)his or her base compensation plus the target bonus established for the year,and any unpaid base salary and pro rata target bonus for the year in which the termination occurs, including vacation pay. Additionally,the executive's insurance benefits will continue for two to three full years after the termination and all long-term incentive awards will immediately vest. Litigation.The Corporation is subject to various claims and legal actions that have arisen in the course of conducting business.Management does not expect the ultimate disposition of these matters to have a material adverse impact on the Corporation's financial statements. Note 10-Capital and Regulatory Matters Regulatory Capital Requirements in Effect as of December 31,2014.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. Quantitative measures established by regulations to ensure capital adequacy require the maintenance of minimum amounts and ratios(set forth in the table below)of total and Tier 1 capital(as defined in the regulations)to risk-weighted assets(as defined),and of Tier 1 capital to adjusted quarterly average assets(as defined). Cullen/Frost's and Frost Bank's Tier 1 capital consists of shareholders'equity excluding unrealized gains and losses on securities available for sale,the accumulated gain or loss on effective cash flow hedging derivatives,the net actuarial gain/loss on the Corporation's defined benefit post-retirement benefit plans,goodwill and other intangible assets.Tier 1 capital for Cullen/Frost also includes $144.5 million of 5.375% non-cumulative perpetual preferred stock and $133 million of trust preferred securities issued by its unconsolidated subsidiary trusts.Cullen/Frost's and Frost Bank's total capital is comprised of Tier 1 capital for each entity plus a permissible portion of the allowance for loan losses and outstanding subordinated debt.The Corporation's aggregate$100 million of floating rate subordinated notes are not included in Tier 1 capital but the permissible portion(which decreases 20%per year during the final five years of the term of the notes)totaling $40 million at December 31, 2014 and $60 million at December 31, 2013, is included in total capital of Cullen/Frost. The Tier 1 and total capital ratios are calculated by dividing the respective capital amounts by risk-weighted assets. Risk-weighted assets are calculated based on regulatory requirements and include total assets,excluding goodwill and other intangible assets, allocated by risk weight category, and certain off-balance-sheet items (primarily loan 106 commitments). The leverage ratio is calculated by dividing Tier 1 capital by adjusted quarterly average total assets, which exclude goodwill and other intangible assets. As further discussed below, in July 2013, Cullen/Frost's and Frost Bank's primary federal regulator, the Federal Reserve, published final rules establishing a new comprehensive capital framework for U.S. banking organizations which will become effective on January 1,2015(subject to a phase-in period for certain provisions). Year-end actual and required capital ratios for Cullen/Frost and Frost Bank were as follows: Minimum Required Required to be for Capital Adequacy Considered Well Actual Purposes Capitalized Capital Capital Capital Amount Ratio Amount Ratio Amount Ratio 2014 Total Capital to Risk-Weighted Assets Cullen/Frost $2,325,818 14.55% $1,278,797 8.00% $1,598,496 10.00% Frost Bank 2,071,012 12.99 1,275,858 8.00 1,594,823 10.00 Tier 1 Capital to Risk-Weighted Assets Cullen/Frost 2,186,276 13.68 639,398 4.00 959,098 6.00 Frost Bank 1,979,415 12.41 637,929 4.00 956,894 6.00 Leverage Ratio Cullen/Frost 2,186,276 8.16 1,072,035 4.00 1,340,043 5.00 Frost Bank 1,979,415 7.40 1,070,109 4.00 1,337,636 5.00 2013 Total Capital to Risk-Weighted Assets Cullen/Frost $2,110,774 15.52% $1,088,349 8.00% $1,360,437 10.00% Frost Bank 1,780,313 13.12 1,085,447 8.00 1,356,809 10.00 Tier 1 Capital to Risk-Weighted Assets Cullen/Frost 1,958,336 14.39 544,175 4.00 816,262 6.00 Frost Bank 1,707,307 12.58 542,724 4.00 814,085 6.00 Leverage Ratio Cullen/Frost 1,958,336 8.49 922,728 4.00 1,153,410 5.00 Frost Bank 1,707,307 7.42 920,107 4.00 1,150,134 5.00 Management believes that,as of December 31,2014,Cullen/Frost and its bank subsidiary,Frost Bank,were"well capitalized"based on the ratios presented above. Cullen/Frost and Frost Bank are subject to the regulatory capital requirements administered by the Federal Reserve 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 the Corporation's financial statements.Management believes,as of December 31,2014,that Cullen/Frost and Frost Bank meet all capital adequacy requirements to which they are subject. Trust Preferred Securities.In accordance with the applicable accounting standard related to variable interest entities, the accounts of the Corporation's wholly owned subsidiary trust,Cullen/Frost Capital Trust II and WNB Capital Trust I,have not been included in the Corporation's consolidated financial statements.However,the$133.0 million in trust preferred securities issued by these subsidiary trusts have been included in the Tier 1 capital of Cullen/Frost for regulatory capital purposes pursuant to guidance from the Federal Reserve.As more fully discussed below,new rules related to the implementation of the Basel III capital framework will require the phase-out of certain hybrid securities, such as trust preferred securities,as Tier 1 capital of bank holding companies beginning January 1,2015. Preferred Stock. On February 15, 2013, the Corporation issued and sold 6,000,000 shares, or$150.0 million in aggregate liquidation preference,of it's 5.375%Non-Cumulative Perpetual Preferred Stock,Series A,par value$0.01 and liquidation preference$25 per share("Series A Preferred Stock"). Dividends on the Series A Preferred stock, if declared, accrue and are payable quarterly, in arrears, at a rate of 5.375%.The Series A Preferred Stock qualifies as Tier 1 capital for the purposes of the regulatory capital calculations.The net proceeds from the issuance and sale of the Series A Preferred Stock,after deducting underwriting discount and commissions,and the payment of expenses,were 107 approximately$144.5 million.The net proceeds from the offering were used to fund the accelerated share repurchase further discussed below. Stock Repurchase Plans. From time to time,the Corporation's board of directors has authorized stock repurchase plans. In general, stock repurchase plans allow the Corporation to proactively manage its capital position and return excess capital to shareholders.Shares purchased under such plans also provide the Corporation with shares of common stock necessary to satisfy obligations related to stock compensation awards.The accelerated share repurchase discussed below was part of a stock repurchase program that was authorized by the Corporation's board of directors in December 2012 to buy up to$150.0 million of the Corporation's common stock.As of December 31,2014,the Corporation did not have any active stock repurchase plans. Accelerated Share Repurchase.Concurrent with the issuance and sale ofthe Series A Preferred Stock,on February 12, 2013,the Corporation entered into an accelerated share repurchase agreement(the"ASR agreement")with Goldman, Sachs&Co.("Goldman Sachs").Under the ASR agreement,the Corporation paid$144.0 million to Goldman Sachs and received from Goldman Sachs 1,905,077 shares of the Corporation's common stock,representing approximately 80%of the estimated total number of shares to be repurchased.Goldman Sachs borrowed such shares delivered to the Corporation from stock lenders, and during the term of the ASR agreement, purchased shares in the open market to return to those stock lenders.Final settlement of the ASR agreement occurred on August 13,2013 and the Corporation received an additional 331,671 shares.The total number of shares that the Corporation repurchased was based on the volume-weighted-average price per share of the Corporation's common stock during the repurchase period as adjusted pursuant to the terms and conditions of the ASR agreement. 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. 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 December 31,2014,Frost Bank could pay aggregate dividends of up to$363.9 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 the Corporation has elected to defer interest on the debentures,the Corporation may not,with certain exceptions,declare or pay any dividends or distributions on its capital stock or purchase or acquire any of its capital stock. Under the terms of the Series A Preferred Stock,in the event that the Corporation does not declare and pay dividends on the Series A Preferred Stock for the most recent dividend period,the Corporation may not,with certain exceptions, declare or pay dividends on,or purchase,redeem or otherwise acquire,shares of its common stock or any securities of the Corporation that rank junior to the Series A Preferred Stock. Basel III Capital Rules Effective January 1, 2015. In July 2013, Cullen/Frost's and Frost Bank's primary federal regulator,the Federal Reserve,published final rules(the"Basel III Capital Rules")establishing a new comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee's December 2010 framework known as"Basel III"for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act.The Basel III Capital Rules substantially revise the risk-based capital requirements applicable to bank holding companies and depository institutions, including Cullen/Frost and Frost Bank, compared to the current U.S. risk-based capital rules.The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions'regulatory capital ratios.The Basel III Capital Rules also address risk weights and other issues affecting the denominator in banking institutions'regulatory capital ratios and replace the existing risk-weighting approach,which was derived from the Basel I capital accords of the Basel Committee,with a more risk- sensitive approach based,in part,on the standardized approach in the Basel Committee's 2004"Basel II"capital accords. The Basel III Capital Rules also implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies'rules.The Basel III Capital Rules are effective for Cullen/ Frost and Frost Bank on January 1,2015(subject to a phase-in period for certain provisions). 108 Note 11-Earnings Per Common Share Earnings Per Common Share.Earnings per common share is computed using the two-class method.Basic earnings per common share is computed by dividing net earnings allocated to common stock by the weighted-average number of common shares outstanding during the applicable period,excluding outstanding participating securities.Participating securities include non-vested stock awards/stock units and deferred stock units,though no actual shares of common stock related to non-vested stock units and deferred stock units have been issued.Non-vested stock awards/stock units and deferred stock units are considered participating securities because holders ofthese securities receive non-forfeitable dividends at the same rate as holders of the Corporation's common stock. Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method. The following table presents a reconciliation of net income available to common shareholders,net earnings allocated to common stock and the number of shares used in the calculation of basic and diluted earnings per common share. 2014 2013 2012 Net Income $ 277,977 $ 237,866 $ 237,952 Less:Preferred stock dividends 8,063 6,719 Net income available to common shareholders 269,914 231,147 237,952 Less:Earnings allocated to participating securities 1,001 850 773 Net earnings allocated to common stock $ 268,913 $ 230,297 $ 237,179 Distributed earnings allocated to common stock $ 126,709 $ 119,177 $ 116,472 Undistributed earnings allocated to common stock 142,204 111,120 120,707 Net earnings allocated to common stock $ 268,913 $ 230,297 $ 237,179 Weighted-average shares outstanding for basic earnings per common share 62,072,080 60,350,552 61,298,041 Dilutive effect of stock compensation 901,448 765,858 345,341 Weighted-average shares outstanding for diluted earnings per common share 62,973,528 61,116,410 61,643,382 Note 12-Employee Benefit Plans Retirement Plans Profit Sharing Plans. The profit-sharing plan is a defined contribution retirement plan that covers employees who have completed at least one year of service and are age 21 or older.All contributions to the plan are made at the discretion of the Corporation and may be made without regard to current or accumulated profits. Contributions are allocated to eligible participants pro rata,based upon compensation,age and other factors.Plan participants self-direct the investment of allocated contributions by choosing from a menu of investment options.Account assets are subject to withdrawal restrictions and participants vest in their accounts after three years of service.The Corporation also maintains a separate non-qualified profit sharing plan for certain employees whose participation in the qualified profit sharing plan is limited. The plan offers such employees an alternative means of receiving comparable benefits.Expense related to these plans totaled$10.8 million in 2014,$11.4 million in 2013 and$9.2 million in 2012. Retirement Plan and Restoration Plan. The Corporation maintains a non-contributory defined benefit plan (the "Retirement Plan") that was frozen as of December 31, 2001. The plan provides pension and death benefits to substantially all employees who were at least 21 years of age and had completed at least one year of service prior to December 31,2001. Defined benefits are provided based on an employee's final average compensation and years of service at the time the plan was frozen and age at retirement.The freezing of the plan provides that future salary increases will not be considered.The Corporation's funding policy is to contribute yearly,at least the amount necessary to satisfy the funding standards of the Employee Retirement Income Security Act("ERISA"). The Corporation's Restoration of Retirement Income Plan (the "Restoration Plan") provides benefits for eligible employees that are in excess of the limits under Section 415 of the Internal Revenue Code of 1986,as amended,that apply to the Retirement Plan.The Restoration Plan is designed to comply with the requirements of ERISA.The entire cost of the plan,which was also frozen as of December 31,2001,is supported by contributions from the Corporation. 109 The Corporation uses a December 31 measurement date for its defined benefit plans. Combined activity in the Corporation's defined benefit pension plans was as follows: 2014 2013 2012 Change in benefit obligation: Benefit obligation at beginning of year $ 163,876 $ 178,158 $ 157,855 Interest cost 8,002 7,341 7,801 Actuarial(gain)loss 34,438 (15,333) 18,436 Benefits paid (6,679) (6,290) (5,934) Benefit obligation at end of year 199,637 163,876 178,158 Change in plan assets: Fair value of plan assets at beginning of year 164,769 145,901 137,253 Actual return on plan assets 9,428 24,489 13,931 Employer contributions 667 669 651 Benefits paid (6,679) (6,290) (5,934) Fair value of plan assets at end of year 168,185 164,769 145,901 Funded status of the plan at end of year and accrued(benefit) liability recognized $ 31,452 $ (893) $ 32,257 Accumulated benefit obligation at end of year $ 199,637 $ 163,876 $ 178,158 Certain disaggregated information related to the Corporation's defined benefit pension plans as of year-end was as follows: Retirement Plan Restoration Plan 2014 2013 2014 2013 Projected benefit obligation $ 179,970 $ 147,403 $ 19,667 $ 16,473 Accumulated benefit obligation 179,970 147,403 19,667 16,473 Fair value of plan assets 168,185 164,769 - - Funded status of the plan at end of year and accrued(benefit)liability recognized 11,785 (17,366) 19,667 16,473 The components of the combined net periodic cost (benefit) for the Corporation's defined benefit pension plans were as follows: 2014 2013 2012 Expected return on plan assets,net of expenses $ (12,514) $ (11,087) $ (10,412) Interest cost on projected benefit obligation 8,002 7,341 7,801 Net amortization and deferral 2,687 6,558 5,709 Net periodic cost(benefit) $ (1,825) $ 2,812 $ 3,098 Amounts related to the Corporation's defined benefit pension plans recognized as a component of other comprehensive income were as follows: 2014 2013 2012 Net actuarial gain(loss) $ (34,837) $ 35,293 $ (9,405) Deferred tax(expense)benefit 12,193 (12,353) 3,292 Other comprehensive income(loss),net of tax $ (22,644) $ 22,940 $ (6,113) 110 Amounts recognized as a component of accumulated other comprehensive loss as of year-end that have not been recognized as a component of the combined net period benefit cost of the Corporation's defined benefit pension plans are presented in the following table.The Corporation expects to recognize approximately$7.0 million ofthe net actuarial loss reported in the following table as of December 31,2014 as a component of net periodic benefit cost during 2015. 2014 2013 Net actuarial loss $ (75,038) $ (40,201) Deferred tax benefit 26,263 14,070 Amounts included in accumulated other comprehensive loss,net of tax $ (48,775) $ (26,131) The weighted-average assumptions used to determine the benefit obligations as of the end of the years indicated and the net periodic benefit cost for the years indicated are presented in the table below.Because the plans were frozen, increases in compensation are not considered after 2001. 2014 2013 2012 Benefit obligations: Discount rate 4.20% 5.00% 4.20% Net periodic benefit cost: Discount rate 5.00% 4.20% 5.05% Expected return on plan assets 7.75 7.75 7.75 Management uses an asset allocation optimization model to analyze the potential risks and rewards associated with various asset allocation strategies on a quarterly basis.As of December 31,2014,management's investment objective for the Corporation's defined benefit plans is to achieve long-term growth. This strategy provides for a target asset allocation of approximately 65% invested in equity securities, approximately 32% invested in fixed income debt securities with any remainder invested in cash or short-term cash equivalents.The modeling process calculates,with a 90% confidence ratio, the potential risk associated with a given asset allocation and helps achieve adequate diversification of investment assets.The plan assets are reviewed annually to determine if the obligations can be met with the current investment mix and funding strategy. The major categories of assets in the Corporation's Retirement Plan as of year-end are presented in the following table.Assets are segregated by the level of the valuation inputs within the fair value hierarchy established by ASC Topic 820 "Fair Value Measurements and Disclosures," utilized to measure fair value (see Note 18-Fair Value Measurements).The Corporation's Restoration Plan is unfunded. 2014 2013 Level 1: Mutual funds $ 165,429 $ 163,046 Cash and cash equivalents 1,447 91 Level 2: Corporate bonds and notes 653 893 U.S.government agency securities 394 473 States and political subdivisions 262 266 Total fair value of plan assets $ 168,185 $ 164,769 Mutual funds include various equity, fixed-income and blended funds with varying investment strategies. Approximately 71%of mutual fund investments consist of equity investments as of December 31,2014.The investment objective of equity funds is long-term capital appreciation with current income.The remaining mutual fund investments consist of U.S.fixed-income securities,including investment-grade U.S.Treasury securities,U.S.government agency securities and mortgage-backed securities, corporate bonds and notes and collateralized mortgage obligations. The investment objective of fixed-income funds is to maximize investment return while preserving investment principal. Corporate bonds and notes include investment-grade bonds and notes of U.S. companies from diversified industries. U.S.government agency securities include obligations of Ginnie Mae.States and political subdivisions include fixed income municipal securities. The Corporation's investment strategies prohibit selling assets short and the use of derivatives.Additionally,the Corporation's defined benefit plans do not directly invest in real estate,commodities,or private investments. 111 The asset allocation optimization model is used to estimate the expected long-term rate of return for a given asset allocation strategy.Expectations of returns for each asset class are based on comprehensive reviews of historical data and economic/financial market theory.During periods with volatile interest rates and equity security prices,the model may call for changes in the allocation of plan investments to achieve desired returns. Management assumed a long- term rate of return of 7.75%in the determination of the net periodic benefit cost for 2014.The expected long-term rate of return on assets was selected from within the reasonable range of rates determined by historical real returns,net of inflation,for the asset classes covered by the plan's investment policy and projections of inflation over the long-term period during which benefits are payable to plan participants. As of December 31,2014,expected future benefit payments related to the Corporation's defined benefit plans were as follows: 2015 $ 8,429 2016 11,991 2017 9,532 2018 9,988 2019 10,413 2020 through 2024 57,255 $ 107,608 The Corporation expects to contribute$1.1 million to the defined benefit plans during 2015. Supplemental Executive Retirement Plan. The Corporation maintains a supplemental executive retirement plan ("SERP")for one active key executive.The plan provides for target retirement benefits,as a percentage of pay,beginning at age 55.The target percentage is 45 percent of pay at age 55, increasing to 60 percent at age 60 and later. Benefits under the SERP are reduced,dollar-for-dollar,by benefits received under the profit sharing,non-qualified profit sharing, defined benefit retirement and restoration plans,described above,and any social security benefits.Expense related to this plan was not significant during 2014,2013 and 2012. Savings Plans 401(k)Plan and Thrift Incentive Plan. The Corporation maintains a 401(k)stock purchase plan that permits each participant to make before-or after-tax contributions in an amount not less than 2%and not exceeding 50%of eligible compensation and subject to dollar limits from Internal Revenue Service regulations.The Corporation matches 100% of the employee's contributions to the plan based on the amount of each participant's contributions up to a maximum of 6%of eligible compensation.Eligible employees must complete 90 days of service in order to enroll and vest in the Corporation's matching contributions immediately. Expense related to the plan totaled $12.3 million in 2014, $11.5 million in 2013,and$10.8 million in 2012.The Corporation's matching contribution is initially invested in the Cullen/ Frost common stock fund. However, employees may immediately reallocate the Corporation's matching portion, as well as invest their individual contribution,to any of a variety of investment alternatives offered under the 401(k)Plan. The Corporation maintains a thrift incentive stock purchase plan to offer certain employees whose participation in the 401(k)plan is limited an alternative means of receiving comparable benefits. Expense related to this plan was not significant during 2014,2013 and 2012. Stock Compensation Plans The Corporation has one active executive stock plan (the 2005 Omnibus Incentive Plan) and one active outside director stock plan(the 2007 Outside Directors Incentive Plan).The executive stock plan was established to help the Corporation retain and motivate key employees, while the outside director stock plan was established as a means to compensate outside directors for their service to the Corporation. Both of the plans have been approved by the Corporation's shareholders.The Compensation and Benefits Committee("Committee")of the Corporation's Board of Directors has sole authority to select the employees, establish the awards to be issued, and approve the terms and conditions of each award contract under the executive stock plans. During 2005,the 2005 Omnibus Incentive Plan("2005 Plan")was established to replace all other previously approved executive stock plans and the remaining shares authorized for grant under the previous plan were canceled.Under the 112 2005 Plan,the Corporation may grant,among other things,nonqualified stock options,incentive stock options,stock awards,stock award units,stock appreciation rights,or any combination thereof to certain employees. During 2007,the 2007 Outside Directors Incentive Plan(the"2007 Directors Plan")was established to replace the previous plan.The 2007 Directors Plan allows the Corporation to grant nonqualified stock options,stock awards and stock award units to outside directors.Subject to the terms of the plan,stock options,stock awards and/or stock award units may be awarded in such number,and upon such terms, and at any time and from time to time as determined by the Committee. Options awarded under the 2005 Plan during the periods presented have a ten-year life and generally vest in equal annual installments over a four-year period.Non-vested stock awards/stock units awarded under the 2005 Plan generally have a four-year-cliff vesting period. No options were awarded under the 2007 Directors Plan during the reported periods.Director deferred stock units awarded under the 2007 Directors Plan have immediate vesting.Upon retirement from the Corporation's board of directors,non-employee directors will receive one share of the Corporation's common stock for each deferred stock unit held. Outstanding non-vested stock units and director deferred stock units receive equivalent dividend payments as such dividends are declared on the Corporation's common stock. Each award from both plans is evidenced by an award agreement that specifies the option price,the duration of the option,the number of shares to which the option pertains,and such other provisions as the Committee determines.The option price for each grant is at least equal to the fair market value of a share of Cullen/Frost's common stock on the date of grant. Options granted expire at such time as the Committee determines at the date of grant and in no event does the exercise period exceed a maximum of ten years.Upon a change-in-control of Cullen/Frost,as defined in the plans,all outstanding options and non-vested stock awards/units immediately vest. A combined summary of activity in the Corporation's active stock plans is presented in the following table. Non-Vested Stock Awards/Stock Units Stock Options Outstanding Outstanding Director Weighted- Weighted- Shares Deferred Average Average Available Stock Units Number Grant-Date Number Exercise for Grant Outstanding of Shares Fair Value of Shares Price Balance,January 1,2012 1,963,455 22,092 169,530 $ 50.33 4,968,822 $ 51.49 Granted (825,542) 5,632 49,130 54.56 770,780 54.56 Stock options exercised — — — — (206,336) 50.96 Stock awards vested — — (30,100) 52.44 — Forfeited 19,750 — — — (19,750) 50.49 Canceled/expired (250) — — — — — Balance,December 31,2012 1,157,413 27,724 188,560 51.67 5,513,516 51.94 Authorized 2,293,660 — — — — Granted (635,360) 5,500 38,010 71.39 591,850 71.38 Stock options exercised — — — — (1,319,786) 52.02 Stock awards vested — — (26,830) 50.64 — Forfeited 46,890 — (46,890) 46.05 Canceled/expired — — — — — — Balance,December 31,2013 2,862,603 33,224 199,740 55.32 4,738,690 54.35 Authorized — — — — Granted (955,443) 5,643 32,050 78.92 917,750 78.93 Stock options exercised — — — — (560,291) 52.04 Stock awards/units vested — — (56,300) 52.46 Forfeited 66,267 (66,267) 62.21 Canceled/expired — — — — Balance,December 31,2014 1,973,427 38,867 175,490 $ 60.55 5,029,882 $ 58.99 Of the shares available for grant included in the above table as of December 31,2014,a total of 281,840 shares may be granted as full value awards,meaning awards other than in the form of stock options or stock appreciation rights, and which are settled by the issuance of shares. 113 Other information regarding options outstanding and exercisable as of December 31,2014 is as follows: Options Outstanding Options Exercisable Weighted- Average Remaining Weighted- Weighted- Contractual Average Range of Number Average Life Number Exercise Exercise Prices of Shares Exercise Price in Years of Shares Price $ 45.01 to $ 50.00 946,265 $ 48.26 5.58 760,240 $ 49.91 50.01 to 55.00 2,273,190 52.61 5.58 1,907,700 52.24 55.01 to 60.00 334,075 57.63 1.88 334,075 57.63 70.01 to 75.00 576,602 71.38 8.84 140,613 71.38 75.01 to 80.00 899,750 78.94 9.80 -Total 5,029,882 58.99 6.46 3,142,628 53.11 The total intrinsic value of outstanding in-the-money stock options and outstanding in-the-money exercisable stock options was$66.5 million and$56.4 million at December 31,2014. Shares issued in connection with stock compensation awards are issued from available treasury shares.If no treasury shares are available,new shares are issued from available authorized shares. Shares issued in connection with stock compensation awards along with other related information were as follows: 2014 2013 2012 New shares issued from available authorized shares - 153,275 207,586 Issued from available treasury stock 601,851 1,179,551 15,600 Total 601,851 1,332,826 223,186 Proceeds from stock option exercises $ 29,158 $ 68,653 $ 10,516 Intrinsic value of stock options exercised 13,714 20,506 1,538 Fair value of stock awards/units vested 4,346 1,918 1,649 Stock-based Compensation Expense. Stock-based compensation expense is recognized ratably over the requisite service period for all awards.The service period generally matches the vesting period for most awards; however,the service period for certain executive officers does not extend past the date they reach 65 years of age. Stock-based compensation expense and the related income tax benefit was as follows: 2014 2013 2012 Stock options $ 9,142 $ 8,814 $ 9,663 Non-vested stock awards/stock units 2,920 2,819 2,843 Deferred stock-units 441 330 330 Total $ 12,503 $ 11,963 $ 12,836 Income tax benefit $ 4,376 $ 4,187 $ 4,493 Unrecognized stock-based compensation expense at December 31,2014 was as follows: Stock options $ 22,066 Non-vested stock awards/stock units 2,437 Total $ 24,503 The weighted-average period over which the remaining unrecognized stock-based compensation expense related to stock options is expected to be recognized was 3.1 years as of December 31,2014.The weighted-average period over which the remaining unrecognized stock-based compensation expense related to non-vested stock awards/stock units is expected to be recognized was 2.5 years as of December 31,2014. Valuation of Stock-Based Compensation. The fair value of the Corporation's employee stock options granted is estimated on the measurement date,which,for the Corporation, is the date of grant.The fair value of stock options is estimated using a binomial lattice-based valuation model that takes into account employee exercise patterns based on changes in the Corporation's stock price and other variables, and allows for the use of dynamic assumptions about 114 interest rates and expected volatility. The fair value of stock options granted prior to the fourth quarter of 2006 was estimated using the Black-Scholes option-pricing model. The weighted-average fair value of stock options granted during 2014, 2013 and 2012 estimated using a binomial lattice-based valuation model, was$16.97, $13.74, and $11.07.The assumptions used to determine the fair value of options granted are detailed in the table below. 2014 2013 2012 Weighted-average risk-free interest rate 2.33% 2.65% 1.85% Dividend yield 2.71 2.92 3.28 Weighted-average expected market price volatility 26.66 24.20 28.06 Weighted-average expected term 7.1 years 6.7 years 6.2 years Expected volatility is based on the short-term historical volatility (estimated over the most recent two years)and the long-term historical volatility(estimated over a period at least equal to the contractual term of the options)of the Corporation's stock, and other factors.A variance targeting methodology is utilized to estimate the convergence, or mean reversion,from short-term to long-term volatility within the model.In estimating the fair value of stock options under the binomial lattice-based valuation model, separate groups of employees that have similar historical exercise behavior are considered separately. The expected term of options granted is derived using a regression model and represents the period of time that options granted are expected to be outstanding.Certain groups of employees exhibit different behavior. The fair value of non-vested stock awards/stock units and deferred stock units for the purposes of recognizing stock- based compensation expense is the market price of the stock on the measurement date,which,for the Corporation, is the date of the award. Note 13-Other Non-Interest Income and Expense Other non-interest income and expense totals are presented in the following tables. Components of these totals exceeding 1%of the aggregate of total net interest income and total non-interest income for any of the years presented are stated separately. 2014 2013 2012 Other non-interest income: Other $ 32,256 $ 34,531 $ 30,703 Total $ 32,256 $ 34,531 $ 30,703 Other non-interest expense: Advertising,promotions and public relations $ 28,998 $ 26,232 $ 27,194 Legal and other professional fees 27,365 26,132 22,341 Check card expense 15,970 11,787 10,227 Travel/meals and entertainment 14,813 13,571 13,049 Other 80,510 74,355 66,658 Total $ 167,656 $ 152,077 $ 139,469 115 Note 14-Income Taxes Income tax expense was as follows: 2014 2013 2012 Current income tax expense $ 62,177 $ 49,736 $ 76,928 Deferred income tax expense(benefit) (4,130) 3,279 (6,405) Income tax expense,as reported $ 58,047 $ 53,015 $ 70,523 Reported income tax expense differed from the amounts computed by applying the U.S. federal statutory income tax rate of 35%to income before income taxes as follows: 2014 2013 2012 Income tax expense computed at the statutory rate $ 117,608 $ 101,808 $ 107,966 Effect of tax-exempt interest (58,761) (46,535) (36,543) Bank owned life insurance income (1,116) (1,086) (1,413) Other 316 (1,172) 513 Income tax expense,as reported $ 58,047 $ 53,015 $ 70,523 Year-end deferred taxes were as follows: 2014 2013 Deferred tax assets: Allowance for loan losses $ 34,840 $ 32,353 Net actuarial loss on defined benefit post-retirement benefit plans 26,263 14,070 Stock-based compensation 18,839 17,746 Bonus accrual 6,118 5,301 Gain on sale of assets 2,139 2,234 Partnerships 1,911 2,208 Transaction costs 1,794 565 Other 5,272 4,489 Total gross deferred tax assets 97,176 78,966 Deferred tax liabilities: Net unrealized gain on securities available for sale and effective cash flow hedging derivatives (102,626) (89,689) Premises and equipment (20,039) (21,192) Defined benefit post-retirement benefit plans (15,010) (14,137) Intangible assets (6,143) (7,253) Leases (4,952) (4,237) Reserve for medical insurance (3,017) (2,171) Prepaid expenses (1,639) (1,618) Other (341) (1,456) Total gross deferred tax liabilities (153,767) (141,753) Net deferred tax asset(liability) $ (56,591) $ (62,787) No valuation allowance for deferred tax assets was recorded at December 31,2014 and 2013 as management believes it is more likely than not that all of the deferred tax assets will be realized because they were supported by recoverable taxes paid in prior years.There were no unrecognized tax benefits during any of the reported periods. The Corporation files income tax returns in the U.S.federal jurisdiction.The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2011. 116 Note 15-Other Comprehensive Income(Loss) The tax effects allocated to each component of other comprehensive income(loss)were as follows: Before Tax Tax Expense, Net of Tax Amount (Benefit) Amount 2014 Securities available for sale and transferred securities: Change in net unrealized gain/loss during the period $ 103,044 $ 36,065 $ 66,979 Change in net unrealized gain on securities transferred to held to maturity (35,441) (12,404) (23,037) Reclassification adjustment for net(gains)losses included in net income (38) (13) (25) Total securities available for sale and transferred securities 67,565 23,648 43,917 Defined-benefit post-retirement benefit plans: Change in the net actuarial gain/loss (34,837) (12,193) (22,644) Derivatives: Reclassification adjustment for gains on interest rate swaps on variable- rate loans included in net income (30,604) (10,711) (19,893) Total other comprehensive income(loss) $ 2,124 $ 744 $ 1,380 2013 Securities available for sale and transferred securities: Change in net unrealized gain/loss during the period $(115,245) $ (40,335) $ (74,910) Change in net unrealized gain on securities transferred to held to maturity (35,682) (12,489) (23,193) Reclassification adjustment for net(gains)losses included in net income (1,176) (412) (764) Total securities available for sale and transferred securities (152,103) (53,236) (98,867) Defined-benefit post-retirement benefit plans: Change in the net actuarial gain/loss 35,293 12,353 22,940 Derivatives: Change in the accumulated gain/loss on effective cash flow hedge derivatives (49) (17) (32) Reclassification adjustments for(gains)losses included in net income: Interest rate swaps on variable-rate loans (37,380) (13,083) (24,297) Interest rate swap on junior subordinated deferrable interest debentures 4,064 1,422 2,642 Total derivatives (33,365) (11,678) (21,687) Total other comprehensive income(loss) $(150,175) $ (52,561) $ (97,614) 2012 Securities available for sale and transferred securities: Change in net unrealized gain/loss during the period $ 33,412 $ 11,694 $ 21,718 Change in net unrealized gain on securities transferred to held to maturity (657) (230) (427) Reclassification adjustment for net(gains)losses included in net income (4,314) (1,510) (2,804) Total securities available for sale and transferred securities 28,441 9,954 18,487 Defined-benefit post-retirement benefit plans: Change in the net actuarial gain/loss (9,405) (3,292) (6,113) Derivatives: Change in the accumulated gain/loss on effective cash flow hedge derivatives (783) (274) (509) Reclassification adjustments for(gains)losses included in net income: Interest rate swaps on variable-rate loans (37,380) (13,083) (24,297) Interest rate swap on junior subordinated deferrable interest debentures 4,224 1,478 2,746 Total derivatives (33,939) (11,879) (22,060) Total other comprehensive income(loss) $ (14,903) $ (5,217) $ (9,686) 117 Activity in accumulated other comprehensive income,net of tax,was as follows: Accumulated Securities Defined Other Available Benefit Comprehensive For Sale Plans Derivatives Income Balance January 1,2014 $ 146,672 $ (26,131) $ 19,893 $ 140,434 Other comprehensive income(loss)before reclassification 43,942 (22,644) - 21,298 Amounts reclassified from accumulated other comprehensive income(loss) (25) - (19,893) (19,918) Net other comprehensive income(loss)during period 43,917 (22,644) (19,893) 1,380 Balance December 31,2014 $ 190,589 $ (48,775) $ - $ 141,814 Balance January 1,2013 $ 245,539 $ (49,071) $ 41,580 $ 238,048 Other comprehensive income(loss)before reclassification (98,103) 22,940 (32) (75,195) Amounts reclassified from accumulated other comprehensive income(loss) (764) - (21,655) (22,419) Net other comprehensive income(loss)during period (98,867) 22,940 (21,687) (97,614) Balance December 31,2013 $ 146,672 $ (26,131) $ 19,893 $ 140,434 Balance January 1,2012 $ 227,052 $ (42,958) $ 63,640 $ 247,734 Other comprehensive income(loss)before reclassification 21,291 (6,113) (509) 14,669 Amounts reclassified from accumulated other comprehensive income(loss) (2,804) - (21,551) (24,355) Net other comprehensive income(loss)during period 18,487 (6,113) (22,060) (9,686) Balance December 31,2012 $ 245,539 $ (49,071) $ 41,580 $ 238,048 Note 16-Derivative Financial Instruments The fair value of derivative positions outstanding is included in accrued interest receivable and other assets and accrued interest payable and other liabilities in the accompanying consolidated balance sheets and in the net change in each of these financial statement line items in the accompanying consolidated statements of cash flows. Interest Rate Derivatives.The Corporation utilizes interest rate swaps,caps and floors to mitigate exposure to interest rate risk and to facilitate the needs of its customers.The Corporation's objectives for utilizing these derivative instruments are described below: The Corporation has entered into certain interest rate swap contracts that are matched to specific fixed-rate commercial loans or leases that the Corporation has entered into with its customers.These contracts have been designated as hedging instruments to hedge the risk of changes in the fair value of the underlying commercial loan/lease due to changes in interest rates.The related contracts are structured so that the notional amounts reduce over time to generally match the expected amortization of the underlying loan/lease. During 2007, the Corporation entered into three interest rate swap contracts on variable-rate loans with a total notional amount of$1.2 billion.The interest rate swap contracts were designated as hedging instruments in cash flow hedges with the objective of protecting the overall cash flows from the Corporation's monthly interest receipts on a rolling portfolio of$1.2 billion of variable-rate loans outstanding throughout the 84-month period beginning in October 2007 and ending in October 2014 from the risk of variability of those cash flows such that the yield on the underlying loans would remain constant.The Corporation terminated portions of the hedges and settled portions of the interest rate swap contracts during November 2009 and terminated the remaining portions of the hedges and settled the remaining portions of the interest rate swap contracts during November 2010.The accumulated gain on the interest rate swaps upon settlement was deferred and amortized over the original lives of the underlying swap contracts.The amortization of the deferred accumulated gain ended in October 2014.As of December 31, 2013, the deferred accumulated gain applicable to the settled interest rate swap contracts included in accumulated other comprehensive income totaled$30.6 million($19.9 million on an after-tax basis),all of which was recognized in interest income during 2014. 118 In October 2008,the Corporation entered into an interest rate swap contract on junior subordinated deferrable interest debentures with a total notional amount of$120.0 million.The interest rate swap contract was designated as a hedging instrument in a cash flow hedge with the objective of protecting the quarterly interest payments on the Corporation's $120.0 million of junior subordinated deferrable interest debentures issued to Cullen/Frost Capital Trust II throughout the five-year period beginning in December 2008 and ending in December 2013 from the risk of variability of those payments resulting from changes in the three-month LIBOR interest rate.Under the swap,the Corporation paid a fixed interest rate of 5.47%and received a variable interest rate of three-month LIBOR plus a margin of 1.55%on a total notional amount of$120.0 million,with quarterly settlements.The swap terminated in December 2013. The Corporation has entered into certain interest rate swap,cap and floor contracts that are not designated as hedging instruments.These derivative contracts relate to transactions in which the Corporation enters into an interest rate swap, cap and/or floor with a customer while at the same time entering into an offsetting interest rate swap,cap and/or floor with another financial institution.In connection with each swap transaction,the Corporation agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate.At the same time,the Corporation agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the Corporation's customer to effectively convert a variable rate loan to a fixed rate. Because the Corporation acts as an intermediary for its customer,changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact the Corporation's results of operations. The notional amounts and estimated fair values of interest rate derivative contracts outstanding at December 31, 2014 and 2013 are presented in the following table.The Corporation obtains dealer quotations to value its interest rate derivative contracts designated as hedges of cash flows,while the fair values of other interest rate derivative contracts are estimated utilizing internal valuation models with observable market data inputs. December 31,2014 December 31,2013 Notional Estimated Notional Estimated Amount Fair Value Amount Fair Value Derivatives designated as hedges of fair value: Financial institution counterparties: Loan/lease interest rate swaps-assets $ 31,614 $ 469 $ 50,965 $ 1,386 Loan/lease interest rate swaps-liabilities 37,672 (3,179) 43,631 (4,191) Non-hedging interest rate derivatives: Financial institution counterparties: Loan/lease interest rate swaps-assets 69,842 719 195,234 9,573 Loan/lease interest rate swaps-liabilities 765,979 (38,952) 626,980 (32,469) Loan/lease interest rate caps-assets 73,058 1,003 53,058 1,309 Customer counterparties: Loan/lease interest rate swaps-assets 765,979 38,910 626,980 32,426 Loan/lease interest rate swaps-liabilities 69,842 (719) 195,234 (9,573) Loan/lease interest rate caps-liabilities 73,058 (1,003) 53,058 (1,309) The weighted-average rates paid and received for interest rate swaps outstanding at December 31,2014 were as follows: Weighted-Average Interest Interest Rate Rate Paid Received Interest rate swaps: Fair value hedge loan/lease interest rate swaps 2.80% 0.16% Non-hedging interest rate swaps-financial institution counterparties 4.05 1.67 Non-hedging interest rate swap-customer counterparties 1.67 4.05 The weighted-average strike rate for outstanding interest rate caps was 2.99%at December 31,2014. 119 Commodity Derivatives.The Corporation enters into commodity swaps and option contracts that are not designated as hedging instruments primarily to accommodate the business needs of its customers. Upon the origination of a commodity swap or option contract with a customer,the Corporation simultaneously enters into an offsetting contract with a third party financial institution to mitigate the exposure to fluctuations in commodity prices. The notional amounts and estimated fair values of non-hedging commodity swap and option derivative positions outstanding are presented in the following table.The Corporation obtains dealer quotations and uses internal valuation models with observable market data inputs to value its commodity derivative positions. December 31,2014 December 31,2013 Notional Notional Estimated Notional Estimated Units Amount Fair Value Amount Fair Value Financial institution counterparties: Oil-assets Barrels 470 $ 14,357 356 $ 1,004 Oil-liabilities Barrels 197 (1,670) 1,574 (2,704) Natural gas-assets MMBTUs 12,235 12,707 14,240 2,903 Natural gas-liabilities MMBTUs 16,755 (4,095) 22,510 (3,212) Customer counterparties: Oil-assets Barrels 197 1,670 1,574 2,818 Oil-liabilities Barrels 470 (14,318) 356 (991) Natural gas-assets MMBTUs 16,755 4,095 22,850 3,301 Natural gas-liabilities MMBTUs 12,235 (12,646) 13,900 (2,805) Foreign Currency Derivatives.The Corporation enters into foreign currency forward contracts that are not designated as hedging instruments primarily to accommodate the business needs of its customers.Upon the origination of a foreign currency denominated transaction with a customer,the Corporation simultaneously enters into an offsetting contract with a third party to negate the exposure to fluctuations in foreign currency exchange rates.The Corporation also utilizes foreign currency forward contracts that are not designated as hedging instruments to mitigate the economic effect of fluctuations in foreign currency exchange rates on foreign currency holdings and certain short-term,non-U.S. dollar denominated loans.The notional amounts and fair values of open foreign currency forward contracts were as follows: December 31,2014 December 31,2013 Notional Notional Estimated Notional Estimated Currency Amount Fair Value Amount Fair Value Financial institution counterparties: Forward contracts–assets EUR 936 $ 7 1,175 $ 5 Forward contracts-assets CAD 24,724 659 18,886 85 Forward contracts–liabilities GBP 544 (2) Forward contracts-liabilities EUR 494 (4) Forward contracts-liabilities CAD 14,078 (23) Customer counterparties: Forward contracts–assets CAD — — 14,055 45 Forward contracts–liabilities CAD 24,680 (615) 18,859 (58) Gains,Losses and Derivative Cash Flows.For fair value hedges,the changes in the fair value of both the derivative hedging instrument and the hedged item are included in other non-interest income or other non-interest expense.The extent that such changes in fair value do not offset represents hedge ineffectiveness.Net cash flows from interest rate swaps on commercial loans/leases designated as hedging instruments in effective hedges of fair value are included in interest income on loans.For cash flow hedges,the effective portion of the gain or loss due to changes in the fair value ofthe derivative hedging instrument is included in other comprehensive income,while the ineffective portion(indicated by the excess of the cumulative change in the fair value of the derivative over that which is necessary to offset the cumulative change in expected future cash flows on the hedge transaction)is included in other non-interest income or other non-interest expense. Net cash flows from interest rate swaps on variable-rate loans designated as hedging instruments in effective hedges of cash flows and the reclassification from other comprehensive income of deferred gains associated with the termination of those hedges are included in interest income on loans.Net cash flows from 120 the interest rate swap on junior subordinated deferrable interest debentures designated as a hedging instrument in an effective hedge of cash flows were included in interest expense on junior subordinated deferrable interest debentures during 2013 and 2012. For non-hedging derivative instruments,gains and losses due to changes in fair value and all cash flows are included in other non-interest income and other non-interest expense. Amounts included in the consolidated statements of income related to interest rate derivatives designated as hedges of fair value were as follows: 2014 2013 2012 Commercial loan/lease interest rate swaps: Amount of gain(loss)included in interest income on loans $ (2,014) $ (2,437) $ (2,587) Amount of(gain)loss included in other non-interest expense 3 4 46 Amounts included in the consolidated statements of income and in other comprehensive income for the period related to interest rate derivatives designated as hedges of cash flows were as follows: 2014 2013 2012 Interest rate swaps/caps/floors on variable-rate loans: Amount reclassified from accumulated other comprehensive income to interest income on loans $ 30,604 $ 37,380 $ 37,380 Interest rate swaps on junior subordinated deferrable interest debentures: Amount reclassified from accumulated other comprehensive income to interest expense on junior subordinated deferrable interest debentures — 4,064 4,224 Amount of gain(loss)recognized in other comprehensive income — (49) (783) No ineffectiveness related to interest rate derivatives designated as hedges of cash flows was recognized in the consolidated statements of income during the reported periods. The amortization of the deferred accumulated gain applicable to the settled interest rate swap contracts ended in October 2014.As of December 31, 2013,the deferred accumulated gain applicable to the settled interest rate swap contracts included in accumulated other comprehensive income totaled$30.6 million($19.9 million on an after-tax basis),all of which was recognized in interest income during 2014. As stated above,the Corporation enters into non-hedge related derivative positions primarily to accommodate the business needs of its customers. Upon the origination of a derivative contract with a customer, the Corporation simultaneously enters into an offsetting derivative contract with a third party.The Corporation recognizes immediate income based upon the difference in the bid/ask spread of the underlying transactions with its customers and the third party. Because the Corporation acts only as an intermediary for its customer,subsequent changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact the Corporation's results of operations. Amounts included in the consolidated statements of income related to non-hedging interest rate, commodity and foreign currency derivative instruments are presented in the table below. 2014 2013 2012 Non-hedging interest rate derivatives: Other non-interest income $ 1,786 $ 1,441 $ 4,722 Other non-interest expense (2) (96) (116) Non-hedging commodity derivatives: Other non-interest income 118 496 124 Non-hedging foreign currency derivatives: Other non-interest income 162 175 — Counterparty Credit Risk.Derivative contracts involve the risk of dealing with both bank customers and institutional derivative counterparties and their ability to meet contractual terms.Institutional counterparties must have an investment grade credit rating and be approved by the Corporation's Asset/Liability Management Committee.The Corporation's 121 credit exposure on interest rate swaps is limited to the net favorable value and interest payments of all swaps by each counterparty, while the Corporation's credit exposure on commodity swaps/options and foreign currency forward contracts is limited to the net favorable value of all contracts by each counterparty. Credit exposure may be reduced by the amount of collateral pledged by the counterparty.There are no credit-risk-related contingent features associated with any of the Corporation's derivative contracts. Certain derivative contracts with upstream financial institution counterparties may be terminated with respect to a party in the transaction,if such party does not have at least a minimum level rating assigned to either its senior unsecured long-term debt or its deposit obligations by certain third-party rating agencies. The Corporation's credit exposure relating to interest rate swaps,commodity swaps/options and foreign currency forward contracts with bank customers was approximately$39.0 million at December 31,2014.This credit exposure is partly mitigated as transactions with customers are generally secured by the collateral,if any,securing the underlying transaction being hedged.The Corporation's credit exposure,net of collateral pledged,relating to interest rate swaps, commodity swaps/options and foreign currency forward contracts with upstream financial institution counterparties was approximately$8.5 million at December 31,2014.This amount was primarily related to excess collateral posted by the Corporation to counterparties and under-collateralized derivative assets held by the Corporation.Collateral levels for upstream financial institution counterparties are monitored and adjusted as necessary.See Note 17–Balance Sheet Offsetting for additional information regarding the Corporation's credit exposure with upstream financial institution counterparties. The aggregate fair value of securities posted as collateral by the Corporation related to derivative contracts totaled $19.3 million at December 31,2014.At such date,the Corporation also had$12.1 million in cash collateral on deposit with other financial institution counterparties. Note 17-Balance Sheet Offsetting Certain financial instruments, including resell and repurchase agreements, securities lending arrangements and derivatives,may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements or similar agreements.The Corporation's derivative transactions with upstream financial institution counterparties are generally executed under International Swaps and Derivative Association("ISDA")master agreements which include "right of set-off'provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis.Nonetheless,the Corporation does not generally offset such financial instruments for financial reporting purposes. Information about financial instruments that are eligible for offset in the consolidated balance sheet as of December 31,2014 is presented in the following tables. Gross Amount Gross Amount Net Amount Recognized Offset Recognized December 31,2014 Financial assets: Derivatives: Loan/lease interest rate swaps and caps $ 2,191 $ — $ 2,191 Commodity swaps and options 27,064 — 27,064 Foreign currency forward contracts 666 — 666 Total derivatives 29,921 — 29,921 Resell agreements 9,642 — 9,642 Total $ 39,563 $ — $ 39,563 Financial liabilities: Derivatives: Loan/lease interest rate swaps $ 42,131 $ — $ 42,131 Commodity swaps and options 5,765 — 5,765 Foreign currency forward contracts 2 — 2 Total derivatives 47,898 — 47,898 Repurchase agreements 791,119 — 791,119 Total $ 839,017 $ — $ 839,017 122 Gross Amounts Not Offset Net Amount Financial Net Recognized Instruments Collateral Amount December 31,2014 Financial assets: Derivatives: Counterparty A $ 627 $ (627) $ - $ Counterparty B 17,308 (9,506) (4,925) 2,877 Counterparty C 7,991 (7,539) - 452 Other counterparties 3,995 (2,764) (1,110) 121 Total derivatives 29,921 (20,436) (6,035) 3,450 Resell agreements 9,642 - (9,642) - Total $ 39,563 $ (20,436) $ (15,677) $ 3,450 Financial liabilities: Derivatives: Counterparty A $ 18,653 $ (627) $ (17,626) $ 400 Counterparty B 9,506 (9,506) Counterparty C 7,539 (7,539) Other counterparties 12,200 (2,764) (8,681) 755 Total derivatives 47,898 (20,436) (26,307) 1,155 Repurchase agreements 791,119 - (791,119) Total $ 839,017 $ (20,436) $ (817,426) $ 1,155 Information about financial instruments that are eligible for offset in the consolidated balance sheet as of December 31,2013 is presented in the following tables. Gross Amount Gross Amount Net Amount Recognized Offset Recognized December 31,2013 Financial assets: Derivatives: Loan/lease interest rate swaps and caps $ 12,268 $ - $ 12,268 Commodity swaps and options 3,907 - 3,907 Foreign currency forward contracts 90 - 90 Total derivatives 16,265 - 16,265 Resell agreements 7,898 - 7,898 Total $ 24,163 $ - $ 24,163 Financial liabilities: Derivatives: Loan/lease interest rate swaps $ 36,660 $ - $ 36,660 Commodity swaps and options 5,916 - 5,916 Foreign currency forward contracts 27 - 27 Total derivatives 42,603 - 42,603 Repurchase agreements 668,053 - 668,053 Total $ 710,656 $ - $ 710,656 123 Gross Amounts Not Offset Net Amount Financial Net Recognized Instruments Collateral Amount December 31,2013 Financial assets: Derivatives: Counterparty A $ 3,342 $ (3,342) $ — $ Counterparty B 8,196 (8,196) Counterparty C 1,187 (1,187) Other counterparties 3,540 (2,099) (1,360) 81 Total derivatives 16,265 (14,824) (1,360) 81 Resell agreements 7,898 — (7,898) Total $ 24,163 $ (14,824) $ (9,258) $ 81 Financial liabilities: Derivatives: Counterparty A $ 18,615 $ (3,342) $ (15,167) $ 106 Counterparty B 9,054 (8,196) (613) 245 Counterparty C 10,870 (1,187) (9,683) Other counterparties 4,064 (2,099) (1,549) 416 Total derivatives 42,603 (14,824) (27,012) 767 Repurchase agreements 668,053 — (668,053) Total $ 710,656 $ (14,824) $ (695,065) $ 767 Note 18-Fair Value Measurements The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market(or most advantageous market in the absence of a principal market)for such asset or liability.In estimating fair value,the Corporation utilizes valuation techniques that are consistent with the market approach,the income approach and/or the cost approach.Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability.ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: • Level I Inputs-Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the 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 an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available,fair value is based upon internally developed models that primarily use,as inputs,observable market-based parameters.Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.These adjustments may include amounts to reflect counterparty credit quality and the Corporation's creditworthiness,among other things,as well as unobservable parameters.Any such valuation adjustments are applied consistently over time. The Corporation's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Corporation's valuation 124 methodologies 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 estimate of fair value at the reporting date.Furthermore,the reported fair value amounts have not been comprehensively revalued since the presentation dates,and therefore,estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein.A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below.Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Corporation's monthly and/or quarterly valuation process. Financial Assets and Financial Liabilities: Financial assets and financial liabilities measured at fair value on a recurring basis include the following: Securities Available for Sale. U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. Other securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Corporation obtains fair value measurements from an independent pricing service.The fair value measurements consider observable data that may include dealer quotes,market spreads,cash flows,the U.S.Treasury yield curve,live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions,among other things. The Corporation reviews the prices supplied by the independent pricing service,as well as their underlying pricing methodologies,for reasonableness and to ensure such prices are aligned with traditional pricing matrices. In general, the Corporation does not purchase investment portfolio securities that are esoteric or that have a complicated structure. The Corporation's entire portfolio consists of traditional investments,nearly all of which are U.S.Treasury obligations, federal agency bullet or mortgage pass-through securities, or general obligation or revenue based municipal bonds. Pricing for such instruments is fairly generic and is easily obtained.From time to time,the Corporation will validate prices supplied by the independent pricing service by comparison to prices obtained from third-party sources or derived using internal models. Trading Securities. U.S.Treasury securities and exchange-listed common stock are reported at fair value utilizing Level 1 inputs.Other securities classified as trading are reported at fair value utilizing Level 2 inputs in the same manner as described above for securities available for sale. Derivatives. Derivatives are generally reported at fair value utilizing Level 2 inputs, except for foreign currency contracts,which are reported at fair value utilizing Level 1 inputs.The Corporation obtains dealer quotations and utilizes internally developed valuation models to value commodity swaps/options.The Corporation utilizes internally developed valuation models and/or third-party models with observable market data inputs to validate the valuations provided by the dealers.Though there has never been a significant discrepancy in the valuations,should such a significant discrepancy arise, the Corporation would obtain price verification from a third-party dealer. The Corporation utilizes internal valuation models with observable market data inputs to estimate fair values of customer interest rate swaps,caps and floors. The Corporation also obtains dealer quotations for these derivatives for comparative purposes to assess the reasonableness of the model valuations. In cases where significant credit valuation adjustments are incorporated into the estimation of fair value,reported amounts are considered to have been derived utilizing Level 3 inputs. For purposes of potential valuation adjustments to its derivative positions,the Corporation evaluates the credit risk of its counterparties as well as that of the Corporation.Accordingly,the Corporation has considered factors such as the likelihood of default by the Corporation and its counterparties,its net exposures,and remaining contractual life,among other things, in determining if any fair value adjustments related to credit risk are required. Counterparty exposure is evaluated by netting positions that are subject to master netting arrangements, as well as considering the amount of collateral securing the position. The Corporation reviews its counterparty exposure on a regular basis, and, when necessary,appropriate business actions are taken to adjust the exposure.The Corporation also utilizes this approach to estimate its own credit risk on derivative liability positions.To date,the Corporation has not realized any significant losses due to a counterparty's inability to pay any net uncollateralized position.The change in value of derivative assets and derivative liabilities attributable to credit risk was not significant during the reported periods. 125 The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of December 31, 2014 and 2013, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: Level 1 Level 2 Level 3 Total Inputs Inputs Inputs Fair Value 2014 Securities available for sale: U.S.Treasury $ 3,811,252 $ — $ — $ 3,811,252 Residential mortgage-backed securities — 1,398,724 — 1,398,724 States and political subdivisions — 3,208,907 — 3,208,907 Other — 42,371 — 42,371 Trading account securities: U.S.Treasury 15,339 — — 15,339 States and political subdivisions — 87 — 87 Derivative assets: Interest rate swaps,caps and floors — 40,931 170 41,101 Commodity swaps and options — 32,829 — 32,829 Foreign currency forward contracts 666 — — 666 Derivative liabilities: Interest rate swaps,caps and floors — 43,853 — 43,853 Commodity swaps and options — 32,729 — 32,729 Foreign currency forward contracts 617 — — 617 2013 Securities available for sale: U.S.Treasury $ 2,540,554 $ — $ — $ 2,540,554 U.S.government agencies/corporations — 53,980 — 53,980 Residential mortgage-backed securities — 1,776,016 — 1,776,016 States and political subdivisions — 1,488,914 — 1,488,914 Other — 35,972 — 35,972 Trading account securities: U.S.Treasury 15,389 — — 15,389 States and political subdivisions — 1,009 — 1,009 Derivative assets: Interest rate swaps,caps and floors — 44,520 174 44,694 Commodity swaps and options — 10,026 — 10,026 Foreign currency forward contracts 135 135 Derivative liabilities: Interest rate swaps,caps and floors — 47,542 — 47,542 Commodity swaps and options — 9,712 — 9,712 Foreign currency forward contracts 85 85 Derivative assets,measured at fair value on a recurring basis using significant unobservable(Level 3)inputs during the reported periods consist of interest rate swaps sold to loan customers.The significant unobservable(Level 3)inputs used in the fair value measurement of these interest rate swaps sold to loan customers primarily relate to the probability of default and loss severity in the event of default.The probability of default is determined by the underlying risk grade of the loan(see Note 4—Loans)underlying the interest rate swap in that the probability of default increases as a loan's risk grade deteriorates, while the loss severity is estimated through an analysis of the collateral supporting both the underlying loan and interest rate swap. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity.As of December 31,2014, the weighted-average risk grade of loans underlying interest rate swaps measured at fair value using significant unobservable(Level 3)inputs was 11.0.The weighted-average loss severity in the event of default on the interest rate swaps was 20.0%.A reconciliation of the beginning and ending balances of derivative assets measured at fair value on a recurring basis using significant unobservable(Level 3)inputs is not presented as such amounts were not significant during the reported periods. 126 Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances(for example,when there is evidence of impairment).Financial assets measured at fair value on a non- recurring basis during the reported periods include certain impaired loans reported at the fair value of the underlying collateral if repayment is expected solely from the collateral.Collateral values are estimated using Level 2 inputs based on observable market data,typically in the case ofreal estate collateral,or Level 3 inputs based on customized discounting criteria,typically in the case of non-real estate collateral such as inventory, accounts receivable, equipment or other business assets. The following table presents impaired loans that were remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for loan losses based upon the fair value of the underlying collateral: 2014 2013 2012 Level 2 Level 3 Level 2 Level 3 Level 2 Level 3 Carrying value of impaired loans before allocations $ — $ 2,715 $ 9,374 $ — $ 18,319 $ 15,754 Specific valuation allowance allocations — (1,475) (2,785) — (3,634) (2,911) Fair value $ — $ 1,240 $ 6,589 $ — $ 14,685 $ 12,843 Non-Financial Assets and Non-Financial Liabilities:The Corporation has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Certain non-financial assets measured at fair value on a non- recurring basis include foreclosed assets(upon initial recognition or subsequent impairment),non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test,and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a non-recurring basis during the reported periods include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for loan losses and certain foreclosed assets which,subsequent to their initial recognition,were remeasured at fair value through a write-down included in other non-interest expense. The fair value of a foreclosed asset is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria.During the reported periods,all fair value measurements for foreclosed assets utilized Level 2 inputs. The following table presents foreclosed assets that were remeasured and reported at fair value: 2014 2013 2012 Foreclosed assets remeasured at initial recognition: Carrying value of foreclosed assets prior to remeasurement $ 6,388 $ 7,580 $ 9,428 Charge-offs recognized in the allowance for loan losses (285) (710) (1,611) Fair value $ 6,103 $ 6,870 $ 7,817 Foreclosed assets remeasured subsequent to initial recognition: Carrying value of foreclosed assets prior to remeasurement $ 5,026 $ 4,979 $ 12,126 Write-downs included in other non-interest expense (1,289) (895) (2,093) Fair value $ 3,737 $ 4,084 $ 10,033 Charge-offs recognized upon loan foreclosures are generally offset by general or specific allocations ofthe allowance for loan losses and generally do not, and did not during the reported periods, significantly impact the Corporation's provision for loan losses.Regulatory guidelines require the Corporation to reevaluate the fair value of other real estate owned on at least an annual basis.The Corporation's policy is to comply with the regulatory guidelines.Accordingly, appraisals are never considered to be outdated, and the Corporation does not make any adjustments to the appraised values. FASB ASC Topic 825,"Financial Instruments,"requires disclosure of the fair value of financial assets and financial liabilities,including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The estimated fair value approximates carrying value for cash and cash equivalents, accrued interest and the cash surrender value of life insurance policies. The methodologies for other financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non- recurring basis are discussed below: 127 Loans.The estimated fair value approximates carrying value for variable-rate loans that reprice frequently and with no significant change in credit risk. The fair value of fixed-rate loans and variable-rate loans which reprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality.An overall valuation adjustment is made for specific credit risks as well as general portfolio credit risk. Deposits. The estimated fair value approximates carrying value for demand deposits. The fair value of fixed-rate deposit liabilities with defined maturities is estimated by discounting future cash flows using the interest rates currently offered for deposits of similar remaining maturities.The estimated fair value of deposits does not take into account the value of the Corporation's long-term relationships with depositors,commonly known as core deposit intangibles,which are separate intangible assets, and not considered financial instruments. Nonetheless, the Corporation would likely realize a core deposit premium if its deposit portfolio were sold in the principal market for such deposits. Borrowed Funds.The estimated fair value approximates carrying value for short-term borrowings.The fair value of long-term fixed-rate borrowings is estimated using quoted market prices,if available,or by discounting future cash flows using current interest rates for similar financial instruments.The estimated fair value approximates carrying value for variable-rate junior subordinated deferrable interest debentures that reprice quarterly. Loan Commitments, Standby and Commercial Letters of Credit. The Corporation's lending commitments have variable interest rates and"escape"clauses if the customer's credit quality deteriorates.Therefore,the fair values of these items are not significant and are not included in the following table. The estimated fair values of financial instruments that are reported at amortized cost in the Corporation's consolidated balance sheets,segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value, were as follows: December 31,2014 December 31,2013 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Financial assets: Level 2 inputs: Cash and cash equivalents $ 4,364,123 $ 4,364,123 $ 4,556,125 $ 4,556,125 Securities held to maturity 2,926,486 2,966,390 3,139,748 3,029,663 Cash surrender value of life insurance policies 172,050 172,050 141,108 141,108 Accrued interest receivable 128,436 128,436 99,281 99,281 Level 3 inputs: Loans,net 10,887,993 10,939,684 9,423,262 9,582,734 Financial liabilities: Level 2 inputs: Deposits 24,135,930 24,136,402 20,688,786 20,689,323 Federal funds purchased and repurchase agreements 803,119 803,119 668,253 668,253 Junior subordinated deferrable interest debentures 137,115 137,115 123,712 123,712 Subordinated notes payable and other borrowings 100,000 95,591 100,000 92,552 Accrued interest payable 1,132 1,132 1,300 1,300 Under ASC Topic 825,entities may choose to measure eligible financial instruments at fair value at specified election dates.The fair value measurement option(i)may be applied instrument by instrument,with certain exceptions,(ii)is generally irrevocable and(iii)is applied only to entire instruments and not to portions of instruments.Unrealized gains and losses on items for which the fair value measurement option has been elected must be reported in earnings at each subsequent reporting date.During the reported periods,the Corporation had no financial instruments measured at fair value under the fair value measurement option. 128 Note 19-Operating Segments The Corporation is managed under a matrix organizational structure whereby its two primary operating segments, Banking and Frost Wealth Advisors, overlap a regional reporting structure. The regions are primarily based upon geographic location and include Austin,Corpus Christi,Dallas,Fort Worth,Houston,Permian Basin,Rio Grande Valley, San Antonio and Statewide.The Corporation is primarily managed based on the line of business structure.In that regard, all regions have the same lines of business,which have the same product and service offerings,have similar types and classes of customers and utilize similar service delivery methods.Pricing guidelines for products and services are the same across all regions.The regional reporting structure is primarily a means to scale the lines of business to provide a local,community focus for customer relations and business development. Banking and Frost Wealth Advisors are delineated by the products and services that each segment offers.The Banking operating segment includes both commercial and consumer banking services,Frost Securities,Inc.and Frost Insurance Agency.Commercial banking services are provided to corporations and other business clients and include a wide array of lending and cash management products.Consumer banking services include direct lending and depository services. Frost Insurance Agency provides insurance brokerage services to individuals and businesses covering corporate and personal property and casualty products, as well as group health and life insurance products and human resources consulting services.Frost Securities,Inc. provides advisory and private equity services to middle market companies. The Frost Wealth Advisors operating segment includes fee-based services within private trust,retirement services,and financial management services, including personal wealth management and brokerage services. A third operating segment,Non-Banks,is for the most part the parent holding company,as well as certain other insignificant non-bank subsidiaries of the parent that, for the most part, have little or no activity. The parent company's principal activities include the direct and indirect ownership of the Corporation's banking and non-banking subsidiaries and the issuance of debt and equity. Its principal source of revenue is dividends from its subsidiaries. The accounting policies of each reportable segment are the same as those of the Corporation except for the following items, which impact the Banking and Frost Wealth Advisors segments: (i)expenses for consolidated back-office operations and general overhead-type expenses such as executive administration, accounting and internal audit are allocated to operating segments based on estimated uses of those services, (ii)income tax expense for the individual segments is calculated essentially at the statutory rate,and(iii)the parent company records the tax expense or benefit necessary to reconcile to the consolidated total. The Corporation uses a match-funded transfer pricing process to assess operating segment performance.The process helps the Corporation to(i)identify the cost or opportunity value of funds within each business segment,(ii)measure the profitability of a particular business segment by relating appropriate costs to revenues,(iii)evaluate each business segment in a manner consistent with its economic impact on consolidated earnings,and(iv)enhance asset and liability pricing decisions. 129 Financial results by operating segment are detailed below. Certain prior period amounts have been reclassified to conform to the current presentation. Frost Wealth Banking Advisors Non-Banks Consolidated 2014 Net interest income(expense) $ 683,579 $ 6,734 $ (3,379) $ 686,934 Provision for loan losses 16,312 2 - 16,314 Non-interest income 193,883 122,261 4,000 320,144 Non-interest expense 549,812 96,330 8,598 654,740 Income(loss)before income taxes 311,338 32,663 (7,977) 336,024 Income tax expense(benefit) 51,881 11,431 (5,265) 58,047 Net income(loss) 259,457 21,232 (2,712) 277,977 Preferred stock dividends - - 8,063 8,063 Net income(loss)available to common shareholders $ 259,457 $ 21,232 $ (10,775) $ 269,914 Revenues from(expenses to)external customers $ 877,462 $ 128,995 $ 621 $ 1,007,078 Average assets(in millions)WWW $ 25,734 $ 32 $ 2 $ 25,768 2013 Net interest income(expense) $ 621,333 $ 6,586 $ (7,364) $ 620,555 Provision for loan losses 20,585 (3) - 20,582 Non-interest income 190,767 107,759 4,292 302,818 Non-interest expense 513,909 90,132 7,869 611,910 Income(loss)before income taxes 277,606 24,216 (10,941) 290,881 Income tax expense(benefit) 50,823 8,563 (6,371) 53,015 Net income(loss) 226,783 15,653 (4,570) 237,866 Preferred stock dividends - - 6,719 6,719 Net income(loss)available to common shareholders $ 226,783 $ 15,653 $ (11,289) $ 231,147 Revenues from(expenses to)external customers $ 812,100 $ 114,345 $ (3,072) $ 923,373 Average assets(in millions)WWW $ 22,709 $ 31 $ 12 $ 22,752 2012 Net interest income(expense) $ 605,330 $ 8,013 $ (8,482) $ 604,861 Provision for loan losses 10,078 2 - 10,080 Non-interest income 188,440 96,577 3,770 288,787 Non-interest expense 485,302 82,744 7,047 575,093 Income(loss)before income taxes 298,390 21,844 (11,759) 308,475 Income tax expense(benefit) 69,078 7,646 (6,201) 70,523 Net income(loss) $ 229,312 $ 14,198 $ (5,558) $ 237,952 Revenues from(expenses to)external customers $ 793,770 $ 104,590 $ (4,712) $ 893,648 Average assets(in millionse $ 20,783 $ 29 $ 15 $ 20,827 (1) Frost Wealth Advisors excludes off balance sheet managed and custody assets with a total fair value of$30.5 billion,$29.0 billion and$26.2 billion at December 31,2014,2013 and 2012. 130 Note 20-Condensed Financial Statements of Parent Company Condensed financial statements pertaining only to Cullen/Frost Bankers, Inc. are presented below. Investments in subsidiaries are stated using the equity method of accounting. Condensed Balance Sheets December 31, 2014 2013 Assets: Cash $ 7,335 $ 7,477 Resell agreements 286,660 320,200 Total cash and cash equivalents 293,995 327,677 Investment in subsidiaries 2,791,647 2,409,433 Accrued interest receivable and other assets 29,705 19,038 Total assets $ 3,115,347 $ 2,756,148 Liabilities: Junior subordinated deferrable interest debentures $ 137,115 $ 123,712 Subordinated notes payable 100,000 100,000 Accrued interest payable and other liabilities 26,829 18,275 Total liabilities 263,944 241,987 Shareholders' Equity 2,851,403 2,514,161 Total liabilities and shareholders' equity $ 3,115,347 $ 2,756,148 Condensed Statements of Income Year Ended December 31, 2014 2013 2012 Income: Dividend income paid by Frost Bank $ 114,439 $ 144,642 $ 143,623 Dividend income paid by non-banks 4,323 2,819 3,077 Interest and other income 69 79 308 Total income 118,831 147,540 147,008 Expenses: Interest expense 3,381 7,365 8,512 Salaries and employee benefits 1,218 1,175 1,167 Other 8,526 6,735 6,727 Total expenses 13,125 15,275 16,406 Income before income taxes and equity in undistributed earnings of subsidiaries 105,706 132,265 130,602 Income tax benefit 6,702 7,845 7,463 Equity in undistributed earnings of subsidiaries 165,569 97,756 99,887 Net income 277,977 237,866 237,952 Preferred stock dividends 8,063 6,719 Net income available to common shareholders $ 269,914 $ 231,147 $ 237,952 131 Condensed Statements of Cash Flows Year Ended December 31, 2014 2013 2012 Operating Activities: Net income $ 277,977 $ 237,866 $ 237,952 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries (165,569) (97,756) (99,887) Stock-based compensation 441 330 330 Excess tax benefits from stock-based compensation (165) (155) (133) Net change in other assets and other liabilities (1,984) 2,372 (2,256) Net cash from operating activities 110,700 142,657 136,006 Investing Activities: Net cash received in acquisitions 830,661 —Capital contribution to subsidiaries (879,730) —Net cash from investing activities (49,069) — — Financing Activities: Proceeds from stock option exercises 29,158 68,653 10,516 Proceeds from stock-based compensation activities of subsidiaries 12,062 11,633 12,506 Excess tax benefits from stock-based compensation 165 155 133 Proceeds from issuance of preferred stock — 144,486 — Purchase of treasury stock (1,457) (144,630) (436) Cash dividends paid on preferred stock (8,063) (6,719) — Cash dividends paid on common stock (127,178) (119,619) (116,853) Net cash from financing activities (95,313) (46,041) (94,134) Net change in cash and cash equivalents (33,682) 96,616 41,872 Cash and cash equivalents at beginning of year 327,677 231,061 189,189 Cash and cash equivalents at end of year $ 293,995 $ 327,677 $ 231,061 Note 21 -Accounting Standards Updates ASU No. 2011-03, "Transfers and Servicing (Topic 860) - Reconsideration of Effective Control for Repurchase Agreements."ASU 2011-03 is intended to improve financial reporting of repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity.ASU 2011-03 removes from the assessment of effective control(i)the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (ii)the collateral maintenance guidance related to that criterion.ASU 2011-03 became effective for the Corporation on January 1,2012 and did not have a significant impact on the Corporation's financial statements. ASU 2011-04, "Fair Value Measurement(Topic 820)-Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs."ASU 2011-04 amends Topic 820,"Fair Value Measurements and Disclosures,"to converge the fair value measurement guidance in U.S.generally accepted accounting principles and International Financial Reporting Standards. ASU 2011-04 clarifies the application of existing fair value measurement requirements, changes certain principles in Topic 820 and requires additional fair value disclosures. ASU 2011-04 became effective for the Corporation on January 1, 2012 and, aside from new disclosures included in Note 18—Fair Value Measurements,did not have a significant impact on the Corporation's financial statements. ASU2011-05, "Comprehensive Income(Topic 220)-Presentation ofComprehe nsive Income."ASU 2011-05 amends Topic 220, "Comprehensive Income,"to require that all non-owner changes in stockholders' equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 2011-05 requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements 132 where the components of net income and the components of other comprehensive income are presented.The option to present components of other comprehensive income as part of the statement of changes in stockholders'equity was eliminated.ASU 2011-05 became effective for the Corporation on January 1,2012;however,certain provisions related to the presentation of reclassification adjustments were deferred by ASU 2011-12"Comprehensive Income(Topic 220) —Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No.2011-05."ASU 2013-02,"Comprehensive Income (Topic 220)—Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,"amended the guidance of ASU 2011-05 related to the reporting of reclassifications out of accumulated other comprehensive income. ASU 2013-02 became effective for the Corporation on January 1,2013.As a result of the these accounting standards updates, the Corporation's financial statements now include separate statements of comprehensive income and additional footnote disclosures(see Note 15—Other Comprehensive Income(Loss)). ASU 2011-08, "Intangibles—Goodwill and Other(Topic 350) - Testing Goodwill for Impairment."ASU 2011-08 amends Topic 350,"Intangibles—Goodwill and Other,"to give entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.If,after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. ASU 2011-08 became effective for the Corporation on January 1,2012 and did not have a significant impact on the Corporation's financial statements. ASU 2011-11, "Balance Sheet (Topic 210) —Disclosures about Offsetting Assets and Liabilities."ASU 2011-11 amends Topic 210, "Balance Sheet,"to require an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement.ASU No.2013-01,"Balance Sheet(Topic 210) — Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities," clarifies that ordinary trade receivables are not within the scope of ASU 2011-11.ASU 2011-11,as amended by ASU 2013-01,became effective for the Corporation on January 1,2013. See Note 17—Balance Sheet Offsetting for applicable disclosures. ASU 2012-02, `Intangibles — Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment."ASU 2012-02 gives entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired.If,after assessing the totality of events or circumstances,an entity determines it is more likely than not that an indefinite-lived intangible asset is impaired,then the entity must perform the quantitative impairment test. If,under the quantitative impairment test,the carrying amount of the intangible asset exceeds its fair value,an entity should recognize an impairment loss in the amount of that excess. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08.ASU 2012-02 became effective for the Corporation on January 1,2013 and did not have a significant impact on the Corporation's financial statements. ASU2012-06, "Business Combinations (Topic 805) - Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (a consensus of the FASB Emerging Issues Task Force)."ASU 2012-06 clarifies the applicable guidance for subsequently measuring an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution. Under ASU 2012-06,when a reporting entity recognizes an indemnification asset as a result of a government-assisted acquisition of a financial institution and, subsequently, a change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification), the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification.Any amortization of changes in value should be limited to the contractual term of the indemnification agreement(that is,the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets).ASU 2012-06 became effective for the Corporation on January 1,2013 and did not have a significant impact on the Corporation's financial statements. 133 ASU 2013-02, "Comprehensive Income(Topic 220)—Reporting ofAmounts Reclassified Out ofAccumulated Other Comprehensive Income."ASU 2013-02 amends recent guidance related to the reporting of comprehensive income to enhance the reporting of reclassifications out of accumulated other comprehensive income. ASU 2013-02 became effective for the Corporation on January 1,2013 and did not have a significant impact on the Corporation's financial statements. See Note 15—Other Comprehensive Income(Loss). ASU2013-08, "Financial Services—Investment Companies(Topic 946)—Amendments to the Scope,Measurement and Disclosure Requirements."ASU 2013-08 clarifies the characteristics of investment companies and sets forth a new approach for determining whether a company is an investment company. The fundamental characteristics of an investment company include(i)the company obtains funds from investors and provides the investors with investment management services;(ii)the company commits to its investors that its business purpose and only substantive activities are investing the funds for returns solely from capital appreciation,investment income,or both;and(iii)the company or its affiliates do not obtain or have the objective of obtaining returns or benefits from an investee or its affiliates that are not normally attributable to ownership interests or that are other than capital appreciation or investment income. ASU 2013-08 also sets forth the scope, measurement and disclosure requirements for investment companies. ASU 2013-08 became effective for the Corporation on January 1,2014 and did not have a significant impact on the Corporation's financial statements. ASU 2013-10, "Derivatives and Hedging(Topic 815)—Inclusion of the Fed Funds Effective Swap Rate(or Overnight Index Swap Rate)as a Benchmark Interest Rate for Hedge Accounting Purposes."ASU 2013-10 permits the Fed Funds Effective Swap Rate(or Overnight Index Swap Rate)to be used as a U.S.benchmark interest rate for hedge accounting purposes under Topic 815, in addition to interest rates on direct Treasury obligations of the U.S.government and the London Interbank Offered Rate("LIBOR").ASU 2013-10 became effective for qualifying new or redesignated hedging relationships entered into on or after July 17,2013 and did not have a significant impact on the Corporation's financial statements. ASU 2014-09, "Revenue from Contracts with Customers(Topic 606)."ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue.The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.To achieve that core principle, an entity should apply the following steps: (i)identify the contract(s) with a customer, (ii)identify the performance obligations in the contract,(iii)determine the transaction price,(iv)allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation.ASU 2014-09 is effective for the Corporation on January 1, 2017.The Corporation is still evaluating the potential impact on the Corporation's financial statements. ASU 2014-11, "Transfers and Servicing (Topic 860)." ASU 2014-11 requires that repurchase-to-maturity transactions be accounted for as secured borrowings consistent with the accounting for other repurchase agreements. In addition,ASU 2014-11 requires separate accounting for repurchase financings,which entails the transfer ofa financial asset executed contemporaneously with a repurchase agreement with the same counterparty.ASU 2014-11 requires entities to disclose certain information about transfers accounted for as sales in transactions that are economically similar to repurchase agreements. In addition, ASU 2014-11 requires disclosures related to collateral, remaining contractual tenor and of the potential risks associated with repurchase agreements,securities lending transactions and repurchase-to-maturity transactions.ASU 2014-11 is effective for the Corporation on January 1,2015 and is not expected to have a significant impact on the Corporation's financial statements. ASU 2015-01, "Income Statement- Extraordinary and Unusual Items (Subtopic 225-20) —Simpliffing Income Statement Presentation by Eliminating the Concept ofExtraordinary Items."ASU 2015-01 eliminates from U.S.GAAP the concept of extraordinary items, which, among other things, required an entity to segregate extraordinary items considered to be unusual and infrequent from the results of ordinary operations and show the item separately in the income statement,net of tax,after income from continuing operations.ASU 2015-01 is effective for the Corporation beginning January 1, 2016, though early adoption is permitted.ASU 2015-01 is not expected to have a significant impact on the Corporation's financial statements. 134 [THIS PAGE INTENTIONALLY LEFT BLANK] Cullen/Frost Bankers,Inc. Consolidated Average Balance Sheets (Dollars in thousands-tax-equivalent basis) The following unaudited schedule is presented for additional information and analysis. Year Ended December 31, 2014 2013 Interest Interest Average Income/ Yield/ Average Income/ Yield/ Balance Expense Cost Balance Expense Cost Assets: Interest-bearing deposits $ 4,189,110 $ 10,725 0.26% $ 2,849,467 $ 7,284 0.26% Federal funds sold and resell agreements 19,683 83 0.42 17,259 82 0.48 Securities: Taxable 4,439,993 93,087 2.14 5,276,574 97,873 1.90 Tax-exempt 4,929,665 271,543 5.58 3,618,347 206,442 5.75 Total securities 9,369,658 364,630 3.96 8,894,921 304,315 3.48 Loans,net of unearned discount 10,299,025 447,036 4.34 9,229,574 421,114 4.56 Total earning assets and average rate earned 23,877,476 822,474 3.47 20,991,221 732,795 3.52 Cash and due from banks 554,439 559,361 Allowance for loan losses (97,932) (96,426) Premises and equipment,net 363,790 310,544 Accrued interest receivable and other assets 1,069,965 987,337 Total assets $25,767,738 $22,752,037 Liabilities: Non-interest-bearing demand deposits: Commercial and individual $ 8,384,376 $ 6,967,933 Correspondent banks 351,803 323,706 Public funds 388,851 366,135 Total non-interest-bearing demand deposits 9,125,030 7,657,774 Interest-bearing deposits: Private accounts: Savings and interest checking 4,211,336 924 0.02 3,608,273 1,321 0.04 Money market deposit accounts 7,342,967 7,852 0.11 6,596,764 10,091 0.15 Time accounts 966,420 2,053 0.21 970,984 2,468 0.25 Public funds 407,006 193 0.05 434,299 579 0.13 Total interest-bearing deposits 12,927,729 11,022 0.09 11,610,320 14,459 0.12 Total deposits 22,052,759 19,268,094 Federal funds purchased and repurchase agreements 560,841 134 0.02 538,656 121 0.02 Junior subordinated deferrable interest debentures 131,607 2,488 1.89 123,712 6,426 5.19 Subordinated notes payable and other notes 100,000 893 0.89 100,000 939 0.94 Federal Home Loan Bank advances 1 - 6.00 Total interest-bearing liabilities and average rate paid 13,720,177 14,537 0.11 12,372,689 21,945 0.18 Accrued interest payable and other liabilities 210,305 266,533 Total liabilities 23,055,512 20,296,996 Shareholders'equity 2,712,226 2,455,041 Total liabilities and shareholders'equity $25,767,738 $22,752,037 Net interest income $807,937 $710,850 Net interest spread 3.36% 3.34% Net interest income to total average earning assets 3.41% 3.41% For these computations:(i)average balances are presented on a daily average basis,(ii)information is shown on a taxable-equivalent basis assuming a 35%tax rate,(iii)average loans include loans on non-accrual status,and(iv)average securities include unrealized gains and losses on securities available for sale,while yields are based on average amortized cost. 135 Year Ended December 31, 2012 2011 2010 2009 Interest Interest Interest Interest Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Cost Balance Expense Cost Balance Expense Cost Balance Expense Cost $ 1,589,110 $ 4,300 0.27% $ 2,499,047 $ 6,357 0.25% $ 1,973,675 $ 4,901 0.25% $ 829,178 $ 2,161 0.26% 25,364 104 0.41 14,509 61 0.42 20,646 74 0.36 59,236 207 0.35 6,496,224 132,432 2.10 4,026,797 127,072 3.27 3,286,489 121,402 3.84 2,813,801 125,084 4.58 2,448,191 150,807 6.68 2,185,707 146,338 6.97 1,927,388 129,027 7.04 1,449,141 99,546 7.15 8,944,415 283,239 3.31 6,212,504 273,410 4.57 5,213,877 250,429 5.02 4,262,942 224,630 5.45 8,456,818 407,284 4.82 8,042,968 403,479 5.02 8,125,150 414,795 5.11 8,652,563 437,075 5.05 19,015,707 694,927 3.73 16,769,028 683,307 4.13 15,333,348 670,199 4.44 13,803,919 664,073 4.86 573,023 593,224 549,256 585,825 (108,073) (122,641) (126,742) (120,160) 321,137 317,771 320,030 297,958 1,025,091 1,011,585 1,110,680 1,134,418 $20,826,885 $18,568,967 $17,186,572 $15,701,960 $ 6,300,944 $ 5,093,948 $ 4,546,054 $ 3,793,195 332,136 324,954 310,599 360,238 388,847 320,080 167,127 105,051 7,021,927 5,738,982 5,023,780 4,258,484 3,018,116 1,618 0.05 2,541,677 2,115 0.08 2,277,982 3,066 0.13 2,024,867 3,015 0.15 5,834,822 12,085 0.21 5,407,207 14,331 0.27 5,066,747 17,792 0.35 4,152,225 24,709 0.60 1,025,022 3,783 0.37 1,127,731 5,015 0.44 1,251,088 8,184 0.65 1,609,678 26,759 1.66 392,213 613 0.16 407,018 718 0.18 428,022 931 0.22 374,373 1,532 0.41 10,270,173 18,099 0.18 9,483,633 22,179 0.23 9,023,839 29,973 0.33 8,161,143 56,015 0.69 17,292,100 15,222,615 14,047,619 12,419,627 603,934 140 0.02 596,159 312 0.05 472,492 437 0.09 610,945 1,052 0.17 123,712 6,806 5.50 123,712 6,783 5.48 130,051 6,982 5.37 136,084 7,231 5.31 100,000 1,705 1.71 187,123 11,965 6.39 250,000 16,318 6.53 250,000 16,318 6.53 16 1 6.00 35 2 6.00 2,600 170 6.54 190,077 5,741 3.02 11,097,835 26,751 0.24 10,390,662 41,241 0.40 9,878,982 53,880 0.55 9,348,249 86,357 0.92 334,378 267,227 256,111 264,094 18,454,140 16,396,871 15,158,873 13,870,827 2,372,745 2,172,096 2,027,699 1,831,133 $20,826,885 $18,568,967 $17,186,572 $15,701,960 $668,176 $642,066 $616,319 $577,716 3.49% 3.73% 3.89% 3.94% 3.59% 3.88% 4.08% 4.23% 136 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None ITEM 9A.CONTROLS AND PROCEDURES As of the end of the period covered by this Annual Report on Form 10-K, an evaluation was carried out by the Corporation's management, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Corporation's disclosure controls and procedures(as defined in Rule 13a-15(e)under the Securities Exchange Act of 1934).Based upon that evaluation,the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.No changes were made to the Corporation's internal control over financial reporting(as defined in Rule 13a-15(f)under the Securities Exchange Act of 1934) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect,the Corporation's internal control over financial reporting. Management's Report on Internal Control Over Financial Reporting The management of Cullen/Frost Bankers,Inc.(the"Corporation")is responsible for establishing and maintaining adequate internal control over financial reporting.The Corporation's internal control over financial reporting is a process designed under the supervision of the Corporation's Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Corporation's financial statements for external purposes in accordance with generally accepted accounting principles. As of December 31,2014,management assessed the effectiveness ofthe Corporation's internal control over financial reporting based on the criteria for effective internal control over financial reporting established in"Internal Control- Integrated Framework,"issued by the Committee of Sponsoring Organizations("COSO")ofthe Treadway Commission ("2013 framework"). Based on the assessment, management determined that the Corporation maintained effective internal control over financial reporting as of December 31,2014,based on those criteria. Ernst& Young LLP, the independent registered public accounting firm that audited the consolidated financial statements of the Corporation included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of the Corporation's internal control over financial reporting as of December 31,2014.The report,which expresses an unqualified opinion on the effectiveness of the Corporation's internal control over financial reporting as of December 31,2014,is included in this Item under the heading"Attestation Report of Independent Registered Public Accounting Firm." Attestation Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders Cullen/Frost Bankers,Inc. We have audited Cullen/Frost Bankers, Inc.'s(the"Corporation's")internal control over financial reporting as of December 31,2014,based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("2013 framework") (the "COSO criteria"). The Corporation's management is responsible for maintaining effective internal control over financial reporting,and for its assessment ofthe effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting.Our responsibility is to express an opinion on the Corporation's internal control over financial reporting based on our audit. We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists,testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.We believe that our audit provides a reasonable basis for our opinion. 137 Acompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.A company's internal control over financial reporting includes those policies and procedures that(1)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;(2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,use,or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations,internal control over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion,Cullen/Frost Bankers,Inc.maintained,in all material respects,effective internal control over financial reporting as of December 31,2014,based on the COSO criteria. We also have audited,in accordance with the standards of the Public Company Accounting Oversight Board(United States),the consolidated balance sheets as of December 31,2014 and 2013,and the related consolidated statements of income,comprehensive income,changes in shareholders'equity and cash flows for each of the three years in the period ended December 31,2014,ofCul len/Frost Bankers,Inc.,and our report dated February 5,2015 expressed an unqualified opinion thereon. t f fAILLP San Antonio,Texas February 5,2015 ITEM 9B.OTHER INFORMATION None 138 PART III ITEM 10.DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Certain information regarding executive officers is included under the section captioned"Executive Officers of the Registrant"in Part I,Item 1,elsewhere in this Annual Report on Form 10-K.Other information required by this Item is incorporated herein by reference to the Corporation's Proxy Statement(Schedule 14A)for its 2015 Annual Meeting of Shareholders to be filed with the SEC within 120 days of the Corporation's fiscal year-end. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference to the Corporation's Proxy Statement (Schedule 14A) for its 2015 Annual Meeting of Shareholders to be filed with the SEC within 120 days of the Corporation's fiscal year-end. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Certain information regarding securities authorized for issuance under the Corporation's equity compensation plans is included under the section captioned"Stock-Based Compensation Plans"in Part II,Item 5,elsewhere in this Annual Report on Form 10-K.Other information required by this Item is incorporated herein by reference to the Corporation's Proxy Statement(Schedule 14A)for its 2015 Annual Meeting of Shareholders to be filed with the SEC within 120 days of the Corporation's fiscal year-end. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this Item is incorporated herein by reference to the Corporation's Proxy Statement (Schedule 14A) for its 2015 Annual Meeting of Shareholders to be filed with the SEC within 120 days of the Corporation's fiscal year-end. ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this Item is incorporated herein by reference to the Corporation's Proxy Statement (Schedule 14A) for its 2015 Annual Meeting of Shareholders to be filed with the SEC within 120 days of the Corporation's fiscal year-end. 139 PART IV ITEM 15.EXHIBITS,FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this Annual Report on Form 10-K: 1. Consolidated Financial Statements. Reference is made to Part II,Item 8,of this Annual Report on Form 10-K. 2. Consolidated Financial Statement Schedules. These schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. 3. Exhibits. The exhibits to this Annual Report on Form 10-K listed below have been included only with the copy of this report filed with the Securities and Exchange Commission. Incorporated by Reference Exhibit Filed Filing Number Exhibit Description Herewith Form File No. Exhibit Date 3.1 Restated Articles of Incorporation of Cullen/Frost Bankers,Inc. 10-Q 001-13221 3.1 7/26/2006 3.2 Amended and Restated Bylaws of Cullen/Frost Bankers,Inc. 10-K 001-13221 3.2 2/1/2008 3.3 Certificate of Designations of 5.375%Non-Cumulative Perpetual Preferred Stock,Series A 8-A 001-13221 3.3 2/15/2013 4.1* Instruments Defining the Rights of Holders of Long-Term Debt 10.1+ Restoration of Retirement Income Plan for Participants in the Retirement Plan for Employees of Cullen/Frost Bankers,Inc.and its Affiliates(as amended and restated) 10-K 001-13221 10.1 3/31/1999 10.2+ 1991 Thrift Incentive Stock Purchase Plan for Employees of Cullen/Frost Bankers,Inc.and its Affiliates S-8 33-39478 4.4 3/18/1991 10.3+ Cullen/Frost Bankers,Inc.Supplemental Executive Retirement Plan 10-K 001-13221 10.13 3/30/1995 10.4+ Change-In-Control Agreements with 5 Executive Officers 10-K 001-13221 10.8 2/3/2009 10.5+ Change-In-Control Agreements with 5 Executive Officers 10-K 001-13221 10.9 2/3/2009 10.6+ Deferred Compensation Plan for Covered Employees 10-K 001-13221 10.11 3/28/2003 10.7+ Cullen/Frost Restoration Profit Sharing Plan 10-K 001-13221 10.12 2/4/2005 10.8+ 2005 Omnibus Incentive Plan DEF 14A 001-13221 Annex A 3/20/2013 10.9+ 2007 Outside Director Incentive Plan S-8 333-143397 4.4 5/31/2007 10.10+ Description of the Bonus Plan for the Chief Executive Officer 10-Q 001-13221 10.1 7/28/2010 10.11+ Description of the Executive Management Bonus Plan 10-Q 001-13221 10.2 7/28/2010 10.12 Letter Agreement Between Frost Bank and Southwest Energy Distributors,Inc. 8-K 001-13221 99.2 7/31/2014 21.1 Subsidiaries of Cullen/Frost Bankers,Inc. X 23.1 Consent of Independent Registered Public Accounting Firm X 24.1 Power of Attorney X 31.1 Rule 13a-14(a)Certification of the Chief Executive Officer X 31.2 Rule 13a-14(a)Certification of the Chief Financial Officer X 32.1++ Section 1350 Certification of the Chief Executive Officer X 32.2++ Section 1350 Certification of the Chief Financial Officer X 101 Interactive Data File X * The Corporation agrees to furnish to the SEC,upon request,copies of any such instruments. + Management contract or compensatory plan or arrangement. ++ This exhibit shall not be deemed"filed"for purposes of Section 18 of the Securities Exchange Act of 1934,or otherwise subject to the liability of that section,and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. (b) Exhibits-See exhibit index included in Item 15(a)3 of this Annual Report on Form 10-K. (c) Financial Statement Schedules-See Item 15(a)2 of this Annual Report on Form 10-K. 140 SIGNATURES Pursuant to the requirements of Section 13 or 15(d)of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized. Date: February 5,2015 CULLEN/FROST BANKERS,INC. (Registrant) By: /s/ JERRY SALINAS Jerry Salinas Group Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ RICHARD W.EVANS,JR.* Chairman of the Board,Director and Chief Executive Officer(Principal Executive Officer) February 5,2015 Richard W.Evans,Jr. Group Executive Vice President and Chief Financial Officer(Principal Financial Officer /s/ JERRY SALINAS and Principal Accounting Officer) February 5,2015 Jerry Salinas /s/ R.DENNY ALEXANDER* Director February 5,2015 R.Denny Alexander /s/ CARLOS ALVAREZ* Director February 5,2015 Carlos Alvarez /s/ ROYCE S.CALDWELL* Director February 5,2015 Royce S.Caldwell /s/CRAWFORD H.EDWARDS* Director February 5,2015 Crawford H.Edwards /s/ RUBEN M.ESCOBEDO* Director February 5,2015 Ruben M.Escobedo /s/ PATRICK B.FROST* Director and President of Frost Bank February 5,2015 Patrick B.Frost /s/ DAVID J.HAEMISEGGER* Director February 5,2015 David J.Haemisegger /s/ KAREN E.JENNINGS* Director February 5,2015 Karen E.Jennings /s/ RICHARD M.KLEBERG, III* Director February 5,2015 Richard M.Kleberg,III /s/ CHARLES W.MATTHEWS* Director February 5,2015 Charles W.Matthews /s/ IDA CLEMENT STEEN* Director February 5,2015 Ida Clement Steen /s/ HORACE WILKINS,JR.* Director February 5,2015 Horace Wilkins,Jr. /s/ JACK WOOD* Director February 5,2015 Jack Wood Group Executive Vice President and Chief Financial Officer(Principal Financial Officer *By:/s/ JERRY SALINAS and Principal Accounting Officer) February 5,2015 Jerry Salinas As attorney-in-fact for the persons indicated 141 NOTES G U L L E Nj FROST BANKERS , I N C CORPORATE HEADQUARTERS IOO WEST HOUSTON STREET (2I0) 220-4011 SAN ANTONIO, TEXAS 78205 FROSTBANK@ FROSTBANK.COM FR0STBANK.00M ■ CERTIFICATIONS The certifications of the Chief Executive Officer and the Chief Financial Officer of Cullen/Frost Bankers, Inc., required under Section 302 of the Sarbanes-Oxley Act of 2002, have been filed as exhibits to Cullen/Frost's 2014 Annual Report on Form 10-K. In addition, the certification of the Chief Executive Officer of Cullen/Frost, required under the rules of the New York Stock Exchange, Inc., has been filed with the Exchange. FORM 10 - K AND INVESTOR INQUIRIES Analysts, investors and others desiring additional information about Cullen/Frost Bankers, Inc., may contact Greg Parker, Executive Vice President, Director of Investor Relations, at (210) 220-5632. TRANSFER AGENT AND REGISTRAR COMPUTERSHAKE P.O. Box 30170 / COLLEGE STATION, TX 77842-3170 (866) 252-0444 Pto 14 Cullen/Frost Bankers, Inc. A Texas Financial Services Family A/ ) MIX Paw nom FSC responsible sources FOC CO20980 ATTACHMENT 10 HOLIDAY SCHEDULE /t/yr : t �f -Frost 4114 VIP"' New Year's Day January 1* Martin Luther King Day 3'd Monday in January President's Day 3'd Monday in February Memorial Day Last Monday in May Independence Day July 4* Labor Day 1st Monday in September Columbus Day Monday after the 1st Sunday in October Veteran's Day November 11* Thanksgiving Day 4th Thursday in November Christmas Day December 25* * If these dates occur on a Saturday, Saturday is the observed holiday. If these dates occur on a Sunday, the holiday is observed on the following Monday. ATTACHMENT 11 RELATIONSHIP TEAM/BIOGRAPHIES / / •/ A ye ,/ st* f�� /40rost VF ' ��/ Your Relationship Team Primary Relationship Contact/Lending Contact Traci Arellano,Assistant Vice President traciarellano@frostbank.com 361.844.1160 • Provides ongoing management and oversight ofyour entire relationship with Frost. • Serves as your primary contact for credit and borrowing solutions. • Coordinates the activities of relationship team members who provide a wide range of financial products and services,including asset management and employee benefits, risk management and insurance,merchant services, capital markets and underwriting,and group banking. Service Assistance Michelle Holcomb,Administrative Assistant michelle.holcomb@ frostbankcom 361.844.1167 • Sets upyour accounts with Frost. • Provides day-to-day service foryour relationship. • Answers general inquiries about loan and deposit accounts. Primary Treasury Management Product Consultant Jennifer Grove,Assistant Vice President jennif er.grove@ frostbankcom 361.844.1165 • Helps you ident/business needs and works withyou to design financial solutions,using treasury management products and services. • Informs you about new products and services and enhancements to existing products and services. • Ensuresyour Frost service experience meets your expectations. • Oversees the implementation and installation of treasury management products. • Answers inquiries about treasury management products. • Train you on Frost PC-based and Internet products. Treasury Management Technical Support tmcustserv@ f rostbank.com 888.481.0336 •Provides technical support for PC-based and Internet products. •Assists with transmissions ofACH and positive pay files. ;. + IAi /4 41,44Frost 4/ Traci McLester Arellano Traci McLester Arellano is assistant vice president for Frost's public finance division and relationship manager for Frost in the Corpus Christi region and surrounding Coastal Bend communities. During a banking career that began in 2007,Traci has spent significant time understanding and responding to the banking needs of the community,leading businesses,executives,philanthropists, and entrepreneurs.She has spent the past four years with Frost in Houston as a relationship manager,gaining knowledge and a well-rounded expertise on various industries and their banking relationship needs.In August 2014,she joined the public finance division to provide that expertise to the local public and nonprofit organizations of Corpus Christi and the Coastal Bend. Traci is a native of Rockport,Texas where she was born and lived until leaving for school in 2003. She is excited to have returned to her hometown and its surrounding communities. Traci holds a Bachelor of Business Administration degree from the University of Houston. // / __fit, -- P Frost 17.4 ir it ''4117- :1' Jennifer Grove Jennifer Grove is assistant vice president and treasury management sales officer for Frost in the Corpus Christi region and surrounding communities. Building on a background of more than 11 years of experience in the banking industry—eight of those at Frost—Jennifer has worked extensively on the retail side of the bank.She has held positions in personal banking,financial center management and retail sales.Today,Jennifer relies on her previous banking experience,knowledge and innovation to develop financial solutions for customers facing complex issues in varied public,nonprofit and commercial organizations throughout the Coastal Bend. Jennifer holds a Bachelor of Science in Business Administration from Texas A&M University- Commerce.She is active in local community organizations and was recently selected to join the board of directors for Corpus Christi Metro Ministries where she serves on the Pipeline Committee. ATTACHMENT 12 BANKING CENTER/VA UL T LOCATIONS //�, .,,;Frost 3 �rid►, v,. w.t. `t, Frost Financial Centers • Corpus Christi Area Calallen Padre Island 4101 Highway 77,Suite L-1 14201 South Padre Island Drive Corpus Christi,TX 78410 Corpus Christi,TX 78418 Lobby Hours Lobby Hours Monday through Thursday,9 a.m.-5 p.m. Monday through Thursday,9 a.m.-5 p.m. Friday,9 a.m.-6 p.m. Friday,9 a.m.-6 p.m. Saturday,9 a.m.-2 p.m. Motor Bank Hours Motor Bank Hours Monday through Friday,8 a.m.-6 p.m. Monday through Friday,8 a.m.-6 p.m. Saturday,9 a.m.-2 p.m. Saturday,9 a.m.-2 p.m. Motor Bank ATM Drive-up ATM Seven days a week,24 hours a day Seven days a week,24 hours a day Parkdale - - - - Downtown 4215 South Staples 802 North Carancahua Corpus Christi,TX 78411 Corpus Christi,TX 78401 Lobby Hours Lobby Hours Monday through Thursday,9 a.m.-5 p.m. Monday through Friday,9 a.m.-5 p.m. Friday,9 a.m.-6 p.m. Lobby ATM M Saturday,9 a.m.2 p.m. Seven days a week,6 a.m.-10 p.m. Motor Bank Hours Monday through Friday,7:30 a.m.-6 p.m. Saturday,9 a.m.-2 p.m. Leopard Motor Bank Smart ATM 2402 Leopard Seven days a week,24 hours a day Corpus Christi,TX 78408 Lobby Hours Monday through Thursday,9 a.m.-5 p.m. Portland Friday,9 a.m.-6 p.m. 500 West Broadway Motor Bank Hours Portland,TX 78374 Monday through Friday,7:30 a.m.-6 p.m. Lobby Hours Saturday,9 a.m.-2 p.m. Monday through Thursday,9 a.m.-5 p.m. Motor Bank Al' M Friday,9 a.m.-6 p.m. Saturday,9 a.m.-2 p.m. Seven days a week,24 hours a day Motor Bank Hours Monday through Friday,7:30 a.m.-6 p.m. Saturday,9 a.m.-2 p.m. Motor Bank ATM Seven days a week,24 hours a day .fes t„' 1//7/ iy.„.=-11; ; + �// /%; Frost ..iy . South 6230 South Staples Corpus Christi,TX 78413 Lobby Hours Monday through Thursday,9 a.m.-5 p.m. Friday,9 a.m.-6 p.m. Saturday,9 a.m.-2 p.m. Motor Bank Hours Monday through Friday,7:30 a.m.-6 p.m. Saturday,9 a.m.-2 p.m. Drive-up ATM Seven days a week,24 hours a day The Village 3801 South Alameda Corpus Christi,TX 78411 Lobby Hours Monday through Thursday,9 a.m.-5 p.m. Friday,9 a.m.-6 p.m. Walk-up ATM Seven days a week,6 a.m.-10 p.m. Motor Bank Hours Monday through Friday,7:30 a.m.-6 p.m. Saturday,9 a.m.-2 p.m. /11,i r 4rz: 'f Frost Frost Commercial Vaults Austin 2100 Kramer Lane,Suite 750 Austin,TX 78752 Corpus Christi 802 North Carancahua Corpus Christi,TX 78470 Fort Worth 4840 Overton Plaza Fort Worth,TX 76109 Houston 1001 Broadway Houston,TX 77012 San Antonio 100 West Houston Street San Antonio,TX 78205 EXHIBIT E SECURITY AGREEMENT EXHIBIT F FROST BANK SERVICE FEES Frost COMMERCIAL BANKING AND TREASURY MANAGEMENT SERVICES BANKING INVESTMENTS INSURANCE Public Funds Schedule of Fees as of September 2015 Pricing is valid for 90 days Public Funds City of Corpus Christi Balance Inquiries/Transfers 24-hour telephone account information line-inquiries No charge 24-hour telephone account information line-transfers $0.50 each 24-hour telephone account information line-stop payment $20.00 each Customer service representative assisted-inquiries 2 free,then$2.00 each thereafter Customer service representative assisted-transfers $2.00 each Blocked and Control Accounts Setup Frost standard agreement $500.00/account Nonstandard agreement,simple $1,500.00/account Nonstandard agreement,complex $3,000.00/account Monthly maintenance $100.00/account Check Clearing and Processing Services Commercial account maintenance $10.00/account/month Cancelled checks $2.00/account/month Credits posted $0.50/credit (does not Include ACH,Lockbox or Digital Deposits credits) Debits posted(does not include ACH debits) $0.10/debit Items deposited(unencoded)On Us $0.02/item _ Items deposited(unencoded) $0.045/item Hold mail service fee $10.00/account/month Return Items $5.00/item Telephone or fax notification $10.00/call or fax Redear $3.50/item Special signature requirements $3.00/month+$.035/item Collection Services Collection items(drafts,checks) $20.00/1tem Custodial fee(after due date of foreign documentaries) $10.00/month/item Dealer drafts/immediate credit drafts 812.00/Item Documentary $80.00/item Foreign check $40.00/item Commercial Vault Services Currency deposits $0.40/$1,000.00/deposit Discrepancy notification $10.00/call Change order minimum $5.50/order Detailed reporting $15.00/hour Full Fed standard bag of coin deposited $2.25/bag Mall depository pickup $2.75/bag ATM fit currency furnished $1.50/strap Partial bag of loose coin deposited $4.00/bag Plastic deposit bag $0.65/bag+applicable processing fees Rolled coin furnished $0.09/roll Strapped currency furnished $0.55/strap Various coin/currency supplies available on request Prices vary Public Funds Schedule of Fees 1 of 4 TREASURY MANAGEMENT SERVICES Teller Services Branch deposit processing $3.50/deposit Change order minimum $5.50/order Rolled coin furnished $0.10/roll _Strapped currency furnished $0.60/strap Wire Transfer Services Outgoing Fed Wire $25.00/wire Outgoing international wire $45.00/wire Outgoing Intrabank transfers $5.00/transfer Incoming Fed Wire $8.00/transfer Incoming Intrabank transfers $5.00/transfer Investigations $20.00/hour($20.00 minimum) Mall daily wire advice statement $5.00/statement Phone call notification $5.00/call Photocopies $3.00/page Additional Account Services Account research $20.00/hour ACH blocking $10.00/account/month Audit confirmation $10.00/hour Check/document photocopies from microfilm $3,00/item Credit investigation services $25.00/Investigation Regulatory balance fee No charge Money order $3.00 each Nonsuffident funds charge $33.00/check Overdraft charge $33.00/check with a maximum of$165/day+interest Stop payment $30.00 each Special computer programming $175.00/hour(2-hour minimum) Transfer standing order $2.00 each Account Analysis Rates Average negative collected balance Prior month's average Frost Bank Prime+3% Earnings credit rate Prior month's average 91 day T-Bill auction discount rate + 30 basis points Account Reconciliation Full reconciliation $25.00 setup,$75.00/account+$0.04/1tem Partial reconciliation $25.00 setup Paid item output-transmission $50.00/account/month+$0.04/item Statement All Items Report $0.05/item($50.00 minimum/account/month) Site reconciliation $25.00 setup,$50.00/account+$0.04/item Positive pay with full reconciliation No charge to maintain file(see Positive Pay section for per-item fees) Manual Issue Item $1.00/item Public Funds Schedule of Fees 2 of 4 TREASURY MANAGEMENT SERVICES ACH (Automated Clearing House) ACH origination $30.00/month,plus$0.08 per item ACH Operating Rules,Corporate Edition $17.00,plus tax ACH credit received $0.08/item ACH debit received $0.08/item ACH reclear items $2.00/item ACH returned items $3.00 each Notification $5.00/phone call or fax ACH file maintenance $12.00 each Electronic payment authorization—monthly service fee $10.00/month/account Electronic payment authorization—authorized originator $3.00/month/originator Financial Electronic Data Interchange(FEDI) $0.06/item Financial Electronic Data Interchange(FEDI)paper advice mailed $1.25/page SEC blocking—monthly service fee $10.00/month File translation $500.00/month • e I. •• . -- • Investment $115.00/month Une of credit $140.00/month Une of credit and investment $165.00/month •Securities products are NOT FDIC Insured•NOT guaranteed by Frost•NOT products of Frost and may Involve risk to principal amount Invested CD-ROM Image Archive CD-ROM captured imaged items through regular processing,checks $25.00/CD,plus$0.05/item not returned CD-ROM captured imaged Items directly from checks held by $75.00/CD,plus$0.05/item customer Software for CD-ROM image archive $300.00,plus tax Controlled Disbursements Controlled disbursements 120.00/accoun month Digital Deposits Digital Deposits Essential(DO Premium fees do not apply) $50.00/month Digital Deposits Premium Image capture $0.10/image Monthly maintenance fee Customer-owned scanner $50.00/workstation Frost procurement—scanner model 0(30 $50.00/workstation Frost procurement—scanner model 15230 $100.00/workstation Frost procurement—scanner model Cannon CR 190 $200.00/workstation Digital Deposits credit posted $0.50/item Digital Deposits item deposited On Us $0.02/item Digital Deposits item deposited $0.065/item Public Funds Schedule of Fees 3 of 4 TREASURY MANAGEMENT SERVICES Internet Banking Cash Manager Premium Previous day balance/activity summary $50.00/month Accounts reported $15.00/account/month Data export Induded with detail Previous day detail reported $0.05/item Current day reporting(cash position draw report) $35.00/account/month Account(book)transfers $0.50/transfer ACH activity report No charge Checking account statement No charge Financial Electronic Data Interchange(FEDI) $0.06/item Positive pay exception(reject)report No charge Security token $25.00/token shipped Data exchange(incoming) $75.00/account/month,plus$0.03/Item Data exchange(outgoing) $75.00/account/month,plus$0.05/item BAI2 file previous day(delivered outside of Cash Manager) BAI2 accounts reported $15.00/account/month SAI2 detail reported $0.05/item BAI2 file intraday(delivered outside of Cash Manager) $50.00/account/month Positive Pay Without full reconciliation No charge to maintain file With full reconciliation No charge to maintain file Adjustments to file after receipt $1.00/item Paid reject Item $5.00/item ACH reverse positive pay or check blocking Paid reject item $1.00/item Payee review $20.00/month+$0.05/item Stop Payment/ Check Inquiry Cash Manager Stop payment initiation $8.00 each Check status inquiries No charge Stop payment module No charge Tax Payment Services also available through Cash Manager ACH functionality Frost Tax Payment automated tax payment setup $3.00 each Frost Tax Payment transaction $3.00 each Wire Transfer Services Cash Manager Domestic wire initiation $10.00/wire Outgoing international wire In US dollars $30.00/wire In other currencies $15.00/wire Book transfer initiation $3.00/transfer Funds transfer/wire module No charge Future-dated wire cancellation $10.00 Review of wire activity No charge Standing instructions $25.00/transfer,plus$10.00/wire Zero Balance Accounting Zero balance account,primary No charge Zero balance account,secondary $25.00/month/account Member FDIC Public Funds Schedule of Fees 4 of 4 Public Funds Retail Lockbox Schedule of Fees as of September 2015 Frost Pricing valid for 90 days. 14, City of Corpus Christi BANKING INVESTMENTS INSURANCE Lockbox Processing One-time setue $50.00/box Retail monthly maintenance(includes one address) $150.00/box/month Retail item $0.22/item Multiples(checks and/or Invoices) $0.28/item Retail box rental Actual cost-hard charge Retail cash processing $1.00/item Retail check only $0.35/item Retail coupon reject $0.10/Item Retail reassociation $0.06/item Retail return envelope $0.05/item Retail unprocessable check/correspondence $0.25/item Credit card processing $0.35/item Lockbox Credit Posted $0.50/item Internet Reporting Online exceptions $0.25/Item Retail image delivery-Internet $125.00/box/month Retail image capture-check* 1-100,000 $0.0075/item 100,001 and above $0.005/item Retail image capture--Invoice* 1-100,000 $0.0075/item 100,001 and above $0.005fitem Long-term storage(up to 7 years) Retail image archive check $0.03/item Retail image archive coupon/invoice $0.03/item CD-ROM Images CD-ROM-Monthly $25.00/box/month CD-ROM-Weekly $8.00/CD/week CD-ROM-Daily $5.00/CD/day Retail CD image-check* 1-100000 $0.0075/item 100,001 and above $0.005/item Retail CD image--Invoice* 1-100,000 $0.0075/item 100,001 and above $0.005/item 'Customers that receive Images of lockbox Items on a CD-ROM and through the Internet will only be assessed a per-Item charge once. Lockbox Reporting Data transmission $100.00/box/month Data entry $0.01/keystroke MICR capture $0.10/line Download image file $100.00/month FTP customer report $50.00/month Fax photocopy $2.00/sheet Bill Payment and Presentment Service Bill payment presentment,monthly fee $25.00/month Bill payment presentment,transaction fee $0.05/item Bill payment presentment,return fee $0.10/item Bill payment presentment,reversal fee $2.00/item Additional Services Postage/Multiple mailing adress Actual cost Courier/Express Mail Actual cost Branch delivery $60.00/box/month Member FDIC ©2015 Frost Bank 1 or 1 Public Funds Wholesale Lockbox Schedule of Fees as of September 2015 Frost Pricing valid for 90 days. q40. City of Corpus Christi BANKING INVESTMENTS INSURANCE Lockbox Processing One-time setup $50.00/box Wholesale monthly maintenance(includes one address) $150.00/box/month Wholesale item $0.47/item Wholesale box rental Actual cost-hard charge Wholesale cash processing _ $1.00/item Wholesale detail sorting 50.06/item Wholesale document notation 50.06/item Wholesale hand open mail 50.06/item Wholesale medical item 50.40/item Wholesale reassociation 50.06/item Wholesale return envelope 50.06/item Wholesale special handling $0.06/item Wholesale special stapling $0.06/item Wholesale unprocessable/correspondence _ $0.30/item Credit card processing $0.35/item Lockbox Credit Posted $0.50/item Internet Reporting Online exceptions $0.25/item Wholesale Image delivery-Internet $125.00/box/month Wholesale image capture-check* $0.10/item Wholesale image capture-invoice* $0.10/item Lockbox image capture-nonfinancial $0.10/item Wholesale extended online storage(up to 180 days) $25.00/month Long-term storage(up to 7 years) Wholesale image archive check $0.03/Item Wholesale image archive Invoice $0.03/Item CD-ROM Images CD-ROM-Monthly $25.00/box/month CD-ROM-Weekly $8.00/CD/week CD-ROM-Daily $5.00/CD/day Wholesale CD image-check* $0.10/Item , Wholesale CD image_invoice* $0.10/item *Customers that receive Images of lockbox items on a CD-ROM and through the Internet will only be assessed a per-item charge once. Lockbox Reporting Data transmission $100.00/box/month Data entry $0.01/keystroke MICR capture $0.10/line Download Image file $100.00/month FTP customer report $50.00/month Fax photocopy $2.00/sheet Bill Payment and Presentment Service Bill payment presentment, monthly fee $25.00/month Biil payment presentment,transaction fee $0.05/item Bill payment presentment, return fee $0.10/Item Bill payment presentment,reversal fee $2.00/item Additional Services Postage Actual cost Courier/Express Mail Actual cost Branch delivery $60.00/box/month Multiple mailing address Actual cost Member FDIC ®2015 Frost Bank 1 of 1 Public Funds , ''''F Safekeeping Fees ij�,�� rOst Schedule of Fees as of September 2015 BANKING INVESTMENTS INSURANCE City of Corpus Christi Account maintenance $10.00/month/account Safekeeping Online $50.00/month - 3 services - Safekee•in• Docs Messen•er Safekee•'n• Extract No cha •e for basic service Per Item Charges Fixed income book entry per receipt $0.60 Equity book entry per receipt $1.50 Physical per receipt $2.00 Book entry per$10,000 at par at month-end $0.01/month Ph cal en• •-r$l0 000 of•.rat month-end 0.10 month Receipt Fees Security receipt and clearance fees On-Frost Transactions Not On-Frost Transactions FRB non-ABS/MBS - $20.00 FRB ABS/MBS - $25.00 Non-FRB, non-ABS/MBS - $30.00 Non-FRB,ABS/MB5 - $35.00 Physical items - $75.00 Late delivery Instructions - $25.00 Chane deliv- instructions - $25.00 Transactional Fees Interest payment-credit to account $1.00 Principal payment-credit to account $8.00 Called bond redemptions-credit to account $10.00 Maturities-credit to account $10.00 Wire fee $11.00 Cashier's check 10.00 Pledging of customer-owned securities to another entity Pledge $6.00 Release $6.00 Substitution 12.00 Other Services Registrations and re-registrations $35.00 Physical examination of securities $25.00/hour Reorganizations-tenders and exchanges $35.00 Treasury auctions $50.00 Account verification statements(free monthly) $2.50 Account research $25.00/hour Indirect inquiries for lost or stolen securities: Semiannual charge $25.00 Inquiry $3.00 Over-the-counter collections: " Coupons $20.00/envelope Bonds $20.00/corpus plus postage and insurance Proxies/Annual statements $3.00 Special handling(manual intervention) $20.00 additional/transaction 2015 0 Member FDIC 411j 4 Frost Bank SECURITY AGREEMENT FROST BANK, (the "Bank"), for valuable consideration, the receipt and sufficiency of which is acknowledged, grants a security interest in and a pledge and assignment of (a) any and all Eligible Collateral (as defined below) from time to time held by The Federal Reserve Bank and/or Federal Home Loan Bank(the"Custodian"), identified on the Custodian's books as held for the account of the Depositor or jointly for the account of the Bank and the Depositor, together with (b) the products and proceeds of the foregoing and any substitutions or replacements thereof, whenever acquired and wherever located (the "Collateral") to CITY OF CORPUS CHRISTI (the "Depositor"), in order to secure the payment when due, of the Deposits (as defined below) pursuant to the depository agreement ("Depository Agreement") between the Bank and the Depositor, dated of even date with this security agreement (the "Agreement") : 1. Definitions. Except as otherwise expressly defined in this Agreement, all terms used herein which are defined in the Uniform Commercial Code as in effect from time to time in Texas (the "Code") have the same meaning as in the Code. All other terms capitalized but not defined herein or in the Code have the meanings assigned to them in the Depository Agreement. "Account" shall mean the separate custodial account established with Custodian in the name of Bank and for the benefit and subject to the control of Depositor as secured party in accordance with this Agreement. "Authorized Person" shall be any officer of Depositor or Bank, as the case may be, duly authorized to give Written Instructions on behalf of Depositor or Bank, respectively, such authorized persons for Depositor to be designated in a certificate substantially in the form of Exhibit B, attached hereto, as such exhibit may be amended from time to time, or as designated in such other forms as may be prescribed by the Bank. "Book-Entry System" shall mean the Federal Reserve/Treasury Book Entry System for receiving and delivering U.S. Government Securities. "Business Day" shall mean any day on which Custodian and Bank are open for business and on which the Book Entry System is open for business. "Collateral Requirement" shall mean an amount of Securities with a Market Value equal to 102% of Uninsured Deposits; provided, however, to the extent that mortgage-backed securities (declining principal balance) are used as Eligible Collateral, "Collateral Requirement" shall mean an amount of Securities with a Market Value equal to 110%of Uninsured Deposits secured with such mortgage-backed securities. "Deposits" shall mean all deposits by Depositor in Bank, including all accrued interest on such deposits, that are available for all uses generally permitted by Bank to Depositor for actually and finally collected funds under the Bank's account agreement or policies. "Eligible Collateral" shall mean any Securities of the types enumerated in the Schedule of Eligible Collateral(which types are in compliance with the collateral policy adopted and approved by the FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT(FEBRUARY 2010) governing body of Depositor) attached hereto as Exhibit A, as such exhibit may be amended from time to time pursuant to a written amendment signed by each of the parties to this Agreement, and any Proceeds of such Securities. "Market Value" shall mean: (i)with respect to any Security held in the Account,the market value of such Security as made available to Bank or Custodian by a generally recognized source selected by the Bank or the Custodian, plus, if not reflected in the market value, any accrued interest on such Security, or, if such source does not make available a market value, the market value shall be as determined by Custodian or the Bank in its sole discretion based on information furnished to Custodian or Bank by one or more brokers or dealers; and(ii)with respect to any cash held in the Account, the face amount of such cash. "Proceeds" shall mean any principal or interest payments or other distributions made in connection with Eligible Collateral and anything acquired upon the sale, lease, license, exchange, or other disposition of Eligible Collateral. "Security" or "Securities" shall include, without limitation, any security or securities held in the Book-Entry System; common stock and other equity securities; bonds, debentures and other debt securities; notes, mortgages, or other obligations; and any instruments representing rights to receive, purchase, or subscribe for the same, or representing any other rights or interests in such security or securities. "Trust Receipt" shall mean evidence of receipt, identification, and recording, including a written or electronically transmitted advice or confirmation of transaction or statement of account. Each advice or confirmation of transaction shall identify the specific securities which are the subject of the transaction. If available, statements of account may be provided by the Bank or the Custodian at least once each month and when reasonably requested by the Depositor, and must identify all Eligible Collateral in the Account and its Market Value. "Uninsured Deposits" shall mean that portion of the daily ledger balance (amount of funds plus the amount of any accrued interest on the funds) of Depositor's Deposits with Bank which exceeds the standard maximum deposit insurance amount ("SMDIA") of the Federal Deposit Insurance Corporation ("FDIC"). "Written Instructions" shall mean written communications actually received by Bank or Custodian from an Authorized Person or from a person reasonably believed by Bank or Custodian to be an Authorized Person by a computer, telex, telecopier, or any other system whereby the receiver of such communications is able to verify by codes or otherwise with a reasonable degree of certainty the identity of the sender of such communication. 2. Security Requirement. (a) The Bank, to secure the timely payment of Uninsured Deposits made by Depositor, has deposited with Custodian certain Securities as more fully described in the initial confirmation or Trust Receipt of such deposit delivered by Custodian to Bank and Depositor respectively. Pursuant to the Code, the Custodian shall act as a bailee or agent of the Depositor and, to the extent not inconsistent with such duties, shall hold Securities as a securities intermediary (as such term is defined in Chapter 8 of the Code) in accordance with the provisions of this Agreement, the Depository Agreement, and of any agreement entered into with the Custodian further governing the provision of Security by the Bank for Uninsured Deposits. 2 FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT(FEBRUARY 2010) (b) (i) To secure the timely payment of Uninsured Deposits made by Depositor with Bank, Bank agrees to deliver or cause to be delivered to Custodian for transfer to the Account, Eligible Collateral having a Market Value equal or greater than the Collateral Requirement. (ii) If the Market Value of such Eligible Collateral on any Business Day is less than the Collateral Requirement for such day, the Bank shall be required to deliver additional Eligible Collateral having a Market Value equal to or greater than such deficiency as soon as possible but no later than the close of business of Custodian on the Business Day on which Bank determined such deficiency. If on any Business Day, the aggregate Market Value of the Eligible Collateral provided pursuant to this Agreement exceeds the Collateral Requirement for such day, Custodian shall, at the direction of Bank and with the approval of the Authorized Person acting on behalf of the Depositor, transfer from the Account to or for the benefit of Bank, Eligible Collateral having a Market Value no greater than such excess amount. (iii) When additional Eligible Collateral is required to cover incremental Deposits, the Bank must receive the request for collateral one (1) Business Day prior to the Business Day the incremental Deposits are received, and the Bank shall be required to deliver additional Eligible Collateral having a Market Value equal to or greater than the deficiency on the Business Day the incremental Deposits are received. (c) For any changes made to the Eligible Collateral held in the Account due to releases, substitutions, or additions of Eligible Collateral, the Custodian shall update its records of the Account accordingly as soon as possible and promptly issue a Trust Receipt to the Depositor and the Bank. (d) The Bank shall be entitled to income on Securities held by the Custodian in the Account, and the Custodian may dispose of such income as directed by Bank without approval of the Depositor, to the extent such income is not needed to meet the Collateral Requirement. 3. Custody of Securities. The parties agree that all Securities held in the Account shall be treated as financial assets. For purposes of the Code, the security interest granted by Bank in the Eligible Collateral and Proceeds for the benefit of the Depositor is created, attaches, and is perfected for all purposes under Texas law from the time Custodian identifies the pledge of any Eligible Collateral or Proceeds to the Depositor and issues a Trust Receipt to the Depositor for such Eligible Collateral or Proceeds. The security interest of the Depositor in Securities and all Proceeds shall terminate upon the transfer of such Securities or Proceeds from the Account. 4. Delivery of Securities. Bank and Depositor agree that Securities and Proceeds delivered to or received by Custodian for deposit in the Account may be in the form of credits to the accounts of Custodian in the Book Entry System. Bank and Depositor authorize Custodian on a continuous and ongoing basis to deposit in the Book Entry System all Securities and Proceeds that may be deposited therein and to utilize the Book Entry System in connection with its performance under this Agreement. Securities and Proceeds credited to the Account and deposited in the Book Entry System will be represented in accounts that include only assets held by Custodian or its agent(s) for third parties, including but not limited to accounts in which assets are held in a fiduciary, agency, or representative capacity. FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT(FEBRUARY 2010) 3 The Bank acknowledges that to the extent permitted by law, the records of the Bank and/or the Custodian with respect to the pledge of Eligible Collateral as described in this Agreement: (a) may be inspected by the Depositor or by the Texas Comptroller of Public Accounts (the "Comptroller"), at any time during regular business hours of the Bank or the Custodian; (b) such records may be subject to audit or inspection at any time pursuant to Sections 2257.025 and 2257.061 of the Texas Government Code, as amended; and (c) reports must be filed by the Custodian with the Comptroller when requested by the Comptroller. 5. Collection of Securities. If Depositor certifies in writing to Custodian that(a) Bank is in default under any underlying pledge or security agreement between Depositor and Bank, including the Depository Agreement and (b) Depositor has satisfied any notice or other requirement to which Depositor is subject pursuant to the Depository Agreement, then Depositor may give Custodian and any appointed receiver Written Instructions to transfer the value of specific amounts and issues of Securities held in the Account and, if applicable, specific amounts of the Proceeds held in the Account which have not previously been released to Bank, up to the amount that Depositor has in its depository account with Bank as of the date the Bank default occurs,to designated accounts of Depositor and to cease releasing to an account of Bank any Proceeds reflecting the interest and principal on Securities in the Account as provided in Section 2(d). 6. Representation and Warranties. (a) Representations of Bank. Bank represents and warrants, which representations and warranties shall be deemed to be continuing,that: (i) the Board of Directors of the Bank has authorized the Bank to enter into this Agreement, and such authorization is reflected in the approving resolution of the Bank's Board of Directors and in the minutes of the meeting of the Board of Directors at which this Agreement was approved, and this Agreement has been legally and validly entered into and is enforceable against Bank in accordance with its terms; (ii) this Agreement and the pledge of Eligible Collateral under this Agreement do not violate or contravene the terms of the Bank's charter documents, by-laws, or any agreement or instrument binding on the Bank or its property, or any statute or regulation applicable to the Bank; (iii) the Bank has entered into this Agreement and the Depository Agreement (A) in the ordinary course of business, (B) in good faith and on an arm's-length basis with the Depositor, (C) not in contemplation of bankruptcy or insolvency, and (D) without intent to hinder, delay, or defraud the Bank's creditors; (iv) a copy of each of(A)this Agreement, (B)the Depository Agreement, and(C)the resolution of the Board of Directors of the Bank approving this Agreement and the minutes of the meeting of the Board of Directors at which this Agreement was approved, have been placed (and will be continuously maintained) in the official records of the Bank; (v) the Bank is sole legal and actual owner of the Securities or of beneficial interests in Securities deposited in the Account, free of all security interests or other encumbrances, except the security interest created by this Agreement; FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT(FEBRUARY 2010) 4 (vi) this Agreement was executed by an officer of Bank who was authorized by the Bank's Board of Directors to do so; (vii) the Bank is a bank or trust company duly authorized to do business in the State of Texas; and (viii) all acts, conditions, and things required to exist, happen, or to be performed on its part precedent to and in the execution and delivery of this Agreement by it exist or have happened or have been performed. (b) Representations of Depositor. Depositor represents and warrants, which representations and warranties shall be deemed to be continuing,that: (i) this Agreement has been legally and validly entered into, has been approved by the Depositor's governing body, and does not and will not violate any statute or regulation applicable to it and is enforceable against Depositor in accordance with its terms; (ii) the appointment of Custodian has been duly authorized by Depositor and this Agreement was executed by an officer of Depositor duly authorized to do so; (iii) (A) all Securities identified on the Schedule of Eligible Collateral, attached hereto as Exhibit A, may be used to secure Depositor's Uninsured Deposits under applicable statutes and regulations, (B) the Collateral Requirement meets the requirements of such applicable statutes and regulations, (C) the governing board of Depositor has approved a collateral policy which authorizes all such Securities to be used as Eligible Collateral, and (D) such collateral policy complies with all applicable statutes and regulations; (iv) it will not sell, transfer, assign, convey, pledge, or otherwise dispose in whole or in part its interests in or the rights with respect to any Securities deposited in the Account, or the Proceeds of such Securities, except as permitted in Section 5 of this Agreement; (v) all acts, conditions, and things required to exist, happen, or to be performed on its part precedent to and in the execution and delivery of this Agreement exist or have happened or have been performed; (vi) Depositor will comply with the terms of any other agreements it may have with the Bank in connection with this Agreement; and (vii) In the event Depositor requests any financial services from the Bank other than depository services, the Depositor shall provide the Bank with a copy of the Depositor's current investment policy. 7. Continuing Agreement. This Agreement shall continue and remain in full force and effect and shall be binding upon the Bank and its successors and assigns until such time as (a) all Deposits have been paid in full to the Depositor or otherwise paid as instructed by the Depositor, and(b)the Depository Agreement is no longer in effect. FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT(FEBRUARY 2010) 5 } 8. Rights and Remedies of the Depositor. The Depositor's rights and remedies with respect to the Collateral shall be those of a secured party under the Code and under any other applicable law, as the same may from time to time be in effect, in addition to those rights granted in this Agreement, in the Depository Agreement, and in any other agreement in effect between the Bank and the Depositor. The Depositor agrees to provide the Bank and the Custodian with reasonable notice of the sale,disposition, or other intended action subject to the provisions of this Agreement in connection with the Collateral, whether required by the Code or otherwise. 9. Application of Proceeds by the Depositor. In the event the Depositor requests that the Custodian and receiver sell or otherwise dispose of the Collateral in the course of exercising the remedies provided for in Section 5 above and in the Depository Agreement, any amounts held, realized, or received by the Depositor pursuant to the provisions of this Agreement, including the proceeds of the sale, in whole or in part, of any of the Collateral, shall be applied by the Depositor first toward the payment of any costs and expenses incurred by the Depositor (a) in enforcing this Agreement, (b) in realizing on selling, disposing or protecting any Collateral and (c) in enforcing or collecting any Deposits, including attorneys' fees, and then toward payment of the Deposits in such order or manner as the Depositor may elect. Any Collateral remaining after such application and after payment to the Depositor of all the Deposits in full shall be paid or delivered to the Bank, its successors or assigns, or as a court of competent jurisdiction may direct. 10. Notices. Any communication, notice, or demand to be given under this Agreement shall be duly given when delivered in writing or sent by telex or facsimile to a party at its address indicated below. If to the Depositor, at: Constance Sanchez Director of Financial Services 1201 Leopard Corpus Christi,TX 78401 If to the Bank, at: Ms. D'Layna Thamm Administrative Officer Frost Bank P. O. Box 1600 San Antonio, TX 78296 11. Miscellaneous. (a) Updating Certificate of Authorized Persons. Depositor agrees to furnish to Bank a new and updated "Certificate of Authorized Persons" substantially in the form of Exhibit B, attached hereto, or in similar form as Bank may require, within a reasonable amount of time after there are additions or deletions to list of Authorized Persons authorized to act on behalf of the Depositor. (b) Invalidity; Severability. If any clause or provision of this Agreement is for any reason held to be invalid, illegal or unenforceable, such holding shall not affect the validity, legality or enforceability of the remaining clauses or provisions of this Agreement. (c) Amendment. This Agreement may not be amended or modified in any manner except by written agreement executed by all of the parties. (d) Assignment and Binding Effect. The Depositor may not assign all or any part of its FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT(FEBRUARY 2010) 6 rights or obligations under the Agreement without the Bank's prior express written consent, which may be withheld in the Bank's sole discretion. The Bank may assign or delegate all or any part of its rights or obligations under the Agreement, including, without limitation, the performance of the services described herein. The Agreement will be binding on and inure to the benefit of the successors and permitted assigns of either party. (e) Governing Law; Venue. This Agreement shall be construed in accordance with the substantive laws of the State of Texas, without regard to conflicts of law principles thereof. Bank and Depositor hereby consent to the non-exclusive jurisdiction of a state or federal court situated in Nueces County, Texas, in connection with any dispute arising hereunder. Bank and Depositor hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of venue of any such proceeding brought in such a court and any claim that such proceeding brought in such a court has been brought in an inconvenient forum. (f) Liability of the Parties. The Bank's and Depositor's duties and responsibilities to each other are limited as set forth in this Agreement, except with respect to any provisions of the law which cannot be varied or waived by agreement. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, NEITHER BANK NOR DEPOSITOR WILL BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, EXEMPLARY, SPECIAL, OR PUNITIVE DAMAGES (INCLUDING WITHOUT LIMITATION, LOSS OF REVENUE OR ANTICIPATED PROFITS) OR FOR ANY INDIRECT LOSS THAT THE OTHER PARTY MAY INCUR OR SUFFER IN CONNECTION WITH THE SERVICES PROVIDED HEREUNDER (EVEN IF SUCH PARTY HAS BEEN INFORMED OF THE POSSIBILITY OF SUCH DAMAGES), INCLUDING WITHOUT LIMITATION, ATTORNEYS' FEES. 7 FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT(FEBRUARY 2010) i IN WITNESS WHEREOF, the Bank and Depositor have caused this Agreement to be duly executed as of the (_ day of Apr , 20 ik FROST BANK By Name: Tom Frost III Title: Senior Executive Vice President Dated: 04" ` /oa DEPOSITOR ACCEPTS AND AGREES as of 3Qupsm t2 , 201_ CITY OF CO '4' 111 By .��%��%/4YL _/ Nam,: 'onald . Olson Title: it ► .nager Ap roved as to form: ' - /5 dk .Z.(4•10 I/ Assis it City Attorney OF For City Attorney 8 1 EXHIBIT A Schedule of Eligible Collateral Eligible Collateral All funds on deposit under the provisions of this agreement shall be continuously secured in accordance with the Texas Public Funds Collateral Act,Chapter 2257 of the Texas Government Code. The following securities are approved as collateral for CITY OF CORPUS CHRISTI funds: 1. A treasury note of the United States or other evidence of indebtedness of the United States that is guaranteed as to principal and interest by the United States. 2. An obligation of an agency of the United States, provided that (i) the market value can be readily established,and(ii)the obligation has been approved by an Authorized City Representative. A-1 FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT(FEBRUARY 2010) EXHIBIT B CERTIFICATE OF AUTHORIZED PERSONS (Depositor) The undersigned hereby certifies that he is the duly authorized City Manager of the City of Corpus Christi (the "Depositor"), and further certifies that the following officers or employees of Depositor have been duly authorized in conformity with the approval of the Depositor's governing body to deliver Written Instructions to the The Federal Reserve Bank ("Custodian") pursuant to the Security Agreement between Depositor and the Bank dated January 1, 2016, and that the signatures appearing opposite their names are true and correct: Constance P. Sanchez Director of Finance „di:4.--, , Name Title Signature{ Alma Iris Casas Assistant Director of Finance %/..,K1 .-,- aver,_ -- Name Title Signature Judy Villalon City Treasurer Name Title ature This certificate supersedes any certificate of authorized i' ividua •ou may c Imo ) eon file. [corporate -or. /i seal] Ti e: City Man ger Date: FROST PUBLIC FUNDS ENTITY SECURITY AGREEMENT(FEBRUARY 2010) B-1 . Pledgee Agreement Form To: Federal Reserve Bank of Boston Tel: 800-327-0147,#4 600 Atlantic Avenue Fax: 877-973-8972 Boston,MA 02210 Attn: Wholesale Operations/Joint Custody Date: 70Ali&(\1 V;• We,the City of Corpus Christi on behalf of the Corpus Christi Community Improvement Corporation,agree to the terms of Appendix C of your Operating Circular7, dated August 19, 2005, as it may be amended from time to time with respect to the account on your books designated K1LE(4-digit alpha-numeric account number). We further agree that you may accept par for par substitutions: securities from the Pledgor as a replacement of, or in substitution for,those securities presently held(please check one): ❑ NO (Instructions required X❑ YES(Standing Approval) for each withdrawal) Provided that the replacement or substitution does not reduce the aggregate par amount of securities held in custody for us (see Operating Circular 7,Appendix C,Section 4.3). We authorize you to use the following call-back procedure for securities transaction pertaining to this account(please check one): X❑ Three-party call-back n Four-party call-back We certify that the individuals listed below may take authoritative action on our behalf with respect to the account, including a direction to release collateral from the account. You may rely on the authority of these individuals with respect to the account until we otherwise notify you. Telephone: 361-826-3227 Print Name: Constance P. Sanchez Title: Director of Finance Fax: Signature:G Q : % a - Telephone: 361-826-3610 Print Name: Alma Iris Casas Title: Assistant Director of Financial Services Fax: Signature: / (. Date: I4247,5- Telephone: 4247,5Telephone: 361-826-3651 Print Name: Judy Villalon Title: City Treasurer Fax: Signatures �C�� Date: 1Z/Lz.' i Pledgee Agreement (page 2 of 2) Telephone: Print Name: n/a Title: Fax: Signature: Date: The Undersigned hereby certifies that he/she is the present lawful incumbent of the designated public office. Pledgee City of Corpus Christi on behalf of the Corpus Christi Community Improvement Corporation Name of Governmental Unit P.O. Box 9277 Street Address or P.O.Box Number Co .us C ' 1 TX 7:469 Zip Code . i zar O'i ial Signature Date Ronald . . son, City Manager Printed Name and Title ' , Notary State of �z t-S County of Mite Ct5 On this day of Z—Gtwv C-11 , 20 l(abefore me personally appeared RoAalcA. L. 01 San to me personally known or satisfactorily proven, who by me duly sworn, did depose and say tha0 she resides at in the city of Cr✓pil.S C'(i S-, , in the State of rPX&S ,tha he/she is the C 1 Witt/kikto ( [Title] of ('i .0c COTAS C M'r6J-t and thato she executed this document on behalf of CI G C— CORIA` ch1i01, before me. \ Ct- Signature of Notary \ /p i` ESTHER VELAZOUEZ Yl -JL Notary ID # 2905734 Printed Name of Notary 1 ; ,,^`, My Commission Expires ��[ S G \�.�.�s*E��e� July 5. 2018 My commission expires on C: ,__ • F EDER AL Federal Reserve Bank Internal FR RESERVE (upon receipt by the Federal Reserve Bank) tin; Joint Custody Service via FedMail® Federal Reserve Bank Use Only Request Form Due Diligence Verified: FINARCIAL Initials: SERVICES PLEASE TYPE FORM,PRINT&SUBMIT(handwritten forms may Date: FRBservices.org delay processing) Use of the FedMail access solution is governed by Federal Reserve Bank Operating Circular 5,Electronic Access("OC 5"). Depending on the services you choose to access using FedMail,additional Operating Circulars may govern. Federal Reserve Bank Operating Circulars are available at FRBservices.org/regulations/operating)circulars.html. Submission of this form constitutes acceptance of the terms and conditions of OC 5 and other applicable Operating Circulars and agreements. The Federal Reserve Banks have no obligation to verify the accuracy of the information you provide below and have the right to rely on such information in connection with the provision of the FedMail access to the services your are requesting. Except to the extent prohibited by law or regulation,you agree to indemnify,hold harmless and defend the Federal Reserve Banks against any claim,loss,liability,or expense made against or incurred by the Federal Reserve Banks in connection with their reliance on the information provided below. Section 1 —General *Required Fields State or Local Government Institution Name* City of Corpus Christi Phone Extension Telephone* 361-826-3651 Provide the 4-digit alpha-numeric account number(s)below that are listed as"Institution ID" Joint Custody Account on your statement.This form may be used for multiple account numbers being delivered to Number(s)* the same address,with a maximum of four account numbers. Account#1 K1KF Account#2 K1LE Account#3 Account#4 Section 2—Service Profile Instructions 1.For e-mail delivery,please provide more than one email address. 2.If updates are required to your current Joint Custody pledgee agreement,please call 800-327- 0147 and select option 4. The email address(es) and/or fax number(s)below will remain in effect until an updated Joint Custody FedMail Request Form is submitted. Joint Custody Service(JCCR) Email Address or Fax Number This list replaces the prior e-mail addresses and/or fax numbers on file for your organization constancep@cctexas.com almac@cctexas.com j udyav(acctexas.com Federal Reserve Bank Joint Custody Service via FedMail® Request Form Section 3—Service Description Service Description Provides the ability to receive Joint custody Daily Activity Statements and monthly Securities Joint Custody Service Holdings Reports electronically. The e-mail is sent in the text format,the statements and (JCCR) reports are sent as attachments,which may be viewed with a text editor,spreadsheet or word processing software. Section 4—Authorized Approval *Required Fields First Middle Last Name* Ronald L. Olson Signature* The person signing this form must be listed on your current pledge /i i Ate agreement on file with the Federal // Reserve Bank as authorized to act .��'%//,, ;0 / rihn .4111 �- for your account. Date* �Q l2, 2.0\l0 Phone# Extension Telephone* 361-826-3220 The Financial Services logo and"FedMail"are registered service marks of the Federal Reserve Banks. A complete listing of marks owned by the Federal Reserve Banks is available at FRBservices.org