Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ý Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended:    December 31, 20172020
Or
¨ 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)
Texas74-1751768
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
100111 W. Houston Street,San Antonio, TexasTexas78205
(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 ValueThe New York Stock Exchange, Inc.
5.375% Non-Cumulative Perpetual Preferred Stock, Series AThe New York Stock Exchange, Inc.
(Title of each class)class(Trading Symbol(s)Name of each exchange on which registered)registered
Common Stock, $.01 Par ValueCFRNew York Stock Exchange
Depositary Shares, each representing a 1/40th interest in a share of 4.450% Non-Cumulative Perpetual Preferred Stock, Series BCFR.PrBNew York Stock Exchange
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  ý    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨    No  ý
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  ý    No  ¨
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  ý    No  ¨
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. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, a smaller reporting company, or an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and large accelerated filer”“emerging growth company,” in Rule 12b-2 of the Exchange Act.
Large accelerated filerýAccelerated filer¨
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company¨
Emerging growth company¨


Table of Contents
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.)Act). Yes  ¨    No  ý
As of June 30, 2017,2020, 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 $5.8$4.5 billion.
As of January 30, 2018,28, 2021, there were 63,682,13763,165,980 shares of the registrant’s common stock, $.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 20182021 Annual Meeting of Shareholders of Cullen/Frost Bankers, Inc. to be held on April 25, 201828, 2021 are incorporated by reference in this Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.

2

Table of Contents
CULLEN/FROST BANKERS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
 
Page
PART I
Page
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
 

3

Table of Contents
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., 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, a broad array of products and services throughout numerous Texas markets. The terms “Cullen/Frost,” “the Corporation,” “we,” “us” and “our” mean Cullen/Frost Bankers, Inc. and its subsidiaries, when appropriate. We offer commercial and consumer banking services, as well as trust and investment management, insurance, brokerage, mutual funds, leasing, treasury management, capital markets advisory and item processing services. At December 31, 2017,2020, Cullen/Frost had consolidated total assets of $31.7$42.4 billion and was one of the largest independent bank holding companies headquartered in the State of Texas.
Our philosophy is to grow and prosper, building long-term relationships based on top quality service, high ethical standards, and safe, sound assets. We operate as a locally-oriented, community-based financial services organization, augmented by experienced, centralized support in select critical areas. Our local market orientation is reflected in our regional management and regional advisory boards, which are comprised of local business persons, professionals and other community representatives that assist our regional management in responding to local banking needs. Despite this local market, community-based focus, we offer many of the products available at much larger money-center financial institutions.
We serve a wide variety of industries including, among others, energy, manufacturing, services, construction, retail, telecommunications, healthcare, military and transportation. Our customer base is similarly diverse. While our loan portfolio has a significant concentration of energy-related loans totaling approximately 11.4%7.1% of total loans (or 8.2% excluding Paycheck Protection Program loans) at December 31, 2017,2020, we are not dependent upon any single industry or customer.
Our operating objectives include expansion, diversification within our markets, growth of our fee-based income, and growth internally and through acquisitions of financial institutions, branches and financial services businesses. We generally seek 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. We regularlyFrom time to time, we evaluate merger and acquisition opportunities and conduct 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 our tangible book value and net income per common share may occur in connection with any future transaction. Our ability to engage in certain merger or acquisition transactions, whether or not any regulatory approval is required, will be dependent upon our bank regulators’ views at the time as to the capital levels, quality of management and our overall condition 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.
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 100111 W. Houston Street, San Antonio, Texas 78205, and its telephone number is (210) 220-4011.

4

Table of Contents
Subsidiaries of Cullen/Frost
Frost Bank
Frost Bank, the principal operating subsidiary and sole banking subsidiary of Cullen/Frost, is a Texas-chartered bank primarily engaged in the business of commercial and consumer banking through approximately 134155 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 over 1,3001,200 automated-teller machines (“ATMs”) throughout the State of Texas, approximately half of which are operated in connection with a branding arrangement to be the exclusive cash-machine provider for Corner Storea convenience store chain in Texas. Frost Bank was originally chartered as a national banking association in 1899, but its origin can be traced to a mercantile partnership organized in 1868. At December 31, 2017,2020, Frost Bank had consolidated total assets of $31.8$42.4 billion and total deposits of $26.9$35.4 billion and was one of the 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. We also originate commercial leases and offer 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 203176 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, 2017,2020, the estimated fair value of trust assets was $32.8$38.6 billion, including managed assets of $14.1$16.9 billion and custody assets of $18.7$21.7 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, advisory services and securities safekeeping and clearance.
Global TradeServices. 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.
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.
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.

5

Table of Contents
Frost Investment Advisors, LLC
Frost Investment Advisors, LLC 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.
Frost Investment Services, LLC
Frost Investment Services, LLC is a registered investment advisor and a wholly-owned subsidiary of Frost Bank that provides investment management services to 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.
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. Main Plaza also holds severed mineral interests on certain oil producing properties. We receive royalties on these interests based upon production.
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 Bancshares (“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 we are not the primary beneficiary. As such, the accounts of Trust II and WNB Trust are not included in our consolidated financial statements. See our 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 our 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 wereare included in the regulatory capital of Cullen/Frost during the reported periods. See the section captioned “Supervision and Regulation - Capital Requirements” for a discussion of the regulatory capital treatment of our trust preferred securities.
Other Subsidiaries
Cullen/Frost has various other subsidiaries that are not significant to the consolidated entity.
Operating Segments
Our 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 18 - 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.

6

Table of Contents
Competition
There is significant competition among commercial banks in our market areas. In addition, we also compete 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 of our competitors have greater resources and, as such, may have higher lending limits and may offer other services that are not provided by us. We generally compete 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. For further discussion, see the section captioned “We Operate In A Highly Competitive Industry and Market Area” in Item 1A. Risk Factors.
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 our business, financial condition or our results of operations. Recent political developments, including the change in administration in the United States, have added additional uncertainty to the implementation, scope and timing of regulatory reforms.
On February 3, 2017, the President of the United States issued an executive order identifying “core principles” for the administration’s financial services regulatory policy and directing the Secretary of the Treasury, in consultation with the heads of other financial regulatory agencies, to evaluate how the current regulatory framework promotes or inhibits the principles and what actions have been, and are being, taken to promote the principles. In response to the executive order, on June 12, 2017, October 6, 2017 and October 26, 2017, respectively, the U.S. Department of the Treasury issued the first three of four reports recommending a number of comprehensive changes in the current regulatory system for U.S. depository institutions, the U.S. capital markets and the U.S. asset management and insurance industries.
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 it 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 our 5.375%Depositary Shares, each representing a 1/40th interest in a share of our 4.450% Non-Cumulative Perpetual Preferred Stock, Series A,B, is listed on the NYSE under the trading symbol “CFRpA.“CFR PrB.” Accordingly, Cullen/Frost is also subject to the rules of the NYSE for listed companies.
Frost Bank is a Texas state chartered bank and a member of the Federal Reserve System. Accordingly, the Texas Department of Banking and the Federal Reserve Board are the primary regulators of Frost Bank. Deposits at Frost Bank are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to applicable limits.
All member banks of the Federal Reserve System, including Frost Bank, are required to hold stock in the Federal Reserve System's Reserve Banks in an amount equal to six percent of their capital stock and surplus (half paid to acquire the stock with the remainder held as a cash reserve). Member banks do not have any control over the Federal Reserve System as a result of owning the stock and the stock cannot be sold or traded. Prior to the enactment of the Fixing America's Surface Transportation Act (“FAST Act”) in December 2015, member banks received a fixed, six percent dividend annually on their stock. Under the FAST Act, theThe annual dividend rate for member banks with total assets in excess of $10 billion, including Frost Bank, changed from a fixed, six percent dividend rate to a floating dividend rateis tied to 10-year U.S. Treasuries with the maximum dividend rate capped at six percent. The total amount of stock

dividends that Frost Bank received from the Federal Reserve totaled $807$313 thousand in 2017, $7352020, $688 thousand in 20162019 and $2.1$1.0 million in 2015. The decrease in 2016 resulted from the implementation of the aforementioned FAST Act, as the 10-year U.S. Treasury yields used to determine the annual stock dividend rate for 2016 were significantly lower than the fixed, six percent dividend rate used to determine the annual stock dividend rate in 2015.2018.
Most of our non-bank subsidiaries also are subject to regulation by the Federal Reserve Board and other federal and state agencies. Frost Brokerage Services, Inc. is regulated by the SEC, the Financial Industry Regulatory Authority (“FINRA”) and state securities regulators. Frost Investment Advisors, LLC and Frost Investment Services, LLC are subject to the disclosure and regulatory requirements of the Investment Advisors Act of 1940, as administered by the SEC. Our 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
7

Table of Contents
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 applicant's managerial and financial resources, the capital position of the combined organization, the risks to the stability of the U.S. banking or financial system (e.g., systemic risk), 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 law, including fair housing and other consumer protection laws, and the effectiveness of the subject organizations in combating money laundering activities.
8

Table of Contents
Dividends and Stock Repurchases
The principal source of Cullen/Frost’s liquidity is dividends from Frost Bank. The prior approval of the Federal Reserve Board 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 $544.8$503.9 million to Cullen/Frost, without obtaining affirmative governmental approvals, at December 31, 2017.2020. 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, theAdditionally, it is Federal Reserve Board has indicatedpolicy that bank holding companies generally should carefully review their dividend policypay dividends on common stock only out of net income available to common shareholders over the past year and has discouraged payment ratios that are at maximum allowable levels unless bothonly if the prospective rate of earnings retention appears consistent with the organization's current and expected future capital needs, asset quality and overall financial condition. Federal Reserve policy also provides that a bank holding company should inform the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in a material adverse change to the bank holding company's capital are very strong.structure.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act” or “Dodd-Frank”), institutions, such as Cullen/Frost and Frost Bank, with average total consolidated assets greater than $10 billion are required to conduct an annual company-run stress test of capital, consolidated earnings and losses under one base and at least two stress scenarios provided byIn July 2019, the federal bank regulators. The company-run stress tests are conducted using data as of December 31st ofregulators adopted final rules (the “Capital Simplifications Rules”) that, among other things, eliminated the preceding calendar year and scenarios released by the agencies. Stress test results must be reported to the agencies by July 31st with public disclosure of summary stress test results under the severely adverse scenario between October 15th and October 31st. Our capital ratios reflectedstandalone prior approval requirement in the stress test calculations are an important factor considered byBasel III Capital Rules for any repurchase of common stock. In certain circumstances, Cullen/Frost’s repurchases of its common stock may be subject to a prior approval or notice requirement under other regulations, policies or supervisory expectations of the Federal Reserve Board in evaluatingBoard. Any redemption or repurchase of preferred stock or subordinated debt remains subject to the capital adequacyprior approval of Cullen/Frost and Frost Bank and whether the appropriateness of any proposed payments of dividends or stock repurchases may be an unsafe or unsound practice.Federal Reserve Board.
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 Board) 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.

9

Table of Contents
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
Cullen/Frost and Frost Bank are each required to comply with applicable capital adequacy standards establishedadopted by the Federal Reserve Board. The current risk-based capital standards applicable to Cullen/Frost and Frost Bank, parts of which are currently in the process of being phased-in, are based on the December 2010 final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision (the “Basel Committee”). In July 2013, the federal bank regulators approved final rulesBoard (the “Basel III Capital Rules”) implementing the Basel III framework as well as certain provisions of the Dodd-Frank Act. The Basel III Capital Rules became effective for Cullen/Frost and Frost Bank. Since fully phased in on January 1, 2015 (subject to a phase-in period for certain provisions).
The Basel III Capital Rules, among other things, (i) include a new capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and (iv) expand the scope of the deductions/adjustments to capital as compared to existing regulations.
Under2019, the Basel III Capital Rules require Cullen/Frost and Frost Bank to maintain the following:
A minimum ratio of Common Equity Tier 1 (“CET1”) to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” that is composed entirely of CET1 capital ratios effective as(resulting in a minimum ratio of January 1, 2015 are:
4.5% CET1 to risk-weighted assets;assets of 7.0%);
6.0%A minimum ratio of Tier 1 capital (that is, CET1to risk-weighted assets of at least 6.0%, plus Additionalthe capital conservation buffer (resulting in a minimum Tier 1 capital) to risk-weighted assets;capital ratio of 8.5%);
8.0% TotalA minimum ratio of total capital (that is, Tier(Tier 1 capital plus Tier 2 capital) to risk-weighted assets;assets of at least 8.0%, plus the capital conservation buffer (resulting in a minimum total capital ratio of 10.5%); and
A minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the “leverage ratio”).
Banking institutions that fail to meet the effective minimum ratios once the capital conservation buffer is taken into account, as detailed above, will be subject to constraints on capital distributions, including dividends and share repurchases, and certain discretionary executive compensation. The severity of the constraints depends on the amount of the shortfall and the institution’s “eligible retained income” (that is, the greater of (i) net income for the preceding four quarters, net of distributions and associated tax effects not reflected in net income and (ii) average net income over the preceding four quarters).
The Basel III Capital Rules also require a “capital conservation buffer”, composed entirely of CET1, on top of these minimum risk-weighted asset ratios. The implementation ofand the capital conservation buffer began on January 1, 2016 at the 0.625% level and will increase by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019. The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is only applicable to certain covered institutions and does not have any current applicability to Cullen/Frost or Frost Bank. The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios. Banking institutions with a ratio of CET1 to risk-weighted assets below the effective minimum (4.5% plus the capital conservation buffer and, if applicable, the countercyclical capital buffer) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.
When fully phased in on January 1, 2019, the Basel III Capital Rules will require Cullen/Frost and Frost Bank to maintain an additional capital conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, (iii) a minimum ratio of Total capital to risk-weighted assets of at least 10.5%; and (iv) a minimum leverage ratio of 4%.

The Basel III CapitalSimplification Rules also provide for a number of deductions from and adjustments to CET1. These include, for example, the requirement that certain deferred tax assets and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 25% of CET1. Prior to the adoption of the Capital Simplification Rules in July 2019, amounts were deducted from CET1 to the extent that any one such category exceeded 10% of CET1 or all such items, in the aggregate, exceedexceeded 15% of CET1. ImplementationThe Capital Simplification Rules took effect for Cullen/Frost and Frost Bank as of January 1, 2020. These limitations did not impact our regulatory capital during any of the deductions and other adjustments to CET1 began on January 1, 2015 and will be phased-in over a 4-year period (beginning at 40% on January 1, 2015 and an additional 20% per year thereafter).reported periods.
In addition, under the general risk-based capital rules, the effects of accumulated other comprehensive income items included in capital were excluded for the purposes of determining regulatory capital ratios. Under the Basel III Capital Rules, the effects of certain accumulated other comprehensive income items are not excluded; however, non-advanced approaches banking organizations, including Cullen/Frost and Frost Bank, were able to make a one-time permanent election to continue to exclude these items. Both Cullen/Frost and Frost Bank made 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 their available-for-sale securities portfolio. Under the Basel III Capital Rules, trust preferred securities no longer included in our Tier 1 capital may nonetheless be included as a component of Tier 2 capital on a permanent basis without phase-out.
In February 2019, the federal bank regulatory agencies issued a final rule (the “2019 CECL Rule”) that revised certain capital regulations to account for changes to credit loss accounting under U.S. GAAP. The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year period, the day-one adverse effects of adopting a new accounting standard related to the measurement of current expected credit losses (“CECL”) on their regulatory capital ratios (three-year transition option). In March 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three-year transition option of the 2019 CECL Rule and also
10

Table of Contents
provides banking organizations that were required under U.S. GAAP (as of January 2020) to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). We elected to adopt the five-year transition option. Accordingly, a CECL transitional amount totaling $63.7 million has been added back to CET1 as of December 31, 2020. The CECL transitional amount includes $29.3 million related to the cumulative effect of adopting CECL and $34.4 million related to the estimated incremental effect of CECL since adoption.
The Basel III Capital Rules prescribe a standardized approach for risk weightings that expanded the risk-weighting categories from the general risk-based capital rules 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 higher percentages for certain other types of interests), and resulting in higher risk weights for a variety of asset categories.
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.”
Management believes that, as of December 31, 2017, 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.
In September 2017, the federal bank regulators proposed to revise and simplify the capital treatment for certain deferred tax assets, mortgage servicing assets, investments in non-consolidated financial entities and minority interests for banking organizations, such as Cullen/Frost and Frost Bank, that are not subject to the advanced approaches requirements. In November 2017,2019, the federal banking regulators revisedagencies adopted a rule revising the Basel III Capital Rules to extend the current transitional treatmentscope of these items for non-advanced approaches banking organizations until the September 2017 proposal is finalized. The September 2017 proposal would also change the capital treatment of certain commercial real estate loans under the standardized approach, which we usemortgages subject to calculate our capital ratios.a 150% risk weight.
In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”). Among other things, these standards revise the Basel Committee's standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provides a new standardized approach for operational risk capital. Under the Basel framework, these standards will generally be effective on January 1, 2022, with an aggregate output floor phasing in through January 1, 2027. Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to Cullen/Frost or Frost Bank. The impact of Basel IV on us will depend on the manner in which it is implemented by the federal bank regulators.
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 requiresand regulations of the Federal Reserve require that certain 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.tests. 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.

In September 2014, the federal bank regulators approved final rules implementing the LCR for advanced approaches Rules applicable to certain large 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)have been implemented for LCR and a modified version of the LCR for bank holding companies with at least $50 billion in total consolidated assets that areNSFR; however, based on our asset size, these rules do not advanced approach banking organizations, neither of which wouldcurrently apply to Cullen/Frost or Frost Bank. In the second quarter of 2016, the federal banking regulators issued a proposed rule that would implement the NSFR for certain U.S. banking organizations to ensure they have access to stable funding over a one-year time horizon. The proposed rule would not apply to U.S. banking organizations with less than $50 billion in total consolidated assets such as Cullen/Frost and Frost Bank.
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 CET1 capital ratio, 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 CET1 capital ratio of 6.5% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, and a leverage ratio of 5.0% or greater, 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 CET1 capital ratio of 4.5% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, 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 CET1 capital ratio less than 4.5%, a Tier 1 risk-based capital ratio of less than 6.0% 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 CET1 capital ratio less than 3.0%, a Tier 1 risk-based capital ratio of less than 4.0% 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
11

Table of Contents
action regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes.
In addition, the FDIA prohibits an insured depository institution from accepting brokered deposits or offering interest rates on any deposits significantly higher than the prevailing rate in the bank’s normal market area or nationally (depending upon where the deposits are solicited), unless it is well capitalized or is adequately capitalized and receives a waiver from the FDIC. A depository institution that is adequately capitalized and accepts brokered deposits under a waiver from the FDIC may not pay an interest rate on any deposit in excess of 75 basis points over certain prevailing market rates. In December 2020, the FDIC finalized a rule that is intended to bring the brokered deposits regulations in line with modern deposit taking methods and that may reduce the amount of deposits that would be classified as brokered.
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, 2017,2020, 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 Discussion and Analysis of Financial Condition and Results of Operations and Note 9 - 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
12

Table of Contents
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 ofDeposits at Frost Bank are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC and Frost Bank is 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.
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. In August 2016, the FDIC announced that the DIF reserve ratio had surpassed 1.15% as of June 30, 2016. As a result, beginning in the third quarter of 2016, the range of initial assessment ranges for all institutions were adjusted downward such that the initial base deposit insurance assessment rate ranges from 3 to 30 basis points on an annualized basis. After the effect of potential base-rate adjustments, the total base assessment rate could range from 1.5 to 40 basis points on an annualized basis. In March 2016, the FDIC adopted

a final rule increasing the reserve ratio for the DIF to 1.35% of total insured deposits. The rule imposes a surcharge on the assessments of depository institutions with $10 billion or more in assets, including Frost Bank, beginning in the third quarter of 2016 and continuing through the earlier of the quarter that the reserve ratio first reaches or exceeds 1.35% and December 31, 2018. This surcharge resulted in increased costs for Frost Bank in 2016 and 2017. Under the rule, if the reserve ratio does not reach 1.35% by December 31, 2018, the FDIC will impose a shortfall assessment on larger depository institutions, including Frost Bank.
FDIC deposit insurance expense totaled $20.1 million, $17.4 million and $14.5 million in 2017, 2016 and 2015, 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. In addition, the FDIC is authorized to conduct examinations of and require reporting by FDIC-insured institutions.
Enhanced Prudential Standards
The Dodd-Frank Act directed the Federal Reserve Board is required to monitor emerging risks to financial stability and enact enhanced supervision and prudential standards applicable to large bank holding companies with total consolidated assets of $50 billion or more and certain non-bank covered companies designated as systemically important by the Financial Stability Oversight Council (often referred to as systemically important financial institutions).Council. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) mandates that certain regulatory requirements applicable to these systemically important financial institutions be more stringent than those applicable to other financial institutions.
In February 2014,2019, the Federal Reserve Board adopted new rules to implementimpacting certain of thesecapital and liquidity requirements and other enhanced prudential standards. Beginning in 2015, theThe final rules require publicly tradedassign all domestic bank holding companies with $10$100 billion or more in total consolidated assets to establish risk committeesone of four categories of tailored regulatory requirements. Cullen/Frost and Frost Bank are generally not impacted by these rules. The enhanced prudential standards rules, as amended in 2019, require publicly traded bank holding companies with $50 billion or more in total consolidated assets to complyestablish risk committees. Prior to the amendment, the requirement to establish a risk committee was applicable to publicly traded bank holding companies with enhanced liquidity and overall risk management standards.$10 billion or more in consolidated assets. Cullen/Frost has established and currently maintains a risk committee and is in compliance with this requirement.
We are monitoring developments with respect to the enhanced prudential standards because of their application to us if our total consolidated assets reach $50 billion or more.committee.
The Volcker Rule
The so-called Volcker Rule under the Dodd-Frank Act prohibitsrestricts banks and their affiliates from engaging in proprietary trading and investing in and sponsoring hedge funds and private equity funds. The Volcker Rule which became effective in July 2015, does not significantly impact the operations of Cullen/Frost and its subsidiaries as we do not have any significant engagement in the businesses prohibited by the Volcker Rule.
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.
13

Table of Contents
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 us and other card-issuing banks for processing electronic payment transactions. Federal Reserve Board rules applicable to financial institutions that have assets of

$10 $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 Board 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
We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our 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 our ability to raise interest rates and subject us 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 we may wish to pursue or our prohibition from engaging in such transactions even if approval is not required.
The Consumer Financial Protection Bureau (“CFPB”) is a federal agency responsible for implementing, examining and enforcing compliance with federal consumer protection laws. 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
14

account CRA ratings when considering a request for an approval of a proposed transaction. Frost Bank received a rating of “satisfactory” in its most recent CRA examinationexamination.
In December 2019, the Federal Deposit Insurance Corporation (“FDIC”) and the Office of the Comptroller of the Currency (“OCC”) jointly proposed rules that would significantly change existing CRA regulations. The proposed rules are intended to increase bank activity in 2015.

low- and moderate-income communities where there is significant need for credit, more responsible lending, greater access to banking services, and improvements to critical infrastructure. The proposals change four key areas: (i) clarifying what activities qualify for CRA credit; (ii) updating where activities count for CRA credit; (iii) providing a more transparent and objective method for measuring CRA performance; and (iv) revising CRA-related data collection, record keeping, and reporting. However, the Federal Reserve Board did not join in that proposed rulemaking. In May 2020, the OCC issued its final CRA rule, effective October 1, 2020. The FDIC has not finalized the revisions to its CRA rule. In September 2020, the Federal Reserve Board issued an Advance Notice of Proposed Rulemaking (“ANPR”) that invites public comment on an approach to modernize the regulations that implement the CRA by strengthening, clarifying, and tailoring them to reflect the current banking landscape and better meet the core purpose of the CRA. The ANPR seeks feedback on ways to evaluate how banks meet the needs of low- and moderate-income communities and address inequities in credit access. As such, we will continue to evaluate the impact of any changes to the regulations implementing the CRA and their impact to our financial condition, results of operations, and/or liquidity, which cannot be predicted at this time.
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 financial, legal and reputational consequences for 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.
The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the Bank Secrecy Act of 1970 (“BSA”), was enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower incentives and protections.

15

Table of Contents
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. We are 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 financial, 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. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.
Incentive Compensation
The Federal Reserve Board reviews, as part of its regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as Cullen/Frost, that are not “large, complex banking organizations.” These reviews are 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 this supervisory initiative 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.
In June 2010, the Federal Reserve Board, OCC and FDIC issued 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.

During the second quarter ofIn 2016, the U.S. financial regulators, including the Federal Reserve Board and the SEC, proposed revised rules on incentive-based payment arrangements at specified regulated entities having at least $1 billion in total assets (including Cullen/Frost and Frost Bank). The proposed revised, but these propose rules would establish general qualitative requirements applicable to all covered entities, which would include (i) prohibiting incentive arrangements that encourage inappropriate risks by providing excessive compensation; (ii) prohibiting incentive arrangements that encourage inappropriate risks that could lead to a material financial loss; (iii) establishing requirements for performance measures to appropriately balance risk and reward; (iv) requiring board of director oversight of incentive arrangements; and (v) mandating appropriate record-keeping. Under the proposed rule, larger financial institutions with total consolidated assets of at least $50 billion would also be subject to additional requirements applicable to such institutions’ “senior executive officers” and “significant risk-takers.” These additional requirements wouldhave not be applicable to Cullen/Frost or Frost Bank, each of which currently have less than $50 billion in total consolidated assets.been finalized.
Cybersecurity
In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.
In October 2016, the federal banking regulators jointly issued an advance notice of proposed rulemaking on enhanced cyber risk management standards that are intended to increase the operational resilience of large and interconnected entities under their supervision. If established, the enhanced cyber risk management standards would be designed to help reduce the potential impact of a cyber-attack or other cyber-related failure on the financial system. The advance notice of proposed rulemaking addresses five categories of cyber standards: (i) cyber risk governance; (ii) cyber risk management; (iii) internal dependency management; (iv) external dependency management; and (v) incident response, cyber resilience, and situational awareness. In May 2019, the Federal
16

Table of Contents
Reserve announced that it would revisit the Advance Notice of Proposed Rulemaking in the future. In December 2020, the federal banking agencies issued a Notice of Proposed Rulemaking that would require banking organizations to notify their primary regulator within 36 hours of becoming aware of a “computer-security incident” or a “notification incident.” The Notice of Proposed Rulemaking also would require specific and immediate notifications by bank service providers that become aware of similar incidents.
In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states, including Texas, have also recently implemented or modified their data breach notification and data privacy requirements. We expect this trend of state-level activity in those areas to continue, and are continually monitoring developments in the states in which our customers are located.
In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. We employ an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls. We employ a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding the strength of our defensive measures, the threat from cyber attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. While to date, other than as described below, we have not detected a significantmaterial compromise, significantmaterial data loss or any material financial losses related to cybersecurity attacks, our systems and those of our customers and third-party service providers are under constant threat and attack and it is possible that we could experience a significant eventevents in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers. See Item 1A. Risk Factors for a further discussion of risks related to cybersecurity.
During 2018, we experienced a data security incident that resulted in unauthorized access to a third-party lockbox software program used by certain of our commercial lockbox customers to store digital images. We stopped the identified unauthorized access and consulted with a leading cybersecurity firm. We reported the incident to, and cooperated with, law-enforcement authorities. We contacted each of the affected commercial customers and we supported them in taking appropriate actions. The identified incident did not impact other Frost systems. Out-of-pocket costs incurred related to this incident totaled $2.1 million and no further costs are expected with respect to this incident.
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 any change could impact the regulatory structure under which we or our competitors operate and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to our business strategy, and limit our ability to pursue business opportunities in an efficient manner. It could also affect our competitors differently than us, including in a manner that would make them more competitive. A change in statutes, regulations or regulatory policies applicable to Cullen/Frost or any of its subsidiaries could have a material, adverse effect on our business, financial condition and results of operations.
Employees
17

Table of Contents
Human Capital Resources
At December 31, 2017,2020, we employed 4,2704,685 full-time equivalent employees. At that date, the average tenure of all of our full-time employees was over 10 years while the average tenure of our executive officers was over 31 years. None of our employees are represented by collective bargaining agreements. We believe our employee relations to be good.

Oversight of our corporate culture is an important element of our board of director’s oversight of risk because our people are critical to the success of our corporate strategy. Our board sets the “tone at the top,” and holds senior management accountable for embodying, maintaining, and communicating our culture to employees. In that regard, our culture is designed to promote commitment to making people's lives better and to uphold that principle in everything we do. That commitment has been a central pillar in our approach to our employees, our planet and the communities we have proudly served for over 150 years. Our culture is designed to adhere to the timeless values of integrity, caring and excellence. In keeping with that culture, we expect our people to treat each other and our customers with the highest level of honesty and respect, go out of their way to do the right thing, and we strive to be a force for good in everyday life. We dedicate resources to promote a safe and inclusive workplace; attract, develop and retain talented, diverse employees; promote a culture of integrity, caring and excellence; and reward and recognize employees for both the results they deliver and, importantly, how they deliver them. We also seek to design careers with our company that are fulfilling ones, with competitive compensation and benefits alongside a positive work-life balance. We also dedicate resources to fostering professional and personal growth with continuing education, on-the-job training and development programs. This devotion to our people has earned us a spot on Forbes magazine's Best Employers list.
Executive OfficersOur employees are key to our success as an organization. We are committed to attracting, retaining and promoting top quality talent regardless of sex, sexual orientation, gender identity, race, color, national origin, age, religion and physical ability. We strive to identify and select the best candidates for all open positions based on qualifying factors for each job. We are dedicated to providing a workplace for our employees that is inclusive, supportive, and free of any form of discrimination or harassment; rewarding and recognizing our employees based on their individual results and performance; and recognizing and respecting all of the Registrantcharacteristics and differences that make each of our employees unique.
We believe employing a diverse workforce enhances our ability to serve our customers and our communities. By promoting and fostering a workforce that we believe is reflective of our customers and communities, we seek to better understand the financial needs of our prospects and customers and provide them with relevant financial service products. Understanding and supporting our community has always been a priority to us. We have established a voluntary, employee-led and staffed team that is committed to touching and improving the lives of people that live and work in our community. Additionally, we provide employees the opportunity to use paid time off to perform community service activities in their choice of ways. In 2020, this amounted to over 7,100 hours of community service performed by our employees. Our efforts are designed to enrich the lives of not only those that are in need but also the lives of our employees who participate in these meaningful and rewarding opportunities.
We believe embracing and understanding diversity has and will continue to make us a stronger company. We also believe that our diverse workforce is representative of our customers in the community and enables us to better serve our customers, enhancing our success as an organization. As we move forward, we will continue to embrace diversity and approach it in a manner consistent with our philosophy, by focusing on our employees, our customers, and our community.
18

Table of Contents
Information About Our Executive Officers
The names, ages as of December 31, 2017,2020, recent business experience and positions or offices held by each of the executive officers of Cullen/Frost are as follows:
Name and Position HeldAgeRecent Business Experience
Name and Position HeldAgeRecent Business Experience
Phillip D. Green

Chairman of the Board, Chief Executive

Officer and Director of Cullen/Frost
6366Officer of Frost Bank since July 1980. Group Executive Vice President, Chief Financial Officer of Cullen/Frost from October 1995 to January 2015. President of Cullen/Frost from January 2015 to March 2016. Chairman of the Board and Chief Executive Officer of Cullen/Frost fromsince April 2016 to present.2016.
Patrick B. Frost

Director of Cullen/Frost, President of

Frost Bank, Group Executive Vice

President, Frost Wealth Advisors of Frost

Bank and President of Frost Insurance
5760Officer of Frost Bank since 1985. President of Frost Bank from August 1993 to present. Director of Cullen/Frost from May 1997 to present. Group Executive Vice President, Frost Wealth Advisors of Frost Bank from April 2016 to present. President of Frost Insurance fromsince October 2014 to present.2014.
Jerry Salinas

Group Executive Vice President, Chief

Financial Officer of Cullen/Frost
5962Officer of Frost Bank since March 1986. Senior Executive Vice President, Treasurer of Cullen/Frost from 1997 to January 2015. Group Executive Vice President, Chief Financial Officer of Cullen/Frost fromsince January 2015 to present.2015.
Annette Alonzo

Group Executive Vice President, Chief

Human Resources Officer of Frost Bank
4952Officer of Frost Bank since 1993. Executive Vice President, Human Resources of Frost Bank from July 2006 to January 2015. Senior Executive Vice President, Human Resources of Frost Bank from January 2015 to July 2015. Group Executive Vice President, Human Resources of Frost Bank from July 2015 to March 2016. Group Executive Vice President, Chief Human Resources Officer of Frost Bank fromsince April 2016 to present.2016.
Robert A. Berman

Group Executive Vice President,

Research and Strategy of Frost Bank
5558Officer of Frost Bank since January 1989. Group Executive Vice President, Research and Strategy of Frost Bank fromsince May 2001 to present.2001.
Paul H. Bracher
  President of Cullen/Frost and Group
  Executive Vice President, Chief
  Banking Officer of Frost Bank
6164Officer of Frost Bank since January 1982. President, State Regions of Frost Bank from February 2001 to January 2015. Group Executive Vice President, Chief Banking Officer of Frost Bank from January 2015 to present. President of Cullen/Frost fromsince April 2016 to present.2016.
Gary McKnight
  Group Executive Vice President,
  Technology and Operations of Frost Bank
64Officer of Frost Bank since 1981. Senior Executive Vice President, Technology and Operations of Frost Bank from January 2005 to July 2015. Group Executive Vice President, Technology and Operations of Frost Bank from July 2015 to present.
William L. Perotti

Group Executive Vice President, Chief
  Risk
Credit
Officer of Frost Bank
6063Officer of Frost Bank since December 1982. Group Executive Vice President, Chief Credit Officer of Frost Bank from May 2001 to January 2015. Group Executive Vice President, Chief Risk Officer of Frost Bank from April 2005 to present.January 2019. Chief Credit Officer of Frost Bank since January 2019.
Mike Russell
Carol Severyn
Group Executive Vice President, Chief
  Operations
Risk
Officer
of Frost Bank
6156Officer of Frost Bank since December 2017.1993. Executive Vice President and Auditor of Frost Bank from January 2004 to January 2019. Group Executive Vice President, Chief OperationsRisk Officer of Frost Bank since January 2018. Prior to joining Frost, Mr. Russell was a management consultant and former corporate technology executive.2019.
Jimmy Stead

Group Executive Vice President,
  Executive Officer - Chief
Consumer Banking
Officer of Frost Bank
4245Officer of Frost Bank since July 2001. Senior Vice President Electronic Commerce Operations of Frost Bank from October 2007 to December 2015, Executive Vice President, Electronic Commerce Operations of Frost Bank from January 2016 to January 2017. Group Executive Vice President, Chief Consumer Banking Officer of Frost Bank fromsince January 2017 to present.2017.
James L. Waters
Group Executive Vice President, General
Counsel and Secretary of Cullen/Frost
54Officer of Frost Bank since March 2018. Group Executive Vice President, General Counsel and Secretary of Cullen/Frost since March 2018. Prior to joining Frost, Mr. Waters was a partner at the law firm Haynes and Boone LLP.
Candace Wolfshohl

Group Executive Vice President, Culture

and People Development of Frost Bank
5760Officer of Frost Bank since 1989. Executive Vice President, Staff Development of Frost Bank from January 2008 to January 2015. Senior Executive Vice President, Staff Development of Frost Bank from January 2015 to July 2015. Group Executive Vice President, Culture and People Development of Frost Bank fromsince July 2015 to present.2015.
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.

19

Table of Contents
Available Information
Under the Securities Exchange Act of 1934, we are 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 we file 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. We file electronically with the SEC.
We make available, free of charge through our website, our 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, we have adopted and posted on our website a code of ethics that applies to our principal executive officer, principal financial officer and principal accounting officer. Our website also includes our corporate governance guidelines and the charters for our audit committee, our compensation and benefits committee, our risk committee, and our corporate governance and nominating committee. The address for our website is http://www.frostbank.com. We will provide a printed copy of any of the aforementioned documents to any requesting shareholder.
ITEM 1A. RISK FACTORS
An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that management believes affect us 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 us. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This report is qualified in its entirety by these risk factors.
If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected. If this were to happen, the market price of our common stock could decline significantly, and you could lose all or part of your investment.
Risks Related To Our Business
Our Business May Be Adversely Affected By Conditions In The Financial Markets and Economic and Political Conditions Generally
Our success depends, to a certain extent, upon local, national and global economic and political conditions, as well as governmental monetary policies. Our 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 we offer, is highly dependent upon the business environment in the markets where we operate, 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. 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. In addition, oil price volatility, the level of U.S. debt and global economic conditions have had a destabilizing effect on financial markets. While economic conditions in the State of Texas, the United States and worldwide have improved, 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, as well as further oil price volatility, could have a material adverse effect on the credit quality of our loans and our business, financial condition and results of operations.

We Are Subject To Lending Risk and Lending Concentration Risk
There are inherent risks associated with our 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 we operate 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. We are also subject to various laws and regulations that affect our lending activities. Failure to comply with applicable laws and regulations could subject us to regulatory enforcement action that could result in the assessment of significant civil money penalties against us.
As of December 31, 2017, approximately 88.1% of our loan portfolio consisted of commercial and industrial, energy, construction and commercial real estate mortgage loans. These types of loans are generally viewed as having more risk of default and are typically larger than residential real estate loans or consumer loans. Because our loan portfolio contains a significant number of commercial and industrial, energy, 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 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 our 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, energy, construction and commercial real estate loans.Interest Rate Risks
We Are Subject To Interest Rate Risk
Our earnings and cash flows are largely dependent upon our 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 our 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 we receive on loans and securities and the amount of interest we pay on deposits and borrowings, but such changes could also affect (i) our ability to originate loans and obtain deposits, (ii) the fair value of our financial assets and liabilities, and (iii) the average duration of our 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, our 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. Some foreign central banks have moved to a negative interest rate environment, which has exerted downward pressure on the profitability of banks in those regions and this interest rate trend could extend to the United States. Any substantial, unexpected, or prolonged change in market interest rates could have a material adverse effect on our business, financial condition and results of operations.
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations under the section captioned “Net Interest Income” and Item 7A. Quantitative and Qualitative Disclosures About Market Risk located elsewhere in this report for further discussion related to interest rate sensitivity and our management of interest rate risk.

20

Table of Contents
We May Be Adversely Impacted By The Transition From LIBOR As A Reference Rate
In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”). In November 2020, the administrator of LIBOR announced it will consult on its intention to extend the retirement date of certain offered rates whereby the publication of the one week and two month LIBOR offered rates will cease after December 31, 2021; but, the publication of the remaining LIBOR offered rates will continue until June 30, 2023. Given consumer protection, litigation, and reputation risks, the bank regulatory agencies have indicated that entering into new contracts that use LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks and that they will examine bank practices accordingly. Therefore, the agencies encouraged banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021.
It is not possible to predict what rate or rates may become accepted alternatives to LIBOR, or what the effect of any such changes in views or alternatives may be on the markets for LIBOR-indexed financial instruments. In particular, regulators, industry groups and certain committees (e.g., the Alternative Reference Rates Committee) have, among other things, published recommended fall-back language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g., AMERIBOR or the Secured Overnight Financing Rate as the recommended alternative to U.S. Dollar LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments. At this time, it is not possible to predict whether these specific recommendations and proposals will be broadly accepted, whether they will continue to evolve, and what the effect of their implementation may be on the markets for floating-rate financial instruments.
We have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR has resulted in and could continue to result in added costs and employee efforts and could present additional risk. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation. Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.
Credit and Lending Risks
We Are Subject To Lending Risk and Lending Concentration Risk
There are inherent risks associated with our 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 we operate 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.
As of December 31, 2020, approximately 75.6% of our loan portfolio consisted of commercial and industrial, energy, construction and commercial real estate mortgage loans. These types of loans are generally viewed as having more risk of default and are typically larger than residential real estate loans or consumer loans. Because our loan portfolio contains a significant number of commercial and industrial, energy, 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. Increases in non-performing loans have resulted in a net loss of earnings from particular loans, an increase in credit loss expense and an increase in loan charge-offs, and these and future instances could have a material adverse effect on our 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 elsewhere in this report for further discussion related to commercial and industrial, energy, construction and commercial real estate loans.

21

Table of Contents
Our Allowance For LoanCredit Losses May Be Insufficient
We maintain anallowances for credit losses on loans, securities and off-balance sheet credit exposures. In the case of loans and securities, allowances for credit losses are contra-asset valuation accounts that are deducted from the amortized cost basis of these assets to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance for loancredit losses which is a reserve established throughliability account reported as a provision for loan losses charged to expense, whichcomponent of accrued interest payable and other liabilities in our consolidated balance sheets. The amount of each allowance account represents management’smanagement's best estimate of inherentcurrent expected credit losses that have been incurred withinon these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over 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 levelcontractual term of the allowance reflects management’s continuing evaluation of industry concentrations; specificinstrument. Relevant available information includes historical credit risks; loan loss experience;experience, current loan portfolio quality; present economic, political and regulatory conditions and unidentified losses inherent inreasonable and supportable forecasts. As a result, the current loan portfolio. The determination of the appropriate level of the allowance for loancredit losses inherently involves a high degree of subjectivity and requires us to make significant estimates ofrelated to current and expected future credit risks and future trends, all of which may undergo material changes. Continuing deterioration in economic conditions affecting borrowers and securities issuers; new information regarding existing loans, credit commitments and securities holdings; and identification of additional problem loans, ratings down-grades and other factors, both within and outside of our control, may require an increase in the allowanceallowances for loan losses.credit losses on loans, securities and off-balance sheet credit exposures. In addition, bank regulatory agencies periodically review our allowance for loancredit losses and may require an increase in the provision for loan lossescredit loss expense or the recognition of further loan charge-offs, based on judgments different than those of management. Furthermore, if any charge-offs related to loans, securities or off-balance sheet credit exposures in future periods exceed the

allowanceour allowances for loancredit losses on loans, securities or off-balance sheet credit exposures, we will need to recognize additional provisionscredit loss expense to increase the allowance for loan losses.applicable allowance. Any increasesincrease in the allowance for loancredit losses on loans, securities and/or off-balance sheet credit exposures will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on our business, financial condition and results of operations.
See the section captioned “Allowance for LoanCredit 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 our process for determining the appropriate level of the allowance for credit losses.
We Are Subject to Risk Arising From Conditions In The Commercial Real Estate Market
As of December 31, 2020, commercial real estate mortgage loans comprised approximately 31.3% of our loan losses.portfolio. Commercial real estate mortgage loans generally involve a greater degree of credit risk than residential real estate mortgage loans because they typically have larger balances and are more affected by adverse conditions in the economy. Because payments on loans secured by commercial real estate often depend upon the successful operation and management of the properties and the businesses which operate from within them, repayment of such loans may be affected by factors outside the borrower’s control, such as adverse conditions in the real estate market or the economy or changes in government regulations. In recent years, commercial real estate markets have been experiencing substantial growth, and increased competitive pressures have contributed significantly to historically low capitalization rates and rising property values. Furthermore, commercial real estate markets have been particularly impacted by the economic disruption resulting from the COVID-19 pandemic. Accordingly, the federal banking regulatory agencies have expressed concerns about weaknesses in the current commercial real estate market. Failures in our risk management policies, procedures and controls could adversely affect our ability to manage this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio, which, accordingly, could have a material adverse effect on our business, financial condition and results of operations.
We Are Subject To Volatility Risk In Crude Oil Prices
As of December 31, 2020, we had $1.2 billion of energy loans which comprised approximately 7.1% (or 8.2% excluding Paycheck Protection Program loans) of our loan portfolio at that date. Furthermore, energy production and related industries represent a large part of the economies in some of our primary markets. In recent years, actions by certain members of the Organization of Petroleum Exporting Countries (“OPEC”) impacting 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 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. In March of 2020, disagreements between members of OPEC signaled that production levels would rise and led to a significant decline in market oil prices. While oil prices have recovered from those recent lows, on-going oil price volatility and
22

Table of Contents
depressed market oil prices, are expected to continue due to the uncertainties and economic impacts of COVID-19. The price per barrel of crude oil was approximately $48 at December 31, 2020 down from $61 at December 31, 2019. We have experienced increased losses within our energy portfolio in recent years which were impacted by oil price volatility, relative to our historical experience. Continued and further depressed oil prices and increased oil price volatility could have further negative impacts on the U.S. economy, in particular, the economies of energy-dominant states such as Texas, and our borrowers and customers.
We Are Subject To Environmental Liability Risk Associated With Lending Activities
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we 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, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or ability to sell the affected property. 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 our business, financial condition and results of operations.
Liquidity Risk
We Are Subject To Liquidity Risk
We require liquidity to meet our deposit and debt obligations as they come due. Our access to funding sources in amounts adequate to finance our activities or on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally. Factors that could reduce our access to liquidity sources include a downturn in the Texas economy, difficult credit markets or adverse regulatory actions against us. Our access to deposits may also be affected by the liquidity needs of our depositors. In particular, a substantial majority of our 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 our assets are loans, which cannot be called or sold in the same time frame. We may not be able to replace maturing deposits and advances as necessary in the future, especially if a large number of our depositors sought to withdraw their accounts, regardless of the reason. A failure to maintain adequate liquidity could have a material adverse effect on our business, financial condition and results of operations.
Operational Risks
Our Accounting Estimates and Risk Management Processes Rely On Analytical and Forecasting Models
The processes we use to estimate our expected credit 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 our 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 we use for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest rates or other market measures. If the models we use for estimating our expected credit losses are inadequate, the allowance for credit losses may not be sufficient to support future charge-offs. If the models we use 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 we could realize upon sale or settlement of such financial instruments. Any such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations.

23

Table of Contents
The Value Of Our Goodwill and Other Intangible Assets May Decline In The Future
As of December 31, 2020, we had $656.5 million of goodwill and other intangible assets. A significant decline in our 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 our goodwill and other intangible assets which could have a material adverse effect on our business, financial condition and results of operations.
We Are Subject To Risk Arising From Failure Or Circumvention Of Our Controls and Procedures
Our 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 our controls and procedures; failure to comply with regulations related to controls and procedures; or failure to comply with our corporate governance policies and procedures could have a material adverse effect on our reputation, business, financial condition and results of operations. Furthermore, notwithstanding the proliferation of technology and technology-based risk and control systems, our businesses ultimately rely on people as our greatest resource, and, from time-to-time, they make mistakes or engage in violations of applicable policies, laws, rules or procedures that are not always caught immediately by our technological processes or by our controls and other procedures, which are intended to prevent and detect such errors or violations. Human errors, malfeasance and other misconduct, including the intentional misuse of client information in connection with insider trading or for other purposes, even if promptly discovered and remediated, can result in reputational damage or legal risk and have a material adverse effect on our business, financial condition and results of operations.
New Lines Of Business, Products Or Services and Technological Advancements May Subject Us To Additional Risks
From time to time, we 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 we 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.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology driven products and services or be successful in marketing these products and services to our customers. In addition, our implementation of certain new technologies, such as those related to artificial intelligence and algorithms, in our business processes may have unintended consequences due to their limitations or our failure to use them effectively. In addition, cloud technologies are also critical to the operation of our systems, and our reliance on cloud technologies is growing. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse effect on our business, financial condition and results of operations.
Furthermore, any new line of business, new product or service and/or new technology could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business, new products or services and/or new technologies could have a material adverse effect on our business, financial condition and results of operations.
Our Reputation and Our Business Are Subject to Negative Publicity Risk
Reputation risk, or the risk to our earnings and capital from negative public opinion, is inherent in our business. Negative public opinion could adversely affect our ability to keep and attract customers and expose us to adverse legal and regulatory consequences. Negative public opinion could result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance, regulatory compliance, mergers and acquisitions, and disclosure, sharing or inadequate protection of customer information, and from actions taken by government regulators and community organizations in response to that conduct. Negative public opinion could also
24

Table of Contents
result from adverse news or publicity that impairs the reputation of the financial services industry generally. In addition, our reputation or prospects may be significantly damaged by adverse publicity or negative information regarding us, whether or not true, that may be posted on social media, non-mainstream news services or other parts of the internet, and this risk is magnified by the speed and pervasiveness with which information is disseminated through those channels. Because we conduct most of our business under the “Frost” brand, negative public opinion about one business could affect our other businesses.
Our Business, Financial Condition and Results Of Operations Are Subject To Risk From Changes in Customer Behavior
Individual, economic, political, industry-specific conditions and other factors outside of our control, such as fuel prices, energy costs, real estate values or other factors that affect customer income levels, could alter anticipated customer behavior, including borrowing, repayment, investment and deposit practices. Such a change in these practices could materially adversely affect our ability to anticipate business needs and meet regulatory requirements. Further, difficult economic conditions may negatively affect consumer confidence levels. A decrease in consumer confidence levels would likely aggravate the adverse effects of these difficult market conditions on us, our customers and others in the financial institutions industry.
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 preferred 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 our common stock or our preferred stock. The inability to receive dividends from Frost Bank could have a material adverse effect on our business, financial condition and results of operations. See the section captioned “Supervision and Regulation” in Item 1. Business and Note 9 - Capital and Regulatory Matters in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this report.
Our Information Systems May Experience Failure, Interruption Or Breach In Security
In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. Any failure, interruption or breach in security of these systems could result in significant disruption to our operations. Information security breaches and cybersecurity-related incidents include, but are not limited to, attempts to access information, including customer and company information, malicious code, computer viruses and denial of service attacks that could result in unauthorized access, misuse, loss or destruction of data (including confidential customer information), account takeovers, unavailability of service or other events. These types of threats may derive from human error, fraud or malice on the part of external or internal parties, or may result from accidental technological failure. Our technologies, systems, networks and software have been and continue to be subject to cybersecurity threats and attacks, which range from uncoordinated individual attempts to sophisticated and targeted measures directed at us. See the section captioned “Supervision and Regulation - Cybersecurity” included in Item 1. Business elsewhere in this report for discussion of a data security incident we experienced in 2018. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
Our customers and employees have been, and will continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate passwords, bank account information or other personal information or to introduce viruses or other malware through “Trojan horse” programs to our information systems, the information systems of our merchants or third party service providers and/or our customers' personal devices, which are beyond our security control systems. Though we endeavor to mitigate these threats through product improvements, use of encryption and authentication technology and customer and employee education, such cyber attacks against us, our merchants, our third party service providers and our customers remain a serious issue and have been successful in the past.
25

Table of Contents
Even the most well protected information, networks, systems and facilities remain potentially vulnerable to attempted security breaches or disruptions because the techniques used in such attempts are constantly evolving and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is virtually impossible for us to entirely mitigate this risk. While we maintain specific “cyber” insurance coverage, which would apply in the event of various breach scenarios, the amount of coverage may not be adequate in any particular case. Furthermore, because cyber threat scenarios are inherently difficult to predict and can take many forms, some breaches may not be covered under our cyber insurance coverage. A security breach or other significant disruption of our information systems or those related to our customers, merchants or our third party vendors, including as a result of cyber attacks, could (i) disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our customers; (ii) result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of confidential, sensitive or otherwise valuable information of ours or our customers; (iii) result in a violation of applicable privacy, data breach and other laws, subjecting us to additional regulatory scrutiny and exposing us to civil litigation, governmental fines and possible financial liability; (iv) require significant management attention and resources to remedy the damages that result; or (v) harm our reputation or cause a decrease in the number of customers that choose to do business with us. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
Our Operations Rely On Certain External Vendors
We rely on certain external vendors to provide products and services necessary to maintain our day-to-day operations. These third party vendors are sources of operational and informational security risk to us, including risks associated with operational errors, information system interruptions or breaches and unauthorized disclosures of sensitive or confidential client or customer information. If these vendors encounter any of these issues, or if we have difficulty communicating with them, we could be exposed to disruption of operations, loss of service or connectivity to customers, reputational damage, and litigation risk that could have a material adverse effect on our business and, in turn, our financial condition and results of operations.
In addition, our operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements. Although we have selected these external vendors carefully, we do not control their actions. 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 our operations, which could have a material adverse effect on our business and, in turn, our financial condition and results of operations. Replacing these external vendors could also entail significant delay and expense.
We Are Subject To Litigation Risk Pertaining To Fiduciary Responsibility
From time to time, customers make claims and take legal action pertaining to our performance of our fiduciary responsibilities. Whether customer claims and legal action related to our performance of our fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us they may result in significant financial liability and/or adversely affect the market perception of us and our 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 our business, financial condition and results of operations.
We Are Subject To Litigation Risk Pertaining To Intellectual Property
Banking and other financial services companies, including us, rely on technology companies to provide information technology products and services necessary to support 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 our vendors, or other individuals or companies, have from time to time claimed to hold intellectual property sold to us by our vendors and we are, and may in the future be, named as defendants in various related litigation. 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 and may also seek to enter into licensing agreements with us to obtain ongoing fees.
26

Table of Contents
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, we may have to engage in protracted litigation. Such litigation is often expensive, time-consuming, disruptive to our operations and distracting to management. If we are found to infringe upon one or more patents or other intellectual property rights, we may be required to pay substantial damages or royalties to a third-party. In certain cases, we 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 our operating expenses. If legal matters related to intellectual property claims were resolved against us or settled, we could be required to make payments in amounts that could have a material adverse effect on our 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, we rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. We 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 our business, financial condition and results of operations.
External and Market-Related Risks
Our Profitability Depends Significantly On Economic Conditions In The State Of Texas
Our success depends primarily on the general economic conditions of the State of Texas and the specific local markets in which we operate. Unlike larger national or other regional banks that are more geographically diversified, we provide 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 San Antonio regions. The local economic conditions in these areas have a significant impact on the demand for our products and services as well as the ability of our customers to repay loans, the value of the collateral securing loans and the stability of our deposit funding sources. Moreover, approximately 98.2%all of the securities in our 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 or prolonged stagnation 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 our business, financial condition and results of operations.
We May Be Adversely Affected By Volatility in Crude Oil Prices
As of December 31, 2017, energy loans comprised approximately 11.4% of our loan portfolio. Furthermore, energy production and related industries represent a large part of the economies in some of our primary markets. In recent years, actions by certain members of the Organization of Petroleum Exporting Countries (“OPEC”) impacting crude oil production levels have ledAre Subject to increased global oil supplies which has resulted in significant declines in market oil prices. Decreased market oil prices 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. The price per barrel of crude oil was approximately $60 at December 31, 2017 up from $54 at December 31, 2016. We have experienced increased losses within our energy portfolio in recent years as a result of oil price volatility, relative to our historical experience. Though oil prices have recovered from recent low-levels, future oil price volatility could have a negative impact on the U.S. economy and, in particular, the economies of energy-dominant states such as Texas and, accordingly, could have a material adverse effect on our business, financial condition and results of operations.
We May Be Adversely Affected ByRisk Arising From The Soundness Of Other Financial Institutions and Counterparties
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties, and routinely execute 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 us to credit risk in the event of a default by a counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to us. Any such losses could have a material adverse effect on our business, financial condition and results of operations.
We Operate In A Highly Competitive Industry and Market Area
We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and may have more financial resources.resources than us. Such competitors primarily include national, regional, and community banks within the various markets where we operate. Recent regulation has reduced the regulatory burden of large bank holding companies, and raised the asset thresholds at which more onerous requirements apply, which could cause certain large bank holding companies with less than $250 billion in total consolidated assets, which were previously subject to more stringent enhanced prudential standards, to become more competitive or to pursue expansion more aggressively.
27

Table of Contents
We also face 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,In particular, the activity of financial technology companies (“fintechs”) has grown significantly over recent years and is expected to continue to grow. Fintechs have and may continue to offer bank or bank-like products and a number of fintechs have applied for bank or industrial loan charters. In addition, other fintechs have partnered with existing banks to allow them to offer deposit products to their customers.
Additionally, 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 our competitors have fewer regulatory constraints and may have lower cost structures.structures than us. 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 we can.
Our ability to compete successfully depends on a number of factors, including, among other things:
Thethings, (i) the ability to develop, maintain and build long-term customer relationships based on top quality service, high ethical standards and safe, sound assets.
Theassets; (ii) the ability to expand within our marketplace and with our market position.
Theposition; (iii) the scope, relevance and pricing of products and services offered to meet customer needs and demands.
Thedemands; (iv) the rate at which we introduce new products and services relative to our competitors.
Customercompetitors; (v) customer satisfaction with our level of service.
Industryservice; and (vi) industry and general economic trends.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.
Compliance and Regulatory Risks
We Are Subject To Extensive Government Regulation and Supervision and PossibleRelated Enforcement Powers and Other Legal ActionsRemedies
We, primarily through Cullen/Frost, Frost Bank and certain non-bank subsidiaries, are 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 our 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 changesChanges to statutes, regulations or regulatory policies or supervisory guidance, including changes in interpretation or implementation of statutes, regulations, policies or supervisory guidance, could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit the types of financial services and products we 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, otherenforcement actions or sanctions by regulatory agencies, significant fines and 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. Directives issued to enforce such actions may be confidential and thus, in some instances, we are not permitted to publicly disclose these actions. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
See the sections captioned “Supervision and Regulation” included in Item 1. Business and Note 9 - 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.
Our Accounting Estimates and Risk Management Processes Rely On Analytical and Forecasting Models
28

The processes we use to estimate our inherent loan losses and to measure the fair value
Table of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our 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 we use for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest rates or other market measures. If the models we use for determining our probable loan losses are inadequate, the allowance for loan losses may not be sufficient to support future charge-offs. If the models we use 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 whatContents

we could realize upon sale or settlement of such financial instruments. Any such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations.
Changes In Accounting Standards Could Materially Impact Our Financial Statements
From time to time accounting standards setters change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be difficult to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in changes to previously reported financial results or a cumulative charge to retained earnings.
The Repeal Of Federal Prohibitions On Payment Of Interest On Demand Deposits Could Increase Our 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 offeringoffer interest on demand deposits to compete for customers. We do not yet know what interest rates other institutions may offer as market interest rates increase. Our interest expense will increase and our net interest margin will decrease if we begin offering interest on demand deposits to attract additional customers or maintain current customers, which could have a material adverse effect on our business, financial condition and results of operations.
We Are Subject To Government Regulation and Oversight Relating to Data and Privacy Protection
Our business requires the collection and retention of large volumes of customer data, including personally identifiable information in various information systems that we maintain and in those maintained by third parties with whom we contract to provide data services. We also maintain important internal company data such as personally identifiable information about our employees and information relating to our operations. The integrity and protection of that customer and company data is important to us. Our collection of such customer and company data is subject to extensive regulation and oversight.
We are subject to laws and regulations relating to the privacy of the information of our clients, employees or others, and any failure to comply with these laws and regulations could expose us to liability and/or reputational damage. As new privacy-related laws and regulations are implemented, the time and resources needed for us to comply with such laws and regulations, as well as our potential liability for non-compliance and reporting obligations in the case of data breaches, may significantly increase.
Risks Related to Acquisition Activity
Potential Acquisitions May Disrupt Our Business and Dilute Stockholder Value
We generally seek 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, (i) potential exposure to unknown or contingent liabilities of the target company; (ii) exposure to potential asset quality issues of the target company; (iii) potential disruption to our business; (iv) potential diversion of our management’s time and attention; (v) the possible loss of key employees and customers of the target company; (vi) difficulty in estimating the value of the target company; and (vii) 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 our 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 our business, financial condition and results of operations.
Acquisitions May Be Delayed, Impeded, Or Prohibited Due To Regulatory Issues
Acquisitions by financial institutions, including us, are subject to approval by a variety of federal and state regulatory agencies (collectively, “regulatory approvals”). The process for obtaining these required regulatory approvals has become substantially more difficult since the global financial crisis, and our ability to engage in certain merger or acquisition transactions depends on the bank regulators' views at the time as to our capital levels, quality of management, and overall condition, in addition to their assessment of a variety of other factors, including our compliance with law. Regulatory approvals could be delayed, impeded, restrictively conditioned or denied due to existing or new regulatory issues we have, or may have, with regulatory agencies, including, without limitation, issues related to Bank Secrecy Act compliance, Community Reinvestment Act issues, fair lending laws, fair housing laws, consumer protection laws, unfair, deceptive, or abusive acts or practices regulations and other laws and regulations. We may fail to pursue, evaluate or complete strategic and competitively significant acquisition opportunities as a result of our inability, or perceived or anticipated inability, to obtain regulatory approvals in a timely manner, under reasonable conditions or at all. Difficulties associated with potential acquisitions that may
29

result from these factors could have a material adverse effect on our business, financial condition and results of operations.
Risks Associated With Our Common Stock
The Trading Volume In Our Common Stock Is Less Than That Of Other Larger Financial Services Companies
Although our common stock is listed for trading on the New York Stock Exchange (NYSE), the trading volume in our 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 our common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the lower trading volume of our common stock, significant sales of our common stock, or the expectation of these sales, could cause our 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 9 - Capital and Regulatory Matters in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this report, our ability to declare or pay dividends on our common stock may also be subject to certain restrictions in the event that we elect to defer the payment of interest on our junior subordinated deferrable interest debentures or do not declare and pay dividends on our Series B Preferred Stock.
An Investment In Our Common Stock Is Not An Insured Deposit
Our 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 our 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, if you acquire our common stock, you could lose some or all of your 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 us, even if doing so would be perceived to be beneficial to our shareholders. These provisions effectively inhibit a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock.
Risks Related to the COVID-19 Pandemic
Our business, financial condition, liquidity and results of operations have been, and will likely continue to be, adversely affected by the COVID-19 pandemic.
The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, our business, financial condition, liquidity and results of operations. The extent to which the COVID-19 pandemic will continue to negatively affect our business, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted and many of which are outside of our control, including the scope and duration of the pandemic, the effectiveness of our Business Continuity and Health Emergency Response plans, the direct and indirect impact of the pandemic on our employees, customers, clients, counterparties and service providers, as well as other market participants, and actions taken, or that may yet be taken, or inaction, by governmental authorities and other third parties in response to the pandemic.
30

The COVID-19 pandemic has contributed to:
Increased unemployment and business disruption and decreased consumer and business confidence and consumer and commercial activity generally, leading to an increased risk of delinquencies, defaults and foreclosures.
Higher and more volatile credit loss expense and potential for increased charge-offs, particularly as customers may need to draw on their committed credit lines to help finance their businesses and activities.
Ratings downgrades, credit deterioration and defaults in many industries, particularly energy, retail/strip centers, hotels/lodging, restaurants, entertainment and commercial real estate.
A sudden and significant reduction in the valuation of the equity, fixed-income and commodity markets and the significant increase in the volatility of those markets.
A decrease in the rates and yields on U.S. Treasury securities, which may lead to decreased net interest income.
Increased demands on capital and liquidity, leading us to cease repurchases of our common stock in order to preserve capital and provide added liquidity.
A reduction in the value of the assets that we manage or otherwise administer or service for others, affecting related fee income and demand for our services.
Heightened cybersecurity, information security and operational risks as a result of a remote workforce and impacts on our service providers.
Any disruption to our ability to deliver financial products or services to, or interact with, our clients and customers could result in losses or increased operational costs, regulatory fines, penalties and other sanctions, or harm our reputation.
As noted in the section captioned “Recent Developments Related to COVID-19” in Part II. Financial Information, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations elsewhere in this report, the Federal Reserve has taken various actions and the U.S. government has enacted several fiscal stimulus measures to counteract the economic disruption caused by the COVID-19 pandemic and provide economic assistance to individual households and businesses, stabilize the markets and support economic growth. The ultimate success of these measures is unknown and they may not be sufficient to fully mitigate the negative impact of the COVID-19 pandemic. We face an increased risk of litigation and governmental, regulatory and third-party scrutiny as a result of the effects of COVID-19 on market and economic conditions and actions governmental authorities take in response to those conditions. Furthermore, various governmental programs such as the PPP are complex and our participation may lead to additional litigation and governmental, regulatory and third-party scrutiny, negative publicity and damage to our reputation. For further discussion of litigation, see Note 8 – Off-Balance-Sheet Arrangements, Commitments, Guarantees, and Contingencies in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this report. In addition, our participation in the PPP as a lender may adversely affect our revenue and results of operations depending on the timing and amount of forgiveness, if any, to which our borrowers will be entitled.
The length of the pandemic and the efficacy of the extraordinary measures being put in place to address it are unknown. Until the pandemic subsides, we expect continued draws on lines of credit, reduced fee income and revenues related to investment management, insurance and brokerage operations and increased customer and client defaults, including defaults of unsecured loans. Even after the pandemic subsides, the U.S. economy may continue to experience a recession, and we anticipate our businesses would be materially and adversely affected by a prolonged recession. To the extent the pandemic adversely affects our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described below. See the section captioned “Recent Developments Related to COVID-19” in Part II. Financial Information, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations elsewhere in this report for further discussion.
31

General Risk Factors
We are Subject To Risk From Fluctuating Conditions In The Financial Markets and Economic and Political Conditions Generally
Our success depends, to a certain extent, upon local, national and global economic and political conditions, as well as governmental monetary policies. Our 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 we offer, is highly dependent upon the business environment in the markets where we operate, 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 a decline in economic growth both in the U.S. and internationally; declines in business activity or investor or business confidence; limitations on the availability of or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment; oil price volatility; natural disasters; trade policies and tariffs; or a combination of these or other factors. While recent economic conditions in the State of Texas, the United States and worldwide have seen improving trends since the onset of the COVID-19 pandemic, there can be no assurance that this improvement will continue. Economic pressure on consumers and uncertainty regarding continuing economic improvement could 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 our loans and our business, financial condition and results of operations.
Changes In The Federal, State Or Local Tax Laws May Negatively Impact Our Financial Performance and We Are Subject To Examinations and Challenges By Tax Authorities
We are subject to federal and applicable state tax laws and regulations. Changes in these tax laws and regulations, some of which may be retroactive to previous periods, could increase our effective tax rates and, as a result, could negatively affect our current and future financial performance. Furthermore, tax laws and regulations are often complex and require interpretation. In the normal course of business, we are routinely subject to examinations and challenges from federal and applicable state tax authorities regarding the amount of taxes due in connection with investments we have made and the businesses in which we have engaged. Recently, federal and state taxing authorities have become increasingly aggressive in challenging tax positions taken by financial institutions. These tax positions may relate to tax compliance, sales and use, franchise, gross receipts, payroll, property and income tax issues, including tax base, apportionment and tax credit planning. The challenges made by tax authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions. If any such challenges are made and are not resolved in our favor, they could have a material adverse effect on our business, financial condition and results of operations.
We May Need To Raise Additional Capital In The Future, and Such Capital May Not Be Available When Needed Or At All
We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs, particularly if our asset quality or earnings were to deteriorate significantly. Our 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 our control, and our financial condition. Economic conditions and the loss of confidence in financial institutions may increase our 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.
We cannot assure that such capital will be available on acceptable terms or at all. Any occurrence that may limit our 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 our capital costs and our ability to raise capital and, in turn, our liquidity. Moreover, if we need to raise capital in the future, we 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 our business, financial condition and results of operations.
The Value Of
32

Our GoodwillStock Price Can Be Volatile
Stock price volatility may make it more difficult for you to resell your common stock when you want and Other Intangible Assets May Decline In The Future
Asat prices you find attractive. Our stock price can fluctuate significantly in response to a variety of December 31, 2017, we had $660.0 millionfactors including, among other things, (i) actual or anticipated variations in quarterly results of goodwilloperations; (ii) recommendations by securities analysts; (iii) operating and stock price performance of other companies that investors deem comparable to us; (iv) news reports relating to trends, concerns and other intangible assets. A significant decline in our expected future cash flows, a significant adverse changeissues in the business climate, slower growth rates or a significant and sustained declinefinancial services industry; (v) perceptions in the pricemarketplace regarding us and/or our competitors; (vi) new technology used, or services offered, by competitors; (vii) the issuance by us of Cullen/Frost’sadditional securities, including common stock may necessitate taking chargesand securities that are convertible into or exchangeable for, or that represent the right to receive, common stock; (viii) sales of a large block of shares of our common stock or similar securities in the future relatedmarket after an equity offering, or the perception that such sales could occur; (ix) significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; (x) failure to integrate acquisitions or realize anticipated benefits from acquisitions; (xi) changes in government regulations; and (xii) geopolitical conditions such as acts or threats of terrorism or military conflicts.
General market fluctuations, including real or anticipated changes in the impairmentstrength of the Texas economy; industry factors and general economic and political conditions and events, such as economic slowdowns or recessions; and interest rate changes, oil price volatility or credit loss trends could also cause our stock price to decrease regardless of operating results.
Changes In Accounting Standards Could Materially Impact Our Financial Statements
From time to time accounting standards setters change the financial accounting and reporting standards that govern the preparation of our goodwillfinancial statements. These changes can be difficult to predict and other intangible assets. Ifcan materially impact how we were to conclude that a future write-down of goodwillrecord and other intangible assets is necessary, we would record the appropriate charge, which could have a material adverse effect onreport our business, financial condition and results of operations.
Our Controls and Procedures May Fail or Be Circumvented
Our 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 our controls and procedures or failure In some cases, we could be required to comply with regulations related to controls and procedures could have a material adverse effect on our business, financial condition and results of operations.

New Lines Of Business Or New Products and Services May Subject Us To Additional Risks
From time to time, we 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 we 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 ofapply a new line of businessor revised standard retroactively, resulting in changes to previously reported financial results 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 effectiveness of our system of internal controls. Failurecumulative charge 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 our business, financial condition and results of operations.
Negative Publicity Could Damage Our Reputation And Our Business
Reputation risk, or the risk to our earnings and capital from negative public opinion, is inherent in our business. Negative public opinion could adversely affect our ability to keep and attract customers and expose us to adverse legal and regulatory consequences. Negative public opinion could result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance, regulatory compliance, mergers and acquisitions, and disclosure, sharing or inadequate protection of customer information, and from actions taken by government regulators and community organizations in response to that conduct. Negative public opinion could also result from adverse news or publicity that impairs the reputation of the financial services industry generally. Because we conduct most of our business under the “Frost” brand, negative public opinion about one business could affect our other businesses.
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 preferred 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 our common stock or our preferred stock. The inability to receive dividends from Frost Bank could have a material adverse effect on our business, financial condition and results of operations.
retained earnings. See the section captioned “Supervision and Regulation” in Item 1. Business and Note 920 - Capital and Regulatory MattersAccounting Standards Updates 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 Our Business and Dilute Stockholder Value
We generally seek merger or acquisition partners that are culturally similar and have experienced management and possess either significant market presence or have potentialreport 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 our business.
Potential diversion of our 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 our 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 our business, financial condition and results of operations.
Acquisitions May Be Delayed, Impeded, Or Prohibited Due To Regulatory Issues
Acquisitions by financial institutions, including us, are subject to approval by a variety of federal and state regulatory agencies (collectively, “regulatory approvals”). The process for obtaining these required regulatory approvals has become substantially more difficult in recent years. Regulatory approvals could be delayed, impeded, restrictively conditioned or denied due to existing or new regulatory issues we have, or may have, with regulatory agencies, including, without limitation, issues related to Bank Secrecy Act compliance, Community Reinvestment Act issues, fair lending laws, fair housing laws, consumer protection laws, unfair, deceptive, or abusive acts or practices regulations and other similar laws and regulations. We may fail to pursue, evaluate or complete strategic and competitively significant acquisition opportunities as a result of our inability, or perceived or anticipated inability, to obtain regulatory approvals in a timely manner, under reasonable conditions or at all. Difficulties associated with potential acquisitions that may result from these factors could have a material adverse effect on our business, financial condition and results of operations.
We Are Subject To Liquidity Risk
We require liquidity to meet our deposit and debt obligations as they come due. Our access to funding sources in amounts adequate to finance our activities or on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally. Factors that could reduce our access to liquidity sources include a downturn in the Texas economy, difficult credit markets or adverse regulatory actions against us. Our access to deposits may also be affected by the liquidity needs of our depositors. In particular, a substantial majority of our 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 our assets are loans, which cannot be called or sold in the same time frame. We may not be able to replace maturing deposits and advances as necessary in the future, especially if a large number of our depositors sought to withdraw their accounts, regardless of the reason. A failure to maintain adequate liquidity could have a material adverse effect on our business, financial condition and results of operations.further information regarding pending accounting standards updates.
We May Not Be Able To Attract and Retain Skilled People
Our success depends, in large part, on our ability to attract and retain key people. Competition for the best people in mostmany activities engaged in by us can beis intense and we may not be able to hire people or to retain them. We do not currently have employment agreements or non-competition agreements with any of our senior officers. The unexpected loss of services of key personnel could have a material adverse impact on our business, financial condition and results of operations because of their customer relationships, skills, knowledge of our market, years of industry experience and the difficulty of promptly finding qualified replacement personnel. In addition, the scope and content of U.S. banking regulators' policies on incentive compensation, as well as changes to these policies, could adversely affect our ability to hire, retain and motivate our key employees.
Our Information Systems May Experience Failure, Interruption Or Breach In Security
In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. Any failure, interruption or breach in security of these systems could result in significant disruption to our operations. Information security breaches and cybersecurity-related incidents may include, but are not limited to, attempts to access information, including customer and company information, malicious code, computer viruses and denial of service attacks that could result in unauthorized access, misuse, loss or destruction of data (including confidential customer information), account takeovers, unavailability of service or other events. These types of threats may derive from human error, fraud or malice on the part of external or internal parties, or may result from accidental technological failure. Further, to access our products and services our customers may use computers and mobile devices that are beyond our security control systems. Our technologies, systems, networks and software, and those of other financial institutions have been, and are likely to continue to be, the target of cybersecurity threats and attacks, which may range from uncoordinated individual attempts to sophisticated and targeted measures directed at us. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.

Our business requires the collection and retention of large volumes of customer data, including personally identifiable information in various information systems that we maintain and in those maintained by third parties with whom we contract to provide data services. We also maintain important internal company data such as personally identifiable information about our employees and information relating to our operations. The integrity and protection of that customer and company data is important to us. Our collection of such customer and company data is subject to extensive regulation and oversight.
Our customers and employees have been, and will continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate passwords, bank account information or other personal information or to introduce viruses or other malware through “Trojan horse” programs to our information systems and/or our customers' computers. Though we endeavor to mitigate these threats through product improvements, use of encryption and authentication technology and customer and employee education, such cyber attacks against us or our merchants and our third party service providers remain a serious issue. The pervasiveness of cybersecurity incidents in general and the risks of cyber crime are complex and continue to evolve. More generally, publicized information concerning security and cyber-related problems could inhibit the use or growth of electronic or web-based applications or solutions as a means of conducting commercial transactions.
Although we make significant efforts to maintain the security and integrity of our information systems and have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because attempted security breaches, particularly cyber attacks and intrusions, or disruptions will occur in the future, and because the techniques used in such attempts are constantly evolving and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is virtually impossible for us to entirely mitigate this risk. While we maintain specific “cyber” insurance coverage, which would apply in the event of various breach scenarios, the amount of coverage may not be adequate in any particular case. Furthermore, because cyber threat scenarios are inherently difficult to predict and can take many forms, some breaches may not be covered under our cyber insurance coverage. A security breach or other significant disruption of our information systems or those related to our customers, merchants and our third party vendors, including as a result of cyber attacks, could (i) disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our customers; (ii) result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of confidential, sensitive or otherwise valuable information of ours or our customers; (iii) result in a violation of applicable privacy, data breach and other laws, subjecting us to additional regulatory scrutiny and expose the us to civil litigation, governmental fines and possible financial liability; (iv) require significant management attention and resources to remedy the damages that result; or (v) harm our reputation or cause a decrease in the number of customers that choose to do business with us. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
We Continually Encounter 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. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse effect on our business, financial condition and results of operations.

We Are Subject To Claims and Litigation Pertaining To Fiduciary Responsibility
From time to time, customers make claims and take legal action pertaining to our performance of our fiduciary responsibilities. Whether customer claims and legal action related to our performance of our fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us they may result in significant financial liability and/or adversely affect the market perception of us and our 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 our business, financial condition and results of operations.
Our Operations Rely On Certain External Vendors
We rely on certain external vendors to provide products and services necessary to maintain our day-to-day operations. These third party vendors are sources of operational and informational security risk to us, including risks associated with operational errors, information system interruptions or breaches and unauthorized disclosures of sensitive or confidential client or customer information. If these vendors encounter any of these issues, or if we have difficulty communicating with them, we could be exposed to disruption of operations, loss of service or connectivity to customers, reputational damage, and litigation risk that could have a material adverse effect on our business and, in turn, our financial condition and results of operations.
In addition, our operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements. While we have selected these external vendors carefully, we do not control their actions. 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 our operations, which could have a material adverse effect on our business and, in turn, our financial condition and results of operations. Replacing these external vendors could also entail significant delay and expense.
We Are Subject to Claims and Litigation Pertaining to Intellectual Property
Banking and other financial services companies, including us, rely on technology companies to provide information technology products and services necessary to support 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 our vendors, or other individuals or companies, have from time to time claimed to hold intellectual property sold to us by our 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, we may have to engage in protracted litigation. Such litigation is often expensive, time-consuming, disruptive to our operations and distracting to management. If we are found to infringe upon one or more patents or other intellectual property rights, we may be required to pay substantial damages or royalties to a third-party. In certain cases, we 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 our operating expenses. If legal matters related to intellectual property claims were resolved against us or settled, we could be required to make payments in amounts that could have a material adverse effect on our business, financial condition and results of operations.
We Are Subject To Environmental Liability Risk Associated With Lending Activities
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we 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, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our 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 our 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 our business, financial condition and results of operations.

Severe Weather, Natural Disasters, Acts Of War Or Terrorism and Other External Events Could Significantly Impact Our Business
Severe weather, natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business. In addition, such events could affect the stability of our 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 us to incur additional expenses. TheFurthermore, the occurrence of any such event in the future could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our 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, we may rely on information furnished by or on behalf
33

Table of customers and counterparties, including financial statements, credit reports and other financial information. We 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 our business, financial condition and results of operations.Contents
Risks Associated With Our Common Stock
Our 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. Our 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 us.
News reports relating to trends, concerns and other issues in the financial services industry.
Perceptions in the marketplace regarding us and/or our competitors.
New technology used, or services offered, by competitors.
Significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our 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, oil price volatility or credit loss trends could also cause our stock price to decrease regardless of operating results.
The Trading Volume In Our Common Stock Is Less Than That Of Other Larger Financial Services Companies
Although our common stock is listed for trading on the New York Stock Exchange (NYSE), the trading volume in our 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 our common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the lower trading volume of our common stock, significant sales of our common stock, or the expectation of these sales, could cause our 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 9 - 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, our ability to declare or pay dividends on our common stock may also be subject to certain restrictions in the event that we elect to defer the payment of interest on our junior subordinated deferrable interest debentures or do not declare and pay dividends on our Series A Preferred Stock.
An Investment In Our Common Stock Is Not An Insured Deposit
Our 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 our 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, if you acquire our common stock, you could lose some or all of your 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 us, even if doing so would be perceived to be beneficial to our shareholders. These provisions effectively inhibit a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
Our headquarters is located in downtown San Antonio, Texas. These facilities, which we lease, house our executive and primary administrative offices, as well as the principal banking headquarters of Frost Bank. We also own or lease other facilities within our primary market areas in the regions of Austin, Corpus Christi, Dallas, Fort Worth, Houston, Permian Basin, Rio Grande Valley and San Antonio. We consider our properties to be suitable and adequate for our present needs.
ITEM 3. LEGAL PROCEEDINGS
We are 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 our business, financial condition and results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
None



34

PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Our Common Stock Market Prices and Dividends
Our 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 2017 and 2016 the high and low intra-day sales prices per share of Cullen/Frost’s common stock and the cash dividends declared per share.
 2017 2016
Sales Price Per ShareHigh Low High Low
First quarter$96.62

$82.08
 $59.59
 $42.41
Second quarter99.20

85.53
 67.72
 51.43
Third quarter98.70

81.09
 73.80
 59.00
Fourth quarter103.37

92.03
 88.98
 69.86
Cash Dividends Per Share2017 2016
First quarter$0.54
 $0.53
Second quarter0.57
 0.54
Third quarter0.57
 0.54
Fourth quarter0.57
 0.54
Total$2.25
 $2.15
As of December 31, 2017,2020, there were 63,475,58663,011,240 shares of our common stock outstanding held by 1,2201,094 holders of record. The closing price per share of common stock on December 29, 2017,31, 2020, the last trading day of our fiscal year, was $94.65.
Our 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 our 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 9 - 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.$87.23.
Stock-Based Compensation Plans
Information regarding stock-based compensation awards outstanding and available for future grants as of December 31, 2017,2020, 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 11 - Employee Benefit Plans in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data located elsewhere in this report.
Plan CategoryNumber of Shares
to be Issued Upon
Exercise of
Outstanding Awards
Weighted-Average
Exercise
Price of
Outstanding
Awards
Number of Shares
Available for
Future Grants
Plans approved by shareholders2,464,035 (1)$66.11 (2)887,189 
Plans not approved by shareholders— — — 
Total2,464,035 66.11 887,189 
Plan Category
Number of Shares
to be Issued Upon
Exercise of
Outstanding Awards
 
Weighted-Average
Exercise
Price of
Outstanding
Awards
 
Number of Shares
Available for
Future Grants
Plans approved by shareholders3,339,499
(1) 
$63.34
(2) 
1,367,750
Plans not approved by shareholders
 
 
Total3,339,499
 63.34
 1,367,750


(1)Includes 1,739,559 shares related to stock options, 470,359 shares related to non-vested stock units, 52,860 shares related to director deferred stock units and 201,257 shares related to performance stock units (assuming attainment of the maximum payout rate as set forth by the performance criteria).
(1)Includes 2,917,142 shares related to stock options, 289,246 shares related to non-vested stock units, 53,008 shares related to director deferred stock units and 80,103 shares related to performance stock units (assuming attainment of the maximum payout rate as set forth by the performance criteria).
(2)Excludes outstanding stock units which are exercised for no consideration.

(2)Excludes outstanding stock units which are exercised for no consideration.
Stock Repurchase Plans
From time to time, our board of directors has authorized stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. On OctoberJuly 24, 2017,2019, our board of directors authorized a $150.0$100.0 million stock repurchase program, allowing us to repurchase shares of our common stock over a two-yearone-year period from time to time at various prices in the open market or through private transactions. No shares were repurchased underUnder this plan, we repurchased 177,834 shares at a total cost of $13.7 million during 2017.the first quarter of 2020 and 202,724 shares at a total cost of $17.2 million during 2019. Under prior plans,stock repurchase programs, we repurchased 1,134,966496,307 shares at a total cost of $50.0 million during 2019 and 1,027,292 shares at a total cost of $100.0 million during 2017 and 1,485,493 shares at a total cost of $100.0 million during 2015.2018
The following table provides information with respect to purchases made by or on behalf of us or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the fourth quarter of 2017.2020.
PeriodTotal Number of
Shares Purchased
Average Price
Paid Per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans at 
the End of the Period
October 1, 2020 to October 31, 202024,726 (1)$72.14 — $— 
November 1, 2020 to November 30, 2020— — — — 
December 1, 2020 to December 31, 2020— — — — 
Total24,726 — 
(1)Repurchases made in connection with the vesting of certain share awards.
35

Period 
Total Number of
Shares Purchased
 
Average Price
Paid Per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
 
Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans at 
the End of the Period
October 1, 2017 to October 31, 2017 14,120
(1) 
$101.40
 
 $150,000
November 1, 2017 to November 30, 2017 
 
 
 150,000
December 1, 2017 to December 31, 2017 
 
 
 150,000
Total 14,120
 $
 
  
Table of Contents
(1)All of these repurchases were made in connection with the vesting of certain share awards.

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, 20122015 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.


cfr-20201231_g1.jpg



201520162017201820192020
Cullen/Frost$100.00 $152.01 $167.09 $159.00 $182.21 $168.51 
S&P 500100.00 111.96 136.40 130.42 171.49 203.04 
S&P 500 Banks100.00 124.31 152.35 127.30 179.03 154.41 
36
 2012 2013 2014 2015 2016 2017
Cullen/Frost$100.00
 $141.26
 $137.67
 $120.55
 $183.24
 $201.43
S&P 500100.00
 132.39
 150.51
 152.59
 170.84
 208.14
S&P 500 Banks100.00
 135.72
 156.78
 158.10
 196.54
 240.87

ITEM 6. SELECTED FINANCIAL DATA
The following consolidated selected financial data is derived from our audited financial statements as of and for the five years ended December 31, 2017.2020. 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. Certain items in prior financial statements have been reclassified to conform to the current presentation. The operating results of companies acquired during the periods presented are included with our 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,
20202019201820172016
Consolidated Statements of Income
Interest income:
Loans, including fees$680,064 $741,747 $669,002 $534,804 $458,094 
Securities327,183 350,924 319,728 315,599 313,943 
Interest-bearing deposits12,893 35,590 56,968 41,608 16,103 
Federal funds sold and resell agreements895 5,524 5,500 936 272 
Total interest income1,021,035 1,133,785 1,051,198 892,947 788,412 
Interest expense:
Deposits32,018 99,742 75,337 17,188 7,248 
Federal funds purchased and repurchase agreements4,482 19,675 8,021 1,522 204 
Junior subordinated deferrable interest debentures3,560 5,706 5,291 3,955 3,281 
Subordinated notes4,656 4,657 4,657 3,860 1,343 
Federal Home Loan Bank advances318 — — — — 
Total interest expense45,034 129,780 93,306 26,525 12,076 
Net interest income976,001 1,004,005 957,892 866,422 776,336 
Credit loss expense241,230 33,759 21,685 35,888 51,673 
Net interest income after credit loss expense734,771 970,246 936,207 830,534 724,663 
Non-interest income:
Trust and investment management fees129,272 126,722 119,391 110,675 104,240 
Service charges on deposit accounts80,873 88,983 85,186 84,182 81,203 
Insurance commissions and fees50,313 52,345 48,967 46,169 47,154 
Interchange and debit card transaction fees13,470 14,873 13,877 23,232 21,369 
Other charges, commissions and fees34,825 37,123 37,231 39,931 39,623 
Net gain (loss) on securities transactions108,989 293 (156)(4,941)14,975 
Other47,712 43,563 46,790 37,222 41,144 
Total non-interest income465,454 363,902 351,286 336,470 349,708 
Non-interest expense:
Salaries and wages387,328 375,029 350,312 337,068 318,665 
Employee benefits75,676 86,230 77,323 74,575 72,615 
Net occupancy102,938 89,466 76,788 75,971 71,627 
Technology, furniture and equipment105,232 91,995 83,102 74,335 71,208 
Deposit insurance10,502 10,126 16,397 20,128 17,428 
Intangible amortization918 1,168 1,424 1,703 2,429 
Other166,310 180,665 173,466 174,861 178,988 
Total non-interest expense848,904 834,679 778,812 758,641 732,960 
Income before income taxes351,321 499,469 508,681 408,363 341,411 
Income taxes20,170 55,870 53,763 44,214 37,150 
Net income331,151 443,599 454,918 364,149 304,261 
Preferred stock dividends2,016 8,063 8,063 8,063 8,063 
Redemption of preferred stock5,514 — — — — 
Net income available to common shareholders$323,621 $435,536 $446,855 $356,086 $296,198 
37

 Year Ended December 31,
 2017 2016 2015 2014 2013
Consolidated Statements of Income         
Interest income:         
Loans, including fees$534,804
 $458,094
 $433,872
 $440,958
 $415,230
Securities315,599
 313,943
 307,394
 249,705
 219,904
Interest-bearing deposits41,608
 16,103
 8,123
 10,725
 7,284
Federal funds sold and resell agreements936
 272
 107
 83
 82
Total interest income892,947
 788,412
 749,496
 701,471
 642,500
Interest expense:         
Deposits17,188
 7,248
 9,024
 11,022
 14,459
Federal funds purchased and repurchase agreements1,522
 204
 167
 134
 121
Junior subordinated deferrable interest debentures3,955
 3,281
 2,725
 2,488
 6,426
Subordinated notes payable and other borrowings3,860
 1,343
 948
 893
 939
Total interest expense26,525
 12,076
 12,864
 14,537
 21,945
Net interest income866,422
 776,336
 736,632
 686,934
 620,555
Provision for loan losses35,460
 51,673
 51,845
 16,314
 20,582
Net interest income after provision for loan losses830,962
 724,663
 684,787
 670,620
 599,973
Non-interest income:         
Trust and investment management fees110,675
 104,240
 105,512
 106,237
 91,375
Service charges on deposit accounts84,182
 81,203
 81,350
 81,946
 81,432
Insurance commissions and fees46,169
 47,154
 48,926
 45,115
 43,140
Interchange and debit card transaction fees23,232
 21,369
 19,666
 18,372
 16,979
Other charges, commissions and fees39,931
 39,623
 37,551
 36,180
 34,185
Net gain (loss) on securities transactions(4,941) 14,975
 69
 38
 1,176
Other37,222
 41,144
 35,656
 32,256
 34,531
Total non-interest income336,470
 349,708
 328,730
 320,144
 302,818
Non-interest expense:         
Salaries and wages337,068
 318,665
 310,504
 292,349
 273,692
Employee benefits74,575
 72,615
 69,746
 60,151
 62,407
Net occupancy75,971
 71,627
 65,690
 55,745
 50,468
Technology, furniture and equipment74,335
 71,208
 64,373
 62,087
 58,443
Deposit insurance20,128
 17,428
 14,519
 13,232
 11,682
Intangible amortization1,703
 2,429
 3,325
 3,520
 3,141
Other175,289
 178,988
 165,561
 167,656
 152,077
Total non-interest expense759,069
 732,960
 693,718
 654,740
 611,910
Income before income taxes408,363
 341,411
 319,799
 336,024
 290,881
Income taxes44,214
 37,150
 40,471
 58,047
 53,015
Net income364,149
 304,261
 279,328
 277,977
 237,866
Preferred stock dividends8,063
 8,063
 8,063
 8,063
 6,719
Net income available to common shareholders$356,086
 $296,198
 $271,265
 $269,914
 $231,147

As of or for the Year Ended December 31,
20202019201820172016
Per Common Share Data
Net income - basic$5.11 $6.89 $6.97 $5.56 $4.73 
Net income - diluted5.10 6.84 6.90 5.51 4.70 
Cash dividends declared and paid2.85 2.80 2.58 2.25 2.15 
Book value65.82 60.11 51.19 49.68 45.03 
Common Shares Outstanding
Period-end63,011 62,669 62,986 63,476 63,474 
Weighted-average shares - basic62,727 62,742 63,705 63,694 62,376 
Dilutive effect of stock compensation277 700 982 968 593 
Weighted - average shares - diluted63,004 63,442 64,687 64,662 62,969 
Performance Ratios
Return on average assets0.85 %1.36 %1.44 %1.17 %1.03 %
Return on average common equity8.11 12.24 14.23 11.76 10.16 
Net interest income to average earning assets3.09 3.75 3.64 3.69 3.56 
Dividend pay-out ratio55.80 40.64 37.03 40.49 45.54 
Balance Sheet Data
Period-end:
Loans$17,481,309 $14,750,332 $14,099,733 $13,145,665 $11,975,392 
Earning assets39,648,402 31,280,550 29,894,185 29,595,375 28,025,439 
Total assets42,391,317 34,027,428 32,292,966 31,747,880 30,196,319 
Non-interest-bearing demand deposits15,117,051 10,873,629 10,997,494 11,197,093 10,513,369 
Interest-bearing deposits19,898,710 16,765,935 16,151,710 15,675,296 15,298,206 
Total deposits35,015,761 27,639,564 27,149,204 26,872,389 25,811,575 
Long-term debt and other borrowings235,378 235,164 234,950 234,736 236,117 
Shareholders’ equity4,293,016 3,911,668 3,368,917 3,297,863 3,002,528 
Average:
Loans$17,164,453 $14,440,549 $13,617,940 $12,460,148 $11,554,823 
Earning assets35,248,163 29,600,422 28,899,578 28,359,131 26,717,013 
Total assets37,961,200 32,085,851 31,029,850 30,450,207 28,832,093 
Non-interest-bearing demand deposits13,563,696 10,358,416 10,756,808 10,819,426 10,034,319 
Interest-bearing deposits17,874,576 16,054,861 15,532,258 15,085,492 14,477,525 
Total deposits31,438,272 26,413,277 26,289,066 25,904,918 24,511,844 
Long-term debt and other borrowings344,568 235,064 234,850 226,194 236,033 
Shareholders’ equity4,038,637 3,702,039 3,284,376 3,173,264 3,058,896 
Asset Quality
Allowance for credit losses on loans$263,177 $132,167 $132,132 $155,364 $153,045 
Allowance for credit losses on loans to year-end loans1.51 %0.90 %0.94 %1.18 %1.28 %
Net loan charge-offs$103,435 $33,724 $44,845 $33,141 $34,487 
Net loan charge-offs to average loans0.60 %0.23 %0.33 %0.27 %0.30 %
Non-performing assets$62,299 $109,485 $74,914 $157,292 $102,591 
Non-performing assets to:
Total loans plus foreclosed assets0.36 %0.74 %0.53 %1.20 %0.86 %
Total assets0.15 0.32 0.23 0.50 0.34 
Consolidated Capital Ratios
Common equity tier 1 risk-based ratio12.86 %12.36 %12.27 %12.42 %12.52 %
Tier 1 risk-based ratio13.47 12.99 12.94 13.16 13.33 
Total risk-based ratio15.44 14.57 14.64 15.15 14.93 
Leverage ratio8.07 9.28 9.06 8.46 8.14 
Average shareholders’ equity to average total assets10.64 11.54 10.58 10.42 10.61 
38

 As of or for the Year Ended December 31,
 2017 2016 2015 2014 2013
Per Common Share Data         
Net income - basic$5.56
 $4.73
 $4.31
 $4.32
 $3.82
Net income - diluted5.51
 4.70
 4.28
 4.29
 3.80
Cash dividends declared and paid2.25
 2.15
 2.10
 2.03
 1.98
Book value49.68
 45.03
 44.30
 42.87
 39.13
Common Shares Outstanding         
Period-end63,476
 63,474
 61,982
 63,149
 60,566
Weighted-average shares - basic63,694
 62,376
 62,758
 62,072
 60,350
Dilutive effect of stock compensation968
 593
 715
 902
 766
Weighted - average shares - diluted64,662
 62,969
 63,473
 62,974
 61,116
Performance Ratios         
Return on average assets1.17% 1.03% 0.97% 1.05% 1.02%
Return on average common equity11.76
 10.16
 9.86
 10.51
 9.93
Net interest income to average earning assets3.69
 3.56
 3.45
 3.41
 3.41
Dividend pay-out ratio40.49
 45.54
 48.72
 47.12
 51.75
Balance Sheet Data         
Period-end:         
Loans$13,145,665
 $11,975,392
 $11,486,531
 $10,987,535
 $9,515,700
Earning assets29,595,375
 28,025,439
 26,431,176
 26,052,339
 22,238,286
Total assets31,747,880
 30,196,319
 28,565,942
 28,276,421
 24,311,408
Non-interest-bearing demand deposits11,197,093
 10,513,369
 10,270,233
 10,149,061
 8,311,149
Interest-bearing deposits15,675,296
 15,298,206
 14,073,362
 13,986,869
 12,377,637
Total deposits26,872,389
 25,811,575
 24,343,595
 24,135,930
 20,688,786
Long-term debt and other borrowings234,736
 236,117
 235,939
 235,761
 222,181
Shareholders’ equity3,297,863
 3,002,528
 2,890,343
 2,851,403
 2,514,161
Average:         
Loans$12,460,148
 $11,554,823
 $11,267,402
 $10,299,025
 $9,229,574
Earning assets28,359,131
 26,717,013
 25,954,510
 23,877,476
 20,991,221
Total assets30,450,207
 28,832,093
 28,060,626
 25,766,301
 22,750,422
Non-interest-bearing demand deposits10,819,426
 10,034,319
 10,179,810
 9,125,030
 7,657,774
Interest-bearing deposits15,085,492
 14,477,525
 13,860,948
 12,927,729
 11,610,320
Total deposits25,904,918
 24,511,844
 24,040,758
 22,052,759
 19,268,094
Long-term debt and other borrowings226,194
 236,033
 235,856
 230,170
 222,098
Shareholders’ equity3,173,264
 3,058,896
 2,895,192
 2,712,226
 2,455,041
Asset Quality         
Allowance for loan losses$155,364
 $153,045
 $135,859
 $99,542
 $92,438
Allowance for losses to year-end loans1.18% 1.28% 1.18% 0.91% 0.97%
Net loan charge-offs$33,141
 $34,487
 $15,528
 $9,210
 $32,597
Net loan charge-offs to average loans0.27% 0.30% 0.14% 0.09% 0.35%
Non-performing assets$157,292
 $102,591
 $85,722
 $65,176
 $69,773
Non-performing assets to:         
Total loans plus foreclosed assets1.20% 0.86% 0.75% 0.59% 0.73%
Total assets0.50
 0.34
 0.30
 0.23
 0.29
Consolidated Capital Ratios








Common equity tier 1 risk-based ratio12.42% 12.52% 11.37% N/A N/A
Tier 1 risk-based ratio13.16

13.33

12.38
 13.68% 14.39%
Total risk-based ratio15.15

14.93

13.85
 14.55
 15.52
Leverage ratio8.46

8.14

7.79
 8.16
 8.49
Average shareholders’ equity to average total assets10.42
 10.61
 10.32
 10.53
 10.79

The following tables set forth unaudited consolidated selected quarterly statement of operations data for the years ended December 31, 20172020 and 2016.2019. Dollar amounts are in thousands, except per share data.
Year Ended December 31, 2020
4th
Quarter
3rd
Quarter
2nd
Quarter
1st
Quarter
Interest income$248,895 $251,166 $254,994 $265,980 
Interest expense6,649 7,743 9,183 21,459 
Net interest income242,246 243,423 245,811 244,521 
Credit loss expense13,756 20,302 31,975 175,197 
Non-interest income(1)
91,337 83,601 77,601 212,915 
Non-interest expense222,912 202,150 199,679 224,163 
Income before income taxes96,915 104,572 91,758 58,076 
Income taxes8,645 9,516 (1,314)3,323 
Net income88,270 95,056 93,072 54,753 
Preferred stock dividends— — — 2,016 
Redemption of preferred stock— — — 5,514 
Net income available to common shareholders$88,270 $95,056 $93,072 $47,223 
Net income per common share:
Basic$1.39 $1.50 $1.47 $0.75 
Diluted1.38 1.50 1.47 0.75 
Year Ended December 31, 2019
4th
Quarter
3rd
Quarter
2nd
Quarter
1st
Quarter
Interest income$278,054 $286,273 $288,137 $281,321 
Interest expense26,956 33,266 34,706 34,852 
Net interest income251,098 253,007 253,431 246,469 
Credit loss expense8,355 8,001 6,400 11,003 
Non-interest income(2)
95,255 89,224 82,638 96,785 
Non-interest expense220,806 208,864 203,209 201,800 
Income before income taxes117,192 125,366 126,460 130,451 
Income taxes13,511 13,530 14,874 13,955 
Net income103,681 111,836 111,586 116,496 
Preferred stock dividends2,016 2,016 2,015 2,016 
Net income available to common shareholders$101,665 $109,820 $109,571 $114,480 
Net income per common share:
Basic$1.61 $1.74 $1.73 $1.80 
Diluted1.60 1.73 1.72 1.79 
(1)Includes net gains on securities transactions of $109.0 million during the first quarter of 2020.
(2)Includes net gains on securities transactions of $169 thousand, $96 thousand and $28 thousand during the second, third and fourth quarters of 2019, respectively.
39
 Year Ended December 31, 2017
 
4th
Quarter
 
3rd
Quarter
 
2nd
Quarter
 
1st
Quarter
Interest income$234,295
 $227,586
 $219,274
 $211,792
Interest expense10,381
 8,375
 4,486
 3,283
Net interest income223,914
 219,211
 214,788
 208,509
Provision for loan losses8,102
 10,980
 8,426
 7,952
Non-interest income(1)
90,075
 81,615
 81,080
 83,700
Non-interest expense196,280
 186,823
 188,051
 187,915
Income before income taxes109,607
 103,023
 99,391
 96,342
Income taxes9,083
 9,892
 13,838
 11,401
Net income100,524
 93,131
 85,553
 84,941
Preferred stock dividends2,016
 2,016
 2,015
 2,016
Net income available to common shareholders$98,508
 $91,115
 $83,538
 $82,925
Net income per common share:       
Basic$1.54
 $1.43
 $1.30
 $1.29
Diluted1.53
 1.41
 1.29
 1.28

 Year Ended December 31, 2016
 
4th
Quarter
 
3rd
Quarter
 
2nd
Quarter
 
1st
Quarter
Interest income$204,868
 $197,489
 $193,451
 $192,604
Interest expense3,265
 2,982
 2,949
 2,880
Net interest income201,603
 194,507
 190,502
 189,724
Provision for loan losses8,939
 5,045
 9,189
 28,500
Non-interest income(2)
93,434
 82,114
 78,017
 96,143
Non-interest expense193,851
 180,505
 179,445
 179,159
Income before income taxes92,247
 91,071
 79,885
 78,208
Income taxes8,528
 10,852
 8,378
 9,392
Net income83,719
 80,219
 71,507
 68,816
Preferred stock dividends2,016
 2,016
 2,015
 2,016
Net income available to common shareholders$81,703
 $78,203
 $69,492
 $66,800
Net income per common share:       
Basic$1.29
 $1.24
 $1.12
 $1.07
Diluted1.28
 1.24
 1.11
 1.07
(1)Includes net losses on securities transactions of $50 thousand, $4.9 million and $24 thousand during the second, third and fourth quarters of 2017, respectively.
(2)Includes net gains on securities transactions of $14.9 million and $109 thousand during the first and fourth quarters of 2016, respectively, and a net loss on securities transactions of $37 thousand during the third quarter of 2016.


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”), including statements regarding the potential effects of the ongoing COVID-19 pandemic on our business, financial condition, liquidity and results of operations, notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in our future filings with the SEC, in press releases, and in oral and written statements made by us or with our approval 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 of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, 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, services or services;operations; (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 us and our customers and our assessment of that impact.
Volatility and disruption in national and international financial and commodity 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, 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 we and our subsidiaries must comply.
The soundness of other financial institutions.
Political instability.
Impairment of our 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 our borrowers.
Technological changes.
The cost and effects of cyber incidents or other failures, interruptions or security breaches of our systems or those of third-party providers.
Acquisitions and integration of acquired businesses.
Our ability to increase market share and control expenses.
Our ability to attract and retain qualified employees.
Changes in the competitive environment in our 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 our vendors, internal control systems or information systems.
Changes in our liquidity position.
40

Changes in our organization, compensation and benefit plans.
The impact of the ongoing COVID-19 pandemic and any other pandemic, epidemic or health-related crisis.
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.
Our success at managing the risks involved in the foregoing items.
Further, statements about the potential effects of the ongoing COVID-19 pandemic on our business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, clients, third parties and us.
Forward-looking statements speak only as of the date on which such statements are made. We do not undertake any 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.
Recent Developments Related to COVID-19
Overview. Our business has been, and continues to be, impacted by the recent and ongoing outbreak of COVID-19. In March 2020, COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the President of the United States. Efforts to limit the spread of COVID-19 have included shelter-in-place orders, the closure of non-essential businesses, travel restrictions, supply chain disruptions and prohibitions on public gatherings, among other things, throughout many parts of the United States and, in particular, the markets in which we operate. As the current pandemic is ongoing and dynamic in nature, there are many uncertainties related to COVID-19 including, among other things, its severity; the duration of the outbreak; the impact to our customers, employees and vendors; the impact to the financial services and banking industry; and the impact to the economy as a whole as well as the effect of actions taken, or that may yet be taken, or inaction by governmental authorities to contain the outbreak or to mitigate its impact (both economic and health-related). COVID-19 has negatively affected, and is expected to continue to negatively affect, our business, financial position and operating results. In light of the uncertainties and continuing developments discussed herein, the ultimate adverse impact of COVID-19 cannot be reliably estimated at this time, but it has been and is expected to continue to be material.
Impact on our Operations. In the State of Texas, many jurisdictions declared health emergencies. The resulting closures and/or limited operations of non-essential businesses and related economic disruption have impacted our operations as well as the operations of our customers. Financial services have been identified as a Critical Infrastructure Sector by the Department of Homeland Security. Accordingly, our business remains open. To address the issues arising as a result of COVID-19, and in order to facilitate the continued delivery of essential services while maintaining a high level of safety for our customers as well as our employees, we have implemented our Business Continuity and Health Emergency Response plans. Among other things, significant actions taken under these plans include:
Implemented our communications plans to ensure our employees, customers and critical vendors are kept abreast of developments affecting our operations.
Restricted all non-essential travel and large external gatherings and have instituted a mandatory quarantine period for anyone that has traveled to an impacted area.
After temporarily closing all of our financial center lobbies and other corporate facilities to non-employees, except for certain limited cases by appointment only, we have reopened our financial center lobbies.
Expanded remote-access availability so that nearly all of our workforce has the capability to work from home or other remote locations. All activities are performed in accordance with our compliance and information security policies designed to ensure customer data and other information is properly safeguarded.
Instituted mandatory social distancing policies for those employees not working remotely. Members of certain operations teams have been split into separate buildings or locations to create redundancy for key functions across the organization.
41

Notwithstanding the foregoing actions, the COVID-19 outbreak could still, among other things, greatly affect our routine and essential operations due to staff absenteeism, particularly among key personnel; further limit access to or result in further closures of our branch facilities and other physical offices; exacerbate operational, technical or security-related risks arising from a remote workforce; and result in adverse government or regulatory agency orders. The business and operations of our third-party service providers, many of whom perform critical services for our business, could also be significantly impacted, which in turn could impact us. As a result, we are currently unable to fully assess or predict the extent of the effects of COVID-19 on our operations as the ultimate impact will depend on factors that are currently unknown and/or beyond our control.
Impact on our Financial Position and Results of Operations. Our financial position and results of operations are particularly susceptible to the ability of our loan customers to meet loan obligations, the availability of our workforce, the availability of our vendors and the decline in the value of assets held by us. While its effects continue to materialize, the COVID-19 pandemic has resulted in a significant decrease in commercial activity throughout the State of Texas as well as nationally. This decrease in commercial activity has caused and may continue to cause our customers (including affected businesses and individuals), vendors and counterparties to be unable to meet existing payment or other obligations to us. The national public health crisis arising from the COVID-19 pandemic (and public expectations about it), combined with certain pre-existing factors, including, but not limited to, international trade disputes, inflation risks and oil price volatility, could further destabilize the financial markets and geographies in which we operate. The resulting economic pressure on consumers and uncertainty regarding the sustainability of any economic improvements has impacted the creditworthiness of potential and current borrowers. Borrower loan defaults that adversely affect our earnings correlate with deteriorating economic conditions (such as the unemployment rate), which, in turn, are likely to impact our borrowers' creditworthiness and our ability to make loans. See further information related to the risk exposure of our loan portfolio under the sections captioned “Loans” and “Allowance for Credit Losses” elsewhere in this discussion.
In addition, the economic pressures and uncertainties arising from the COVID-19 pandemic have resulted in and may continue to result in specific changes in consumer and business spending and borrowing and saving habits, affecting the demand for loans and other products and services we offer. Consumers affected by COVID-19 may continue to demonstrate changed behavior even after the crisis is over. For example, consumers may decrease discretionary spending on a permanent or long-term basis and certain industries may take longer to recover (particularly those that rely on travel or large gatherings) as consumers may be hesitant to return to full social interaction. We lend to customers operating in such industries including energy, retail/strip centers, hotels/lodging, restaurants, entertainment and commercial real estate, among others, that have been significantly impacted by COVID-19 and we are continuing to monitor these customers closely. To help mitigate the adverse effects of COVID-19, loan customers may apply for a deferral of payments, or portions thereof, for up to 90 days. After 90 days, customers may apply for an additional deferral. Additionally, the temporary closures of bank branches and the safety precautions implemented at re-opened branches could result in consumers becoming more comfortable with technology and devaluing face-to-face interaction. Our business is relationship driven and such changes could necessitate changes to our business practices to accommodate changing consumer behaviors. The potential changes in behaviors driven by COVID-19 also present heightened liquidity risks, for example, arising from increased demand for our products and services (such as unusually high draws on credit facilities) or decreased demand for our products and services (such as idiosyncratic, or broad-based, market or other developments that lead to deposit outflows).
Legislative and Regulatory Developments. Recent actions taken by the federal government and the Federal Reserve and other bank regulatory agencies to mitigate the economic effects of COVID-19 will also have an impact on our financial position and results of operations. These actions are further discussed below.
In an emergency measure aimed at blunting the economic impact of COVID-19, the Federal Reserve lowered the target for the federal funds rate to a range of between zero to 0.25% effective on March 16, 2020. This action by the Federal Reserve followed a prior reduction of the targeted federal funds rates to a range of 1.0% to 1.25% effective on March 4, 2020. Our earnings and cash flows are largely dependent upon our 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. As our balance sheet is more asset sensitive, our earnings are more adversely affected by decreases in market interest rates as the interest rates received on loans and other investments fall more quickly and to a larger degree than the interest rates paid on deposits and other borrowings. The decline in interest rates has already led to new all-time low yields across the US Treasury maturity curve. In September 2020, the Federal Reserve indicated that it expects to maintain the targeted
42

federal funds rate at current levels until such time that labor market conditions have reached levels consistent with the Federal Open Market Committee's assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time. This timeframe is currently expected to last through 2023. Nonetheless, if the Federal Reserve decreases the targeted federal funds rates even further in response to the economic effects of COVID-19, overall interest rates will decline further, which will negatively impact our net interest income and further compress our net interest margin.
Other actions taken by the Federal Reserve in an effort to provide monetary stimulus to counteract the economic disruption caused by COVID-19 include:
Expanded reverse repo operations, adding liquidity to the banking system.
Restarted quantitative easing.
Lowered the interest rate on the discount window by 1.5% to 0.25%.
Reduced reserve requirement ratios to zero percent.
Encouraged banks to use their capital and liquidity buffers to lend.
Introduced and expanded several new programs that will operate on a temporary basis to help preserve market liquidity.
The U.S. government has also enacted certain fiscal stimulus measures in several phases to counteract the economic disruption caused by the COVID-19. The Phase 1 legislation, the Coronavirus Preparedness and Response Supplemental Appropriations Act, was enacted on March 6, 2020 and, among other things, authorized funding for research and development of vaccines and allocated money to state and local governments to aid containment and response measures. The Phase 2 legislation, the Families First Coronavirus Response Act, was enacted on March 18, 2020 and provides for paid sick/medical leave, establishes no-cost coverage for coronavirus testing, expands unemployment benefits, expands food assistance, and provides additional funding to states for the ongoing economic consequences of the pandemic, among other provisions. The Phase 3 legislation, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), was enacted on March 27, 2020. Among other provisions, the CARES Act (i) authorized the Secretary of the Treasury to make loans, loan guarantees and other investments, up to $500 billion, for assistance to eligible businesses, States and municipalities with limited, targeted relief for passenger air carriers, cargo air carriers, and businesses critical to maintaining national security, (ii) created a $349 billion loan program called the Paycheck Protection Program (the “PPP”) for loans to small businesses for, among other things, payroll, group health care benefit costs and qualifying mortgage, rent and utility payments, (iii) provided certain credits against the 2020 personal income tax for eligible individuals and their dependents, (iv) expanded eligibility for unemployment insurance and provides eligible recipients with an additional $600 per week on top of the unemployment amount determined by each State and (v) expanded tele-health services in Medicare. The Phase 3.5 legislation, the Paycheck Protection Program and Healthcare Enhancement Act of 2020 (the “PPPHE Act”), was enacted on April 24, 2020. Among other things, the PPPHE Act provided an additional $310 billion of funding for the PPP of which, $30 billion is specifically allocated for use by banks and other insured depository institutions that have assets between $10 billion and $50 billion.
The Paycheck Protection Program Flexibility Act of 2020” (the “PPPF Act”) was enacted in June 2020 and modified the PPP as follows: (i) established a minimum maturity of five years for all loans made after the enactment of the PPPF Act and permits an extension of the maturity of existing loans to five years if the borrower and lender agree; (ii) extended the “covered period” of the CARES Act from June 30, 2020, to December 31, 2020; (iii) extended the eight-week “covered period” for expenditures that qualify for forgiveness to the earlier of 24 weeks following loan origination or December 31, 2020; (iv) extended the deferral period for payment of principal, interest and fees to the date on which the forgiveness amount is remitted to the lender by the SBA; (v) changed requirements such that the borrower must use at least 60% (down from 75%) of the proceeds of the loan for payroll costs, and up to 40% (up from 25%), for other permitted purposes, as a condition to obtaining forgiveness of the loan; (vi) delayed from June 30, 2020 to December 31, 2020 the date by which employees must be rehired to avoid a reduction in the amount of forgiveness of a loan, and creates a “rehiring safe harbor” that allows businesses to remain eligible for loan forgiveness if they make a good-faith attempt to rehire employees or hire similarly qualified employees, but are unable to do so, or are able to document an inability to return to pre-COVID-19 levels of business activity due to compliance with social distancing measures; and (vii) allows borrowers to receive both loan forgiveness under the PPP and the payroll tax deferral permitted under the CARES Act, rather than having to choose which of the two would be more advantageous.
43

In July 2020, the CARES Act was amended to extend, through August 8, 2020, the SBA’s authority to make commitments under the PPP. The SBA’s existing authority had previously expired on June 30, 2020. In August 2020, President Trump signed four executive actions to provide additional COVID-19 relief. The first action authorized the Lost Wages Assistance Program (“LWAP”), which provides for a $400-per-week payment to those currently receiving more than $100 a week in unemployment benefits due to disruptions caused by COVID-19. The LWAP per-week payment is retroactive to the week ending August 1, 2020. The second executive action extended the moratorium on payments and interest accrual on student loans held by the government until the end of 2020. The moratorium was previously set to expire September 30, 2020. The third action instructed the Department of the Treasury and the Department of Housing and Urban Development to help provide temporary assistance to renters and homeowners and promote their ability to avoid eviction or foreclosure. The fourth executive action allows employers to defer, for the period from September 1, 2020 through December 31, 2020, the employee portion of Social Security payroll taxes for certain individuals earning less than approximately $104 thousand per year.
In December 2020, the Bipartisan-Bicameral Omnibus COVID Relief Deal, included as a component of appropriations legislation, was enacted to provide economic stimulus to individuals and businesses in further response to the economic distress caused by the COVID-19 pandemic. Among other things, the legislation includes (i) payments of $600 for individuals making up to $75,000 per year, (ii) extension of the Federal Pandemic Unemployment Compensation program to include a $300 weekly enhancement in unemployment benefits beginning after December 26, 2020 up to March 14, 2021, (iii) a temporary and targeted rental assistance program, and extends the eviction moratorium through January 31, 2021, (iv) targeted funding related to transportation, education, agriculture, nutrition and other public health measures and (v) approximately $325 billion for small business relief, including approximately $284 billion for a second round of PPP loans and a new simplified forgiveness procedure for PPP loans of $150,000 or less. We are continuing to monitor the potential development of additional legislation and further actions taken by the U.S. government.
The Federal Reserve created various additional lending facilities and expanded existing facilities to help provide financing in response to the financial disruptions caused by COVID-19. The programs include, among others, the Paycheck Protection Program Liquidity Facility (the “PPP Facility”), which is intended to extend loans to banks making PPP loans. The Federal Reserve announced extensions through March 31, 2021 for several of its lending facilities, including the PPP Facility, that were generally scheduled to expire on or around December 31, 2020. As more fully discussed in the section captioned “Loans” elsewhere in this discussion, we are currently participating in the PPP as a lender. We have not participated in the PPP Facility.
Banks and bank holding companies have been particularly impacted by the COVID-19 pandemic as a result of disruption and volatility in the global capital markets. This disruption has impacted our cost of capital and may adversely affect our ability to access the capital markets if we need or desire to do so and, although the ultimate impact cannot be reliably estimated at this time in light of the uncertainties and ongoing developments noted herein, such impacts could be material. Furthermore, bank regulatory agencies have been (and are expected to continue to be) very proactive in responding to both market and supervisory concerns arising from the COVID-19 pandemic as well as the potential impact on customers, especially borrowers. As shown during and following the financial crisis of 2007-2008, periods of economic and financial disruption and stress have, in the past, resulted in increased scrutiny of banking organizations. We are closely monitoring the potential for new laws and regulations impacting lending and funding practices as well as capital and liquidity standards. Such changes could require us to maintain significantly more capital, with common equity as a more predominant component, or manage the composition of our assets and liabilities to comply with formulaic liquidity requirements.
Application of Critical Accounting Policies and Accounting Estimates
We follow accounting and reporting policies that 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 we base estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.
We consider 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
44

accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements.
Accounting policies related to the allowance for loancredit losses on financial instruments including loans and off-balance-sheet credit exposures are considered to be critical as these policies involve considerable subjective judgment and estimation by management. TheAs discussed in Note 1 - Summary of Significant Accounting Policies, our policies related to allowances for credit losses changed on January 1, 2020 in connection with the adoption of a new accounting standard update as codified in Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses. In the case of loans, the allowance for loancredit 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. Our allowance for loan loss methodology includes allowance allocations calculated in accordance with Accounting Standards Codification (ASC) Topic 310, “Receivables” and allowance allocationscontra-asset valuation account, calculated in accordance with ASC Topic 450, “Contingencies.”326, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. The levelamount of each allowance account represents management's best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the allowance reflects management’s continuing evaluation of industry concentrations, specificinstrument. Relevant available information includes historical credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentifiedreasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, inherent in the current loan portfolio, as well as trends in the foregoing. Portions of the allowanceadjustments to historical loss information may be allocatedmade for specific credits; however, the entire allowance is available for any credit that,differences in management’s judgment, should be charged off.current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of theour allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio,portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.classification of assets. See the section captioned “Allowance for LoanCredit Losses” elsewhere in this discussion as well as Note 1 - Summary of Significant Accounting Policies and Note 3 - 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 loancredit losses.
Overview
The following discussion and analysis presents the more significant factors that affected our financial condition as of December 31, 20172020 and 20162019 and results of operations for each of the years then ended. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with the three-year period ended December 31, 2017.SEC on February 4, 2020 (the “2019 Form 10-K”) for a discussion and analysis of the more significant factors that affected periods prior to 2019.
Certain reclassifications have been made to make prior periods comparable. This discussion and analysis should be read in conjunction with our consolidated financial statements, notes thereto and other financial information appearing elsewhere in this report. During 2014, we acquired WNB Bancshares, Inc., a privately-held bank holding company headquartered in Odessa, Texas (“WNB”). From time to time, we have also acquired various small businesses through our insurance subsidiary. All of our acquisitions during the reported periods were accounted for using the acquisition method, and as such, their related results of operations are included from the date of acquisition, though noneNone of these acquisitions had a significant impact on our financial statements during their respective reporting periods.statements. We account for acquisitions using the acquisition method, and as such, the results of operations of acquired companies are included from the date of acquisition.
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.The Tax Cuts and Jobs Act was enacted on December 22, 2017. Among other things, the new law establishesTaxable equivalent adjustments were based upon a new, flat corporate federal statutory21% income tax rate of 21% beginning in 2018.rate.
Dollar amounts in tables are stated in thousands, except for per share amounts.


45

Results of Operations
Net income available to common shareholders totaled $356.1$323.6 million, or $5.51$5.10 diluted per common share, in 20172020 compared to $296.2$435.5 million, or $4.70$6.84 diluted per common share, in 20162019 and $271.3$446.9 million, or $4.28$6.90 diluted per common share, in 2015. The operating results of acquired entities are included with our results of operations since their dates of acquisition.2018.
Selected income statement data, returns on average assets and average equity and dividends per share for the comparable periods were as follows:
2017 2016 2015202020192018
Taxable-equivalent net interest income$1,043,431
 $939,958
 $888,035
Taxable-equivalent net interest income$1,070,937 $1,100,586 $1,052,564 
Taxable-equivalent adjustment177,009
 163,622
 151,403
Taxable-equivalent adjustment94,936 96,581 94,672 
Net interest income866,422
 776,336
 736,632
Net interest income976,001 1,004,005 957,892 
Provision for loan losses35,460
 51,673
 51,845
Credit loss expenseCredit loss expense241,230 33,759 21,685 
Non-interest income336,470
 349,708
 328,730
Non-interest income465,454 363,902 351,286 
Non-interest expense759,069
 732,960
 693,718
Non-interest expense848,904 834,679 778,812 
Income before income taxes408,363
 341,411
 319,799
Income before income taxes351,321 499,469 508,681 
Income taxes44,214
 37,150
 40,471
Income tax expenseIncome tax expense20,170 55,870 53,763 
Net income364,149
 304,261
 279,328
Net income331,151 443,599 454,918 
Preferred stock dividends8,063
 8,063
 8,063
Preferred stock dividends2,016 8,063 8,063 
Redemption of preferred stockRedemption of preferred stock5,514 — — 
Net income available to common shareholders$356,086
 $296,198
 $271,265
Net income available to common shareholders$323,621 $435,536 $446,855 
Earnings per common share - basic$5.56
 $4.73
 $4.31
Earnings per common share - basic$5.11 $6.89 $6.97 
Earnings per common share - diluted5.51
 4.70
 4.28
Earnings per common share - diluted5.10 6.84 6.90 
Dividends per common share2.25
 2.15
 2.10
Dividends per common share2.85 2.80 2.58 
Return on average assets1.17% 1.03% 0.97%Return on average assets0.85 %1.36 %1.44 %
Return on average common equity11.76
 10.16
 9.86
Return on average common equity8.11 12.24 14.23 
Average shareholders' equity to average assets10.42
 10.61
 10.32
Average shareholders' equity to average assets10.64 11.54 10.58 
Net income available to common shareholders increased $59.9decreased $111.9 million for 20172020 compared to 2016.2019. The increasedecrease was primarily the result of a $90.1$207.5 million increase in credit loss expense, a $28.0 million decrease in net interest income and a $16.2 million decrease in the provision for loan losses partly offset by a $26.1$14.2 million increase in non-interest expense partly offset by a $13.2 million decrease in non-interest income and a $7.1 million increase in income tax expense. Income tax expense for 2017 was impacted by the enactment of the Tax Cuts and Jobs Act on December 22, 2017, as further discussed below. Net income available to common shareholders increased $24.9 million for 2016 compared to 2015. The increase was primarily the result of a $39.7 million increase in net interest income, a $21.0$101.6 million increase in non-interest income and a $3.3$35.7 million decrease in income tax expense. The increase in credit loss expense partly offset byduring 2020 resulted from both our adoption of a $39.2 millionnew credit loss accounting standard and the adverse events impacting our loan portfolio, including those arising from the COVID-19 pandemic and the significant volatility in oil prices. The increase in non-interest expense.income during 2020 was primarily related to a $109.0 million net gain on securities transactions. Net income available to common shareholders for 2020 was also impacted by the reclassification of $5.5 million of issuance costs associated with our Series A Preferred Stock to retained earnings upon redemption of the Series A Preferred Stock in the first quarter.
Details of the changes in the various components of net income are further discussed below.
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 our largest source of revenue, representing 72.0%67.7% of total revenue during 2017.2020. Excluding the revenue associated with the $109.0 million net gain on securities transactions realized during 2020, net interest income would have represented 73.2% of total revenue during 2020. 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. Our 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, remainedbegan 2018 at 3.25% during most of 2015. In December 2015, the prime rate4.50% and increased 25 basis points to 3.50% and remained at that level through most of 2016. In December 2016, the prime rate increased 25 basis points to end the year at 3.75%. During 2017, the prime rate increased 75100 basis points (25 basis points in each of March, June, September and December) to end the year at 5.50%. During 2019, the prime rate decreased 50 basis points during the third quarter of 2019 (25 basis points in each of August and September) and 25 basis points in October 2019 to 4.50%end the year at 4.75%. During 2020, the prime rate decreased 150 basis points in March to 3.25% where it remained through
46

December 31, 2020. Our loan portfolio is also significantly impacted, by changes in the London Interbank Offered Rate (LIBOR). At December 31, 2017,2020, the one-month and three-month U.S. dollar LIBOR rates were 1.56%0.14% and 1.69%0.24%, respectively, while at December 31, 2016,2019, the one-month and three-month U.S. dollar LIBOR rates were 0.77%1.76% and 1.00%,1.90% respectively, and at December 31, 2018, the one-month and three-month U.S. dollar LIBOR rates were 2.50% and 2.81% respectively.

The effectivetarget range for the federal funds rate, which is the cost of immediately available overnight funds, remainedbegan 2018 at zero1.25% to 0.25% during most of 2015. In December 2015, the effective federal funds rate1.50% and increased 25 basis points to 0.50% and remained at that level through most of 2016. In December 2016, the effective federal funds rate increased 25 basis points to end the year at 0.75%. During 2017, the effective federal funds rate increased 75100 basis points (25 basis points in each of March, June, September and December) to end the year at 2.25% to 2.50%. During 2019, the target range for the federal funds rate decreased 50 basis points during the third quarter of 2019 (25 basis points in each of August and September) and 25 basis points in October 2019 to end the year at 1.50% to 1.75%. During 2020, the target range for the federal funds rate decreased 150 basis points in March to zero to 0.25% where it remained through December 31, 2020. As noted in the section captioned “Recent Developments Related to COVID-19” elsewhere in this discussion, the decrease in the target range for the federal funds rate in March 2020 was largely an emergency measure by the Federal Reserve aimed at blunting the economic impact of COVID-19.
We are 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 our net interest income and net interest margin in a rising interest rate environment. FederalThough federal prohibitions on the payment of interest on demand deposits were repealed in 2011. Nonetheless,2011, we have not experienced any significant additional interest costs as a result. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk elsewhere in this report for information about our sensitivity to interest rates. Further analysis of the components of our net interest margin is presented below.
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 comparison between the periods2020 and 2019 includes an additional change factor that shows the effect of the difference in the number of days (due to leap year) in each period for assets and liabilities that accrue interest based upon the actual number of days in the period, as further discussed below. Our 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.
2020 vs. 20192019 vs. 2018
Increase (Decrease) Due to Change inIncrease (Decrease)
Due to Change in
RateVolumeDaysTotalRateVolumeTotal
Interest-bearing deposits$(51,971)$29,239 $35 $(22,697)$7,118 $(28,496)$(21,378)
Federal funds sold and resell agreements(2,327)(2,304)(4,629)450 (426)24 
Securities:
Taxable(2,951)(20,562)— (23,513)13,909 16,803 30,712 
Tax-exempt1,486 (2,616)— (1,130)(3,920)6,123 2,203 
Loans, net of unearned discounts(189,507)125,210 1,871 (62,426)30,916 42,019 72,935 
Total earning assets(245,270)128,967 1,908 (114,395)48,473 36,023 84,496 
Savings and interest checking(3,911)594 (3,313)(791)72 (719)
Money market deposit accounts(62,052)5,622 42 (56,388)11,723 686 12,409 
Time accounts(4,330)1,949 38 (2,343)8,022 1,835 9,857 
Public funds(6,120)436 (5,680)1,302 1,556 2,858 
Federal funds purchased and repurchase agreements(17,713)2,508 12 (15,193)9,602 2,052 11,654 
Junior subordinated deferrable interest debentures(2,148)— (2,146)413 415 
Subordinated notes— (1)— (1)(8)— 
Federal Home Loan Bank advances— 318 — 318 — — — 
Total interest-bearing liabilities(96,274)11,428 100 (84,746)30,263 6,211 36,474 
Net change$(148,996)$117,539 $1,808 $(29,649)$18,210 $29,812 $48,022 
47

 2017 vs. 2016 2016 vs. 2015
 
Increase (Decrease) Due
to Change in
   
Increase (Decrease) Due
to Change in
  
 Rate Volume Number of Days Total Rate Volume Number of Days Total
Interest-bearing deposits$22,369
 $3,180
 $(44) $25,505
 $7,896
 $40
 $44
 $7,980
Federal funds sold and resell agreements385
 280
 (1) 664
 67
 97
 1
 165
Securities:               
Taxable(4,482) (5,358) (206) (10,046) (5,340) (4,442) 206
 (9,576)
Tax-exempt(8,741) 31,136
 
 22,395
 (1,231) 30,149
 
 28,918
Loans, net of unearned discounts42,509
 38,161
 (1,266) 79,404
 11,753
 10,629
 1,266
 23,648
Total earning assets52,040
 67,399
 (1,517) 117,922
 13,145
 36,473
 1,517
 51,135
Savings and interest checking
 252
 (3) 249
 
 55
 3
 58
Money market deposit accounts8,040
 21
 (13) 8,048
 (1,557) (201) 13
 (1,745)
Time accounts475
 (38) (4) 433
 (65) (81) 4
 (142)
Public funds1,216
 (5) (1) 1,210
 47
 5
 1
 53
Federal funds purchased and repurchase agreements1,241
 78
 (1) 1,318
 
 36
 1
 37
Junior subordinated deferrable interest debentures673
 1
 
 674
 555
 1
 
 556
Subordinated notes payable and other notes2,599
 (82) 
 2,517
 394
 1
 
 395
Total interest-bearing liabilities14,244
 227
 (22) 14,449
 (626) (184) 22
 (788)
Net change$37,796
 $67,172
 $(1,495) $103,473
 $13,771
 $36,657
 $1,495
 $51,923
Taxable-equivalent net interest income for 2017 increased $103.52020 decreased $29.6 million, or 11.0%2.7%, compared to 2016.2019. Taxable-equivalent net interest income for 20172020 included 365366 days compared to 366365 days for the same period in 20162019 as a result of the leap year. The additional day added approximately $1.5$1.8 million to taxable-equivalent net interest income during 2016.2020. Excluding the impact of the additional day results in an effective increasedecrease in taxable-equivalent net interest income of approximately $105.0$31.5 million during 2017.2020. The increasetaxable-equivalent net interest margin decreased 66 basis points from 3.75% during 2019 to 3.09% during 2020.
The decreases in taxable-equivalent net interest income and taxable-equivalent net interest margin during 2017, excluding the effect of the aforementioned additional day, was2020 were primarily related to the impact of increases in the average volume of loans, tax-exempt securities and interest-bearing deposits as well as increasesdecreases in the average yields on loans and interest-bearing deposits partly offset by(primarily amounts held in an interest-bearing account at the impact ofFederal Reserve) combined with, to a significantly lesser extent, decreases in the average yields on tax-exempt and taxable securities, a decrease in the average volume of taxable securities (based on amortized cost) and the impact of an increaseincreases in the average rate paid onvolume of interest-bearing deposit liabilities. The impact of these items was partly offset by increases in the average volumes of loans and interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) combined with decreases in the average cost of interest-bearing deposit liabilities and other borrowed funds.
The average volume of interest-earning assets for 20172020 increased $1.6$5.6 billion, or 6.1%19.1%,

compared to 2016.2019. The increase in earning assets included a $905.3 million$3.7 billion increase in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve), a $2.7 billion increase in average loans a $548.3 million increase in average federal funds sold, resell agreements and interest-bearing deposits(of which approximately $2.2 billion related to PPP loans, as further discussed below) and a $546.8$198.2 million increase in average tax-exempt securities partly offset by a $358.4an $814.2 million decrease in average taxable securities.
Taxable-equivalent net interest income for 2016 increased $51.9 million, or 5.8%, compared to 2015. Taxable-equivalent net interest income for 2016 included 366 days compared to 365 days for the same period in 2015 as a result of the leap year. The additional day added approximately $1.5 million to taxable-equivalent net interest income during 2016. Excluding the impact of the additional day results in an effective increase in taxable-equivalent net interest income of approximately $50.4 million during 2016. The increase in taxable-equivalent net interest income during 2016, excluding the effect of the aforementioned additional day, was primarily related to the impact of increases in the average volume of tax-exempt securities and loans as well as increases in the average yield on loans and interest-bearing deposits partly offset by the impact of decreases in the average yield and volume of taxable securities. Taxable-equivalent net interest income during 2016 was also positively impacted by a decrease in the average rate paid on money market deposit accounts. The average volume of interest-earning assets for 2016 increased $762.5$145.9 million or 2.9% compared to 2015. The increase in earning assets included a $442.7 million increase in average securities, a $287.4 million increase in average loans and a $32.3 million increasedecrease in average federal funds sold and resell agreements and interest-bearing deposits.agreements.
The net interest margin increased 13 basis points from 3.56% during 2016 to 3.69% during 2017. The increase was primarily due to an increase in the average yield on interest earning assets partly offset by an increase in the average rate paid on interest-bearing liabilities. The average yield on interest-earning assets increased 19decreased 98 basis points from 4.20% during 2019 to 3.79%3.22% during 2017 from 3.60% during 2016 while2020 and the average rate paid on interest-bearing liabilities increased 8decreased 51 basis points from 0.08% during 20160.74% in 2019 to 0.16% during 2017. The increase0.23% in the average yield on interest earning assets during 2017 was mostly due to increases in the average yields on loans and interest-bearing deposits while the increase in the average rate paid on interest-bearing liabilities was primarily due to increases in the rates paid on various deposit products and long-term debt.2020. The average yieldtaxable-equivalent yields on interest-earning assets and the average rate paid on interest-bearing liabilities arewere primarily impacted by the aforementioned changes in market interest rates as well asand changes in the volume and relative mix of the underlyinginterest-earning assets and interest-bearing liabilities. Taxable-equivalent yields and the net interest margin during the comparable periods are presented based upon a tax rate of 35%. Beginning January 1, 2018, taxable-equivalent-yields and the net interest margin will be based upon a tax rate of 21%. See the section captioned “Income Taxes” elsewhere in this discussion for information regarding the Tax Cuts and Jobs Act enacted on December 22, 2017. Assuming a tax rate of 21%, the net interest margin and the
The average taxable-equivalent yield on interest-earning assets on a taxable-equivalent basis for 2017 would have been 3.37% and 3.47%, respectively.
The net interest margin increased 11loans decreased 118 basis points from 3.45%5.17% during 20152019 to 3.56%3.99% during 2016. The increase was primarily due to increases in the average yield on interest earning assets.2020. The average yield on interest-earning assets increased 10 basis points to 3.60% during 2016 from 3.50% during 2015 while the average rate paid on interest-bearing liabilities decreased 1 basis point from 0.09% during 2015to 0.08% during 2016. The increase in the average yield on interest earning assets during 2016 was due to increases in the average yields on interest-bearing deposits, federal funds sold and resell agreements, loans and total securities.
The averagetaxable-equivalent yield on loans was 4.36% during 2017 compared to 4.01% during 2016 and 3.90% during 2015, increasing 35 basis points during 2017 compared to 2016 and 11 basis points during 2016 compared to 2015. These increases were positivelynegatively impacted by increases inlower average market interest rates during the comparable periods, as discussed above.in 2020 compared to 2019. The average volume of loans increased $905.3 million,$2.7 billion, or 7.8%18.9%, in 20172020 compared to 2016 and increased $287.4 million, or 2.6%, in 2016 compared to 2015.2019. Loans made up approximately 43.9%48.7% of average interest-earning assets during 20172020 compared to 43.2%48.8% during 20162019. As discussed in the section captioned “Loans” elsewhere in this discussion, in April 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act. Through December 31, 2020, we have funded approximately $3.3 billion of SBA-approved PPP loans. During 2020, we recognized $59.5 million in PPP loan related deferred processing fees (net of amortization of related deferred origination costs) as a yield adjustment and 43.4%this amount is included in 2015.interest income on loans. As a result of the inclusion of these net fees in interest income, the average yield on PPP loans was approximately 3.78% during 2020 compared to the stated interest rate of 1.0% on these loans. As of December 31, 2020, we expect to recognize additional PPP loan related deferred processing fees (net of deferred origination costs) totaling approximately $39.5 million as a yield adjustment over the remaining terms of these loans, most of which is expected to be recognized in 2021.
The average taxable-equivalent yield on securities was 3.99% in 20173.46% during 2020, increasing 6 basis points compared to 4.02%3.40% during 2019. The average taxable-equivalent yield on securities during 2020 was positively impacted by an increase in 2016 and 3.97% in 2015.the relative proportion of higher-yielding tax-exempt securities to total securities. The average yield on taxable securities was 1.92% in 20172.27% during 2020 compared to 2.01% in 2016 and 2.11% in 20152.33% during 2019, decreasing 6 basis points, while the average yield on tax exempt securities was 5.37% in 20174.08% during 2020 compared to 5.57% in 2016 and 5.59% in 2015. Despite the fact that the average yield on taxable and tax-exempt securities decreased 9 and 20 basis points, respectively,4.06% during 2017 compared to 2016, the overall average yield on securities in 2017 only decreased 3 basis points compared to 2016 because a larger proportion of average securities was invested in higher yielding tax-exempt securities during 2017 compared to 2016. Similarly, the overall average yield on securities during 2016 increased 5 basis points compared to 2015 despite 10 and2019, increasing 2 basis point decreases in the average yield on taxable and tax-exempt securities, respectively, as a result of a higher average proportion of tax-exempt securities.points. Tax exempt securities made up approximately 60.0%66.6% of total average securities during 2017,2020, compared to 56.4%62.0% during 2016 and 53.2% during 2015.2019. The average volume of total securities

increased $188.5 decreased $616.0 million, or 1.6%4.6%, during 20172020 compared to 2016 and increased $442.7 million, or 3.8%, during 2016 compared to 2015. These increases were primarily related to the investment of excess liquidity from deposit growth.2019. Securities made up approximately 43.2%36.0% of average interest-earning assets in 20172020 compared to 45.1%44.9% in 20162019. The decrease was partly related to the impact of PPP loans and 44.8%increased interest-bearing deposits on total average interest-earning assets.

48

Average interest-bearing deposits (primarily amounts held in 2015.an interest-bearing account at the Federal Reserve), during 2020 increased $3.7 billion, or 228.0%, compared to 2019. Interest-bearing deposits made up approximately 15.0% of average interest-earning assets during 2020 compared to approximately 5.5% in 2019. The increase in the average volume of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) was primarily due to increases in the average volume of deposits. The average yield on interest-bearing deposits was 0.24% during 2020 and 2.20% during 2019. The average yield on interest-bearing deposits was negatively impacted by lower interest rates paid on excess reserves held at the Federal Reserve during 2020 compared to 2019.
Average federal funds sold and resell agreements and interest-bearing deposits during 2017 increased $548.32020 decreased $145.9 million, or 17.7%59.4%,compared to 2016 and increased $32.3 million, or 1.1%, in 2016 compared to 2015. The increases in average federal2019. Federal funds sold and resell agreements and interest-bearing depositswere not a significant component of interest-earning assets during the comparable periods were primarily related to growth in average deposits. Federal funds sold, resell agreements and interest-bearing deposits made up approximately 12.9% of average interest-earning assets during 2017 compared to approximately 11.6% in 2016 and 11.8% in 2015.periods. The combined average yield on federal funds sold and resell agreements and interest-bearing deposits was 1.16%0.90% during 2017, 0.53%2020 compared to 2.25% during 2016, and 0.27% during 2015. As discussed above, since December 2015, there have been five separate 25 basis point increases in the expected2019. The average yields on federal funds rate.sold and resell agreements were negatively impacted by lower average market interest rates during 2020 compared to 2019.
The average rate paid on interest-bearing liabilities was 0.23% during 2020, decreasing 51 basis points from 0.74% during 2019. Average deposits increased $1.4$5.0 billion, or 5.7%19.0%, in 20172020 compared to 2016 and $471.1 million, or 2.0%, in 2016 compared to 2015.2019. Average interest-bearing deposits increased $608.0 million$1.8 billion in 20172020 compared to 2016 and increased $616.6 million in 2016 compared to 2015,2019, while average non-interest-bearing deposits increased $785.1 million$3.2 billion in 20172020 compared to 2016 and decreased $145.5 million in 2016 compared to 2015.2019. The ratio of average interest-bearing deposits to total average deposits was 58.2%56.9% in 20172020 compared to 59.1%60.8% in 2016 and 57.7% in 2015.2019. The average cost of deposits is primarily impacted by changes in market interest rates as well as changes in the volume and relative mix of interest-bearing deposits. The average rate paid on interest-bearing deposits and total deposits was 0.11%0.18% and 0.07%0.10% in 20172020 compared to 0.05%0.62% and 0.03%0.38% in 2016 and 0.07% and 0.04% in 2015.2019. The increase in the average cost of deposits during 20172020 was related toimpacted by decreases in the aforementioned increases in interest rates paidwe pay on most of our interest-bearing deposit products during the third quarter. The decrease in the average raid paid on interest-bearing deposits during 2016 compared to 2015 was primarily theas a result of the aforementioned decreases in interest rates offered on certain deposit products due to decreases in average market interest ratesrates.
In April 2020, we borrowed an aggregate $1.3 billion from the Federal Home Loan Bank (“FHLB”) to provide additional liquidity in light of economic uncertainty and decreasesour significant PPP lending volume. These advances were subsequently paid-off in renewal interest rates on maturing certificates of deposit given the prevailing low interest rate environment. The relative proportion of higher-cost certificates of deposit to total average interest-bearing deposits decreased to 5.1% in 2017 from 5.6% in 2016 and 6.3% in 2015.May 2020 as we determined additional liquidity resources were not necessary.
Our taxable-equivalent 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 3.63%2.99% in 20172020 compared to 3.52%3.46% in 2016 and 3.41% in 2015.2019. 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.
Our 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 our derivatives and hedging activities are set forth in Note 15 - 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 our derivative financial instruments is set forth in Item 7A. Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.
Our net interest income and net interest margin have been, and we currently expect them to continue to be, impacted by the aforementioned decreases in market interest rates and the expectation that interest rates will remain at these low levels for some period of time in light of the on-going economic disruption arising from the COVID-19 pandemic. Notwithstanding the foregoing, our participation in the PPP, as discussed above, is expected to continue to positively impact net interest income and net interest margin in the near term.
Provision for Loan Losses
The provision for loan lossesCredit Loss Expense
Credit loss expense is determined by management as the amount to be added to the allowance for loan lossescredit loss accounts for various types of financial instruments including loans, securities and off-balance-sheet credit exposure after net charge-offs have been deducted to bring the allowance to a level which, in management’s best estimate, is necessary to absorb inherentexpected credit losses withinover the existing loan portfolio. lives of the respective financial instruments.
49

The provision for loan losses totaled $35.5 millioncomponents of credit loss expense were as follows.
202020192018
Credit loss expense related to:
Loans$237,010 $33,759 $21,613 
Off-balance-sheet credit exposures4,275 — 72 
Securities held to maturity(55)— — 
Total$241,230 $33,759 $21,685 
Credit loss expense in 2017 compared2019 and 2018 was calculated under the prior incurred loss accounting methodology. Furthermore, credit loss expense related to $51.7 million in 2016 and $51.8 million in 2015.off-balance-sheet credit exposures was previously reported as a component of other non-interest expense. Such amounts have been reclassified to credit loss expense to make prior periods comparable to the current presentation. See the section captioned “Allowance for LoanCredit Losses” elsewhere in this discussion for further analysis of the provision for loan losses.credit loss expense related to loans and off-balance-sheet credit exposures.

Non-Interest Income
The components of non-interest income were as follows:
2017 2016 2015202020192018
Trust and investment management fees$110,675
 $104,240
 $105,512
Trust and investment management fees$129,272 $126,722 $119,391 
Service charges on deposit accounts84,182
 81,203
 81,350
Service charges on deposit accounts80,873 88,983 85,186 
Insurance commissions and fees46,169
 47,154
 48,926
Insurance commissions and fees50,313 52,345 48,967 
Interchange and debit card transaction fees23,232
 21,369
 19,666
Interchange and debit card transaction fees13,470 14,873 13,877 
Other charges, commissions and fees39,931
 39,623
 37,551
Other charges, commissions and fees34,825 37,123 37,231 
Net gain (loss) on securities transactions(4,941) 14,975
 69
Net gain (loss) on securities transactions108,989 293 (156)
Other37,222
 41,144
 35,656
Other47,712 43,563 46,790 
Total$336,470
 $349,708
 $328,730
Total$465,454 $363,902 $351,286 
Total non-interest income for 2017 decreased $13.22020 increased $101.6 million, or 3.8%27.9%, compared to 2016 while2019. Excluding $109.0 million and $293 thousand in net gains on securities transactions during 2020 and 2019, respectively, total non-interest income for 2016 increased $21.0decreased $7.1 million, or 6.4%2.0%, compared to 2015.during 2020. 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 20172020 increased $6.4$2.6 million, or 6.2%2.0%, compared to 2016 while trust and investment2019. Investment management fee income for 2016 decreased $1.3 million, or 1.2%, compared to 2015. Investment fees are the most significant component of trust and investment management fees, making up approximately 84%, and 82% and 79% of total trust and investment management fees in 2017, 20162020 and 2015,2019, respectively. The increase in trust and investment management fees during 2020 was primarily due to increases in investment management fees (up $3.8 million), custody fees (up $770 thousand) and real estate fees (up $478 thousand) partly offset by a decrease in oil and gas fees (down $2.4 million). Investment management fees and other custodial account fees are generally based on the market value of assets within a trustan account. The increase in investment management fees was related to an increase in the number of accounts as well as higher average equity valuations. The fluctuations in real estate fees and custody fees were primarily related to variation in transaction volume. Oil and gas fees during 2020 were impacted by the sharp decline in oil prices in March 2020. Though the $48 price per barrel of oil as of December 31, 2020 has rebounded from recent lows, it still remains significantly lower than the $61 price per barrel as of December 31, 2019. 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 fees during 2017 comparedand other custodial account fees. Investor concerns related to the same perioduncertain economic outlook arising from the COVID-19 pandemic caused significant market volatility resulting in 2016 was primarilysignificant declines in market valuations, particularly among equity securities, during the resultlatter part of an increase in trust investment fees (up $6.8 million). The increase in trust investment fees during 2017 was due to higher average equity valuations on managed accounts. Trust and investment management fees during 2017 also included an increase in real estate fees (up $225 thousand) and a decrease in estate fees (down $618 thousand) compared to 2016. The decrease in estate fees during 2017 was related to a decrease in the aggregate value of estates settled compared to 2016.
The decrease in trust and investment management fees during 2016 compared to 2015 was primarily the result of decreases in oil and gas fees (down $1.2 million), estate fees (down $970 thousand), securities lending income (down $741 thousand) and custody fees (down $168 thousand). These decreases were partly offset by an increase in trust investment fees (up $1.8 million). The decrease in oil and gas fees during 2016 was partly due to lower energy prices and decreased production. The decrease in estate fees during 2016 was related to a decrease in the aggregate value of estates settled compared to 2015. The decrease in securities lending income during 2016 was due to the termination of our securities lending operations during the first quarter of 2015 in2020 and the early part dueof the second quarter of 2020. Market valuations as of December 31, 2020 have rebounded significantly from the recent declines. Increased market valuations are expected to the negativehave a positive impact securities lending transactions would have had on our regulatory capital ratios under Basel III capital rules. See Note 9 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report. The increase in trust investment management fees during 2016 was due to higher average equity valuations on managed accounts and an increase in the number of accounts.other custodial account fees.
At December 31, 2017,2020, trust assets, including both managed assets and custody assets, were primarily composed of equity securities (50.3%(52.1% of trust assets), fixed income securities (37.3%(32.7% of trust assets) and cash equivalents (7.9%(9.9% of trust assets). The estimated fair value of trust assets was $32.8$38.6 billion (including managed assets of $14.1 $16.9
50

billion and custody assets of $18.7$21.7 billion) at December 31, 20172020 compared to $29.3$37.8 billion (including managed assets of $13.4$16.4 billion and custody assets of $15.9$21.4 billion) at December 31, 2016.2019.
Service Charges on Deposit Accounts. Service charges on deposit accounts for 2017 increased $3.02020 decreased $8.1 million, or 3.7%9.1%, compared to 2016.2019. The increasedecrease was primarily duerelated to an increasea decrease in overdraft/insufficient funds charges on consumer and commercial accounts (up $1.9(down $7.4 million and $511 thousand,$2.7 million, respectively) and, to a lesser extent, consumer service charges (up $1.0 million) partly offset by a decrease in commercial service charges (down $428$967 thousand). Service charges on deposit accounts for 2016 decreased $147 thousand, or 0.2%, compared to 2015 The decrease was primarily due to a decrease in service charges on consumer accounts (down $945 thousand) partly offset by increases in service charges on commercial accounts (up $384 thousand), overdraft/insufficient funds charges on consumer accounts (up

$260 thousand) and overdraft/insufficient funds charges on commercial accounts (up $192 thousand). Overdraft/insufficient funds charges totaled $34.9 million during 2017 compared to $32.5 million during 2016 and $32.0 million in 2015. Overdraft/insufficient funds charges included $27.0 million, $25.0 million and $24.8 million related to consumer accounts during 2017, 2016 and 2015, respectively, and $8.0 million, $7.5 million and $7.3 million related to commercial accounts during 2017, 2016 and 2015, respectively.
Insurance Commissions and Fees. Insurance commissions and fees for 2017 decreased $985 thousand, or 2.1%, compared to 2016. The decrease was related to a decrease in contingent income (down $2.9 million) partly offset by an increase in commission incomecommercial service charges (up $1.9$2.9 million), which was. Overdraft/insufficient funds charges totaled $32.3 million ($25.8 million consumer and $6.5 million commercial) during 2020 compared to $42.3 million ($33.1 million consumer and $9.2 million commercial) during 2019. The decreases in both consumer and commercial overdraft/insufficient funds charges during 2020 were primarily related to an increasea decrease in benefit plan commissions duethe volume of overdrafts relative to increased business volumesthe same periods in 2019. Commercial service charges were impacted by a lower earnings credit rate partly offset by decreases in the volume of billable services. The earnings credit rate is the value given to deposits maintained by treasury management customers. Earnings credits applied to customer deposit balances offset service fees that would otherwise be charged. Because average market interest rates in 2020 have been lower compared to 2019, deposit balances have become less valuable and are yielding a decrease in commissions on propertylower earnings credit.
Insurance Commissions and casualty policies.Fees. Insurance commissions and fees for 20162020 decreased $1.8$2.0 million, or 3.6%3.9%, compared to 2015.2019. The decrease was related to a decreasedecreases in commission income (down $2.8$1.6 million) partly offset by an increase inand contingent commissions (up $1.1 million)income (down $440 thousand). The decrease in commission income during 2016 was primarily related to declinesa decrease in employee benefit plan commissions and consulting fees duerelated to lowerdecreased business volumes and decreases in commercial lines property and casualty commissions.premium reductions due to flat to lower market rates.
Insurance commissions and fees include contingent commissions whichContingent income totaled $3.6$3.7 million in 2017, $6.52020 and $4.1 million in 2016 and $5.5 million 2015.2019. Contingent commissionsincome primarily consistconsists of amounts received from various property and casualty insurance carriers related to the loss performance of insurance policies previously placed. Such commissionsThese performance related contingent payments are seasonal in nature and are mostly received during the first quarter of each year. These commissionsThis performance related contingent income totaled $2.1$2.5 million in 2017, $4.92020 and $3.0 million in 2016 and $3.8 million in 2015.2019. The decrease in performance related contingent income during 20172020 was related to a lack oflower growth within the portfolio andcombined with a deterioration in the loss performance of insurance policies during 2016.previously placed. Contingent commissionsincome also includeincludes amounts received from various benefit plan insurance companies related to the volume of business generated and/or the subsequent retention of such business. These commissionsThis benefit plan related contingent income totaled $1.5$1.2 million in 2017, $1.7 millionboth 2020 and 2019.
Notwithstanding normal seasonal variations, commission income during 2020 was partly impacted by reduced business volumes resulting from the COVID-19 pandemic. Commission income in 2016future periods may be similarly impacted. Benefit plan commissions may be particularly impacted by the effects of temporary furloughs and $1.7 millionpermanent layoffs. The COVID-19 pandemic has also given rise to a hard insurance market characterized by decreased capacity for most types of insurance coupled with higher premiums and more stringent underwriting standards among insurers. This may cause clients to drop or adjust coverage choices as part of expense control measures. Reduced business volumes may also adversely impact the level of contingent commissions we receive in 2015.2021.
Interchange and Debit Card Transaction Fees. Interchange fees, or “swipe” fees, are charges that merchants pay to us 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 2017 increased $1.9 million, or 8.7% compared to 2016are reported net of related network costs.
A comparison of gross and increased $1.7 million, or 8.7%, in 2016 compared to 2015. Income fromnet interchange and debit card transactions totaled approximately $19.4 milliontransaction fees for the reported periods is presented in 2017 compared to $17.9 million in 2016the table below. Net revenues from interchange and $17.0 million in 2015. ATM service fees totaled approximately $3.8 million in 2017 compared to $3.5 million in 2016 and $2.7 million in 2015. The increases in income from debit card transactions during the comparablereported periods were primarilyimpacted by reduced transaction volumes, in part related to the COVID-19 pandemic, and increased transaction volume. The increases in ATM service fees during the comparable period were related to increased transaction volume and a change in the fee schedule during the first quarternetwork costs.
202020192018
Income from debit card transactions$23,763 $23,665 $21,844 
ATM service fees3,342 4,131 3,925 
Gross interchange and debit card transaction fees27,105 27,796 25,769 
Network costs13,635 12,923 11,892 
Net interchange and debit card transaction fees$13,470 $14,873 $13,877 

51

Federal Reserve Board 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 Board 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 2017 increased $308 thousand,2020 decreased $2.3 million, or 0.8%6.2%, compared to 2016.2019. The increasedecrease included decreases in income from the placement of money market accounts (down $3.0 million); letter of credit fees (down $568 thousand); income from the sale of life insurance (down $401 thousand); and funds transfer service charges (down $276 thousand); among other things. The decreases in these items were partly offset by increases in fees on unused loan commitments (up $1.5 million), income related tofrom the sale of mutual funds (up $1.2 million)$442 thousand) and wire transfer feesannuities (up $317$195 thousand) as well as increases in income from capital markets advisory services (up $153 thousand) and brokerage commissions (up $134 thousand), among other things. These items were partly offset by decreases in human resources consulting fee income (down $650 thousand) and incomeIncome from corporate finance and capital market advisory services (down $605 thousand), among other things. Human resources consulting fee income decreased as we no longer provide these services. Changes in the other aforementioned categories of other charges, commissions and fees were due to fluctuations in business volumes.
Other charges, commissions and fees for 2016 increased $2.1 million or 5.5%, compared to 2015. The increase included increases in income related to the saleplacement of money market accounts (up $815 thousand), loan processing fees (up $627 thousand), origination fees collected on loans that did not fund (up $464 thousand), agent income from the sale of federal funds (up $397 thousand), wire transfer fees (up $309 thousand), lease processing fees (up $227 thousand) and income from corporate finance and capitalwas impacted by a decrease in market advisory services (up $213 thousand), amongrates. The other things. These

increasesaforementioned revenue streams were partly offsetimpacted by decreases in income related to the sale of annuities (down $802 thousand), unused balance fees on loan commitments (down $405 thousand) and income related to the sale of mutual funds (down $264 thousand). Fluctuations in the aforementioned items were due to fluctuations in businesstransaction volumes.
Net Gain/Loss on Securities Transactions. During 2017,2020 and 2019, we sold certain available-for-sale U.S Treasury securities with an amortized costcosts totaling $11.2$1.0 billion and $18.7 billion, respectively. We realized a net gain of $109.0 million on the 2020 sales and a net gain of $293 thousand on the 2019 sales. During the first quarter of 2020, we sold $483.1 million of residential mortgage-backed securities and realized a net lossgain of $74 thousand$1.9 million on those sales. The proceeds from these sales were primarily related toreinvested into other residential mortgage-backed securities that had lower pre-payment rates. We also sold $519.1 million of 30-year U.S Treasury securities during the first quarter of 2020 and realized a net gain of $107.1 million on those sales. These U.S. Treasury securities were purchased during 2017the fourth quarter of 2019 to hedge, in effect, against falling interest rates. Prior to their sale, these securities had significant unrealized holding gains as a result of decreases in market interest rates during the first quarter of 2020. We elected to sell these securities to provide liquidity and realize the gains.
During 2019, we purchased and subsequently sold $17.8 billion of U.S. Treasury securities in connection with our 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. We realized a net gain of $127 thousand on those sales. We also sold certain other available-for-sale U.S. Treasury securities with an amortized cost totaling $751.4$548.9 million and realized a net loss of $4.9 million on those sales. These securities were sold with the intent to reinvest the sales proceeds in higher yielding debt securities and other investments.
During 2016, we soldcertain available-for-sale municipal securities with an amortized cost totaling $14.8 billion and$310.7 million during 2019. We realized a net gain of $11.2 million on those sales. We also sold held-to-maturity securities with an amortized cost totaling $132.9 million and realized a net gain of $3.7 million on those sales. As more fully discussed in Note 2 - Securities in the accompanying notes to consolidated financial statements included elsewhere in this report, a portion of the available-for-sale securities and all of the held-to maturity securities that were sold during 2016 were sold as a result of a significant deterioration in the creditworthiness of the issuers. In aggregate, the securities sold as a result of credit deterioration had an amortized cost totaling $528.6 million and we realized a net gain of $11.9 million on those sales. We sold U.S Treasury securities with an amortized cost totaling $13.7 billion and realized a net loss of $57$166 thousand on those sales. The proceeds from the sales provided short-term liquidity and were primarilysubsequently reinvested in other higher yielding securities.
Other Non-Interest Income. Other non-interest income for 2020 increased $4.1 million, or 9.5%, compared to 2019. Other non-interest income during 2020 included approximately $6.0 million in gains realized on the sale of certain non-hedge related, to securities purchased during 2016 and subsequently sold in connection with our aforementioned tax planning strategies related to the Texas franchise tax. Other securities sold during 2016 included available-for-saleshort-term put options on U.S. Treasury securities with an amortized cost totaling $764.5 millionaggregate notional amount of $500 million. The put options were not exercised and weexpired in March 2020. Gains realized a net gain of $3.3 million on those sales. Most of these securities were due to maturefrom similar transactions in 2019 totaled $750 thousand. The increase in other non-interest income during 2016 and most of the proceeds from the sale of these securities were reinvested into U.S. Treasury securities having comparable yields, but longer-terms.
During 2015, we sold available-for-sale securities with an amortized cost totaling $12.7 billion and realized a net gain of $69 thousand on those sales. We sold an available-for-sale U.S. Treasury security with an amortized cost totaling $223.8 million and realized a gain of $228 thousand on the sale. The security sold had a short term and low yield. The proceeds from the sale of this security were reinvested into longer-term, higher-yielding securities. The remaining sales were primarily2020 was also partly related to securities purchased during 2015increases in sundry and subsequently sold in connection with ourother miscellaneous income (up $2.4 million), income from customer derivative and trading activities (up $1.8 million) and public finance underwriting fees (up $1.7 million). The aforementioned tax planning strategies related to the Texas franchise tax.
Other Non-Interest Income. Other non-interest income for 2017 decreased $3.9 million, or 9.5%, compared to 2016. The decrease was primarily related toitems were partly offset by decreases in gains on the sale of foreclosed and other assets (down $6.3$6.1 million), lease rental income (down $482 thousand) and earnings on the cash surrender value of life insurance policies (down $409 thousand), among other things, partly offset by increases in sundry and other miscellaneous income (up $1.4 million), income from customer derivative and trading activities (up $815 thousand) and income from customer foreign currencyexchange transactions (up $760(down $645 thousand), among other things. During 2016, gains on the sale of foreclosed and other assets included a $10.3 million net gain on the sale of our headquarters building and other adjacent properties in connection with a comprehensive development agreement with the City of San Antonio and a third party controlled by one of our directors, among other things. See Note 4 -Premises and Equipment in the accompanying notes to consolidated financial statements included elsewhere in this report. During 2017, gains on the sale of foreclosed and other assets included $2.9 million related to amortization of the deferred portion of the gain on our headquarters building sold in 2016 and $2.0 million related to the sale of a motor-bank location. Sundry income during 2017 included $1.9 million in VISA check card incentives related to business volumes, $1.2 million related to the collection of amounts charged-off by Western National Bank prior to our acquisition, $864 thousand related to the settlement of a non-solicitation agreement and $541 thousand related to recoveries of prior write-offs, among other things, while sundry and other miscellaneous income during 20162020 included $1.8a $2.7 million increase in VISA check card incentives related to business volumesincentives/rebates and $1.4a $1.1 million related toincrease in recoveries of prior write-offs, among other things. The fluctuations in income from customer derivative and trading activities, public finance underwriting fees and income from customer foreign currencyexchange transactions were primarily related to changes in business volumes.
Other non-interest income for 2016 increased $5.5 million, or 15.4%, compared to 2015. The increase was primarily related to increases in gains Gains on the sale of foreclosed and other assets (up $7.3 million), income from customer foreign currency transactions (up $592 thousand) and income from customer derivative and trading activities (up $491 thousand)

partly offset by decreases in mineral interest income (down $1.9 million) and sundry and other miscellaneous income (down $1.2 million). The increase inincluded gains on the sale of foreclosedvarious branch and other assets was primarily related to the realizationoperational facilities totaling $758 thousand and $6.7 million, during 2020 and 2019, respectively.
52

Table of a $10.3 million net gain on the sale of our headquarters building and other adjacent properties in connection with a comprehensive development agreement with the City of San Antonio and a third party controlled by one of our directors. During 2016, sundry and other miscellaneous income included, among other things, $1.8 million in VISA check card incentives related to business volumes and $1.4 million related to recoveries of prior write-offs, while sundry and other miscellaneous income during 2015 included, among other things, $1.2 million related to distributions received on a small business investment company ("SBIC") investment, $1.7 million related to recoveries of prior write-offs, $1.7 million in VISA check card incentives related to business volumes and $324 thousand related to an insurance settlement. Mineral interest income is primarily related to oil and gas royalties received from severed mineral interests owned by our wholly-owned non-banking subsidiary Main Plaza Corporation. The decrease in mineral interest income was partly related to lower energy prices and a decrease in production. The fluctuations in public finance underwriting fees, income from customer foreign currency transactions and income from customer derivative and trading activities were primarily related to changes in business volumes.Contents
Non-Interest Expense
The components of non-interest expense were as follows:
2017 2016 2015202020192018
Salaries and wages$337,068
 $318,665
 $310,504
Salaries and wages$387,328 $375,029 $350,312 
Employee benefits74,575
 72,615
 69,746
Employee benefits75,676 86,230 77,323 
Net occupancy75,971
 71,627
 65,690
Net occupancy102,938 89,466 76,788 
Technology, furniture and equipment74,335
 71,208
 64,373
Technology, furniture and equipment105,232 91,995 83,102 
Deposit insurance20,128
 17,428
 14,519
Deposit insurance10,502 10,126 16,397 
Intangible amortization1,703
 2,429
 3,325
Intangible amortization918 1,168 1,424 
Other175,289
 178,988
 165,561
Other166,310 180,665 173,466 
Total$759,069
 $732,960
 $693,718
Total$848,904 $834,679 $778,812 
Total non-interest expense for 20172020 increased $26.1$14.2 million, or 3.6%1.7%, compared to 2016 while total non-interest expense for 2016 increased $39.2 million, or 5.7%, compared to 2015.2019. Changes in the various components of non-interest expense are discussed below.
Salaries and Wages. Salaries and wages increased $18.4$12.3 million, or 5.8%3.3%, in 20172020 compared to 2016 and increased $8.2 million, or 2.6%, in 2016 compared to 2015.2019. The increase during 2017 compared to 2016 was primarily relateddue to an increase in salaries, due to normal annual merit and market increases, an increase in the number of employees, an increase in incentive compensation, due to improved operating performance, and an increase in stock-based compensation. Salaries and wages during 2017 also included approximately $2.5 million in severance expense primarily related to the closure of certain branch locations and the elimination of certain job positions. The increase during 2016 compared to 2015 was primarily related to an increase in salaries due to normal annual merit and market increases, an increase in the number of employees and normal, annual merit and market increases. Salaries and wages for 2020 also included $5.2 million related to severance costs. The increases in the aforementioned items were partly offset by an increase in salary costs deferred as loan origination costs, up $5.9 million primarily in connection with the high volume of PPP loan originations during 2020, and decreases in incentive compensation, partly offset bystock-based compensation and commissions. Salary costs deferred in connection with loan originations will be recognized as a decrease in stock-based compensation.yield adjustment component of interest income over the remaining terms of these loans.
Employee Benefits. Employee benefits expense for 2017 increased $2.02020 decreased $10.6 million, or 2.7%12.2%, compared to 2016.2019. The increasedecrease was primarily due to increases in expenses related to our 401(k)decreases in certain discretionary benefit plan expenses and profit sharing plans (up $1.7 million), payroll taxes (up $1.3 million), other employee benefits (up $826 thousand) and medical insurance expense (up $487 thousand) partly offset by a decrease in expenses related to our defined benefit retirement and restoration plans (down $2.2 million).
Employee benefits expense for 2016 increased $2.9 million, or 4.1%, compared to 2015. The increase was primarily due topartly offset by increases in medical insurancebenefits expense (up $1.8 million),and payroll taxes, (up $898 thousand) and profit sharing plan expense (up $620 thousand), among other things, partly offset by a decrease in expenses related to our defined benefit retirement plans (down $599 thousand).things.
Our defined benefit retirement and restoration plans were frozen ineffective as of December 31, 2001 and were replaced by thea profit sharing plan.plan (which was merged with and into our 401(k) plan during 2019). Management believes these actions help reduce the volatility in retirement plan expense. However, we still have 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. We recognized a combined net periodic pension expensebenefit of $501 thousand$2.0 million related to our defined benefit retirement and restoration plans in 20172020 compared to a combined net periodic pension expense of $2.7$1.3 million in 2016 and $3.3 million in 2015. Net periodic pension expense during 2016 included $1.0 million in supplemental executive retirement plan (“SERP”) settlement costs related to the retirement of a former executive officer. Despite the impact of these settlement costs, net periodic pension expense decreased during the comparable years in part due to a change in the method we use to estimate the interest cost component of net periodic benefit cost for our defined benefit pension and other post-retirement benefit plans.2019. Future expense/benefits related to these plans is dependent upon a variety of factors, including the actual return on plan assets. A prolonged negative impact on the value of stocks and other asset classes due to the COVID-19 pandemic could result in a significant reduction to pension plan asset values and returns, which could impact the level of funding and expense. For additional information related to our employee benefit plans, see Note 11 - Employee Benefit Plans in the accompanying notes to consolidated financial statements included elsewhere in this report.
Net Occupancy. Net occupancy expense for 20172020 increased $4.3$13.5 million, or 6.1%15.1%, compared to 2016.2019. The increase during 2017 was primarily related to increases in lease expense (up $3.2 million), repairs and maintenance/service contracts expense (up $1.3$4.2 million), depreciation on leasehold improvements (up $658 thousand)$4.0 million), property taxes (up $3.2 million) and utilities expensebuilding depreciation (up $375 thousand)$1.4 million), among other things, partly offset by a decrease in building depreciationrepairs and maintenance/service contracts expense (down $1.3 million)$977 thousand). The increases inNet occupancy expense was impacted by the commencement of the lease expense and the decreases in building depreciation during the reported periods were primarily related to the sale and lease back of our new corporate headquarters building in December 2016. See Note 4 - PremisesSan Antonio in June 2019, as well as renewals of other leases related to existing facilities and Equipmentnew locations, in part related to our expansion within the accompanying notes to consolidated financial statements included elsewhere in this report.Houston market area.
Net occupancyTechnology, Furniture and Equipment. Technology, furniture and equipment expense for 20162020 increased $5.9$13.2 million, or 9.0%14.4%, compared to 2015.2019. The increase was primarily related to increases in building depreciation (up $2.7 million), property taxes (up $1.4 million), repairs and maintenance/service contractscloud services expense (up $1.3$7.7 million) and, depreciation on leasehold improvements (up $764 thousand). The net increase in occupancy expense was partly related to a new operations and support center, a portion of which was placed into service during 2015 with the remainder placed into service in 2016, and new financial center locations.
Technology, Furniture and Equipment. Technology, furniture and equipment expense for 2017 increased $3.1 million, or 4.4%, compared to 2016. The increase was primarily related to increases in software maintenance (up $3.9 million) and depreciation on furniture and equipment (up $988 thousand)$3.5 million), software maintenance (up $2.1 million) and software amortization (up $1.6 million). The increase from the aforementioned items was partly offset by a decrease in equipment rentalservice contracts expense (down $1.6$1.1 million), and a decrease in service contracts (down $436 thousand), among other things. The increase in software maintenance was primarily due to new and renewed software applications and an increase in volume-based service payments..
Technology, furniture and equipment expense for 2016 increased $6.8 million, or 10.6%, compared to 2015. The increase was primarily related to increases in depreciation on furniture and equipment (up $4.1 million) and software maintenance (up $3.5 million) partly offset by decreases in software amortization (down $593 thousand) and equipment rental expense (down $306 thousand). The net increase in technology, furniture and equipment expense was partly related to a new operations and support center, a portion
53

Deposit Insurance. Deposit insurance expense totaled $20.1$10.5 million in 20172020 compared to $17.4$10.1 million in 2016 and $14.5 million in 2015.2019. The increase during the comparable periods was primarily related to an increase in the assessment rate and an increase in assets. The increasetotal assets partly offset by a decrease in the assessment rate was partly related to a new surcharge that became applicable during the third quarter of 2016. In August 2016, the Federal Deposit Insurance Corporation (“FDIC”) announced that the Deposit Insurance Fund (“DIF”) reserve ratio had surpassed 1.15% as of June 30, 2016. As a result, beginning in the third quarter of 2016, the range of initial assessment rates for all institutions was adjusted downward and institutions with $10 billion or more in assets were assessed a quarterly surcharge. The quarterly surcharge will continue to be assessed until such time as the reserve ratio reaches the statutory minimum of 1.35% required by the Dodd-Frank Act.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 $1.7 million in 2017 compared to $2.4 million in 2016 and $3.3 million in 2015. The decrease during the comparable periods primarily related to 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 we use an accelerated amortization approach which results in higher amortization rates during the earlier years of the useful lives of intangible assets. See Note 5 - 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 20172020 decreased $3.7$14.4 million, or 2.1%7.9%, compared to 2016.2019. The decrease included decreases in donationstravel, meals and entertainment expense (down $4.5$9.4 million), sundry and other miscellaneous; advertising/promotions expense (down $3.2$3.6 million); professional services expense (down $2.0 million); stationery, printing and supplies expense (down $1.5 million) and check cardbusiness development expense (down $3.1$1.2 million),; among other things. TheseThe decrease in other non-interest expense during 2020 was also partly due to an increase in costs deferred as loan origination costs, up $1.9 million primarily in connection with the high volume of PPP loan originations during 2020. Costs deferred in connection with loan originations will be recognized as a yield adjustment component of interest income over the remaining terms of these loans. The impact of the aforementioned items werewas partly offset by increases in advertising/promotions expense (up $1.7 million), guard services expense (up $1.4 million), professional services expense (up $1.3 million), outside computer services expense (up $1.3 million) and fraud losses (up $1.0 million), among other things. Donations expense in 2016 included a $4.4 million contribution to our charitable foundation. Sundry and other miscellaneous expense during 2016 included $6.7 million related to the write-down of certain assets while sundry and other miscellaneous expense during 2017 included $3.2 million related to the write-down of certain assets and $1.9 million related to settlements. Check card expense was elevated during 2016 due to the issuance of new ATM cards with embedded processing chips. Guard services expense during 2017 was impacted by the effects of hurricane Harvey during the third quarter. The increase in fraud losses was primarily related to check cards, ATMs and checks.
Other non-interest expense for 2016 increased $13.4 million, or 8.1%, compared to 2015. The increase was primarily related to increases in sundry and other miscellaneous expense (up $6.1$2.0 million), donations expense (up $4.4 million), check card expense (up $2.6 million), guard service expense (up $1.4 million), business developmentbank card related expenses (up $1.3 million), telephone/data communications expense (up $842 thousand)$1.0 million), and outside computerplatform fees related to investment services expense (up $520 thousand), among other things, partly offset by decreases in advertising/promotions expense (down $1.2 million) and travel/meals and entertainment expense (down $953 thousand) and refund expenses associated with customer use of non-Frost ATMs (down $456$618 thousand), among other things. Sundry and other miscellaneous expense during 2016in 2020 included $6.7 million$958 thousand related to the write-downannounced closure of certain assets that were disposed ofbranch locations in 2016 or that we intended to dispose of in 2017. The increase in donations expense was primarilyour Houston market area and $454 thousand related to a $4.4 million contribution to our charitable foundation. The increase in check card expense during 2016 was primarily related the issuancewrite-off of new ATM cards with embedded processing chips.certain other assets.
Results of Segment Operations
Our operations are managed along two primary operating segments: Banking and Frost Wealth Advisors. A description of each business and the methodologies used to measure financial performance is described in Note 18 - Operating Segments in the accompanying notes to consolidated financial statements included elsewhere in this report. Net income (loss) by operating segment is presented below:
2017 2016 2015202020192018
Banking$347,034
 $289,665
 $262,038
Banking$322,481 $436,416 $445,531 
Frost Wealth Advisors24,395
 19,093
 19,968
Frost Wealth Advisors19,287 19,975 22,090 
Non-Banks(7,280) (4,497) (2,678)Non-Banks(10,617)(12,792)(12,703)
Consolidated net income$364,149
 $304,261
 $279,328
Consolidated net income$331,151 $443,599 $454,918 
Banking
Net income for 2017 increased $57.42020 decreased $113.9 million, or 19.8%26.1%, compared to 2016.2019. The increasedecrease was primarily the result of an $87.0a $207.5 million increase in credit loss expense, a $28.9 million decrease in net interest income and a $16.2 million decrease in the provision for loan losses partly offset by a $22.0 million decrease in non-interest income, a $19.7$15.4 million increase in non-interest expense andpartly offset by a $4.2 million increase in income tax expense. Net income for 2016 increased $27.6 million, or 10.5%, compared to 2015. The increase was primarily the result of a $37.0 million increase in net interest income, a $24.2$102.7 million increase in non-interest income and a $1.3$35.2 million decrease in income tax expense partly offset by a $35.0 million increase in non-interest expense.
Net interest income for 2017 increased $87.02020 decreased $28.9 million, or 11.3%2.9%, compared to 2016 while net interest income for 2016 increased $37.0 million, or 5.0%, compared2019. The decrease was primarily related to 2015. Taxable-equivalent net interest income for 2017 included 365 days compared to 366 days for the same period in 2016 as a result of the leap year. The additional day added approximately $1.5 million to taxable-equivalent net interest income during 2016. Despite the effect of this additional day during 2016, net interest income increased during 2017 compared to 2016 due to the impact of increases in the average volume of loans, tax-exempt securities and interest-bearing deposits as well as increasesdecreases in the average yields on loans and interest-bearing deposits partly offset by(primarily amounts held in an interest-bearing account at the impact ofFederal Reserve) combined with, to a significantly lesser extent, decreases in the average yields on tax-exempt and taxable securities, a decrease in the average volume of taxable securities and the impact of an increase in the average rate paid(based on interest-bearing liabilities. Notwithstanding the effect of the additional day, taxable-equivalent net interest income increased during 2016 compared to 2015 due to the impact ofamortized cost) and increases in the average volume of tax-exempt securities and loans as well asinterest-bearing deposit liabilities. The impact of these items was partly offset by increases in the average yield onvolumes of loans and interest-bearing deposits partly offset by(primarily amounts held in an interest-bearing account at the

impact of Federal Reserve) combined with decreases in the average yieldcost of interest-bearing deposit liabilities and volume of taxable securities. Taxable-equivalent netother borrowed funds. Net interest income during 20162020 was also positively impacted by the additional day as a decrease inresult of the average rate paid on money market deposit accounts.leap year. See the analysis of net interest income included in the section captioned “Net Interest Income” included elsewhere in this discussion.
The provisionCredit loss expense for loan losses for 20172020 totaled $35.5$241.2 million compared to $51.7$33.8 million in 20162019. Credit loss expense in 2020 was impacted by our adoption of a new credit loss accounting standard and $51.8 millionthe expected credit losses resulting from a deterioration in 2015.forecasted economic conditions and the current and uncertain future impacts associated with the COVID-19 pandemic and recent volatility in oil prices. See the analysis of the provision for loan losses included in the sectionsections captioned “Credit Loss Expense” and “Allowance for LoanCredit Losses” included elsewhere in this discussion.discussion for further analysis of credit loss expense related to loans and off-balance-sheet commitments.
Non-interest income for 2017 decreased $22.02020 increased $102.7 million, or 9.6%47.0%, compared to 2016. Non-interest income during 2017 included2019. The increase was primarily due to a net loss on securities transactions of $4.9$109.0 million while non-interest income during 2016 included a net gain on securities transactions of $14.9 million. See the analysis of these net gains and losses included in the section captioned “Net Gain/Loss on Securities Transactions” included elsewhere in this discussion.transactions. Excluding the impact of the net gains or lossesgain on securities transactions total non-interest income for 2017 effectivelythe Banking segment decreased $2.1$6.0 million, or 1.0%2.8%, compared to 20162019. This decrease was primarily due to decreases in other non-interest income, other charges, commissions and fees and insurance commissions and fees partly offset by increases in service charges on deposit accountsaccounts; insurance commissions and fees; and interchange and debit card transactions fees.transaction fees; partly offset by an increase in other non-interest income. The decrease in other non-interest incomeservice
54

charges on deposit accounts was primarily related to decreases in overdraft/insufficient funds charges on consumer and commercial accounts due to decreases in transaction volumes. The decrease in insurance commissions and fees was the result of decreases in commission income and contingent income, which are further discussed below in relation to Frost Insurance Agency. The decrease in interchange and debit card transaction fees was impacted by reduced transaction volumes, in part related to the COVID-19 pandemic, and increased network costs. The increase in other non-interest income during 2020 included approximately $6.0 million in gains realized on the sale of foreclosedcertain non-hedge related, short-term put options on U.S. Treasury securities with an aggregate notional amount of $500 million. The put options were not exercised and expired in March 2020. The increase in other assets, lease rentalnon-interest income and earnings on the cash surrender value of life insurance policies, among other things,was also partly offset byrelated to increases in sundry and other miscellaneous income, income from customer derivative and trading activities and income from customer foreign currency transactions, among other things. During 2016, gains on the sale of foreclosed and other assets included a $10.3 million net gain on the sale of our headquarters building and other adjacent properties in connection with a comprehensive development agreement, among other things, while during 2017, gains on the sale of foreclosed and other assets included $2.9 million related to amortization of the deferred portion of the gain on the sale of our headquarters building which we sold in 2016 and $2.0 million related to the sale of a motor-bank location. See Note 4 -Premises and Equipment in the accompanying notes to consolidated financial statements included elsewhere in this report.public finance underwriting fees. The decrease in other charges, commissions and fees was primarily due to a decrease in human resources consulting fee income and income from corporate finance and capital market advisory services, among other things,aforementioned items were partly offset by increases in wire transfer fees, among other things. The decrease in insurance commissions and fees was related to a decrease in contingent income partly offset by an increase in commission income. The decrease in contingent income was primarily related to a lack of growth within the portfolio and a deterioration in the loss performance of insurance policies previously placed. The increase in commission income was primarily related to an increase in benefit plan commissions due to increased business volumes partly offset by a decrease in commissions on property and casualty policies. The increase in service charges on deposit accounts was primarily due to an increase in overdraft/insufficient funds charges on consumer and commercial accounts and consumer service charges partly offset by a decrease in commercial service charges. The increase in interchange and debit card transactions fees was primarily due to increases in income from debit card transactions and ATM service fees. 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 2016 increased $24.2 million, or 11.8%, compared to 2015. The increase was primarily related to increases in the net gain on securities transactions; other non-interest income; other charges, commissions and fees and interchange; and debit card transaction fees partly offset by decreases in insurance commissions and fees and service charges on deposit accounts. The increase in the net gain on securities transactions was primarily related to the sale of certain municipal securities as a result of a significant deterioration in the creditworthiness of the issuers. The increase in other non-interest income was primarily related to increases in gains on the sale of foreclosed and other assets and income from customer foreign currencyexchange transactions, andamong other things. The fluctuations in income from customer derivative and trading activities, partly offset by decreases in sundry and other miscellaneous income. The increase in gains on the sale of foreclosed and other assets was primarily related to the aforementioned sale of our headquarters building and various adjacent properties. The increase in other charges, commissions and fees was due to increases in loan processing fees, origination fees collected on loans that did not fund, agent income from the sale of federal funds, wire transfer fees, lease processingpublic finance underwriting fees and income from corporate finance and capital market advisory services, among other things, partly offset by a decrease in unused balance fees on loan commitments. The decrease in insurance commissions and fees was related to a decrease in commission income partly offset by an increase in contingent commissions. The decrease in commission income during 2016 wasforeign exchange transactions were primarily related to decreaseschanges in employee benefit plan commissions and consulting fees and commercial lines property and casualty commissions due to lower business volumes. The decrease in service charges on deposit accounts was primarily due to a decrease in service charges on consumer accounts partly offset by increases in service charges on commercial accounts and overdraft/insufficient funds charges on both consumer and 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 20172020 increased $19.7$15.4 million, or 3.2%2.2%, compared to 2016.2019. The increase was primarily related to increases in salaries and wages; technology, furniture and equipment expense; deposit insurance expense;salaries and wages; and net occupancy expense partly offset by decreases in other non-interest expense and employee benefitsbenefits. The increase in technology, furniture and equipment expense was primarily related to increases in cloud services expense, depreciation of furniture and equipment, software maintenance and software amortization. The increase from the aforementioned items was partly offset by a decrease in net occupancy expense, other non-interest expense and intangible amortization.service contracts expense. The increase in salaries weresalary and wages was primarily due to an increase in the number of employees and normal, annual merit and market increases partly offset by an increase in salary costs deferred as well as increasesloan origination costs, primarily in connection with the high volume of PPP loan originations during 2020, and decreases in incentive compensation, due to improved operating performance,stock-based compensation and stock-based compensation.commissions. Salaries and wages for 2020 was also negatively impacted by certain severance costs. The increase in technology, furniture and equipmentnet occupancy expense was primarily related to increases in software maintenance and depreciation on furnitureleasehold improvements, lease expense, property taxes and equipmentbuilding depreciation, among other things. The increases from these items were partly offset by decreases in equipment rentalrepairs and maintenance/service contracts expense. The decrease in other non-interest expense included decreases in travel, meals and service contractsentertainment expense; professional services expense; advertising/promotions expense; and business development expense, among other things. The increasedecrease in deposit insuranceother non-interest expense was relatedalso partly due to an increase in costs deferred as loan origination costs in connection with the assessment rate due to a new quarterly surcharge which began inhigh volume of PPP loan originations during 2020. The impact of the third quarter of 2016 and an increase in assets. The increase in employee benefitsaforementioned items was primarily due to increases in expenses related to our 401(k) and profit sharing plans, medical insurance expense and payroll taxes, among other things, partly offset by aincreases in sundry losses and other expenses, donations expense, and bank card expense, among other things. The decrease in employee benefit costs was primarily related to decreases in certain discretionary benefit plan expenses and expenses related to our defined benefit retirement plans. The decrease in net occupancy expense was partly related to a change in the way we allocate occupancy expenses among our operating segments. The decrease in other non-interest expense was primarily related to decreases in donations expense, sundry and other miscellaneous expense and check card expense, among other things. These items wererestoration plans partly offset by increases in advertising/promotions expense, guard services expense, professional services expense, outside computer servicesmedical benefits expense and fraud losses,payroll taxes, among other things. The decrease in intangible amortization expense was primarily related to 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 we use an accelerated amortization approach which results in higher amortization rates during the earlier years of the useful lives of intangible assets. See the analysis of these categories of non-interest expense included in the section captioned “Non-Interest Expense” included elsewhere in this discussion.
Non-interest expense for 2016 increased $35.0 million, or 5.9%, compared to 2015. The increase was primarily related to increases in other non-interest expense; salaries and wages; technology, furniture and equipment expense; net occupancy; deposit insurance; and employee benefits expense partly offset by a decrease in intangible amortization expense. The increase in other non-interest expense was primarily related to increases in sundry and other miscellaneous expense, donations expense, check card expense, guard service expense, business development expense and outside computer services expense, among other things, partly offset by decreases in advertising/promotions expense and travel/meals and entertainment expense and refund expenses associated with customer use of non-Frost ATMs, among other things. Sundry and other miscellaneous expense included the write-down of certain assets. The increase in salaries and wages was primarily related to an increase in salaries due to an increase in the number of employees, normal annual merit and market increases and an increase in incentive compensation partly offset by a decrease in stock-based compensation. The increase in technology, furniture and equipment expense was primarily related to an increase in depreciation on furniture and equipment and software maintenance partly offset by decreases in software amortization and equipment rental expense. The increase in net occupancy expense was primarily related to increases in building depreciation, property taxes, repairs and maintenance/service contracts expense and depreciation on leasehold improvements. The increases in technology, furniture and equipment expense and net occupancy expense were partly related to a new operations and support center, a portion of which was placed into service during 2015 with the remainder placed into service in 2016, and new financial center locations. The increase in deposit insurance expense was primarily related to an increase in the assessment rate, in part due to a new surcharge that became applicable during 2016, and an increase in assets. The increase in employee benefits expense was primarily due to increases in medical insurance expense, payroll taxes and profit sharing plan expense, among other things, partly offset by a decrease in expenses related to our defined benefit retirement plans. The decrease in intangible amortization expense was primarily related to 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 we use an accelerated amortization approach which results in higher amortization rates during the earlier years of the useful lives of intangible assets. This decrease was partly offset by the additional amortization related to the intangible assets recorded in 2016. See the analysis of these items included in the section captioned “Non-Interest Expense” included elsewhere in this discussion.
Income tax expense for 2017 increased $4.22020 decreased $35.2 million, or 12.3%63.4%, compared to 2016 while income tax expense for 2016 decreased $1.3 million, or 3.8%, compared to 2015.2019. 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 $46.8$51.1 million during 20172020 compared to $47.8$53.1 million during 2016 and $49.6 million in 2015.2019. The decrease during 2017 compared to 2016was the result of decreases in commission income and contingent income. The decrease in commission income was primarily related to a decreases in benefit plan commissions related to decreased business volumes and premium reductions due to flat to lower market rates. The decrease in contingent income partly offset by an increase in benefit plan commissions. The decrease during 2016 compared to 2015 was primarily related to lower growth and a decreasedeterioration in commission income partly offset by an increase in contingent income.the loss performance of insurance policies previously placed. See the analysis of insurance commissions and fees included in the section captioned “Non-Interest Income” included elsewhere in this discussion.
55

Frost Wealth Advisors
Net income for 2017 increased $5.3 million,2020 decreased $688 thousand, or 27.8%3.4%, compared to 2016. The increase was primarily due to an $8.7 million increase in non-interest income and a $6.3 million increase in net interest income partly offset by a $6.9 million increase in non-interest expense and a $2.9 million increase in income tax expense. Net income for 2016 decreased $875 thousand, or 4.4%, compared to 2015.2019. The decrease was primarily due to a $3.7$1.2 million increasedecrease in non-interest expensenet interest income and a $1.4 million$637 thousand decrease in non-interest income partly offset by a $3.7 million increase$992 thousand decrease in net interest incomenon-interest expense and a $472$181 thousand decrease in income tax expense.
Net interest income for 2017 increased $6.32020 decreased $1.2 million, or 55.7%30.6%, compared to 2016 while2019. This decrease was primarily due to a decrease in the average funds transfer prices allocated to the funds provided by Frost Wealth Advisors. The decrease in the average funds transfer price was primarily due to decreases in market interest rates. See the analysis of net interest income for 2016 increased $3.7 million, or 48.5%, compared to 2015. The increases during 2017 and 2016 were primarily due to an increaseincluded in the funds transfer price received for funds provided related to Frost Wealth Advisors' repurchase agreements and, for 2017, an increasesection captioned “Net Interest Income” included elsewhere in the average volume of funds provided.this discussion.
Non-interest income for 2017 increased $8.7 million,2020 decreased $637 thousand, or 7.3%0.4%, compared to 2016.2019. The increasedecrease was primarily related to increasesa decrease in other charges, commissions and fees; and other non-interest income partly offset by an increase in trust and investment management fees andfees. The decrease in other charges commissions and fees.fees was primarily due to decreases in income from the placement of money market accounts and life insurance, among other things, partly offset by increases in income from the placement of mutual funds and annuities and an increase in brokerage commissions. Income from the placement of money market accounts was impacted by a decrease in market rates. The other aforementioned revenue streams were impacted by fluctuations in transaction volumes. The decrease in other non-interest income was primarily related to a decrease in income from customer derivative and trading activities related to a decrease in volume. Trust and investment management fee income is the most significant income component for Frost Wealth Advisors. Investment management fees are the most significant component of trust and investment management fees, making up approximately 84%, and 82% and 79% of total trust and investment management fees in 2017, 2016for 2020 and 2015, 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.2019. The increase in trust and investment management fees during 2017 compared to 20162020 was primarily the result of an increase in trust investment fees. The increase in trust investment fees was due to higher average equity valuations on managed accounts. Trust andincreases in investment management fees, during 2017 also included an increase incustody fees and real estate fees andpartly offset by a decrease in estate fees compared to 2016.oil and gas fees. 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 2016 decreased $1.4 million, or 1.1%, compared to 2015. The decrease was primarily related to a decrease in trust and investment management fees. The decrease in trust and investment management fees was primarily the result of decreases in oil and gas fees, estate fees, securities lending income and custody fees. These decreases were partly offset by an increase in trust investment fees. The decrease in oil and gas fees was partly due to lower energy prices and a decrease in production. The decrease in estate fees was related to a decrease in the aggregate value of estates settled compared to 2015. The decrease in securities lending income was dueparticularly as it relates to the terminationeffects of our securities lending operations during the first quarter of 2015. The increase in trust investment fees during 2016 was due to higher average equity valuations on managed accountsCOVID-19 pandemic, and an increase in the number of accounts. See the analysis of trustother charges, commissions and investment management fees included in the section captioned “Non-Interest Income” included elsewhere in this discussion.
Non-interest expense for 2017 increased $6.9 million,2020 decreased $992 thousand, or 6.7%0.8%, compared to 2016.2019. The increasedecrease was primarily relateddue to increasesan increase in net occupancy expense salaries and wages and employee benefits partly offset by a decreasedecreases in employee benefits, other non-interest expense.expense and salaries and wages. The increase in net occupancy expense andwas primarily related to an increase in lease expense. The decrease in employee benefits was primarily related to a decrease in certain discretionary benefit plan expenses. The decrease in other non-interest expense werewas primarily related to a changedecreases in the way we allocate occupancy expensestravel, meals and entertainment expense and professional service expense, among our operating segments. Beginningother things. Salaries and wages were impacted by decreases in 2017, operating segments receive a direct charge for occupancy expense based upon cost centers within the segment. Such amounts are now reported as occupancy expense. Previously, these costs were included within the allocated overheadincentive compensation and reported as a component of other non-interest expense. Thecommissions despite an increase in salaries, and wages was primarily relateddue to an increase in the number of employees and normal, annual merit and market increases. The increase in employee benefits expense was primarily related to increases in expenses related to our defined benefit retirement plans, payroll taxes and medical insurance expense.
Non-interest expense for 2016 increased $3.7 million, or 3.7%, compared to 2015. The increase was primarily due to increases in other non-interest expense, employee benefits and salaries and wages. The increase in other non-interest expense was primarily due to increases in sundry and other miscellaneous expense, expenses related to professional

services and outside computer services, among other things, partly offset by a decrease in mutual fund sub-advisor expense, among other things. The increase in employee benefits expense was due, in part, to increases in expense related to our profit sharing plan, medical insurance expense and payroll taxes, among other things, partly offset by a decrease in expense related to our defined benefit retirement plans. The increase in salaries and wages was primarily related to an increase in the number of employees and normal annual merit and market increases partly offset by a decrease in incentive compensation.
Non-Banks
The Non-Banks operating segment had a net loss of $7.3$10.6 million for 20172020 compared to a net loss of $4.5$12.8 million in 2016.2019. The increase indecreased net loss was primarily due to a $3.2 million increasedecrease in net interest expense partly offset by a $436 thousand decrease in non-interest expense. The increase in net interest expense was primarily due to increases in the interestresulting from lower average rates paid on our long-termlong term borrowings. The decrease in non-interest expense was primarily related to decreases in employee benefits expense and salaries and wages.
The Non-Banks operating segment had a net loss of $4.5 million for 2016 compared to a net loss of $2.7 million in 2015. The increase in net loss was primarily due to a $1.8 million decrease in other non-interest income, a $951 thousand increase in net-interest expense and a $583 thousand increase in other non-interest expense partly offset by a $1.5 million increase in income tax benefit. The decrease in non-interest income was primarily related to a decrease in mineral interest income. 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 our wholly-owned non-banking subsidiary Main Plaza Corporation. The decrease in mineral interest income was partly related to lower energy prices and a decrease in production. The increase in net interest expense was primarily related to increases in the interest rates paid on our long-term borrowings. The increase in non-interest expense was primarily related to increases in employee benefits expense, other non-interest expense and salaries and wages.

Income Taxes
We recognized income tax expense of $44.2$20.2 million, for an effective tax rate of 10.8%5.7%, in 20172020 compared to $37.2$55.9 million, for an effective tax rate of 10.9%11.2%, in 2016 and $40.5 million, for an effective rate of 12.7%, in 2015.2019. The effective income tax rates differed from the U.S. statutory federal income tax rate of 35%21% during the comparable periods2020 and 2019 primarily due to the effect of tax-exempt income from loans, securities and life insurance policies and discrete items including the income tax effects associated with stock-based compensation, changes in enacted tax ratesamong other things, and corrections.
The effective tax rate for 2017 was impacted by the adjustment of our deferred tax assets and liabilities relatedtheir relative proportion to the reduction in the U.S. federal statutory income tax rate to 21% under the Tax Cuts and Jobs Act enacted on December 22, 2017, as more fully discussed below. Under ASC 740, Income Taxes, the effect of income tax law changes on deferred taxes should be recognized as a component of income tax expense related to continuing operations in the period in which the law is enacted. This requirement applies not only to items initially recognized in continuing operations, but also to items initially recognized in other comprehensivetotal pre-tax net income. As a result of the reduction in the U.S. federal statutory income tax rate, we recognized a provisional net income tax benefit totaling $4.0 million, determined as follows:
 Tax Benefit/(Expense)
Deferred taxes related to items recognized in continuing operations$(5,488)
Deferred taxes related to items recognized in other comprehensive income: 
Deferred taxes on net actuarial loss on defined benefit post-retirement benefit plans(8,022)
Deferred taxes on net unrealized gain on securities available for sale15,939
Deferred taxes on net unrealized gain on securities transferred to held to maturity1,618
Net provisional adjustment to deferred taxes recognized as an income tax benefit$4,047
Because ASC 740 requires the effect of income tax law changes on deferred taxes to be recognized as a component of income tax expense related to continuing operations rather than merely backward tracing the adjustment through the accumulated other comprehensive income component of shareholders' equity, the net adjustment to deferred taxes detailed above included a net benefit totaling $9.5 million related to items recognized in other comprehensive income. The amounts included in the table above will continue to be reported as separate components of accumulated other comprehensive income until such time as the underlying transactions from which such amounts arose are settled through continuing operations. At such time, the reclassification from accumulated other comprehensive income will be

recognized as either a tax benefit or expense. Notwithstanding the foregoing, in January 2018, the Financial Accounting Standards Board issued a proposed Accounting Standards Update that would require that the tax effects stranded in accumulated other comprehensive income be reclassified to retained earnings rather than income tax benefit or expense.
The effective tax rate for 2017 was also impacted by the correction of an over-accrual of taxes that resulted from incorrectly classifying certain tax-exempt loans as taxable for federal income tax purposes since 2013. As a result, we recognized tax benefits totaling $2.9 million related to the 2013 through 2016 tax years.
Excluding the effects of the change in the U.S. federal statutory income tax rate and the correction of the over-accrual, our effective tax rate would have been 12.5% during 2017. This increase in income tax expense and the effective tax rate during 2017 compared to 2016 was primarily related to an increase in total income with a higher proportion of taxable income relative to tax-exempt income, partly offset by an increase in tax benefits associated with stock-based compensation. During 2016, we adopted a new accounting standard that requires the income tax effects associated with stock-based compensation to be recognized as a component of income tax expense. We recognized net tax benefits related to stock-based compensation totaling $9.1 million in 2017 and $5.1 million in 2016. The decrease in the effective tax rate during 2016 compared to 20152020 was partlyprimarily related to an increasea decrease in the relative proportion of tax-exempt income from higher volumes of tax-exempt municipal securities.pre-tax net income. The decrease was also partly related to the aforementioned adoption of a new accounting standard which impacted how the income tax effects associated with stock-based compensation are recognized.
Tax Cuts and Jobs Act. The Tax Cuts and Jobs Act was enacted on December 22, 2017. Among other things, the new law (i) establishes a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limits the deduction for net interest expense incurred by U.S. corporations, (iv)  allows businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminates or reduces certain deductions related to meals and entertainment expenses, (vi) modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee and (vii) limits the deductibility of deposit insurance premiums. The Tax Cuts and Jobs Act also significantly changes U.S. tax law related to foreign operations, however, such changes do not currently impact us. Based upon our current 2018 projections, we expect that our effective tax rate for 2018 will be approximately 600 basis points lower under the new tax law than would have been the case prior to enactment; however, there can be no assurance as to the actual amount of any reduction because it will be dependent upon the nature and amount of future income and expenses as well as transactions withduring 2020 was also impacted by a one-time, discrete tax effects.benefit associated with an asset contribution to a charitable trust. See Note 13 - Income Taxes in the accompanying notes to consolidated financial statements elsewhere in this report.
56

Sources and Uses of Funds
The following table illustrates, during the years presented, the mix of our funding sources and the assets in which those funds are invested as a percentage of our average total assets for the period indicated. Average assets totaled $30.5$38.0 billion in 20172020 compared to $28.8$32.1 billion in 2016 and $28.1 billion in 2015.2019.
2017 2016 2015202020192018
Sources of Funds:     Sources of Funds:
Deposits:     Deposits:
Non-interest-bearing35.5% 34.8% 36.3%Non-interest-bearing35.7 %32.3 %34.7 %
Interest-bearing49.6
 50.2
 49.4
Interest-bearing47.1 50.1 50.1 
Federal funds purchased and repurchase agreements3.2
 2.7
 2.3
Federal funds purchased and repurchase agreements3.9 4.0 3.4 
Long-term debt and other borrowings0.8
 0.8
 0.8
Long-term debt and other borrowings0.9 0.7 0.8 
Other non-interest-bearing liabilities0.5
 0.9
 0.9
Other non-interest-bearing liabilities1.8 1.4 0.5 
Equity capital10.4
 10.6
 10.3
Equity capital10.6 11.5 10.5 
Total100.0% 100.0% 100.0%Total100.0 %100.0 %100.0 %
Uses of Funds:     Uses of Funds:
Loans40.9% 40.1% 40.2%Loans45.2 %45.0 %43.9 %
Securities40.2
 41.8
 41.4
Securities33.4 41.4 38.9 
Federal funds sold, resell agreements and interest-bearing deposits12.0
 10.8
 10.9
Federal funds sold, resell agreements and interest-bearing deposits14.2 5.8 10.3 
Other non-interest-earning assets6.9
 7.3
 7.5
Other non-interest-earning assets7.2 7.8 6.9 
Total100.0% 100.0% 100.0%Total100.0 %100.0 %100.0 %
Deposits continue to be our primary source of funding. Average deposits increased $1.4$5.0 billion, or 5.7%19.0%, in 20172020 compared to 2016 and increased $471.1 million, or 2.0% in 2016 compared to 2015.2019. Non-interest-bearing deposits remain a significant source of funding, which has been a key factor in maintaining our relatively low cost of funds. Average non-interest-bearing deposits totaled 41.8%43.1% of total average deposits in 20172020 compared to 40.9%39.2% in 2016, and 42.3% in 2015. The Dodd-Frank Act repealed the2019. Though 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,were repealed in 2011, we have not experienced any significant additional interest costs as a result ofresult. Should the repeal. However, in light of the aforementioned increases in market interest rates, in late July 2017,dictate, we increasedmay increase the interest rates we pay on mostsome or all of our various interest-bearing deposit products. This maycould lead to a decrease in the relative proportion of non-interest-bearing deposits to total deposits.
We primarily invest funds in loans and securities. Average loans increased $905.3$2.7 billion, or 18.9%, ($565.4 million, or 7.8%3.92% excluding PPP loans) in 2020 compared to 2019 while average securities decreased $616.0 million, or 4.6%, in 20172020 compared to 2016 and increased $287.4 million, or 2.6% in 2016 compared to 2015. Average securities increased $188.5 million, or 1.6%, in 2017 compared to 2016 and increased $442.7 million, or 3.8%, in 2016 compared to 2015.2019. Average federal funds sold and resell agreements and interest-bearing deposits increased $548.3 million,$3.5 billion, or 17.7%190.1%, in 20172020 compared to 2016 and increased $32.3 million, or 1.1%, in 2016 compared to 2015.2019, primarily as a result of deposit growth.
57


Loans
Year-end loans, including leases net of unearned discounts, consisted of the following:
2020Percentage
of Total
2019201820172016
Commercial and industrial$4,955,341 28.4 %$5,187,466 $5,111,957 $4,792,388 $4,344,000 
Energy:
Production976,473 5.6 1,348,900 1,309,314 1,182,326 971,767 
Service116,825 0.7 192,996 168,775 171,795 221,213 
Other141,900 0.7 110,986 124,509 144,972 193,081 
Total energy1,235,198 7.1 1,652,882 1,602,598 1,499,093 1,386,061 
Paycheck Protection Program2,433,849 13.9 — — — — 
Commercial real estate:
Commercial mortgages5,478,806 31.3 4,594,113 4,121,966 3,887,742 3,481,157 
Construction1,223,814 7.0 1,312,659 1,267,717 1,066,696 1,043,261 
Land317,847 1.8 289,467 306,755 331,986 311,030 
Total commercial real estate7,020,467 40.1 6,196,239 5,696,438 5,286,424 4,835,448 
Consumer real estate:
Home equity loans329,390 1.9 375,596 353,924 355,342 345,130 
Home equity lines of credit452,854 2.6 354,671 337,168 291,950 264,862 
Other548,530 3.1 464,146 427,898 376,002 326,793 
Total consumer real estate1,330,774 7.6 1,194,413 1,118,990 1,023,294 936,785 
Total real estate8,351,241 47.7 7,390,652 6,815,428 6,309,718 5,772,233 
Consumer and other505,680 2.9 519,332 569,750 544,466 473,098 
Total loans$17,481,309 100.0 %$14,750,332 $14,099,733 $13,145,665 $11,975,392 

2017
Percentage
of Total

2016
2015
2014
2013
Commercial and industrial$4,792,388
 36.4% $4,344,000
 $4,120,522
 $4,055,225
 $3,766,635
Energy:           
Production1,182,326
 9.0
 971,767
 1,249,678
 1,160,404
 616,893
Service171,795
 1.3
 221,213
 272,934
 319,618
 236,766
Other144,972
 1.1
 193,081
 235,583
 293,923
 261,750
Total energy1,499,093
 11.4
 1,386,061
 1,758,195
 1,773,945
 1,115,409
Commercial real estate:           
Commercial mortgages3,887,742
 29.6
 3,481,157
 3,285,041
 2,999,082
 2,800,760
Construction1,066,696
 8.1
 1,043,261
 720,695
 624,888
 426,639
Land331,986
 2.5
 311,030
 286,991
 291,907
 239,937
Total commercial real estate5,286,424
 40.2
 4,835,448
 4,292,727
 3,915,877
 3,467,336
Consumer real estate:           
Home equity loans355,342
 2.7
 345,130
 340,528
 342,725
 329,853
Home equity lines of credit291,950
 2.2
 264,862
 233,525
 220,128
 195,132
Other376,002
 2.9
 326,793
 306,696
 286,198
 283,219
Total consumer real estate1,023,294
 7.8
 936,785
 880,749
 849,051
 808,204
Total real estate6,309,718
 48.0
 5,772,233
 5,173,476
 4,764,928
 4,275,540
Consumer and other544,466
 4.2
 473,098
 434,338
 393,437
 358,116
Total loans$13,145,665
 100.0% $11,975,392
 $11,486,531
 $10,987,535
 $9,515,700
Overview. Year-end total loans increased $1.2$2.7 billion, or 9.8%18.5%, during 20172020 compared to 2016, increased $488.9 million, or 4.3% during 2016 compared to 2015, increased $499.0 million, or 4.5% during 2015 compared to 2014 and increased $1.5 billion, or 15.5% during 2014 compared to 2013. We acquired $670.6 million of loans in connection with the acquisition of WNB2019. As further discussed below, during the second quarter of 2014.
2020, we began originating loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act. Excluding PPP loans, total loans would have otherwise increased $297.1 million, or 2.0%, from December 31, 2019. The majority of our loan portfolio is comprised of commercial and industrial loans, energy loans and real estate loans. Commercial and industrial loans made up 36.4%28.4% (32.9% excluding PPP loans) and 36.3%35.2% of total loans at December 31, 20172020 and 20162019 while energy loans made up 11.4%7.1% (8.2% excluding PPP loans) and 11.6%11.2% of total loans at both December 31, 2020 and 2019 and real estate loans made up 47.7% (55.5% excluding PPP loans) and 50.1% of total loans at December 31, 20172020 and 2016 and real estate loans made up 48.0% and 48.2% of total loans at December 31, 2017 and 2016.2019. Energy loans include commercial and industrial loans, leases and real estate loans to borrowers in the energy industry. Real estate loans include both commercial and consumer balances. Other than in connection with our making PPP loans as described below, it is possible that the effects of COVID-19 could continue to result in less demand for our loan products.

Loan Origination/Risk Management. We have 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, our 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
58


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.
Our energy loan portfolio includes loans for production, energy services and other energy loans, which includes private clients, transportation and equipment providers, manufacturers, refiners and traders. The origination process for energy loans is similar to that of commercial and industrial loans. Because, however, of the average loan size, the significance of the portfolio and the specialized nature of the energy industry, our energy lending requires a highly prescriptive underwriting policy. Production loans are secured by proven, developed and producing reserves. Loan proceeds are used for the development and drilling of additional wells, the acquisition of additional production, and/or the acquisition of additional properties to be developed and drilled. Our customers in this sector are generally large, independent, private owner-producers or large corporate producers. These borrowers typically have large capital requirements for drilling and acquisitions, and as such, loans in this portfolio are generally greater than $10 million. Production loans are collateralized by the oil and gas interests of the borrower. Collateral values are determined by the risk-adjusted and limited discounted future net revenue of the reserves. Our valuations take into consideration geographic and reservoir differentials as well as cost structures associated with each borrower. Collateral is calculated at least semi-annually using third party engineer-prepared reserve studies. These reserve studies are conducted using a discount factor and base case assumptions for the current and future value of oil and gas. To qualify as collateral, typically reserves must be proven, developed and producing. For our strongestcertain borrowers, collateral may include up to 20% proven, non-producing reserves. Loan commitments are limited to 65% of estimated reserve value. Cash flows must be sufficient to amortize the loan commitment within 120% of the half-life of the underlying reserves. Loan commitments generally must also be 100% covered by the risk-adjusted and limited discounted future net revenue of the reserves when stressed at 75% of our base case price assumptions. In addition, the ratio of the borrower's debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"(“EBITDA”) should generally not exceed 350%.
Oil and gas service, transportation, and equipment providers are economically aligned due to their reliance on drilling and active oil and gas development. Income for these borrowers is highly dependent on the level of drilling activity and rig utilization, both of which are driven by the current and future outlook for the price of oil and gas. We mitigate the credit risk in this sector through conservative concentration limits and guidelines on the profile of eligible borrowers. Guidelines require that the companies have extensive experience through several industry cycles, and that they be supported by financially competent and committed guarantors who provide a significant secondary source of repayment. Borrowers in this sector are typically privately-owned, middle-market companies with annual sales of less than $100 million. The services provided by companies in this sector are highly diversified, and include down-hole testing and maintenance, providing and threading drilling pipe, hydraulic fracturing services or equipment, seismic testing and equipment and other direct or indirect providers to the oil and gas production sector.
Our private client portfolio primarily consists of loans to wealthy individuals and their related oil and gas exploration and production entities, where the oil and gas producing reserves are not considered to be the primary source of repayment. These borrowers and guarantors typically have significant sources of wealth including significant liquid assets and/or cash flow from other investments which can fully repay the loans. The credit structures of these loans are generally similar to those of energy production loans, described above, with respect to the valuation of the reserves taken as collateral and the repayment structures.

WeAlthough no balances were outstanding at December 31, 2020 and 2019, in prior years we have had a small portfolio of loans to refiners where our credit involvement with these customers iswas through purchases of shared national credit syndications. These borrowers refine crude oil into gasoline, diesel, jet fuel, asphalt and other petrochemicals and are not dependent on drilling or development. All of the borrowers in this portfolio are very large public companies that are important employers in several of our major markets. These borrowers, for the most part, have been long-term customers and we have a strong relationship with these companies and their executive management. There is no new customer origination process for this segment as growth isand any outstanding balances are expected to only reflect additionalthe needs of these existing relationships.
We also have a small portfolio of loans to energy trading companies that serve as intermediaries that buy and sell oil, gas, other petrochemicals, and ethanol. These companies are not dependent on drilling or development. As a general policy, we do not lend to energy traders; however, we have made an exception to this policy for certain customers based upon their underlying business models which minimize risk as commodities are bought only to fill existing orders (back-to-back trading). As such, the commodity price risk and sale risk are eliminated. There is no
59


new customer origination process for this segment as growth isand any outstanding balances are expected to only reflect additionalthe needs of these existing relationships.
PPP loans, which we began originating in April 2020, are loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act. Loans covered by the PPP may be eligible for loan forgiveness for certain costs incurred related to payroll, group health care benefit costs and qualifying mortgage, rent and utility payments. The remaining loan balance after forgiveness of any amounts is still fully guaranteed by the SBA. Terms of the PPP loans include the following (i) maximum amount limited to the lesser of $10 million or an amount calculated using a payroll-based formula, (ii) maximum loan term of five years, (iii) interest rate of 1.00%, (iv) no collateral or personal guarantees are required, (v) no payments are required until the date on which the forgiveness amount relating to the loan is remitted to the lender and (vi) loan forgiveness up to the full principal amount of the loan and any accrued interest, subject to certain requirements including that no more than 40% of the loan forgiveness amount may be attributable to non-payroll costs. In return for processing and booking a PPP loan, the SBA paid lenders a processing fee tiered by the size of the loan (5% for loans of not more than $350 thousand; 3% for loans of more than $350 thousand and less than $2 million; and 1% for loans of at least $2 million).
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 our commercial real estate portfolio are diverse in terms of type and geographic location within Texas. This diversity helps reduce our 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, we avoid financing single-purpose projects unless other underwriting factors are present to help mitigate risk. We also utilize third-party experts to provide insight and guidance about economic conditions and trends affecting market areas we serve. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. At December 31, 2017,2020, approximately 51.2%46.4% of the outstanding principal balance of our 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 we may originate from time to time, we generally require the borrower to have had an existing relationship with us 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 of the 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 us 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.
We originate 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%,limitations, collection remedies, the number of such loans a borrower can have at one time and documentation requirements.
We maintain 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 and the appropriate committees of our board of directors. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as our policies and procedures.
60


Commercial and Industrial. Commercial and industrial loans increased $448.4decreased $232.1 million, or 10.3%4.5%, during 20172020 compared to 2016 and increased $223.5 million, or 5.4%, in 2016 compared to 2015.2019. Our commercial and industrial loans are 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 our loan policy guidelines. The commercial and industrial loan portfolio also includes the commercial lease and purchased shared national credits.
Energy. Energy loans include loans to entities and individuals that are engaged in various energy-related activities including (i) the development and production of oil or natural gas, (ii) providing oil and gas field servicing, (iii) providing energy-related transportation services (iv) providing equipment to support oil and gas drilling (v) refining petrochemicals, or (vi) trading oil, gas and related commodities. Energy loans increased $113.0decreased $417.7 million, or 8.2%25.3%, during 20172020 compared to 2016 and decreased $372.1 million, or 21.2%, in 2016 compared to 2015. We acquired approximately $319.1 million of energy loans in connection with the acquisition of WNB during 2014, which contributed to the higher concentration of such loans.2019. The average loan size, the significance of the portfolio and the specialized nature of the energy industry requires a highly prescriptive underwriting policy. Exceptions to this policy are rarely granted. Due to the large borrowing requirements of this customer base, the energy loan portfolio includes participations and purchased shared national credits.
Industry Concentrations.Paycheck Protection Program. PPP loans include loans to businesses and other entities that would otherwise be reported as commercial and industrial loans and, to a lesser extent, energy loans, originated under the guidelines discussed above. Through December 31, 2020, we have funded approximately $3.3 billion of SBA-approved PPP loans. During 2020, we recognized $59.5 million in PPP loan related deferred processing fees (net of amortization of related deferred origination costs) as yield adjustments and this amount is included in interest income on loans. As a result of the inclusion of these net fees in interest income, the average yield on PPP loans was approximately 3.78% during 2020 compared to the stated interest rate of 1.0% on these loans. As of December 31, 2017 and 2016, other than energy2020, we expect to recognize additional PPP loan related deferred processing fees (net of deferred origination costs) totaling approximately $39.5 million as a yield adjustment over the remaining terms of these loans, most of which is expected to be recognized in 2021.
Industry Concentrations. As of December 31, 2020, there were no concentrations of loans withinrelated to any single industry, as segregated by Standard Industrial Classification code (“SIC code”), in excess of 10% of total loans. The largest industry concentration was related to the energy industry, which totaled 7.1% of total loans, or 8.2% excluding PPP loans. As of December 31, 2019, there were no concentrations of loans related to any single industry in excess of 10% of total loans as segregated by Standard Industrial Classification code (“SIC code”).other than energy loans, which totaled 11.2% of total loans at such date. The SIC code system is a federally designed standard industrial numbering system used by us to categorize loans by the borrower’s type of business. The following table summarizes the industry concentrations of our loan portfolio, as segregated by SIC code. Industry concentrations, stated as a percentage of year-end total loans as of December 31, 20172020 and 2016,2019, are presented below:
20202020 Excluding PPP Loans2019
Industry Concentrations
Energy7.1 %8.2 %11.2 %
Public finance4.7 5.4 5.1 
Medical services3.1 3.6 3.9 
Automobile dealers3.1 3.6 3.8 
Building materials and contractors2.8 3.3 3.1 
General and specific trade contractors2.4 2.8 3.4 
Investor2.2 2.6 2.2 
Manufacturing, other2.2 2.6 3.1 
Services1.9 2.3 2.3 
Religion1.8 2.1 2.3 
Financial services, consumer credit1.8 2.1 2.0 
Paycheck Protection Program13.9 — — 
All other53.0 61.4 57.6 
Total loans100.0 %100.0 %100.0 %
61


 2017 2016
Industry concentrations:   
Energy11.4% 11.6%
Public finance6.1
 5.1
Medical services3.6
 4.6
General and specific trade contractors3.6
 3.6
Building materials and contractors3.2
 3.1
Manufacturing, other3.1
 3.7
Automobile dealers3.0
 3.1
Religion2.6
 2.5
Services2.5
 2.6
Financial services, consumer credit2.2
 1.5
Investor1.7
 2.2
Transportation1.7
 2.0
All other55.3
 54.4
Total loans100.0% 100.0%
Large Credit Relationships. The market areas served by us 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, we originate and maintain large credit relationships with numerous commercial customers in the ordinary course of business. We consider 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 our normal policies and procedures related to the origination of large credits, one of our CentralRegional Credit Committee ("CCC")Committees must approve all new credit facilities which are part of large credit relationships and renewals of such credit facilities with exposures between $20.0 million and $30.0 million. Our Central Credit Committee must approve all new credit facilities which are part of large credit relationships and renewals of such credit facilities with exposures that exceed $20.0 million or are graded as "watch" (risk grade 9) or higher.$30.0 million. The CCC meetsRegional and Central Credit Committees meet regularly and reviewsto review large credit relationship activity and discussesdiscuss the current pipeline, among other things.

The following table provides additional information on our large credit relationships outstanding at year-end.
20202019
Number of
Relationships
Period-End BalancesNumber of
Relationships
Period-End Balances
CommittedOutstandingCommittedOutstanding
Committed amount:
$20.0 million and greater268$12,651,125 $7,125,484 261$11,855,203 $6,657,382 
$10.0 million to $19.9 million1892,661,548 1,626,951 1792,451,804 1,451,453 
Average amount:
$20.0 million and greater47,206 26,588 45,422 25,507 
$10.0 million to $19.9 million14,082 8,608 13,697 8,109 
 2017 2016
Number of
Relationships
 Period-End Balances 
Number of
Relationships
 Period-End Balances
Committed Outstanding Committed Outstanding
Committed amount:           
$20.0 million and greater224 $9,765,770
 $5,446,315
 208 $8,491,785
 $4,658,742
$10.0 million to $19.9 million162 2,250,279
 1,319,667
 174 2,373,209
 1,482,969
The average commitment per large credit relationship in excess of $20.0 million totaled $43.6 million at December 31, 2017 and $40.8 million at December 31, 2016. The average outstanding balance per large credit relationship with a commitment in excess of $20.0 million totaled $24.3 million at December 31, 2017 and $22.4 million at December 31, 2016. The average commitment per large credit relationship between $10.0 million and $19.9 million totaled $13.9 million at December 31, 2017 and $13.6 million at December 31, 2016. The average outstanding balance per large credit relationship with a commitment between $10 million and $19.9 million totaled $8.1 million at December 31, 2017 and $8.5 million at December 31, 2016.
Purchased Shared National Credits (“SNCs”). Purchased SNCs are participations purchased from upstream financial organizations and tend to be larger in size than our originated portfolio. Our purchased SNC portfolio totaled $835.0$788.1 million at December 31, 2017 increasing $62.82020 decreasing $160.7 million, or 8.1%16.9%, from $772.2$948.8 million at December 31, 2016.2019. At December 31, 2017, 55.8%2020, 32.1% of outstanding purchased SNCs were related to the energy industry, and 14.0%24.5% of outstanding purchased SNCs were related to the construction industry, 12.6% of outstanding purchased SNCs were related to the financial services industry and 12.1% outstanding purchased SNCs were related to the real estate 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 energy and commercial and industrial portfolios, with the remainder included in the real estate categories. SNC participations are originated in the normal course of business to meet the needs of our customers. As a matter of policy, we generally only participate in SNCs for companies headquartered in or which have significant operations within our market areas. In addition, we 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 our purchased SNCs portfolio as of year-end.
20202019
Number of
Relationships
Period-End BalancesNumber of
Relationships
Period-End Balances
CommittedOutstandingCommittedOutstanding
Committed amount:
$20.0 million and greater36$1,394,555 $620,441 43$1,619,398 $804,608 
$10.0 million to $19.9 million22301,581 145,488 19269,974 136,541 
Average amount:
$20.0 million and greater38,738 17,234 37,660 18,712 
$10.0 million to $19.9 million13,708 6,613 14,209 7,186 
62


 2017 2016
Number of
Relationships
 Period-End Balances 
Number of
Relationships
 Period-End Balances
Committed Outstanding Committed Outstanding
Purchased shared national credits:           
$20.0 million and greater41 $1,502,958
 $585,509
 41 $1,456,331
 $522,137
$10.0 million to $19.9 million27 389,243
 222,661
 28 416,422
 233,633
Real Estate Loans. Real estate loans increased $537.5$960.6 million, or 9.3%13.0%, during 20172020 compared to 2016 and increased $598.8 million, or 11.6%, in 2016 compared to 2015.2019. Real estate loans include both commercial and consumer balances. Commercial real estate loans totaled $5.3$7.0 billion, or 84.1% of total real estate loans, at December 31, 2020 and $6.2 billion, or 83.8% of total real estate loans, at December 31, 2017 and $4.8 billion, or 83.8% of total real estate loans, at December 31, 2016.2019. The majority of this portfolio consists of commercial real estate mortgages, which includes both permanent and intermediate term loans. Our primary focus for theLoans secured by owner-occupied properties make up a significant portion of our commercial real estate portfolio has been growth in loans secured by owner-occupied properties.portfolio. 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.

The following tables summarize our commercial real estate loan portfolio, including commercial real estate loans reported as a component of our energy loan portfolio segment, 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, 20172020 and 2016:2019:
20202019
Property type:
Office building25.0 %21.0 %
Office/warehouse16.6 17.2 
Retail8.9 8.1 
Multifamily8.6 9.9 
Dealerships5.4 5.3 
Non-farm/non-residential5.2 6.5 
Medical offices and services4.5 4.8 
Hotel3.7 3.4 
Strip centers3.3 3.3 
Religious3.2 3.5 
1-4 family construction2.8 2.6 
Restaurant2.0 2.1 
1-4 family1.7 2.1 
Mini storage1.5 2.0 
All other7.6 8.2 
Total commercial real estate loans100.0 %100.0 %
20202019
Geographic region:
San Antonio27.6 %27.8 %
Houston23.3 24.1 
Fort Worth17.4 16.3 
Dallas15.2 14.0 
Austin9.3 9.8 
Rio Grande Valley3.3 3.6 
Permian Basin2.3 2.7 
Corpus Christi1.6 1.7 
Total commercial real estate loans100.0 %100.0 %
63


 2017 2016
Property type:   
Office building19.8% 18.2%
Office/warehouse16.6
 16.5
Retail8.2
 7.4
Multifamily6.7
 7.9
Non-farm/non-residential6.5
 7.4
1-4 Family5.4
 5.5
Strip centers5.1
 4.7
Religious4.8
 5.0
Medical offices and services4.7
 5.8
All other22.2
 21.6
Total commercial real estate loans100.0% 100.0%
 2017 2016
Geographic region:   
San Antonio26.6% 25.3%
Houston22.3
 23.1
Fort Worth17.3
 18.1
Dallas14.0
 14.6
Austin10.1
 9.3
Rio Grande Valley4.7
 4.1
Permian Basin3.0
 3.2
Corpus Christi2.0
 2.3
Total commercial real estate loans100.0% 100.0%
Consumer Loans. The consumer loan portfolio at December 31, 20172020 increased $157.9$122.7 million, or 11.2%7.2%, from December 31, 2016.2019. As the following table illustrates, the consumer loan portfolio has two distinct segments, including consumer real estate and consumer and other.
2017 201620202019
Consumer real estate:   Consumer real estate:
Home equity loans$355,342
 $345,130
Home equity loans$329,390 $375,596 
Home equity lines of credit291,950
 264,862
Home equity lines of credit452,854 354,671 
Other376,002
 326,793
Other548,530 464,146 
Total consumer real estate1,023,294
 936,785
Total consumer real estate1,330,774 1,194,413 
Consumer and other544,466
 473,098
Consumer and other505,680 519,332 
Total consumer loans$1,567,760
 $1,409,883
Total consumer loans$1,836,454 $1,713,745 
Consumer real estate loans at December 31, 20172020 increased $86.5$136.4 million, or 9.2%11.4%, from December 31, 2016.2019. Combined, home equity loans and lines of credit made up 63.3%58.8% and 65.1%61.1% of the consumer real estate loan total at December 31, 20172020 and 2016,2019, respectively. We offer 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, we do not originate 1-4 family mortgage loans; however, from time to time, we may invest in such loans to meet the needs of our customers. Under the Tax Cuts and Jobs Act enacted on December 22, 2017, interest on home equity loans and lines of credit is no longer deductible. This change could adversely impact the level of originations and outstanding volumes of home equity loans and lines of credit in the future. The consumer and other loan portfolio at December 31, 2017 increased $71.42020 decreased $13.7 million, or 15.1%2.6%, from December 31, 2016.2019. This 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. We make 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, 20172020 or 2016.2019.
Maturities and Sensitivities of Loans to Changes in Interest Rates. The following table presents the maturity distribution of our commercial and industrial loans, energy loans real estate construction loans and commercial real estate loans excluding leases, at December 31, 2017.2020. 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
One Year
or Less
 
After One,
but Within
Five Years
 
After
Five Years
 TotalDue in
One Year
or Less
After One,
but Within
Five Years
After Five but Within Fifteen YearsAfter
Fifteen Years
Total
Commercial and industrial$1,845,717
 $1,913,606
 $728,834
 $4,488,157
Commercial and industrial$1,998,833 $1,958,182 $866,272 $132,054 $4,955,341 
Energy1,007,125
 433,897
 42,788
 1,483,810
Energy790,038 435,442 9,090 628 1,235,198 
Real estate construction633,156
 1,946,593
 1,639,979
 4,219,728
Paycheck Protection ProgramPaycheck Protection Program— 2,433,849 — — 2,433,849 
Commercial real estate356,218
 487,966
 222,512
 1,066,696
Commercial real estate
Buildings, land and otherBuildings, land and other860,879 2,516,898 2,324,547 94,329 5,796,653 
ConstructionConstruction347,010 592,088 218,029 66,687 1,223,814 
Consumer Real EstateConsumer Real Estate10,020 23,606 604,008 693,140 1,330,774 
Consumer and OtherConsumer and Other256,827 232,919 15,934 — 505,680 
Total$3,842,216
 $4,782,062
 $2,634,113
 $11,258,391
Total$4,263,607 $8,192,984 $4,037,880 $986,838 $17,481,309 
       
Loans with fixed interest rates$1,144,414
 $1,477,032
 $1,261,985
 $3,883,431
Loans with fixed interest rates357,712 4,521,168 2,741,507 445,419 $8,065,806 
Loans with floating interest rates2,697,802
 3,305,030
 1,372,128
 7,374,960
Loans with floating interest rates3,905,895 3,671,816 1,296,373 541,419 9,415,503 
Total$3,842,216
 $4,782,062
 $2,634,113
 $11,258,391
Total$4,263,607 $8,192,984 $4,037,880 $986,838 $17,481,309 
We generally structure commercial loans with shorter-term maturities in order to match our funding sources and to enable us 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, we 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 our 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, we may require a principal
64


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, we do not generally grant concessions, and, except for those reported in Note 3 - 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.

Non-Performing Assets and Potential Problem Loans
Non-Performing Assets. Year-end non-performing assets and accruing past due loans were as follows:

2017
2016
2015
2014
201320202019201820172016
Non-accrual loans:         Non-accrual loans:
Commercial and industrial$46,186
 $31,475
 $25,111
 $34,108
 $26,143
Commercial and industrial$19,849 $26,038 $9,239 $46,186 $31,475 
Energy94,302
 57,571
 21,180
 636
 590
Energy23,168 65,761 46,932 94,302 57,571 
Paycheck Protection ProgramPaycheck Protection Program— — — — — 
Commercial real estate7,589
 8,550
 35,088
 22,431
 27,035
Commercial real estate17,421 9,577 15,268 7,589 8,550 
Consumer real estate2,109
 2,130
 1,862
 2,212
 2,207
Consumer real estate993 922 892 2,109 2,130 
Consumer and other128
 425
 226
 538
 745
Consumer and other18 1,408 128 425 
Total non-accrual loans150,314
 100,151
 83,467
 59,925
 56,720
Total non-accrual loans61,449 102,303 73,739 150,314 100,151 
Restructured loans4,862
 
 
 
 1,137
Restructured loans— 6,098 — 4,862 — 
Foreclosed assets:         Foreclosed assets:
Real estate2,116
 2,440
 2,255
 5,251
 11,916
Real estate850 1,084 1,175 2,116 2,440 
Other
 
 
 
 
Other— — — — — 
Total foreclosed assets2,116
 2,440
 2,255
 5,251
 11,916
Total foreclosed assets850 1,084 1,175 2,116 2,440 
Total non-performing assets$157,292
 $102,591
 $85,722
 $65,176
 $69,773
Total non-performing assets$62,299 $109,485 $74,914 $157,292 $102,591 
Ratio of non-performing assets to:         Ratio of non-performing assets to:
Total loans and foreclosed assets1.20% 0.86% 0.75% 0.59% 0.73%Total loans and foreclosed assets0.36 %0.74 %0.53 %1.20 %0.86 %
Total loans, excluding PPP loans, and foreclosed assetsTotal loans, excluding PPP loans, and foreclosed assets0.41 0.74 0.53 1.20 0.86 
Total assets0.50
 0.34
 0.30
 0.23
 0.29
Total assets0.15 0.32 0.23 0.50 0.34 
Accruing past due loans:         Accruing past due loans:
30 to 89 days past due$93,428
 $55,456
 $59,480
 $42,881
 $31,297
30 to 89 days past due$88,598 $50,784 $59,595 $93,428 $55,456 
90 or more days past due14,432
 24,864
 8,108
 20,941
 7,635
90 or more days past due14,289 7,421 20,468 14,432 24,864 
Total accruing past due loans$107,860
 $80,320
 $67,588
 $63,822
 $38,932
Total accruing past due loans$102,887 $58,205 $80,063 $107,860 $80,320 
Ratio of accruing past due loans to total loans:         Ratio of accruing past due loans to total loans:
30 to 89 days past due0.71% 0.46% 0.52% 0.39% 0.33%30 to 89 days past due0.51 %0.34 %0.42 %0.71 %0.46 %
90 or more days past due0.11
 0.21
 0.07
 0.19
 0.08
90 or more days past due0.08 0.05 0.15 0.11 0.21 
Total accruing past due loans0.82% 0.67% 0.59% 0.58% 0.41%Total accruing past due loans0.59 %0.39 %0.57 %0.82 %0.67 %
Ratio of accruing past due loans to total loans, excluding PPP loans:Ratio of accruing past due loans to total loans, excluding PPP loans:
30 to 89 days past due30 to 89 days past due0.59 %0.34 %0.42 %0.71 %0.46 %
90 or more days past due90 or more days past due0.09 0.05 0.15 0.11 0.21 
Total accruing past due loansTotal accruing past due loans0.68 %0.39 %0.57 %0.82 %0.67 %
Non-performing assets include non-accrual loans, restructured loans and foreclosed assets. Non-performing assets at December 31, 2017 increased $54.72020 decreased $47.2 million compared to December 31, 2016 while non-performing assets at December 31, 2016 increased $16.9 million compared to December 31, 2015.
Non-accrual commercial and industrial2019 reflecting decreases in non-accrual energy loans, included two credit relationships in excess of $5 million totaling $34.2 million at December 31, 2017. One of these credit relationships was placed on non-accrual status during the third quarter of 2017 and was previously classified as “substandard - accrual” (risk grade 11) at June 30, 2017. The other credit relationship was placed on non-accrual status during the fourth quarter of 2017 and was previously classified as “special mention” (risk grade 10) at September 30, 2017. Neither of these credit relationships were reported as a potential problem prior to being place on non-accrual status. Non-accrual commercial and industrial loans included one credit relationship in excess of $5 million totaling $9.8 million at December 31, 2016. Of this amount, we charged-off $7.7 million during 2017. The outstanding balance of this credit relationship totaled $1.9 million at December 31, 2017 and is included in non-accrual commercial and industrial loans in the table above. Non-accrual commercial and industrialrestructured loans included one credit relationship in excess of $5 million totaling $15.0 million at December 31, 2015, one such credit relationship totaling $15.5 million at December 31, 2014 and one such credit relationship totaling $6.3 million at December 31, 2013.
Non-accrual energy loans included four credit relationships in excess of $5 million totaling $83.5million at December 31, 2017. Of this amount, $27.9 million related to two credit relationships that were previously reported as non-accrual at December 31, 2016 and $55.6 million related to two credit relationships that were placed on non-accrual status during the third quarter of 2017, onepartly, some of which was a $43.1 million credit relationship that was previously reported as a potential problem loan at June 30, 2017. Non-accrual energy loans included four credit relationshipsresulted from charge-offs, offset by an increase in excess of $5 million totaling $52.1 million at December 31, 2016. Of this amount, we charged-off a total of $10.0 million related to two credit relationships during the first and second quarters of 2017. The outstanding balance of these two credit relationships was $20.5 million at December 31, 2016. Subsequent to the charge-off, the remaining balance of one of these credit relationships was paid-off. The outstanding balance of the other credit relationship totaled $4.9 million at

December 31, 2017 and is included in non-accrual energy loans in the table above. Non-accrual energy loans included one credit relationship in excess of $5 million totaling $12.5 million at December 31, 2015. We did not have any significant energy loans on non-accrual status during the reported periods prior to 2015. The increasing trend in non-accrual energy loans since 2015 is related to disruption within the energy industry resulting from oil price volatility in recent years, as more fully discussed in the section captioned “Allowance for Loan Losses” below.
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. There were no non-accrual commercial real estate loan credit relationships in excess of $5 million at December 31, 2017 or December 31, 2016 while there was one such credit relationship totaling $22.6 million at December 31, 2015, one such credit relationship totaling $5.6 million at December 31, 2014 and one such credit relationship 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).loans.
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 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.
65

Table of Content
Non-accrual commercial and industrial loans included one credit relationship in excess of $5.0 million totaling $9.0 million at December 31, 2020. This credit relationship was previously reported as non-accrual with an aggregate balance of $8.4 million at December 31, 2019. Non-accrual energy loans included one credit relationship in excess of $5.0 million totaling $20.1 million at December 31, 2020 and two credit relationships in excess of $5.0 million totaling $61.7 million at December 31, 2019. During 2020, we charged off $76.1 million related to energy loans. Of that amount, $48.8 million related to credit relationships previously reported as non-accrual as of December 31, 2019. 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. There were no non-accrual commercial real estate loans in excess of $5.0 million at December 31, 2020 or December 31, 2019.
There were no restructured loans outstanding at December 31, 2020, other than those reported as non-accrual in the table above. Restructured loans at December 31, 2019 totaled $6.1 million and consisted of three credit relationships primarily related to commercial real estate.
Foreclosed assets represent property acquired as the 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.credit losses on loans. Regulatory guidelines require us to reevaluate the fair value of foreclosed assets on at least an annual basis. Our 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. Write-downs of foreclosed assets totaled $16 thousand, $217 thousand and $36$231 thousand during 2017, 20162020 and 2015 respectively.$473 thousand during 2018 while there were no write-downs in 2019. There were no significant concentrations of any properties, to which the aforementioned write-downs relate, in any single geographic region.
Accruing past due loans at December 31, 20172020 increased $27.5$44.7 million compared to December 31, 2016.2019. The increase was primarily duerelated to increases in past due energy and commercial real estate loans (up $14.4 million and $11.2 million, respectively). Accruing past due loans at December 31, 2016 increased $12.7 million compared to December 31, 2015. The increase was primarily due to an increase in past due commercial and industrial loans (up $28.3 million), past due construction loans (up $4.3$26.2 million) and past due consumer loans (up $3.3 million) partly offset byto a decrease inlesser extent past due energy loans (down $23.9(up $8.0 million ) and non-construction related commercial real estate loans (up $7.3 million).
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, 20172020 and 2016,2019, we had $61.4$85.2 million and $62.7$46.8 million in loans of this type which are not included in any one of the non-accrual, restructured or 90 days past due loan categories. At December 31, 2017,2020, potential problem loans consisted of seveneleven credit relationships. Of the total outstanding balance at December 31, 2017,2020, 32.6% was 37.7% related to the energy industry, 35.2 %30.2% was related to the manufacturinghotel/lodging industry and 14.3%19.8% was related to the restaurant industry. Weakness in these organizations’ operating performance and financial condition, and borrowing base deficits for certain energy credits, among other factors, have caused us to heighten the attention given to these credits. As such, all of the loans identified as potential problem loans at December 31, 20172020 were graded as “substandard - accrual” (risk grade 11). Potential problem loans impact
Certain borrowers are currently unable to meet their contractual payment obligations because of the allocationadverse effects of COVID-19. In an effort to mitigate these effects, loan customers may apply for a deferral of payments, or portions thereof, for up to 90 days. After 90 days, customers may apply for an additional deferral, and a small proportion of our allowance for loan lossescustomers have requested such an additional deferral. In the absence of other intervening factors, such short-term modifications made on a good faith basis are not categorized as troubled debt restructurings, nor are loans granted payment deferrals related to COVID-19 reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral). The COVID-19 pandemic has contributed to an increased risk of delinquencies, defaults and foreclosures. As a result of the COVID-19 pandemic, a significant number and amount of our risk grade based allocation methodology.loans have experienced ratings downgrades, credit deterioration and defaults. We have a significant amount of loans in certain industries that have been particularly impacted. These include energy, retail/strip centers, hotels/lodging, restaurants, entertainment and commercial real estate, among others. See additional information about the effects of and risks associated with the COVID-19 pandemic in the section captioned “Recent Developments Related to COVID-19” elsewhere in this discussion and Part I. Item 1A. Risk Factors elsewhere in this report.
66

Table of Content
Allowance For Credit Losses
As discussed in Note 31 - LoansSummary of Significant Accounting Policies in the accompanying notes to consolidated financial statements, our policies and procedures related to accounting for details regarding our allowance allocation methodology.

Allowance For Loan Losses
The allowancecredit losses changed on January 1, 2020 in connection with the adoption of a new accounting standard update as codified in Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses. In the case of loans and securities, allowances for loancredit losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of inherent 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. Our allowance for loan loss methodology includes allowance allocationsare contra-asset valuation accounts, calculated in accordance with ASC Topic 310, “Receivables” and326, that are deducted from the amortized cost basis of these assets to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance allocationsfor credit losses is a liability account, calculated in accordance with ASC Topic 450, “Contingencies.” Accordingly,326, reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. The amount of each allowance account represents management's best estimate of current expected credit losses (“CECL”) on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the methodology is based oncontractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss experience by typeinformation may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of creditour allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and internal risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions. Our process for determining the appropriate levelview of the allowance for loan losses is designedregulatory authorities toward classification of assets. For additional information regarding critical accounting policies, refer to account for credit deterioration as it occurs. The provision for loan losses reflects loan quality trends, including the levelsNote 1 - Summary of Significant Accounting Policies 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 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this reportstatements.
Allowance for further details regarding our methodology for estimating the appropriate level of the allowance for loan losses.
Credit Losses - Loans. The table below provides an allocation of the year-end allowance for loancredit losses on loans by loan type;portfolio segment; however, allocation of a portion of the allowance to one category of loanssegment does not preclude its availability to absorb losses in other categories. Certain general valuationsegments:
2020Post ASC 326 Adoption on January 1,
2020
2019201820172016
Allocation of allowance:
Commercial and industrial$73,843 $72,856 $51,593 $48,580 $59,614 $52,915 
Energy39,553 26,929 37,382 29,052 51,528 60,653 
Commercial real estate134,892 17,518 31,037 38,777 30,948 30,213 
Consumer real estate7,926 6,505 4,113 6,103 5,657 4,238 
Consumer and other6,963 5,794 8,042 9,620 7,617 5,026 
Total$263,177 $129,602 $132,167 $132,132 $155,364 $153,045 
Percentage of loans in each category to total loans:
Commercial and industrial28.4 %35.2 %35.2 %36.3 %36.4 %36.3 %
Energy7.1 11.2 11.2 11.4 11.4 11.6 
Paycheck Protection Program13.9 — — — — — 
Commercial real estate40.1 42.0 42.0 40.4 40.2 40.4 
Consumer real estate7.6 8.1 8.1 7.9 7.8 7.8 
Consumer and other2.9 3.5 3.5 4.0 4.2 3.9 
Total100.0 %100.0 %1100.0 %100.0 %100.0 %100.0 %
Upon the adoption of ASC 326 on January 1, 2020, the total amount of the allowance for credit losses on loans estimated using the CECL methodology decreased $2.6 million compared to the total amount of the allowance for credit losses on loans estimated as of December 31, 2019 using the prior incurred loss model. Fluctuations in the estimated allowances wereby portfolio segment offset one another, for the most part, and, as a result, the overall estimated amount of allowance for credit losses did not significantly change as a result of the change in methodology. The manner in which credit loss allowances are allocated to specific loanthe individual portfolio segments was partly impacted by a change in the way the underlying loans within each segment are pooled for modeling purposes. The impact of varying economic conditions and were included in unallocated allowances in years priorportfolio stress factors are now a component of the credit loss models applied to 2014. See Note 3 - Loans for details ofeach modeling pool. In that regard, the amounts allocated to specificthe underlying pools of loans within
67

Table of Content
each portfolio segments.
 2017 2016 2015 2014 2013
 
Allowance
for
Loan
Losses
 
Percentage
of Loans
in each
Category
to Total
Loans
 
Allowance
for
Loan
Losses
 
Percentage
of Loans
in each
Category
to Total
Loans
 
Allowance
for
Loan
Losses
 
Percentage
of Loans
in each
Category
to Total
Loans
 
Allowance
for
Loan
Losses
 
Percentage
of Loans
in each
Category
to Total
Loans
 
Allowance
for
Loan
Losses
 
Percentage
of Loans
in each
Category
to Total
Loans
Commercial and industrial$59,614
 36.4% $52,915
 36.3% $42,993
 35.9% $44,273
 36.9% $46,700
 39.6%
Energy51,528
 11.4
 60,653
 11.6
 54,696
 15.3
 14,919
 16.1
 6,090
 11.7
Commercial real estate30,948
 40.2
 30,213
 40.4
 24,313
 37.4
 27,163
 35.7
 22,590
 36.4
Consumer real estate5,657
 7.8
 4,238
 7.8
 4,659
 7.6
 5,178
 7.7
 5,230
 8.5
Consumer and other7,617
 4.2
 5,026
 3.9
 9,198
 3.8
 8,009
 3.6
 5,010
 3.8
Unallocated
 
 
 
 
 
 
 
 6,818
 
Total$155,364
 100.0% $153,045
 100.0% $135,859
 100.0% $99,542
 100.0% $92,438
 100.0%
Allocationsegment more directly reflect the economic variables and portfolio stress factors that correlate with credit losses within each portfolio. Under the prior methodology, allocations in excess of those derived from historical loss rates were recognized as an allocation on each of the Allowance for Loan Losses atvarious portfolios based upon management judgment. Nonetheless, despite fluctuations in the allocation of portions of the overall allowance to the various portfolio segments, the entire allowance is available to absorb any credit losses within the entire loan portfolio. The remainder of this discussion focuses on expected credit losses estimated as of December 31, 2017 vs. December 31, 20162020 compared to the post ASC 326 estimate of expected credit losses as of January 1, 2020.
The reserveallowance allocated to commercial and industrial loans totaled $73.8 million, or 1.49% of total commercial and industrial loans, at December 31, 2017 increased $6.7 million2020 increasing $987 thousand, or 1.4%, compared to December 31, 2016. The increase was due$72.9 million, or 1.40% of total commercial and industrial loans, post ASC 326 adoption on January 1, 2020. Modeled expected credit losses increased $8.5 million while qualitative factor (“Q-Factor”) adjustments related to increases in macroeconomic valuation allowances, general valuation allowancescommercial and specific valuation allowances partly offset by a decrease in historical valuation allowances. Macroeconomic valuation allowancesindustrial loans decreased $4.8 million. Specific allocations for commercial and industrial loans increased $9.0that were evaluated for expected credit losses on an individual basis decreased from $7.9 million from $7.5post ASC 326 adoption on January 1, 2020 to $5.3 million at December 31, 20162020. The allowance allocated to $16.5energy loans totaled $39.6 million, or 3.20% of total energy loans, at December 31, 2017. The increase was primarily2020 increasing $12.6 million, or 46.9%, compared to $26.9 million, or 1.63% of total energy loans, post ASC 326 adoption on January 1, 2020. Modeled expected credit losses related to energy loans increased $3.0 million while Q-Factor adjustments related to energy loans increased $20.4 million. Specific allocations for energy loans that were evaluated for expected credit losses on an individual basis totaled $20.2 million post ASC 326 adoption on January 1, 2020. The loans to which these specific allocations were related were subsequently charged off and there were $9.4 million of specific allocations related to energy loans at December 31, 2020. The allowance allocated to commercial real estate loans totaled $134.9 million, or 1.92% of total commercial real estate loans, at December 31, 2020 increasing $117.4 million, or 670.0%, compared to $17.5 million, or 0.28% of total commercial real estate loans, post ASC 326 adoption on January 1, 2020. Modeled expected credit losses related to commercial real estate loans increased $109.8 million while Q-Factor adjustments related to commercial real estate loans increased $7.5 million. Specific allocations for commercial real estate loans that were evaluated for expected credit losses on an individual basis increased from $383 thousand post ASC 326 adoption on January 1, 2020 to $513 thousand at December 31, 2020. The allowance allocated to consumer real estate loans totaled $7.9 million, or 0.60% of total consumer real estate loans, at December 31, 2020 increasing $1.4 million, or 21.8%, compared to $6.5 million, or 0.54% of total consumer real estate loans, post ASC 326 adoption on January 1, 2020. Modeled expected credit losses related to consumer real estate loans increased $2.0 million while Q-Factor adjustments related to consumer real estate loans decreased $591 thousand. The allowance allocated to consumer loans totaled $7.0 million, or 1.38% of total consumer loans, at December 31, 2020 increasing $1.2 million, or 20.2%, compared to $5.8 million, or 1.12% of total consumer loans, post ASC 326 adoption on January 1, 2020. Modeled expected credit losses related to consumer loans increased $1.3 million while Q-Factor adjustments related to consumer loans decreased $154 thousand.
As more fully described in Note 3 - Loans in the accompanying consolidated financial statements, we measure expected credit losses over the life of each loan utilizing a combination of models which measure probability of default and loss given default, among other things. The measurement of expected credit losses is impacted by loan/borrower attributes and certain macroeconomic variables. Models are adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period.
In estimating expected credit losses as of December 31, 2020, we utilized the Moody’s Analytics December 2020 BL Baseline Scenario (the “December BL Scenario”) to forecast the macroeconomic variables used in our models. The December BL Scenario was based on the review of a variety of surveys of baseline forecasts of the U.S. economy. The December BL Scenario projections included, among other things, (i) U.S. Gross Domestic Product (“GDP”) annualized quarterly growth rate of 4.6% for the fourth quarter of 2020 followed by projected annualized quarterly growth rates in the range of approximately 3.0% to 8.0% during 2021 and 6.0% to 7.5% through the end of the forecast period in the fourth quarter of 2022; (ii) a U.S. unemployment rate of 6.7% in the fourth quarter of 2020 and an average projected rate of 7.0% in 2021 and 6.0% in 2022, with the fourth quarter of 2022 projected to be 5.4% (Texas unemployment rates are projected to be slightly less for those periods); and (iii) an average 10 year Treasury rate of 0.79% in the fourth quarter of 2020, increasing to an average projected rate of 1.05% in 2021 and 2.04% in 2022. The December BL Scenario also projected average oil prices of $40 per barrel in the fourth quarter of 2020, $45 per barrel on average for the year in 2021 and $55 per barrel on average for the year in 2022, with the fourth quarter of 2022 projected to be $59 per barrel.
68

Table of Content
The economic forecast used in our initial estimate of expected credit losses under ASC 326 on January 1, 2020 projected that the Texas unemployment rate would remain below 4.0% through 2021. The increases in modeled expected credit losses across all of our loan portfolios as of December 31, 2020 compared to the modeled expected credit losses as of our initial adoption of ASC 326 on January 1, 2020 were primarily the result of changes in our economic forecast, particularly forecasts related to unemployment and the gross domestic product, as well as changes in portfolio volumes and risk attributes, as discussed below.
The overall loan portfolio, excluding PPP loans which are fully guaranteed by the SBA, increased $297.1 million, or 2.0%, which included a $824.2 million, or 13.3%, increase in the general macroeconomic allocation (up $9.6 million)commercial real estate loans and a $136.4 million, or 11.4%, increase in consumer real estate loans partly offset by a $232.1 million, or 4.5%, decrease in the environmentalcommercial and industrial loans, a $417.7 million, or 25.3%, decrease in energy loans and a $13.7 million, or 2.6% decrease in consumer and other loans. The weighted average risk adjustment (down $916 thousand). The general macroeconomic risk allocationgrade for commercial and industrial loans did not significantly change totaling 6.45 at December 31, 2017 was impacted by the increasing trends in2020 compared to 6.44 at December 31, 2019. Commercial and industrial loans graded “watch” and “special mention” (risk grades 9 and 10) increased $63.5 million during 2020 while classified commercial and industrial loans as well as the weighted-average risk grade and charge-offs related to commercial and industrial loans. General valuation allowances for commercial and industrial loans increased $2.4 million from $6.7 million at December 31, 2016 to $9.1 million at December 31, 2017. The increase was primarily related to increases in the allocations for highly leveraged credit relationships (up $2.8 million), large credit relationships (up $582 thousand) and loans not reviewed by concurrence (up $356 thousand) combined with a

decrease in the adjustment for recoveries (down $485 thousand). These items were partly offset by a decrease in the allocation for excessive industry concentrations (down $2.0 million). The increase in the allocation for highly leveraged transactions was partly related to a change in the criteria for determining whether a loan is considered to be highly leveraged. Specific valuation allowances increased $2.1 million from $5.4 million at December 31, 2016 to $7.6 million at December 31, 2017. Of the total specific valuations allowances at December 31, 2017, $5.9 million related to one credit relationship totalingdecreased $12.9 million. Charge-offs in 2017 included $5.7 million related to six credit relationships that, as of December 31, 2016, had associated specific valuation allowances totaling $4.4 million. Charge-offs in 2017 also included $10.4 million related to two credit relationships for which we had no specific allocation as of December 31, 2016, or at the time of charge-off. Historical valuation allowances decreased $6.9 million from $33.3 million at December 31, 2016 to $26.4 million at December 31, 2017. The decrease was primarily related to decreases in the historical loss allocation factors for non-classified loans graded as “watch” (risk grade 9) and “special mention” (risk grade 10) and classified commercial and industrial loans partly offset by increases in the volume of certain categories of both non-classified and classified loans. Classified loans consist of loans having a risk grade of 11, 12 or 13. Classified commercial and industrial loans totaled $144.0 million at December 31, 2017 compared to $131.9 million at December 31, 2016. The weighted-average risk grade of commercial and industrialfor energy loans was 6.41increased to 6.85 at December 31, 2017 compared to 6.352020 from 6.39 at December 31, 2016. Commercial and industrial loan net charge-offs totaled $17.5 million during 2017 compared to $12.3 million during 2016.
2019. The reserve allocated to energy loans at December 31, 2017 decreased $9.1 million compared to December 31, 2016. As a result, reserves allocated to energy loans as a percentage of total energy loans totaled 3.44% at December 31, 2017 compared to 4.38% at December 31, 2016. This decreaseincrease in the weighted average risk grade was primarily related to decreasesa $6.6 million increase in historical valuation allowances and macroeconomic valuation allowances partly offset by increases in specific valuation allowances and general valuation allowances. Historical valuation allowances decreased $12.6 million from $34.6 million at December 31, 2016 to $22.1 million at December 31, 2017. The decrease was primarily related to decreases in the volume of classified energy loans and higher risk categories of non-classifieda $95.9 million increase in energy loans partly offset by increases in the historical loss allocation factors for both non-classifiedgraded “watch” and classified energy loans. Classified“special mention,” while pass grade energy loans totaled $185.2 milliondecreased $520.2 million. The weighted average risk grade for commercial real estate loans increased to 7.32 at December 31, 2017 compared to $302.0 million2020 from 7.07 at December 31, 2016, decreasing $116.8 million. Non-classified energy2019. Commercial real estate loans graded as “watch” and “special mention” (risk grades 9 and 10) totaled $114.7increased $390.8 million atwhile classified commercial real estate loans increased $72.9 million.
As noted above our credit loss models utilized the economic forecasts in the Moody’s BL Baseline Scenario for December 2020 for our estimate of expected credit losses as of December 31, 2017 compared2020. We qualitatively adjust the model results based on this scenario for various risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These Q-Factor adjustments are discussed below.
Q-Factor adjustments are based upon management judgment and current assessment as to $229.4 million at December 31, 2016, decreasing $114.7 million while "pass" grade energy loans increased $344.5 million from $854.7 million at December 31, 2016the impact of risks related to $1.2 billion at December 31, 2017.changes in lending policies and procedures; economic and business conditions; loan portfolio attributes and credit concentrations; and external factors, among other things, that are not already captured within the modeling inputs, assumptions and other processes. Management assesses the potential impact of such items within a range of severely negative impact to positive impact and adjusts the modeled expected credit loss by an aggregate adjustment percentage based upon the assessment. As a result of these changes,this assessment as of December 31, 2020, modeled expected credit losses were adjusted upwards by a weighted-average Q-Factor adjustment of approximately 1.2%, and decreasing from 12.9% upon the adoption of ASC 326 on January 1, 2020 (as further discussed below). The weighted-average risk grade of energy loans decreased to 6.97Q-Factor adjustment at December 31, 2017 compared2020 was based on a positive expected impact related to 7.95 atchanges in lending policies, procedures and underwriting standards; a limited negative expected impact associated with changes in loan portfolio attributes and concentrations, changes in risk grades, changes in the volumes and severity of loan delinquencies and adverse classifications and potential deterioration of collateral values; and a severely negative impact from other risk factors associated with our commercial real estate construction and land loan portfolios, particularly the risks related to expected extensions.
In connection with our assessment of Q-Factor adjustments for our initial estimate of expected credit losses upon the adoption of ASC 326 on January 1, 2020, modeled expected credit losses were adjusted upwards by a weighted-average Q-Factor adjustment of approximately 12.9%, which included a 10% upward adjustment to modeled expected credit losses related to risks associated with model uncertainty. This adjustment was based upon the results of certain back testing procedures performed on our credit loss models. The Q-Factor adjustment as of December 31, 2016. Macroeconomic valuation allowances2020 did not include this additional 10% upward adjustment related to energy loans decreased $10.3 million from $18.5 million atrisks associated with model uncertainty. While management believed the 10% adjustment was appropriate given the economic environment prevailing as of January 1, 2020, as of December 31, 20162020, in consideration of the current economic conditions, management determined it was more appropriate to $8.2 million at December 31, 2017,apply overlays to certain individual portfolios based upon analysis and management judgement.
69

Table of Content
Management also made certain other qualitative adjustments for loans within certain industries that are expected to be more significantly impacted by the COVID-19 pandemic and oil price volatility and declines as described below.
In early March 2020, Saudi Arabia announced significant price discounts on oil which resulted in part duea sharp decrease in global oil prices including the benchmark WTI. Saudi Arabia further announced that it would significantly increase its production leading Russia to improving trendsrespond in kind. These actions arose in the weighted-average risk gradeface of the energy loan portfolioincreasing global supplies and decreasing global demand. The subsequent worsening global economic outlook and decreased oil price volatility.demand resulting from the COVID-19 pandemic resulted in further decreases in energy prices. The WTI price per barrel of crude oil was approximately $54 at December 31, 2016 and $60 at December 31, 2017. Specific valuation allowances for energy loans increased $9.5 million from $3.8 million at December 31, 2016 to $13.3 million at December 31, 2017. Specific valuation allowances at December 31, 2017 were related to two credit relationships totaling $61.2 million while specific valuation allowances at December 31, 2016 were related to three credit relationships totaling $29.8 million. Energy loan net charge-offs totaled $10.0 million during 2017 compared to net charge-offs of $18.6 million during 2016. The charge-offs in 2017 included $10.0 million related to two credit relationships that,$48 as of December 31, 2016, had2020 up from $20 per barrel as of March 31, 2020 but still down from approximately $61 per barrel as of December 31, 2019. In late March 2020, we established a special Energy Oversight Council to oversee and assess the credit quality of our energy loan portfolio.
As of December 31, 2020, we provided an additional qualitative adjustment for our energy loan portfolio. This adjustment was estimated based on borrowing base determinations for our energy production loans using current engineering valuations and a projected oil price deck of $36 for 2021 and increasing to $40 for 2022. We also perform an analysis of our customers' secondary sources of capital. Through this process at December 31, 2020, we estimated an aggregate borrowing base deficiency on energy production loans totaling approximately $31.8 million. Management believes that the aggregate borrowing base deficiency amount should serve as the appropriate level of expected credit losses for energy production loans. Accordingly, this resulted in an additional qualitative adjustment of $21.1 million for energy production loans at December 31, 2020.
We performed a separate assessment of other energy loans which are primarily made up of borrowers associated specific valuation allowances totaling $3.4 million. The charge-offswith oilfield services such as transportation and logistics; equipment manufacturing and other services, among other things. Business activity among oilfield service firms experienced significant contraction during the latter part of the first quarter and through the third quarter. Business activity increased in 2016 were primarilythe fourth quarter; however, capital expenditures among oilfield service firms remain depressed. There has been a significant decrease in the number of active oil rigs in Texas since March 2020, though the rate of decline in utilization slowed considerably by the third quarter of 2020 relative to the second quarter and the utilization rate saw positive improvement in the fourth quarter of 2020. While operating margins within the oilfield services sector have continued to decline, the outlook is starting to show improvement. Based on the level of modeled expected credit losses for this portfolio and the expectation of more stabilized conditions with regard to business activity related to three largeoilfield services, we determined that no additional qualitative adjustment for non-production energy loans was necessary as of December 31, 2020.
In late June 2020, we established a special Commercial Real Estate Oversight Council to oversee and assess the credit relationshipsquality of our non-owner occupied and construction commercial real estate loan portfolios. Due to the adverse economic effects of the COVID-19 pandemic, management believes these portfolios have an elevated level of risk that requires a higher level of oversight, particularly as it relates to monitoring risk grades, payment deferrals, covenant modifications and structuring issues, among other things.
In estimating current expected credit losses as of December 31, 2020, we determined that our credit loss models for which, atour owner occupied commercial real estate loan portfolio were overly sensitive to the time we recognizedvolatility of the charged-offs, we had associated specific valuation allowances totaling $27.5 million. General valuation allowances increased $4.2 million during 2017 compared to 2016 primarilyforecasted Texas unemployment rate and the forecasted U.S. GDP. The modeled loss rate for this portfolio was significantly higher than the modeled loss rate for our commercial and industrial loan portfolio. Management believes that the loss rates for our owner occupied commercial real estate loan portfolio and our commercial and industrial loan portfolio should be similar due to an increasethe fact that that the loans within both portfolios are underwritten with the assumption that the primary repayment source is the cash flow from the operations of the borrower. This differs from non-owner occupied real estate where the primary repayment source is the cash flow generated by the underlying real estate being financed. Furthermore, our owner occupied commercial real estate loan portfolio and our commercial and industrial loan portfolio have a similar customer base. The loans within our owner occupied commercial real estate loan portfolio generally have a longer term than the loans within our commercial and industrial loan portfolio, which increases the modeled loss rate of the portfolio, despite the fact that this portfolio generally experiences lower losses in the case of default due to higher collateral valuations relative to the amount of the underlying loans. In light of the foregoing, management reduced the modeled loss allocation for highly leveraged transactions (up $3.3 million) and excessive industry concentrations (up $1.0 million) partly offset by an increase in the adjustment for recoveries (up $530 thousand). The increase in the allocation for highly leveraged transactions was partly related to a change in the criteria for determining whether a loan is considered to be highly leveraged.
The reserve allocated toowner occupied commercial real estate loans at December 31, 2017 increased $735 thousand compared to December 31, 2016. The increase was primarily related to an increase in historical valuation allowances partly offset by decreases in general valuation allowances and macroeconomic valuation allowances. Historical valuation allowances increased $2.0$42.1 million primarily due to an increase in the volume of non-classified commercial real estate loans. Non-classified commercial real estate loans increased $451.5 million from December 31, 2016 to December 31, 2017 primarily due to an increase in commercial real estate loans graded as “pass.” Classified commercial real estate loans decreased $478 thousand from $76.3 million at December 31, 2016 to $75.8 million at December 31, 2017. The weighted-average risk grade of commercial real estate loans was 7.05 at December 31, 2017 compared to 6.96 at December 31, 2016. Macroeconomic valuation allowances decreased $381 thousand from $8.2 million at December 31,

2016 to $7.9 million at December 31, 2017. The decrease was primarily related to decreases in the general macroeconomic allocation (down $814 thousand) and the distressed industries allocation (down $156 thousand) partly offset by an increase in the environmental risk adjustment (up $589 thousand).
The reserve allocated to consumer real estate loans at December 31, 2017 increased $1.4 million compared to December 31, 2016. This increase was mostly due to a $627 thousand increase in general valuation allowances, which was primarily related to an increase in allowances allocated for loans not reviewed by concurrence and a decrease in the reduction for recoveries, and a $544 thousand increase in macroeconomic valuation allowances.
The reserve allocated to consumer and other loans at December 31, 2017 increased $2.6 million compared to December 31, 2016. The increase was primarily related to increases in macroeconomic valuation allowances (up $1.5 million) and historical valuation allowances (up $1.0 million). The increase in macroeconomic valuation allowances was related to a $1.4 million increase in the general macroeconomic allocation, which was primarily related to growth in unsecured personal lines of credit. The increase in historical valuation allowances was primarily due to an increase in the volume of non-classified consumer and other loans.
Allocation of the Allowance for Loan Losses at December 31, 2016 vs. December 31, 2015
The reserve allocated to commercial and industrial loans at December 31, 2016 increased $9.9 million compared to December 31, 2015. The increase was due to an increase in historical and specific valuation allowances partly offset by decreases in general valuation allowances and macroeconomic valuation allowances. Historical valuation allowances increased $7.8 million from $25.4 million at December 31, 2015 to $33.3 million at December 31, 2016. The increase was primarily related to increases in the volume of classified loans graded as "substandard - accrual" (risk grade 11) and non-classified loans graded as “watch” (risk grade 9) and “special mention” (risk grade 10) combined with an increase in the historical loss allocation factor applied to non-classified commercial and industrial loans graded as “watch.” Classified commercial and industrial loans totaled $131.9 million at December 31, 2016 compared to $74.6 million at December 31, 2015. The weighted-average risk grade of commercial and industrial loans was 6.35 at December 31, 2016 compared to 6.13 at December 31, 2015. Commercial and industrial loan net charge-offs totaled $12.3 million during 2016 compared to $6.5 million during 2015. Specific valuation allowances increased $3.1 million from $2.4 million at December 31, 2015 to $5.4 million at December 31, 2016. General valuation allowances for commercial and industrial loans decreased $631 thousand from $7.3 million at December 31, 2015 to $6.7 million at December 31, 2016. The decrease was primarily related to an increase in the adjustment for recoveries (up $343 thousand) and decreases in allocations for loans not reviewed by concurrence (down $310 thousand), policy exceptions (down $220 thousand), highly leveraged credit relationships (down $213 thousand) and large credit relationships (down $168 thousand) partly offset by an increase in allocations for excessive industry concentrations (up $623 thousand). The increase in allocations for excessive industry concentration was due to increased risk concentrations related to credits within the nursing/assisted living, chemicals and financial services industries offset by decreased risk concentrations within the food manufacturing and contractors industries and within our shared national credits. Macroeconomic valuation allowances for commercial and industrial loans decreased $328 thousand from $7.8 million at December 31, 2015 to $7.5 million at December 31, 2016. The decrease was primarily related to a decrease in the distressed industries allocation (down $1.2 million) partly offset by an increase in the environmental risk adjustment (up $856 thousand). The decrease in the distressed industries allocation was primarily related to improvements in the weighted-average risk grades of certain segments of the contractors industry relative to the weighted-average risk grade for all pass-grade loans within the overall loan portfolio segment. The increase in the environmental risk adjustment was primarily related to the aforementioned increase in the base historical valuation allowances to which the environmental risk adjustment factor is applied.
The reserve allocated to energy loans at December 31, 2016 increased $6.0 million compared to December 31, 2015. As a result, reserves allocated to energy loans as a percentage of total energy loans totaled 4.38% at December 31, 2016 compared to 3.11% at December 31, 2015. This increase was primarily related to increases in historical valuation allowances and specific valuation allowances partly offset by decreases in macroeconomic valuation allowances and general valuation allowances. Historical valuation allowances increased $13.4 million from $21.2 million at December 31, 2015 to $34.6 million at December 31, 2016. The increase in historical valuation allowances was partly due to increases in the volume of classified energy loans, particularly those graded as “substandard - accrual” (risk grade 11), and non-classified energy loans graded as “special mention” (risk grade 10). These increases were partly offset by the impact of decreases in the volume of non-classified energy loans graded as “pass” and “watch” and decreases in the historical loss allocation factor applied to non-classified energy loans graded as “pass” and “special mention” and classified energy loans graded as “substandard” (risk grades 11 and 12). Classified energy loans totaled

$302.0 million at December 31, 2016 compared to $98.0 million at December 31, 2015. Non-classified energy loans graded as “watch” and “special mention” (risk grades 9 and 10) totaled $229.4 million at December 31, 2016 compared to $274.4 million at December 31, 2015, decreasing $45.0 million while "pass" grade energy loans decreased $531.1 million from $1.4 billion at December 31, 2015 to $854.7 million at December 31, 2016. The overall decrease in non-classified energy loans reflects the migration of energy loans into higher risk grade categories as well as an overall decrease in the size of our energy loan portfolio, particularly within the production and service sectors of the energy industry. The weighted-average risk grade of energy loans was 7.95 at December 31, 2016 compared to 6.89 at December 31, 2015. This upward migration in the weighted-average risk grade for energy loans was influenced by regulatory guidance related to energy loan classifications. Specific valuation allowances for energy loans increased $1.8 million from $2.0 million at December 31, 2015 to $3.8 million at December 31, 2016. At such dates, the majority of the specific valuation allowances were related to the same credit relationship which had an outstanding balance of $12.5 million at December 31, 2015 and $7.2 million at December 31, 2016, with the decrease mostly resulting from a partial charge-off. Energy loan net charge-offs totaled $18.6 million during 2016 compared to $6.0 million during 2015. The charge-offs in 2016 were primarily related to three large credit relationships for which, at the time we recognized the charged-offs, had associated specific valuation allowances totaling $27.5 million. Macroeconomic valuation allowances related to energy loans totaled $18.5 million at December 31, 2016 compared to $26.0 million at December 31, 2015. As further discussed below, during 2015, as a result of a sensitivity stress test, we recognized an additional $22.0 million provision for loan losses to allocate additional reserves for the added inherent risk resulting from continued oil price volatility and the ongoing downturn in the energy industry. The price per barrel of crude oil was approximately $37 at December 31, 2015, decreasing sharply to a low-point of approximately $26 in February 2016 and rebounding to approximately $54 at December 31, 2016. The decrease in the reserve allocated for general macroeconomic risk resulted as oil prices have rebounded and the level of volatility has decreased. General valuation allowances decreased $1.8 million during 2016 compared to 2015 primarily due to a decrease in allocations for excessive industry concentrations (down $1.1 million), due to decreased risk concentrations related to energy service, energy equipment manufacturing and energy production credits, and, to a lesser extent, decreases in allocations for large credit relationships (down $236 thousand) and highly leveraged credit relationships (down $180 thousand).
The reserve allocated to commercial real estate loans at December 31, 2016 increased $5.9 million compared to December 31, 2015. The increase was primarily related to an increase in macroeconomic valuation allowances and, to a lesser extent, increases in historical and general valuation allowances. Macroeconomic valuation allowances increased $4.1 million from $4.2 million at December 31, 2015 to $8.2 million at December 31, 2016. The increase was primarily related to current economic trends impacting our Houston market area as on-going weakness in the energy sector has impacted the market's commercial real estate sector resulting in decreased construction, more rent concessions and higher vacancy rates. Historical valuation allowances increased $1.4 million primarily due to increases in the volume of non-classified commercial real estate loans and classified commercial real estate loans graded as “substandard - accrual” (risk grade 11), partly offset by decreases in the historical loss allocation factors for all grades of commercial real estate loans. Non-classified commercial real estate loans increased $553.2 million from December 31, 2015 to December 31, 2016 primarily due to an increase in commercial real estate loans graded as “pass.” Classified commercial real estate loans decreased $10.5 million from $86.8 million at December 31, 2015 to $76.3 million at December 31, 2016 as a $26.5 million decrease in commercial real estate loans classified as “substandard - non-accrual” (risk grade 12) was partly offset by a $16.1 million increase in commercial real estate loans classified as “substandard - accrual” (risk grade 11). The weighted-average risk grade of commercial real estate loans was 6.96 at December 31, 2016 compared to 6.88 at December 31, 2015. General valuation allowances increased $385 thousand during 2016 compared to 2015 primarily due to an increase in the allocation for highly leveraged credit relationships (up $1.3 million), primarily due to an increase in the volume of such credit relationships, partly offset by decreases in allocations for loans not reviewed by concurrence (down $578 thousand), policy exceptions (down $177 thousand) and excessive concentrations (down $152 thousand), among other things. There were no specific valuation allowances related to commercial real estate loans at December 31, 2016 or 2015.
The reserve allocated to consumer real estate loans at December 31, 2016 decreased $421 thousand compared to December 31, 2015. This decrease was mostly due to a decrease in general valuation allowances allocated for loans not reviewed by concurrence (down $475 thousand) and an increase in the reduction for recoveries (up $71 thousand) partly offset by an increase in historical valuation allowances (up $116 thousand).
The reserve allocated to consumer and other loans at December 31, 2016 decreased $4.2 million compared to December 31, 2015. The decrease was primarily related to decreases in historical valuation allowances (down $8.2 million) and macroeconomic valuation allowances (down $2.7 million) partly offset by an increase in general valuation allowances (up $6.8 million). The decrease in historical valuation allowances was primarily due to a decrease

in the historical loss allocation factor applied to consumer and other loans, which was related to a change in the way we estimate valuation allowances for consumer and other loans and, now separately, for overdrafts (See Note 3 - Loans). The decrease in macroeconomic valuation allowances was related to a decrease in the environmental risk adjustment due to a decrease in the environmental risk adjustment factor and decreases in the historical valuation allowances to which the environmental adjustment factor is applied. The increase in general valuation allowances was primarily related to a decrease in the adjustment for recoveries, which was primarily related to the aforementioned change in the way we estimate valuation allowances for consumer and other loans and, now separately, for overdrafts.
Allocation of the Allowance for Loan Losses at December 31, 2015 vs. December 31, 2014
The reserve allocated to commercial and industrial loans at December 31, 2015 decreased $1.3 million compared to December 31, 2014. This decrease was primarily related to decreases in macroeconomic valuation allowances and general valuation allowances related to credit and collateral exceptions and highly leveraged credit relationships partly offset by a decrease in the adjustment for recoveries and increases in general valuation allowances related to excessive industry concentrations and specific valuation allowances. Macroeconomic valuation allowances for commercial and industrial loans totaled $7.8 million at December 31, 2015 compared to $12.1 million at December 31, 2014. The decrease was partly related to a decrease in classified loans (loans having a risk grade of 11, 12 or 13) from $88.9 million at December 31, 2014 to $74.6 million at December 31, 2015 and the continued positive trends in the weighted-average risk grade of commercial and industrial loans and the level of gross charge-offs. The weighted-average risk grade of commercial and industrial loans was 6.13 at December 31, 2015 compared to 6.16 at December 31, 2014 and 6.27 at December 31, 2013. Gross commercial loan charge-offs totaled $11.1 million in 2015 compared to $12.1 million in 2014 and $32.0 million in 2013. The decrease in the macroeconomic valuation allowance was also partly related to a decrease in the distressed industries allocation for commercial and industrial loans (down $640 thousand). The decrease in the distressed industries allocation was primarily related to improvements in the weighted-average risk grades of certain segments of the contractors industry relative to the weighted-average risk grade for all pass-grade loans within the overall loan portfolio segment. In 2015, we began including the impact of credit and collateral exceptions within our loan risk grade matrix and thus as a component of our historical valuation allowances. Prior to 2015, we had separate general valuation allowance allocations for credit and collateral exceptions. Allocations for credit and collateral exceptions totaled $1.2 million at December 31, 2014. General valuation allowances related to highly leveraged credit relationships decreased $978 thousand during 2015 compared to 2014 primarily due to a decrease in the volume of such credit relationships. The adjustment for recoveries decreased $2.4 million during 2015 compared to 2014 primarily due to the lower level of adjusted recoveries experienced in 2015 relative to 2014. General valuation allowances related to excessive industry concentrations increased $2.1 million during 2015 compared to 2014 primarily due to increased risk concentrations related to credits within the food manufacturing, lodging, financial services and chemicals industries as well as increased risk concentrations within shared national credits. Specific valuation allowances for commercial and industrial loans increased $765 thousand during 2015 compared to 2014.
The reserve allocated to energy loans at December 31, 2015 increased $39.8 million compared to December 31, 2014. This increase was primarily related to increases in macroeconomic valuation allowances, historical valuation allowances, general valuation allowances related to excessive industry concentrations and specific valuation allowances. Macroeconomic valuation allowances related to energy loans totaled $26.0 million at December 31, 2015 compared to $5.5 million at December 31, 2014. The increase in macroeconomic valuation allowances was reflective of continued oil price volatility and the ongoing downturn in the energy industry. The price per barrel of crude oil was approximately $53 as of December 31, 2014 decreasing2020. Of this amount, $4.8 million was reallocated to approximately $37 as of December 31, 2015. The impact of this decline was reflected in the upward migration of the weighted average risk-grade of our energy loan portfolio to 6.89 at December 31, 2015 from 5.45 at December 31, 2014. We performed a sensitivity stress test on individual loans within our energy loan portfolio as of December 31, 2015. In connection with this analysis, we assumed a reduction of oil prices to $28.13, or 75% of the 2016 oil price deck of $37.50. We also assessed the financial strength of individual borrowers, the quality of collateral, the relative experience of the individual borrowers and their ability to withstand an economic downturn. This review encompassed approximately 83% of our outstanding energy loans, including approximately 90% of production-related loans. As a result of our analysis, we recognized an additional $22.0 million provision for loan losses during the fourth quarter of 2015 to allocate additional reserves for the added inherent risk within our energy loan portfolio resulting from the continued oil price volatility and the ongoing downturn in the energy industry. Macroeconomic valuation allowances for energy loans were also impacted by the environmental risk adjustment which increased $2.1 million during 2015 compared to 2014. Historical valuation allowances increased $14.0 million. The increase in historical valuation allowances was due to an increase in the volume of classified energy loans, particularly those graded as “substandard - accrual” (risk grade 11) and an increase in the volume of non-classified energy loans graded as “watch” (risk grade 9) and “special mention” (risk grade 10). Classified energy loans (loans

having a risk grade of 11, 12 or 13) totaled $98.0 million at December 31, 2015 compared to $6.0 million at December 31, 2014. Non-classified energy loans graded as “watch” and “special mention” (risk grades 9 and 10) totaled $274.4 million at December 31, 2015 compared to $27.5 million at December 31, 2014. Historical valuation allowances were also partly impacted by the aforementioned change in our allocation methodology related to credit and collateral exceptions. As discussed above, general valuation allowances related to credit and collateral exceptions are now captured within our loan risk grade matrix and are a component of our historical valuation allowances. The impact of the aforementioned volume increases and methodology change in 2015 was partly offset by decreases in the historical loss allocation factors applied to certain categories of non-classified and classified energy loans. The reserve allocated for excessive industry concentrations increased $2.1 million during 2015 compared to 2014 primarily due to increased risk concentrations related to energy service, energy production and energy equipment manufacturing credits. Specific valuation allowances for energy loans totaled $2.0 million at December 31, 2015 while there were no specific valuation allowances for energy loans at December 31, 2014.
The reserve allocated tonon-owner occupied commercial real estate loans at December 31, 2015 decreased $2.9 million compared to December 31, 2014. The decrease was primarily related to decreases in macroeconomic valuation allowances and general valuation allowances related to credit and collateral exceptions and highly leveraged credit relationships partly offset by a decrease in the adjustment for recoveries combined with increases in historical valuation allowances and general valuation allowances related to large credit relationships. Macroeconomic valuation allowances for commercial real estate construction loan portfolios. Additional qualitative adjustments were made for these portfolios as we believe our borrowers' ability to access the capital markets for the sale or refinancing of assets, including those under construction, may be impaired
70

Table of Content
for a significant amount of time. This would require secondary sources of capital and liquidity to support completed projects, access to which may take considerably longer to stabilize than was expected at the time the loans totaled $4.2to these borrowers were originally underwritten. Additionally, management reallocated an additional $44.9 million at December 31, 2015 compared to $7.1 million at December 31, 2014. Despite increases in classifiedfor specific industries within the commercial real estate loansloan portfolio and the weighted-average risk grade of commercial real estate loans, the decrease in macroeconomic valuation allowances$2.2 million for commercial real estate loans primarily reflected the relatively low level of net charge-offs experienced in recent years. We had net recoveries related to commercial real estate loans totaling $332 thousand in 2015 compared to net charge-offs of $2.0 million in 2014 and $125 thousand in 2013. As mentioned above, in 2015 we began including the impact of credit and collateral exceptions within our loan risk grade matrix and thus as a component of our historical valuation allowances. Prior to 2015, we had separate general valuation allowance allocations for credit and collateral exceptions. Allocations for credit and collateral exceptions totaled$681 thousand at December 31, 2014. General valuation allowances related to highly leveraged credit relationships decreased $594 thousand during 2015 compared to 2014 primarily due to a decrease in the volume of such credit relationships. The adjustment for recoveries decreased $811 thousand during 2015 compared to 2014 primarily due to the lower level of recoveries experienced in 2015 relative to 2014. Historical valuation allowances increased $860 thousand from $14.7 million at December 31, 2014 to $15.5 million at December 31, 2015. The increase in historical valuation allowances was due to an increase in the volume of non-classified commercial real estate loans particularly those graded as “pass” and “watch” (risk grade 9) and, to a lesser extent, classified commercial real estate loans. Non-classified commercial real estate loans increased $355.9 million from December 31, 2014 to December 31, 2015. This increase included a $296.7 million increase in commercial real estate loans graded as “pass” and a $73.1 million increase in commercial real estate loans graded as “watch” (risk grade 9) partly offset by a $13.9 million decrease in commercial real estate loans graded as “special mention” (risk grade 10). Classified commercial real estate loans (loans having a risk grade of 11, 12 or 13) increased $20.9 million from $65.8 million at December 31, 2014 to $86.8 million at December 31, 2015. The weighted-average risk grade of commercial real estate loans was 6.88 at December 31, 2015 compared to 6.79 at December 31, 2014. Historical valuation allowances were also partly impacted by a change in our allocation methodology related to credit and collateral exceptions, as discussed above. General valuation allowances related to large credit relationships increased $206 thousand during 2015 compared to 2014 primarily due to increases in the volumes of such credit relationships.
The reserve allocated to consumer real estate loans at December 31, 2015 decreased $519 thousand compared to December 31, 2014. This decrease was primarily due to a decrease in the macroeconomic valuation allowances combined with an increase in the adjustment for recoveries partly offset by increases in general valuation allowances for loans not reviewed by concurrence and historical valuation allowances.
The reserve allocated to consumer and other loans at December 31, 2015 increased $1.2 million compared to December 31, 2014. 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. This increase was partly offset by an increase in the adjustment for recoveries combined with a decrease in macroeconomic valuation allowances.

Allocation of the Allowance for Loan Losses at December 31, 2014 vs. December 31, 2013
The reserve allocated to commercial and industrial loans at December 31, 2014 decreased $2.4 million compared to December 31, 2013. At December 31, 2014, the reserve allocated to commercial and industrial loans included general valuation allowances related to policy exceptions ($1.5 million) and credit and collateral exceptions ($1.2 million) and certain macroeconomic valuation allowances ($3.9 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 $8.9 million compared to December 31, 2013. This decrease was primarily related to decreases in macroeconomic valuation allowances related to distressed industries, allocations for specific loans and general valuation allowances related to highly leveraged credit relationships and an increase in the adjustment for recoveries. The macroeconomic valuation allowance related to distressed industries within our commercial and industrial loan portfolio segment decreased $4.7 millionthat have been particularly impacted by the economic effects of the COVID-19 pandemic, as further discussed below. The net effect of these additional qualitative adjustments, when combined with the aforementioned 1.2% weighted-average Q-Factor adjustment, was an overall negative qualitative adjustment to the allowance for credit losses on commercial real estate loans totaling $9.3 million.
The COVID-19 pandemic has resulted in a significant decrease in commercial activity throughout the State of Texas as well as nationally. Efforts to limit the spread of COVID-19 have led to the closure of non-essential businesses, travel restrictions, supply chain disruptions and prohibitions on public gatherings, among other things, throughout many parts of the United States and, in particular, the markets in which we operate. Aside from $7.8 million atthe energy industry, which is discussed above, we lend to customers operating in certain other industries that have been, and are expected to be, more significantly impacted by the effects of the COVID-19 pandemic. These industries are presented in the following table and include amounts reported as both commercial and industrial loans and commercial real estate loans while PPP loans are excluded.
Outstanding Balance at December 31, 2020Percentage of Total Loans, Excluding PPP LoansAllocated AllowanceAllocated Allowance as a Percentage of Outstanding Balance
Retail/strip centers$916,633 6.09 %$21,049 2.30 %
Hotels/lodging268,825 1.79 24,546 9.13 
Restaurants277,054 1.84 20,617 7.44 
Entertainment126,266 0.84 6,151 4.87 
Total$1,588,778 10.56 %$72,363 4.55 %
We are continuing to monitor customers in these industries closely. In assessing these portfolios for an additional qualitative adjustment as of 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 segments2020, we performed a comprehensive review of the contractors industry to a level below thatfinancial condition and overall outlook of the weighted-averageborrowers within these portfolios. Based on this analysis, we determined that there continues to be an elevated level of risk grade for all pass-grade loans within the overall loan portfolio segment.due to state and nationwide restrictions impacting each of these industries. As a result, we provided an additional distressed industry allocations were no longer necessaryqualitative adjustment of $47.1 million, which, 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. General valuation allowances related to highly leveraged credit relationships decreased $1.0 million during 2014 compared to 2013 due to a decrease in the volume of such credit relationships. The adjustment for recoveries increased $2.1 million during 2014 compared to 2013 primarily due to the higher level of recoveries.
The reserve allocated to energy loans at December 31, 2014 increased $8.8 million compared to December 31, 2013. At December 31, 2014, the reserve allocated to energy loans included general valuation allowances related to policy exceptions ($410 thousand) and credit and collateral exceptions ($319 thousand) and certain macroeconomic valuation allowances ($3.9 million) which were previously reported as components of unallocated reserves at December 31, 2013. Excluding the effect of these items, the reserve allocated to energy loans at December 31, 2014 increased $4.2 million compared to December 31, 2013. This increasemost part, was primarily related to increases in historical valuation allowances, macroeconomic valuation allowances related to the environmental risk adjustment and general valuation allowances related to highly leveraged credit relationships partly offset by an increase in the adjustment for recoveries. Historical valuation allowances increased $3.0 million from $4.1 million at December 31, 2013 to $7.2 million at December 31, 2014. The increase in historical valuation allowances was primarily due to an increase in the volume of non-classified energy loans and increases in the historical loss allocation factors applied to certain categories of non-classified and classified energy loans. Macroeconomic valuation allowances related to the environmental risk adjustment increased $560 thousand during 2014 compared to 2013. General valuation allowances related to highly leveraged credit relationships increased $449 thousand during 2014 compared to 2013 due to an increase the in the volume of such credit relationships. The adjustment for recoveries increased $499 thousand during 2014 compared to 2013 primarily due to the higher level of recoveries.
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 general valuation allowances related to policy exceptions ($875 thousand) and credit and collateral exceptions ($681 thousand) and certain macroeconomic valuation allowances ($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 macroeconomic valuation allowances related to distressed industries mostly offset by increases in historical valuation allowances and general valuation allowances related to highly leveraged credit relationships and 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 during 2014 compared to 2013 primarily due to the higher level of recoveries. Macroeconomic valuation allowances related to distressed industries within our commercial real estate loan portfolio segment 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. General valuation allowances related to highly leveraged credit relationships and large credit relationships increased $728 thousand and $478 thousand, respectively, during 2014 compared to 2013 primarily due to increases in the volumes of such credit relationships.

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 certain macroeconomic valuation allowances ($715 thousand) which were previously reported as a component of unallocated reserves at December 31, 2013. Excluding the effect of these allocations, 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 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 certain macroeconomic valuation allowances ($1.1 million) which were previously reported as a component of unallocated reserves at December 31, 2013. Excluding the effect of these allocations, 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.
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, general valuation allowances related to loans originated with policy, credit and/or collateral exceptions that exceed specified risk grades and certain macroeconomic valuation allowances were allocated to specific loan portfolio segments, rather than left unallocated. The aggregate general valuation allowance allocated to specific loan portfolio segments related to policy exceptions totaled $2.8 million at December 31, 2014 compared to $2.5 million in general valuation allowances related to policy exceptions reported as a part of the unallocated portion of the allowance for loan losses at December 31, 2013. The aggregate general valuation allowance 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 general valuation allowances 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 amount of certain macroeconomic valuation allowances allocated to specific loan portfolio segments totaled $13.1 million at December 31, 2014 compared to $2.9 million in such valuation allowances reported as a part of the unallocated portion of the allowance for loan losses at December 31, 2013. The overall increase in macroeconomic valuation allowances in 2014 compared to 2013 was reflective of loan growth that was occurring in a positively trending but uncertain economic environment as reflected in the prevailing market volatility and decreasing oil prices. We had also experienced an increase in past due loans, though the overall combined level of classified commercial and industrial, energy and commercial real estate loans had decreased $40.1 million since December 31, 2013 while the weighted-average risk grade of these portfolios was 6.29% at December 31, 2014 compared to 6.40% at December 31, 2013.

Activity in the allowance for loancredit losses ison loans and other related ratios are presented in the following table.
20202019201820172016
Balance at beginning of period$132,167 $132,132 $155,364 $153,045 $135,859 
Impact of adopting ASC 326(2,565)— — — — 
Credit loss expense237,010 33,759 21,613 35,460 51,673 
Charge-offs:
Commercial and industrial(18,908)(14,117)(26,076)(20,619)(15,910)
Energy(76,107)(7,500)(13,940)(10,595)(18,644)
Commercial real estate(7,499)(1,025)(619)(86)(82)
Consumer real estate(2,186)(3,665)(2,143)(925)(814)
Consumer and other(17,830)(24,725)(17,197)(15,579)(12,878)
Total charge-offs(122,530)(51,032)(59,975)(47,804)(48,328)
Recoveries:
Commercial and industrial4,739 3,986 3,688 3,166 3,651 
Energy2,842 1,442 819 586 56 
Commercial real estate446 219 369 832 918 
Consumer real estate1,701 1,208 605 419 557 
Consumer and other9,367 10,453 9,649 9,660 8,659 
Total recoveries19,095 17,308 15,130 14,663 13,841 
Net charge-offs(103,435)(33,724)(44,845)(33,141)(34,487)
Balance at end of period$263,177 $132,167 $132,132 $155,364 $153,045 
71

Table of Content
 2017 2016 2015 2014 2013
Balance of allowance for loan losses at beginning of year$153,045
 $135,859
 $99,542
 $92,438
 $104,453
Provision for loan losses35,460
 51,673
 51,845
 16,314
 20,582
Charge-offs:         
Commercial and industrial(20,619) (15,910) (11,092) (12,073) (32,008)
Energy(10,595) (18,644) (6,000) (1,747) (924)
Commercial real estate(86) (82) (657) (3,800) (1,329)
Consumer real estate(925) (814) (577) (1,097) (1,047)
Consumer and other(15,579) (12,878) (11,246) (9,768) (9,489)
Total charge-offs(47,804) (48,328) (29,572) (28,485) (44,797)
Recoveries:         
Commercial and industrial3,166
 3,651
 4,557
 9,162
 3,577
Energy586
 56
 3
 510
 11
Commercial real estate832
 918
 989
 1,800
 1,204
Consumer real estate419
 557
 486
 364
 328
Consumer and other9,660
 8,659
 8,009
 7,439
 7,080
Total recoveries14,663
 13,841
 14,044
 19,275
 12,200
Net charge-offs(33,141) (34,487) (15,528) (9,210) (32,597)
Balance at end of year$155,364
 $153,045
 $135,859
 $99,542
 $92,438
Net loan charge-offs to average loans0.27% 0.30% 0.14% 0.09% 0.35%
Allowance for loan losses to year-end loans1.18
 1.28
 1.18
 0.91
 0.97
Allowance for loan losses to year-end non-accrual loans103.36
 152.81
 162.77
 166.11
 162.97
Average loans$12,460,148
 $11,554,823
 $11,267,402
 $10,299,025
 $9,229,574
Year-end loans13,145,665
 11,975,392
 11,486,531
 10,987,535
 9,515,700
Year-end non-accrual loans150,314
 100,151
 83,467
 59,925
 56,720
20202019201820172016
Ratio of allowance for credit losses on loans to:
Total loans1.51 %0.90 %0.94 %1.18 %1.28 %
Total loans - excluding PPP loans1.75 0.90 0.94 1.18 1.28 
Non-accrual loans428.29 129.19 179.19 103.36 152.81 
Ratio of annualized net charge-offs to:
Average total loans0.60 0.23 0.33 0.27 0.30 
Average total loans - excluding PPP loans0.69 0.23 0.33 0.27 0.30 
Average loans$17,164,453 $14,440,549 $13,617,940 $12,460,148 $11,554,823 
Average loans - excluding PPP loans15,005,976 14,440,549 13,617,940 12,460,148 11,554,823 
Year-end loans17,481,309 14,750,332 14,099,733 13,145,665 11,975,392 
Year-end non-accrual loans61,449 102,303 73,739 150,314 100,151 
The provision for loan losses decreased $16.2Credit loss expense related to loans increased $203.3 million, or 31.4%602.1%, in 20172020 compared to 2016. The level of2019. Credit loss expense related to loans during 2020 primarily reflects the provision for loan losses in 2016 was reflective of a significant increase in expected credit losses resulting from a deterioration in forecasted economic conditions and the volume of classified energy loans, specific valuation allowances taken on certain classified energy loanscurrent and increasesuncertain future impacts associated with the COVID-19 pandemic and recent volatility in the weighted-average risk grades of our energy, commercial and industrial and commercial real estate loan portfolios. Classified energy, commercial and industrial and commercial real estate loans totaled $405.0 million at December 31, 2017 compared to $510.1 million at December 31, 2016. Specific valuation allowances related to energy, commercial and industrial and commercial real estate loans totaled $20.8 million at December 31, 2017 compared to $9.2 million at December 31, 2016. The overall weighted-average risk grade of our energy, commercial and industrial and commercial real estate loan portfolios was 6.77 at December 31, 2017 compared to 6.84 at December 31, 2016. The level of the provision for loan losses during 2017 was mostly reflective ofoil prices. Credit loss expense also reflects the level of net charge-offs, the deterioration of credit quality and other changes within the loan portfolio during 2017, which totaled $33.1 million, approximately $25.9 million of which related to eight credit relationships. The level of the provision was also partly influenced by improvement in the Texas Leading Index. The Texas Leading Index totaled 128.7 at December 31, 2017 compared to 123.1 at December 31, 2016. A higher Texas Leading Index value implies more favorable economic conditions.2020. The ratio of the allowance for loancredit losses on loans to total loans was 1.18%1.51% (1.75% excluding PPP loans) at December 31, 20172020 compared to 1.28%0.90% at December 31, 2016.2019. Management believes the recorded amount of the allowance for loancredit losses on loans is appropriate based upon management’s best estimate of probablecurrent expected credit 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 lossesmaking this estimate change, our estimate of probable loancurrent expect credit losses could also change, which could affect the level of future provisions for loan losses.
The provision for loan losses decreased $172.0 thousand, or 0.3%, in 2016 compared to 2015. The provision for loan losses in 2015 included a special $22.0 million provision to allocate additional reserves for the added inherent risk within our energy loan portfolio resulting from oil price volatility and the prevailing economic conditions in the energy industry. The level of the provision for loan losses during 2016 was mostlycredit loss expense related to an increase inloans.
Allowance for Credit Losses - Off-Balance-Sheet Credit Exposures. Upon the volumeadoption of classified energy and commercial and industrial loans; deterioration inASC 326 on January 1, 2020, the Texas Leading Index; a significant increase

in net charge-offs, particularly related to energy; higher levels of specific valuation allowances; and increases in the weighted-average risk grades of our energy, commercial and industrial and commercial real estate loan portfolios. Classified energy and commercial and industrial loans totaled $433.8 million at December 31, 2016 compared to $172.7 million at December 31, 2015. The Texas Leading Index totaled 121.9 at November 30, 2016 (most recent date available at the time) compared to 123.0 at December 31, 2015. Net charge-offs during 2016 totaled $34.5 million compared to $15.5 million during 2015, with the majority of this increase related to energy loans. Specific valuation allowances related to energy and commercial and industrial loans totaled $9.2 million at December 31, 2016 compared to $4.4 million at December 31, 2015. The overall weighted-average risk grades of our energy, commercial and industrial and commercial real estate loan portfolios was 6.84 at December 31, 2016 compared to 6.58 at December 31, 2015. The ratiototal amount of the allowance for loancredit losses to total loans was 1.28% at December 31, 2016on off-balance-sheet credit exposures estimated using the CECL methodology increased $39.4 million compared to 1.18% at December 31, 2015 while the ratiototal amount of the allowance for loancredit losses allocated to energy loans to total energy loans totaled 4.38% aton off-balance-sheet credit exposures estimated as of December 31, 2016 compared2019 using the prior incurred loss model. The increase reflects the impact of assuming portions of all of these commitments will fund in the future and applying our credit loss modeling processes to 3.11% atsuch amounts as if such amounts were funded loans. Previously, we only recognized a liability for estimated incurred credit losses on off-balance-sheet credit exposures when the borrowers to which such commitments were extended exceeded certain risk grades and had not violated any underlying covenants that would relieve us of any obligation to fund additional amounts under the commitment. Subsequent to the adoption of ASC 326 on January 1, 2020, we recognized credit loss expense related to off-balance-sheet credit exposures totaling $4.3 million during 2020 to increase the amount of the related allowance for credit losses on off-balance-sheet credit exposures to $44.2 million as of December 31, 2015.
2020. The provision for loan losses increased $35.5 million, or 217.8%,increase primarily reflects changes in 2015 compared to 2014. The levelunderlying risk grades and expected utilization of the provision for loan losses increased during 2015 primarily due toavailable funds, an increase in the weighted-average risk grade of our energy loan portfoliooverall off-balance-sheet credit exposures and a deterioration in forecasted economic conditions and the general macroeconomic uncertainty surrounding the continued oil price volatilitycurrent and the ongoing downturn in the energy industry. The increase was also partly relateduncertain future impacts associated with COVID-19. Further information regarding our policies and methodology used to an increase in the level of net charge-offs and increases in the volumes of both non-classified and classified loans. The overall weighted-average risk grade of our energy loan portfolio was 6.89 at December 31, 2015 compared to 5.45 at December 31, 2014. The upward migration of risk grades within our energy loan portfolio resulted in higher historical valuation allowances and increases in the various categories of general valuation allowances that are based upon our loan risk-grade matrix, particularly those allocated for excessive industry concentrations. The continued oil price volatility resulted in further economic uncertainty as reflected in the downward movement of the Texas Leading Index which totaled 124.1 at November 30, 2015 (most recent date available at the time) and 129.3 at December 31, 2014. As a result of this economic uncertainty and the sensitivity stress test analysis described above, we recognized an additional $22.0 million provision for loan losses during the fourth quarter of 2015 to allocate additional reserves for the added inherent risk within our energy loan portfolio resulting from the continued oil price volatility and the ongoing downturn in the energy industry. The ratio ofestimate the allowance for loancredit losses to total loans was 1.18% at December 31, 2015 compared to 0.91% at December 31, 2014, while the ratio of the allowance for loan losses allocated to energy loans to total energy loans totaled 3.11% at December 31, 2015 compared to 0.84% at December 31, 2014.
The provision for loan losses decreased $4.3 million, or 20.7%,on off-balance-sheet credit exposures is presented in 2014 compared to 2013. The decrease was primarily due to a $23.4 million decrease in net charge-offsNote 8 - Off-Balance-Sheet Arrangements, Commitments, Guarantees and a decreaseContingencies in the levelaccompanying notes to consolidated financial statements.
72

Table 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 by 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 management's determination of the allowance for loan losses in 2014.Content


Securities
Year-end securities were as follows:are presented in the table below. Held-to-maturity securities are presented net of allowance for credit losses:
2017 2016 2015202020192018
Amount 
Percentage
of Total
 Amount 
Percentage
of Total
 Amount 
Percentage
of Total
AmountPercentage
of Total
AmountPercentage
of Total
AmountPercentage
of Total
Held to maturity:           Held to maturity:
U.S. Treasury$
 % $249,889
 2.0% $249,441
 2.1%
Residential mortgage-backed securities3,610
 
 4,511
 0.1
 6,456
 0.1
Residential mortgage-backed securities$528,784 4.3 %$530,861 4.0 %$2,737 — %
States and political subdivisions1,428,488
 12.0
 1,994,710
 16.0
 2,405,762
 20.2
States and political subdivisions1,415,389 11.4 1,497,644 11.2 1,101,820 8.8 
Other
 
 1,350
 
 1,350
 
Other1,500 — 1,500 — 1,500 — 
Total1,432,098
 12.0
 2,250,460
 18.1
 2,663,009
 22.4
Total1,945,673 15.7 2,030,005 15.2 1,106,057 8.8 
Available for sale:           Available for sale:
U.S. Treasury3,445,153
 28.8
 4,019,731
 32.2
 3,994,520
 33.6
U.S. Treasury1,119,633 9.0 1,948,133 14.6 3,427,689 27.4 
Residential mortgage-backed securities665,086
 5.6
 785,167
 6.3
 1,041,432
 8.8
Residential mortgage-backed securities1,987,679 16.0 2,207,594 16.6 829,740 6.6 
States and political subdivisions6,336,209
 53.1
 5,355,885
 43.0
 4,127,959
 34.7
States and political subdivisions7,287,902 58.7 7,070,997 53.1 7,087,202 56.6 
Other42,561
 0.3
 42,494
 0.3
 42,447
 0.4
Other42,351 0.4 42,867 0.3 42,690 0.4 
Total10,489,009
 87.8
 10,203,277
 81.8
 9,206,358
 77.5
Total10,437,565 84.1 11,269,591 84.6 11,387,321 91.0 
Trading:           Trading:
U.S. Treasury19,210
 0.2
 16,594
 0.1
 16,443
 0.1
U.S. Treasury23,996 0.2 24,298 0.2 21,928 0.2 
States and political subdivisions1,888
 
 109
 
 136
 
States and political subdivisions460 — — — 2,158 — 
Total21,098
 0.2
 16,703
 0.1
 16,579
 0.1
Total24,456 0.2 24,298 0.2 24,086 0.2 
Total securities$11,942,205
 100.0% $12,470,440
 100.0% $11,885,946
 100.0%Total securities$12,407,694 100.0 %$13,323,894 100.0 %$12,517,464 100.0 %
The following tables summarize the maturity distribution schedule with corresponding weighted-average yields of securities held to maturity and securities available for sale as of December 31, 2017.2020. Weighted-average yields have been computed on a fully taxable-equivalent basis using a tax rate of 35%21%. Mortgage-backed securities are included in maturity categories based on their stated maturity date. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Other securities classified as available for sale include stock in the Federal Reserve Bank and the Federal Home Loan Bank, which have no maturity date. These securities have been included in the total column only. Held-to-maturity securities are presented at amortized cost before any allowance for credit losses.
 Within 1 Year 1-5 Years 5-10 Years After 10 Years Total
 Amount
Weighted
Average
Yield
 Amount
Weighted
Average
Yield
 Amount
Weighted
Average
Yield
 Amount
Weighted
Average
Yield
 Amount
Weighted
Average
Yield
Held to maturity:                   
Residential mortgage- backed securities$
 % $878
 2.59% $
 % $2,732
 2.64% $3,610
 2.63%
States and political subdivisions264,587
 7.44
 159,765
 5.04
 386,711
 3.92
 617,425
 4.40
 1,428,488
 4.90
Other
 
 
 
 
 
 
 
 
 
Total$264,587
 7.44
 $160,643
 5.02
 $386,711
 3.92
 $620,157
 4.39
 $1,432,098
 4.90
Available for sale:                   
U.S. Treasury$
 % $3,152,672
 1.69% $292,481
 2.66% $
 % $3,445,153
 1.77%
Residential mortgage- backed securities3,865
 4.41
 147,571
 1.80
 81,034
 3.46
 432,616
 3.59
 665,086
 3.18
States and political subdivisions58,057
 6.72
 903,836
 3.22
 146,527
 4.83
 5,227,789
 4.66
 6,336,209
 4.48
Other
 
 
 
 
 
 
 
 42,561
 
Total$61,922
 6.58
 $4,204,079
 2.02
 $520,042
 3.40
 $5,660,405
 4.58
 $10,489,009
 3.49
As previously stated, weighted-average yields in the above table have been computed on a fully taxable-equivalent basis using a tax rate of 35%. Beginning January 1, 2018, taxable-equivalent-yields will be based upon a tax rate of 21%. See the section captioned “Income Taxes” elsewhere in this discussion for information regarding the Tax Cuts and Jobs Act enacted on December 22, 2017. Assuming a tax rate of 21%, the total weighted-average taxable-equivalent

yields of the held to maturity and available for sale portfolios of securities issued by States and political subdivisions would be 4.03% and 3.69%, respectively.
Within 1 Year1-5 Years5-10 YearsAfter 10 YearsTotal
AmountWeighted
Average
Yield
AmountWeighted
Average
Yield
AmountWeighted
Average
Yield
AmountWeighted
Average
Yield
AmountWeighted
Average
Yield
Held to maturity:
Residential mortgage- backed securities$22 3.10 %$165 2.50 %$516,118 2.28 %$12,479 2.46 %$528,784 2.28 %
States and political subdivisions155,941 3.07 463,302 3.20 207,076 3.00 589,230 3.72 1,415,549 3.37 
Other— — 1,500 1.92 — — — — 1,500 1.92 
Total$155,963 3.07 $464,967 3.20 $723,194 2.48 $601,709 3.69 $1,945,833 3.07 
Available for sale:
U.S. Treasury$811,778 2.12 %$307,855 2.66 %$— — %$— — %$1,119,633 2.26 %
Residential mortgage- backed securities12,278 0.50 26,724 3.34 23,116 1.36 1,925,561 2.18 1,987,679 2.18 
States and political subdivisions201,166 3.11 1,442,871 3.98 694,760 3.44 4,949,105 3.71 7,287,902 3.72 
Other— — — — — — — — 42,351 — 
Total$1,025,222 2.30 $1,777,450 3.74 $717,876 3.37 $6,874,666 3.26 $10,437,565 3.24 
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 of tax. The remaining securities are classified as trading. Trading
73

Table of Content
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, 2017, approximately 98.2%2020, all of the securities in our municipal bond portfolio were issued by the State of Texas or political subdivisions or agencies within the State of Texas, of which approximately 67.8%78.2% 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, 2017,2020, we held general obligation bonds issued by the State of Texas with an aggregate amortized cost of $1.0 billion and an aggregate fair value of $1.1 billion. Such amounts were in excess of 10% of our shareholders’ equity at December 31, 2017.2020. At such date, all of these securities carried a “triple-A” rating.were considered "high grade" or better by various credit rating agencies. At December 31, 2017,2020, 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 our shareholders’ equity.
The average taxable-equivalent yield on the securities portfolio based on a 21% tax rate was 3.99%3.46% in 20172020 compared to 4.02%3.40% in 2016 and 3.97% in 2015.2019. Tax-exempt municipal securities totaled 60.0%66.6% of average securities in 20172020 compared to 56.4%62.0% in 2016 and 53.2% in 2015.2019. The average yield on taxable securities was 1.92%2.27% in 20172020 compared to 2.01%2.33% in 2016 and 2.11% in 2015,2019, while the average taxable-equivalent yield on tax-exempt securities was 5.37%4.08% in 20172020 compared to 5.57%4.06% in 2016 and 5.59% in 2015.2019. See the section captioned “Net Interest Income” included elsewhere in this discussion. The overall growth in the securities portfolio since 2015 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:
2017 2016 2015202020192018
Average
Balance
 
Average
Rate Paid
 
Average
Balance
 
Average
Rate Paid
 
Average
Balance
 
Average
Rate Paid
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
Non-interest-bearing demand deposits:           Non-interest-bearing demand deposits:
Commercial and individual$10,155,502
   $9,215,962
   $9,334,604
  Commercial and individual$12,782,723 $9,829,635 $10,164,396 
Correspondent banks245,759
   310,445
   353,766
  Correspondent banks243,856 213,442 205,727 
Public funds418,165
   507,912
   491,440
  Public funds537,117 315,339 386,685 
Total10,819,426
   10,034,319
   10,179,810
  Total13,563,696 10,358,416 10,756,808 
Interest-bearing deposits:           Interest-bearing deposits:
Private accounts:           Private accounts:
Savings and interest checking6,376,855
 0.02% 5,745,385
 0.02% 4,831,927
 0.02%Savings and interest checking7,782,352 0.02 %6,777,473 0.07 %6,667,695 0.08 %
Money market accounts7,502,494
 0.17
 7,466,252
 0.06
 7,715,890
 0.08
Money market accounts8,387,903 0.18 7,738,654 0.93 7,645,624 0.77 
Time accounts of $100,000 or more446,695
 0.26
 461,138
 0.20
 451,603
 0.22
Time accounts under $100,000329,245
 0.18
 349,964
 0.12
 422,765
 0.12
Time accountsTime accounts1,120,060 1.25 989,907 1.65 800,096 0.81 
Public funds430,203
 0.33
 454,786
 0.04
 438,763
 0.03
Public funds584,261 0.26 548,827 1.31 418,843 1.04 
Total15,085,492
 0.11
 14,477,525
 0.05
 13,860,948
 0.07
Total17,874,576 0.18 16,054,861 0.62 15,532,258 0.49 
Total deposits$25,904,918
 0.07
 $24,511,844
 0.03
 $24,040,758
 0.04
Total deposits$31,438,272 0.10 $26,413,277 0.38 $26,289,066 0.29 
Average deposits increased $1.4$5.0 billion, or 5.7%19.0%, in 20172020 compared to 2016 and increased $471.1 million, or 2.0%, in 2016 compared to 2015.2019. The most significant volume growth during 20172020 compared to 20162019 was in non-interest bearing commercial and individual accounts anddeposits; savings and interest checking accounts. This growth was partly offset by volume decreases in public fund accounts, both non-interest bearingchecking; and interest-bearing, and correspondent bank accounts. The most significant volume growth during 2016 compared to 2015 was in savings and interest checking accounts partly offset by volume decreases in money market accounts and non-interest bearing commercial and

individual accounts. Deposit growth during the reported periods was driven by new customer relationships as well as increased balances from existing customers.deposits while all other categories of deposits experienced increases in volume but to a lesser extent. The ratio of average interest-bearing deposits to total average deposits was 58.2%56.9% in 20172020 compared to 59.1%60.8% in 2016 and 57.7% in 2015.2019. The average cost of interest-bearing deposits and total deposits was 0.11%0.18% and 0.07%0.10% during 20172020 compared to 0.05%0.62% and 0.03%0.38% during 2016 and 0.07% and 0.04% during 2015.2019. The increasedecrease in the average cost of interest-bearing deposits in 20172020 as compared to 20162019 was related to the aforementioned increases inlower average interest rates paid on most of our interest-bearing deposit products during the third quarter of 2017. The decrease in the average cost of interest-bearing deposits in 2016 as compared to 2015 was primarily thea result of decreases in interest rates offered on certain deposit products due to decreases inlower average market interest rates and decreases in renewal interest rates on maturing certificatesrates.
74

Table of deposit given the low interest rate environment in 2016. Additionally, the relative proportion of higher-cost time accounts to total average interest-bearing deposits decreased from 6.3% in 2015 to 5.6% in 2016 and 5.1% in 2017.Content
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:
2017 2016 2015202020192018
Commercial and individual93.8% 91.8% 91.7%Commercial and individual94.2 %94.9 %94.5 %
Correspondent banks2.3
 3.1
 3.5
Correspondent banks1.8 2.1 1.9 
Public funds3.9
 5.1
 4.8
Public funds4.0 3.0 3.6 
Total100.0% 100.0% 100.0%Total100.0 %100.0 %100.0 %
Average non-interest-bearing deposits increased $785.1 million,$3.2 billion, or 7.8%30.9%, in 20172020 compared to 2016 while average non-interest-bearing deposits decreased $145.5 million, or 1.4% in 2016 compared to 2015.2019. The increase in 2017 compared to 2016 was primarily due to a $939.5 million,$3.0 billion, or 10.2%30.0%, increase in average commercial and individual deposits. The decrease in 2016 compared to 2015 was primarily due todeposits, a $118.6$221.8 million, or 1.3%70.3%, decreaseincrease in average commercialpublic fund deposits and individuala $30.4 million, or 14.2%, increase in average correspondent bank 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:
2017 2016 2015202020192018
Private accounts:     Private accounts:
Savings and interest checking42.3% 39.7% 34.9%Savings and interest checking43.5 %42.2 %42.9 %
Money market accounts49.7
 51.6
 55.6
Money market accounts46.9 48.2 49.2 
Time accounts of $100,000 or more2.9
 3.2
 3.3
Time accounts under $100,0002.2
 2.4
 3.0
Time accountsTime accounts6.3 6.2 5.2 
Public funds2.9
 3.1
 3.2
Public funds3.3 3.4 2.7 
Total100.0% 100.0% 100.0%Total100.0 %100.0 %100.0 %
Total average interest-bearing deposits increased $608.0 million,$1.8 billion, or 4.2%11.3%, in 20172020 compared to 2016 and increased $616.6 million,2019 primarily due to a $1.0 billion, or 4.4%14.8%, increase in 2016 compared to 2015. The relative proportion of money market accounts and time accounts to total average interest-bearing deposits decreased in favor of savings and interest checking accounts.deposits, a $649.2 million, or 8.4%, increase in average money market deposits, a $130.2 million, or 13.1%, increase in average time deposits and a $35.4 million, or 6.5%, increase in average public funds deposits.
From time to time, we have obtained interest-bearing deposits through brokered transactions including participation in the Certificate of Deposit Account Registry Service (“CDARS”) and the Promontory Interfinancial Network Insured Cash Sweep Service (“Promontory Cash Sweep deposits”). The Promontory Cash SweepBrokered deposits were initially acquired in connection with our acquisition of WNB in 2014. We had no brokered deposits of any kindnot significant during 2017. Average CDARS deposits totaled $293 thousand in 2016 and $10.2 million in 2015, while average Promontory Cash Sweep deposits totaled $857 thousand in 2016 and $55.8 million in 2015.the reported periods.

Geographic Concentrations. The following table summarizes our 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.
PercentPercentPercent
2020of Total2019of Total2018of Total
San Antonio$9,545,949 30.4 %$7,981,160 30.2 %$7,846,388 29.9 %
Houston5,715,514 18.2 4,467,132 16.9 4,578,782 17.4 
Fort Worth5,615,584 17.9 4,699,142 17.8 4,813,424 18.3 
Austin3,882,661 12.3 3,285,637 12.5 3,175,030 12.1 
Dallas2,553,571 8.1 2,160,684 8.2 2,157,648 8.2 
Corpus Christi1,655,395 5.3 1,473,967 5.6 1,484,114 5.6 
Permian Basin1,518,781 4.8 1,326,517 5.0 1,232,892 4.7 
Rio Grande Valley895,653 2.8 747,713 2.8 744,952 2.8 
Statewide55,164 0.2 271,325 1.0 255,836 1.0 
Total$31,438,272 100.0 %$26,413,277 100.0 %$26,289,066 100.0 %
   Percent   Percent   Percent
 2017 of Total 2016 of Total 2015 of Total
San Antonio$7,890,139
 30.5% $7,354,061
 30.0% $7,250,381
 30.2%
Fort Worth4,784,241
 18.5
 4,466,086
 18.2
 4,165,748
 17.3
Houston4,544,448
 17.5
 4,196,530
 17.1
 4,163,581
 17.3
Austin3,089,645
 11.9
 2,928,448
 11.9
 2,721,616
 11.3
Dallas2,048,712
 7.9
 1,958,646
 8.0
 1,883,866
 7.8
Corpus Christi1,458,044
 5.6
 1,493,792
 6.1
 1,526,817
 6.4
Permian Basin1,218,402
 4.7
 1,042,955
 4.3
 1,150,031
 4.8
Rio Grande Valley775,646
 3.0
 787,431
 3.2
 778,407
 3.2
Statewide95,641
 0.4
 283,895
 1.2
 400,311
 1.7
Total$25,904,918
 100.0% $24,511,844
 100.0% $24,040,758
 100.0%
Foreign Deposits. Mexico has historically been considered a part of the natural trade territory of our 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 $745.7$824.9 million in 2017, $766.82020 and $774.0 million in 2016 and $755.2 million in 2015.2019.

75

Table of Content
Short-Term Borrowings
Our primary source of short-term borrowings is federal funds purchased from correspondent banks and repurchase agreements in our natural trade territory, as well as from upstream banks. Federal funds purchased and repurchase agreements totaled $1.1$2.1 billion, $977.0 million$1.7 billion and $893.5 million$1.4 billion at December 31, 2017, 20162020, 2019 and 2015.2018. The maximum amount of these borrowings outstanding at any month-end was $1.1$2.1 billion in 2017, $977.0 million2020, $1.7 billion in 20162019 and $893.5 million$1.4 billion in 2015.2018. The weighted-average interest rate on federal funds purchased and repurchase agreements was 0.23%0.05% at December 31, 2017, and 0.02%2020, 0.81% at both December 31, 20162019 and 1.33% at December 31, 2015.2018.
The following table presents our average net funding position during the years indicated:
2017 2016 2015202020192018
Average
Balance
 
Average
Rate
 
Average
Balance
 
Average
Rate
 
Average
Balance
 
Average
Rate
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Federal funds sold and resell agreements$73,140
 1.28% $42,361
 0.64% $24,695
 0.43%Federal funds sold and resell agreements$99,740 0.90 %$245,613 2.25 %$265,085 2.07 %
Federal funds purchased and repurchase agreements(978,571) 0.16
 (770,942) 0.03
 (648,851) 0.03
Federal funds purchased and repurchase agreements(1,469,968)0.30 (1,283,381)1.53 (1,054,915)0.76 
Net funds position$(905,431)   $(728,581)   $(624,156)  Net funds position$(1,370,228)$(1,037,768)$(789,830)
The net funds purchased position increased $176.9$332.5 million in 20172020 compared to 2016 and increased $104.4 million in 2016 compared to 2015.2019. Average interest-bearing deposits (primarily excess reserves held in an interest-bearing account at the Federal Reserve) totaled $3.6$5.3 billion in 20172020 compared to $3.1$1.6 billion in 20162019 and $3.0 billion in 2015.2018. During the reported periods, we have 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.sold.

Off Balance Sheet Arrangements, Commitments, Guarantees, and Contractual Obligations
The following table summarizes our contractual obligations and other commitments to make future payments as of December 31, 2017.2020. 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
Less than 1 Year1-3 Years3-5 YearsMore than 5 YearsTotal
Contractual obligations:
Subordinated notes payable$— $— $— $100,000 $100,000 
Junior subordinated deferrable interest debentures— — — 137,115 137,115 
Operating leases32,357 59,668 53,727 267,707 413,459 
Deposits with stated maturity dates979,825 160,938 — — 1,140,763 
1,012,182 220,606 53,727 504,822 1,791,337 
Other commitments:
Commitments to extend credit4,353,369 3,301,167 989,019 1,170,920 9,814,475 
Standby letters of credit161,345 73,366 6,634 — 241,345 
4,514,714 3,374,533 995,653 1,170,920 10,055,820 
Total contractual obligations and other commitments$5,526,896 $3,595,139 $1,049,380 $1,675,742 $11,847,157 
 Payments Due by Period
 1 Year or Less 
More than 1
Year but Less
than 3 Years
 
3 Years or
More but Less
than 5 Years
 
5 Years or
More
 Total
Contractual obligations:         
Subordinated notes payable$
 $
 $
 $100,000
 $100,000
Junior subordinated deferrable interest debentures
 
 
 137,115
 137,115
Operating leases27,990
 60,697
 59,494
 347,187
 495,368
Deposits with stated maturity dates643,058
 149,853
 
 
 792,911
 671,048
 210,550
 59,494
 584,302
 1,525,394
Other commitments:         
Commitments to extend credit3,304,513
 2,737,741
 1,214,342
 692,804
 7,949,400
Standby letters of credit217,855
 15,280
 2,414
 1,046
 236,595
 3,522,368
 2,753,021
 1,216,756
 693,850
 8,185,995
Total contractual obligations and other commitments$4,193,416
 $2,963,571
 $1,276,250
 $1,278,152
 $9,711,389
Financial Instruments with Off-Balance-Sheet Risk. In the normal course of business, we enter into various transactions, which, in accordance with accounting principles generally accepted in the United States, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our 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. We minimize our exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures. We also hold certain assets which are not included in our consolidated balance sheets including assets held in fiduciary or custodial capacity on behalf of our trust customers.
76

Table of Content
Commitments to Extend Credit. We enter into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of our 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, 20172020 are included in the table above.
Standby Letters of Credit. Standby letters of credit are written conditional commitments issued by us 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, we would be required to fund the commitment. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, we would be entitled to seek recovery from the customer. Our 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, 20172020 are included in the table above.
Trust Accounts. We also hold certain assets in fiduciary or custodial capacity on behalf of our trust customers. The estimated fair value of trust assets was approximately $32.8$38.6 billion (including managed assets of $14.1$16.9 billion and custody assets of $18.7$21.7 billion) at December 31, 2017.2020. These assets were primarily composed of equity securities (50.3%(52.1% of trust assets), fixed income securities (37.3%(32.7% of trust assets) and cash equivalents (7.9%(9.9% of trust assets).

Capital and Liquidity
Capital. Shareholders’ equity totaled $3.3$4.3 billion at December 31, 20172020 and $3.0$3.9 billion at December 31, 2016.2019. In addition to net income of $364.1$331.2 million, other sources of capital during 20172020 included other comprehensive income, net of tax, of $104.1$245.6 million, $67.7$145.5 million in proceeds from the issuance of Series B Preferred Stock, $12.6 million in proceeds from stock option exercises and $13.0$13.9 million related to stock-based compensation. Uses of capital during 20172020 included $152.2$182.6 million of dividends paid on preferred and common stock, and $101.5a $150.0 million redemption of Series A Preferred Stock, $15.8 million of treasury stock purchases.purchases and $29.3 million related to the cumulative effect of a new accounting principle adopted during the first quarter of 2020. See Note 1 - Summary of Significant Accounting Policies.
The accumulated other comprehensive income/loss component of shareholders’ equity totaled a net, after-tax, unrealized gain of $79.5$513.0 million at December 31, 20172020 compared to a net, after-tax, unrealized loss of $24.6gain $267.4 million at December 31, 2016.2019. The increase was primarily due to a $101.1$250.5 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 $3.1 million net after-tax decrease in the net actuarial loss on our defined benefit post-retirement benefit plans. Accumulated other comprehensive income at December 31, 2017 included $9.5 million related to stranded amounts resulting from the remeasurement of deferred tax assets and liabilities in connection with the enactment of the Tax Cuts and Jobs Act on December 22, 2017. A proposed Accounting Standards Update issued in January 2018 would require that the tax effects stranded in accumulated other comprehensive income be reclassified to retained earnings rather than income tax benefit or expense. See the section captioned “Income Taxes” elsewhere in this discussion.maturity.
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). In connection with the adoption ofUnder the Basel III Capital Rules, we elected to opt-out of the requirement to include most components of accumulated other comprehensive income in regulatory capital. Accordingly, 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. In connection with the adoption of ASC 326 on January 1, 2020, we also elected to exclude, for a transitional period, the effects of credit loss accounting under CECL in the calculation of our regulatory capital and regulatory capital ratios. Regulatory agencies for banks and bank holding companies utilize capital guidelines designed to measure capital and take into consideration the risk inherent in both on-balance sheet and off-balance sheet items. See Note 9 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report.
We paid quarterly dividends of $0.54, $0.57, $0.57$0.71, $0.71, $0.71 and $0.57$0.72 per common share during the first, second, third and fourth quarters of 2017,2020, respectively, and quarterly dividends of $0.53, $0.54, $0.54$0.67, $0.71, $0.71 and $0.54$0.71 per common share during the first, second, third and fourth quarters of 2016,2019, respectively. This equates to a dividend payout ratio of 40.5%55.8% in 20172020 and 45.5%40.6% in 2016.2019. 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, we have 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. Our ability to declare or pay dividends on, or purchase, redeem or otherwise acquire, shares of our capital stock is subject to certain restrictions during any such extension period.
77

Table of Content
Preferred Stock. On March 16, 2020, we redeemed all 6,000,000 shares of our 5.375% Non-Cumulative Perpetual Preferred Stock, Series A, (“Series A Preferred Stock”) at a redemption price of $25 per share, or an aggregate redemption of $150.0 million. When issued, the net proceeds of the Series A Preferred Stock totaled $144.5 million after deducting $5.5 million of issuance costs including the underwriting discount and professional service fees, among other things. Upon redemption, these issuance costs were reclassified to retained earnings and reported as a reduction of net income available to common shareholders.
On November 19, 2020 we issued 150,000 shares, or $150.0 million in aggregate liquidation preference, of our 4.450% Non-Cumulative Perpetual Preferred Stock, Series B, par value $0.01 and liquidation preference $1,000 per share (“Series B Preferred Stock”). Each share of Series B Preferred Stock issued and outstanding is represented by 40 depositary shares, each representing a 1/40th ownership interest in a share of the Series B Preferred Stock (equivalent to a liquidation preference of $25 per share). Dividends on the Series B Preferred Stock, if declared, accrue and are payable quarterly, in arrears, at a rate of 4.450% per annum. The net proceeds from the issuance and sale of the depositary shares representing the Series B Preferred Stock, after deducting underwriting discount and commissions, and the payment of expenses, were approximately $145.5 million. Under the terms of the Series AB Preferred Stock, our ability toin the event that we do not declare and pay dividends on the Series B Preferred Stock for the most recent dividend period, we may not, with certain exceptions, declare or pay dividends on, or purchase, redeem or otherwise acquire, shares of our common stock or any of our securities that rank junior to the Series AB Preferred Stock is subject to certain restrictionsStock. See Note 9 - Capital and Regulatory Matters in the event that we do not declare and pay dividends on the Series A Preferred Stock for the most recent dividend period.accompanying notes to consolidated financial statements elsewhere in this report.
Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. On OctoberJuly 24, 2017,2019, our board of directors authorized a $150.0$100.0 million stock repurchase program, allowing us to repurchase shares of our common stock over a two-yearone-year period from time to time at various prices in the open market or through private transactions. No shares were repurchased underUnder this plan, during 2017. Under prior plans, we repurchased 1,134,966177,834 shares at a total cost of $100.0$13.7 million during 20172020 and 1,485,493202,724 shares at a total cost of $100.0$17.2 million during 2015.2019. Under prior stock repurchase programs, we repurchased 496,307 shares at a total cost of $50.0 million during 2019. 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.

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 our liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund our operations and to meet obligations and other commitments on a timely basis and at a reasonable cost. We seek 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 our balance sheet. Our liquidity position is enhanced by our 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 our 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.
Our liquidity position 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 our asset/liability management process. We regularly model 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 our contingency funding plan, which provides the basis for the identification of our liquidity needs. As of December 31, 2017,2020, we had approximately $9.7 billion held in an interest-bearing account at the Federal Reserve. We also have the ability to borrow funds as a member of the Federal Home Loan Bank (“FHLB”). As of December 31, 2020, based upon
78

Table of Content
available, pledgeable collateral, our total borrowing capacity with the FHLB was approximately $2.9 billion. Furthermore, at December 31, 2020, we had approximately $7.3 billion in securities that were unencumbered by a pledge and could be used to support additional borrowings through repurchase agreements or the Federal Reserve discount window, as needed. As of December 31, 2020, management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us.
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 9 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report regarding such dividends. At December 31, 2017,2020, Cullen/Frost had liquid assets, including cash and resell agreements, totaling $265.3$381.2 million.
Impact of Inflation and Changing Prices
Our financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). GAAP presently requires us 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 our operations 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 our control, 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
Our 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 of the Federal Reserve Board have a material effect on our earnings.
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, we cannot accurately predict the nature, timing or extent of any effect such policies may have on itsour future business and earnings.
Accounting Standards Updates
See Note 20 - 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 our financial statements.


79

Table of Content
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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” 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 our operations, we are primarily exposed to interest rate risk and, to a lesser extent, liquidity risk.
Interest rate risk on our 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 us. 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.
We seek to avoid fluctuations in our net interest margin and to maximize net interest income within acceptable levels of risk through periods of changing interest rates. Accordingly, our interest rate sensitivity and liquidity are monitored on an ongoing basis by our 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.
We utilize 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, 2017,2020, 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 1.1%2.3% and 3.1%6.2%, respectively, relative to the flat-rate case over the next 12 months, while 100 and 150a 25 basis point ratable decreasesdecrease in interest rates would result in a negative variancesvariance in net interest income of 4.6% and 10.5%, respectively,1.8% relative to the flat-rate case over the next 12 months. The December 31, 20172020 model simulations for increased interest rates were impacted by the assumption, for modeling purposes, that we will begin to pay interest on commercial demand deposits (those not already receiving an earnings credit rate) in the first quarter of 2018,2021, as further discussed below. As of December 31, 2016,2019, 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 1.0% and 2.1%2.6%, respectively, relative to the flat-rate case over the next 12 months, while a 75100 and 175 basis point ratable decreasedecreases in interest rates would result in a negative variancevariances in net interest income of 7.8%1.9% and 6.4%, respectively, relative to the flat-rate case over the next 12 months. The December 31, 20162019 model simulations for increased interest rates were impacted by the assumption, for modeling purposes, that we would begin to pay interest on commercial demand deposits (those not already receiving an earnings credit rate) in the first quarter of 2017,2020, as further discussed below. The likelihood of a decrease in interest
80

Table of Content
rates beyond 15025 basis points as of December 31, 20172020 and 75175 basis points as of December 31, 20162019 was considered to be remote given prevailing interest rate levels.

The model simulations as of December 31, 20172020 indicate that our projected balance sheet is more asset sensitive in comparison to our balance sheet as of December 31, 2016.2019. The shift to a more asset sensitive position was primarily due to an increase in the relative proportion of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and federal funds sold to projected average interest-earning assets. FederalInterest-bearing deposits and federal funds sold are more immediately impacted by changes in interest rates in comparison to our other categories of earning assets.
We do not currently pay interest on a significant portion of our commercial demand deposits. If we began to pay interest on commercial demand deposits (those not already receiving an earnings credit rate), our balance sheet would likely become less asset sensitive. Any interest rate that would ultimately be paid on these commercial demand deposits would likely depend upon a variety of factors, some of which are beyond our control. ForOur modeling purposes, we have assumed an aggressivesimulations as of December 31, 2020 and 2019 assume a moderate pricing structure with regards to interest payments foron commercial demand deposits (those not already receiving an earnings credit) beginningwith interest payments assumed to begin in the first quarters of 20172021 and 2018, respectively, for each simulation. Should the actual interest rate paid2020, respectively. This moderate pricing structure on commercial demand deposits be less than the rate assumedassumes a deposit pricing beta of 25%. The pricing beta is a measure of how much deposit rates reprice, up or down, given a defined change in the model simulations, or should the interest rate paid for commercial demand deposits become an administered rate with less direct correlation to movements in general market interest rates, our balance sheet could be more asset sensitive than the model simulations might otherwise indicate.rates.
As of December 31, 2017,2020, the effects of a 200 basis point increase and a 15025 basis point decrease in interest rates on our derivative holdings would not result in a significant variance in our net interest income.
The effects of hypothetical fluctuations in interest rates on our 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.



81

Table of Content
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm


To the Shareholders and the Board of Directors of
Cullen/Frost Bankers, Inc.


Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cullen/Frost Bankers, Inc. (the Company) as of December 31, 20172020 and 2016,2019, 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, 2017,2020, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20172020 and 2016,2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, 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) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2020, 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 7, 20185, 2021 expressed an unqualified opinion thereon.

Adoption of New Accounting Standard
As discussed in Notes 1 and 3 to the consolidated financial statements, the Company changed its method for accounting for credit losses on loans in 2020. As explained below, auditing the Company’s allowance for credit losses on loans, including adoption of the new accounting guidance related to the estimate of allowance for credit losses on loans, was a critical audit matter.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
82

Table of Content
Allowances for Credit Losses
Description of the Matter
The Company’s loan portfolio totaled $17.5 billion as of December 31, 2020 and the associated allowance for credit losses on loans was $263.2 million. The Company’s unfunded loan commitments totaled $10.1 billion, with an associated allowance for credit loss of $44.2 million. Together these amounts represent the allowances for credit losses (“ACL”). As discussed in Notes 1, and 3 to the consolidated financial statements, in the cases of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with ASC 326 that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. As discussed in Notes 1, 3, and 8 to the consolidated financial statements, in the case of unfunded loan commitments, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of accrued interest payable and other liabilities. The Company adopted ASC 326 effective January 1, 2020.The amount of each allowance account represented management’s best estimate of current expected credit losses on these financial instruments considering all available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. In calculating the allowance for credit losses, most loans were segmented into pools based upon similar characteristics and risk profiles. For each loan pool, management measured expected credit losses over the life of each loan utilizing a combination of models which measured probability of default (“PD”), probability of attrition (“PA”), loss given default (“LGD”), and exposure at default (“EAD”). Expected credit losses were calculated as the product of PD (adjusted for attrition), LGD, and EAD. PD and PA were estimated by analyzing internally sourced data related to historical performance of each loan pool over a complete economic cycle. PD and PA were adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period. After the reasonable and supportable forecast period, the forecasted macroeconomic variables were reverted to their historical mean utilizing a rational, systematic basis. The LGD was based on historical recovery averages for each loan pool, adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over the reasonable and supportable forecast period. EAD was estimated using a linear regression model that estimates the average percentage of the loan balance that remains at the time of default. In some cases, management determined that an individual loan exhibited unique risk characteristics which differentiated the loan from other loans with the identified loan pools. In such cases the loans were evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Management qualitatively adjusted model results for risk factors that were not considered within the modeling processes but were nonetheless relevant in assessing the expected credit losses within the loan pools. These qualitative factor adjustments modified management’s estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk.
Auditing management’s estimate of the ACL involved a high degree of subjectivity due to the nature of the qualitative factor adjustments included in the allowances for credit losses and complexity due to the implementation of the PD, PA, LGD, and EAD models (the “Models”). Management’s identification and measurement of the qualitative factor adjustments is highly judgmental and could have a significant effect on the ACL.
How We Addressed the Matter in Our Audit
We obtained an understanding of the Company’s process for establishing the ACL, including the implementation of Models and the qualitative factor adjustments of the ACL. We evaluated the design and tested the operating effectiveness of related controls over the reliability and accuracy of data used to calculate and estimate the various components of the ACL, the accuracy of the calculation of the ACL, management’s review and approval of methodologies used to establish the ACL, validation procedures over the Models, analysis of changes in various components of the ACL relative to changes in the Company’s loan portfolio and economy and evaluation of the overall reasonableness and appropriateness of the ACL. In doing so, we tested the operating effectiveness of review and approval controls in the Company’s governance process designed to identify and assess the qualitative factor adjustments which is meant to measure expected credit losses associated with factors not captured fully in the other components of the ACL.
To test the reasonableness of the qualitative factor adjustments, we performed audit procedures that included, among others testing the appropriateness of the methodologies used by the Company to estimate the ACL, testing the completeness and accuracy of data and information used by the Company in estimating the components of the ACL, assessing the reasonableness of the Models, evaluating the appropriateness of assumptions used in estimating the qualitative factor adjustments, analyzing the changes in assumptions and various components of the ACL
83

Table of Content
relative to changes in the Company’s loan portfolio and the economy and evaluating the appropriateness and level of the qualitative factor adjustments. For example, we 1) evaluated the inherent limitations of the Company’s modeled components of the ALL and hence the need for and levels of the qualitative factor adjustments; 2) involved modeling specialists to test the appropriateness of the design and operation of the Models; 3) analyzed the changes, assumptions and modifications made to the qualitative factor adjustments; and 4) evaluated the appropriateness and completeness of risk factors used in determining the amount of the qualitative factor adjustments. We also evaluated the data and information utilized by management to estimate the qualitative factor adjustments by independently obtaining internal and external data and information to assess the appropriateness of the data and information used by management and to consider the existence of new and potentially contradictory information used. In addition, we evaluated the overall ACL amounts, inclusive of the adjustments for the qualitative factor adjustments, and whether the amount appropriately reflects losses expected in the loan portfolio as of the consolidated balance sheet date by comparing the overall ALL to those established by similar banking institutions with similar loan portfolios. We also reviewed subsequent events and transactions and considered whether they corroborate or contradict the Company’s conclusion.

cfr-20201231_g2.jpg
We have served as the Company’s auditor since 1969.
San Antonio, Texas
February 7, 20185, 2021

84

Table of Content
Cullen/Frost Bankers, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
December 31, December 31,
2017 2016 20202019
Assets:   Assets:
Cash and due from banks$545,542
 $561,838
Cash and due from banks$529,454 $581,857 
Interest-bearing deposits4,347,538
 3,560,865
Interest-bearing deposits9,758,624 2,849,950 
Federal funds sold and resell agreements159,967
 18,742
Federal funds sold and resell agreements775 356,374 
Total cash and cash equivalents5,053,047
 4,141,445
Total cash and cash equivalents10,288,853 3,788,181 
Securities held to maturity, at amortized cost1,432,098
 2,250,460
Securities held to maturity, net of allowance for credit losses of $160 in 2020Securities held to maturity, net of allowance for credit losses of $160 in 20201,945,673 2,030,005 
Securities available for sale, at estimated fair value10,489,009
 10,203,277
Securities available for sale, at estimated fair value10,437,565 11,269,591 
Trading account securities21,098
 16,703
Trading account securities24,456 24,298 
Loans, net of unearned discounts13,145,665
 11,975,392
Loans, net of unearned discounts17,481,309 14,750,332 
Less: Allowance for loan losses(155,364) (153,045)
Less: Allowance for credit losses on loansLess: Allowance for credit losses on loans(263,177)(132,167)
Net loans12,990,301
 11,822,347
Net loans17,218,132 14,618,165 
Premises and equipment, net520,958
 525,821
Premises and equipment, net1,045,578 1,011,947 
Goodwill654,952
 654,952
Goodwill654,952 654,952 
Other intangible assets, net5,073
 6,776
Other intangible assets, net1,563 2,481 
Cash surrender value of life insurance policies180,477
 177,884
Cash surrender value of life insurance policies189,984 187,156 
Accrued interest receivable and other assets400,867
 396,654
Accrued interest receivable and other assets584,561 440,652 
Total assets$31,747,880
 $30,196,319
Total assets$42,391,317 $34,027,428 
   
Liabilities:   Liabilities:
Deposits:   Deposits:
Non-interest-bearing demand deposits$11,197,093
 $10,513,369
Non-interest-bearing demand deposits$15,117,051 $10,873,629 
Interest-bearing deposits15,675,296
 15,298,206
Interest-bearing deposits19,898,710 16,765,935 
Total deposits26,872,389
 25,811,575
Total deposits35,015,761 27,639,564 
Federal funds purchased and repurchase agreements1,147,824
 976,992
Federal funds purchased and repurchase agreements2,116,997 1,695,342 
Junior subordinated deferrable interest debentures, net of unamortized issuance costs136,184
 136,127
Junior subordinated deferrable interest debentures, net of unamortized issuance costs136,357 136,299 
Subordinated notes, net of unamortized issuance costs98,552
 99,990
Subordinated notes, net of unamortized issuance costs99,021 98,865 
Accrued interest payable and other liabilities195,068
 169,107
Accrued interest payable and other liabilities730,165 545,690 
Total liabilities28,450,017
 27,193,791
Total liabilities38,098,301 30,115,760 
   
Shareholders’ Equity:   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 2017 and 2016144,486
 144,486
Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,236,306 shares issued at December 31, 2017 and 63,632,464 shares issued at December 31, 2016642
 637
Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; 150,000 Series B shares ($1,000 liquidation preference) issued in 2020 and 6,000,000 Series A shares ($25 liquidation preference) issued in 2019Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; 150,000 Series B shares ($1,000 liquidation preference) issued in 2020 and 6,000,000 Series A shares ($25 liquidation preference) issued in 2019145,452 144,486 
Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,236,306 shares issued in both 2020 and 2019Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,236,306 shares issued in both 2020 and 2019642 642 
Additional paid-in capital953,361
 906,732
Additional paid-in capital997,168 983,250 
Retained earnings2,187,069
 1,985,569
Retained earnings2,750,723 2,667,534 
Accumulated other comprehensive income, net of tax79,512
 (24,623)Accumulated other comprehensive income, net of tax512,970 267,370 
Treasury stock, at cost; 760,720 shares in 2017 and 158,243 in 2016.(67,207) (10,273)
Treasury stock, at cost; 1,225,066 shares in 2020 and 1,567,302 in 2019.Treasury stock, at cost; 1,225,066 shares in 2020 and 1,567,302 in 2019.(113,939)(151,614)
Total shareholders’ equity3,297,863
 3,002,528
Total shareholders’ equity4,293,016 3,911,668 
Total liabilities and shareholders’ equity$31,747,880
 $30,196,319
Total liabilities and shareholders’ equity$42,391,317 $34,027,428 
See accompanying Notes to Consolidated Financial Statements.

85

Table of Content
Cullen/Frost Bankers, Inc.
Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
Year Ended December 31, Year Ended December 31,
2017 2016 2015 202020192018
Interest income:     Interest income:   
Loans, including fees$534,804
 $458,094
 $433,872
Loans, including fees$680,064 $741,747 $669,002 
Securities:     Securities:   
Taxable92,979
 103,025
 112,601
Taxable93,569 117,082 86,370 
Tax-exempt222,620
 210,918
 194,793
Tax-exempt233,614 233,842 233,358 
Interest-bearing deposits41,608
 16,103
 8,123
Interest-bearing deposits12,893 35,590 56,968 
Federal funds sold and resell agreements936
 272
 107
Federal funds sold and resell agreements895 5,524 5,500 
Total interest income892,947
 788,412
 749,496
Total interest income1,021,035 1,133,785 1,051,198 
Interest expense:     Interest expense:   
Deposits17,188
 7,248
 9,024
Deposits32,018 99,742 75,337 
Federal funds purchased and repurchase agreements1,522
 204
 167
Federal funds purchased and repurchase agreements4,482 19,675 8,021 
Junior subordinated deferrable interest debentures3,955
 3,281
 2,725
Junior subordinated deferrable interest debentures3,560 5,706 5,291 
Other long-term borrowings3,860
 1,343
 948
Subordinated notesSubordinated notes4,656 4,657 4,657 
Federal Home Loan Bank advancesFederal Home Loan Bank advances318 
Total interest expense26,525
 12,076
 12,864
Total interest expense45,034 129,780 93,306 
Net interest income866,422
 776,336
 736,632
Net interest income976,001 1,004,005 957,892 
Provision for loan losses35,460
 51,673
 51,845
Net interest income after provision for loan losses830,962
 724,663
 684,787
Credit loss expenseCredit loss expense241,230 33,759 21,685 
Net interest income after credit loss expenseNet interest income after credit loss expense734,771 970,246 936,207 
Non-interest income:     Non-interest income:
Trust and investment management fees110,675
 104,240
 105,512
Trust and investment management fees129,272 126,722 119,391 
Service charges on deposit accounts84,182
 81,203
 81,350
Service charges on deposit accounts80,873 88,983 85,186 
Insurance commissions and fees46,169
 47,154
 48,926
Insurance commissions and fees50,313 52,345 48,967 
Interchange and debit card transaction fees23,232
 21,369
 19,666
Interchange and debit card transaction fees13,470 14,873 13,877 
Other charges, commissions and fees39,931
 39,623
 37,551
Other charges, commissions and fees34,825 37,123 37,231 
Net gain (loss) on securities transactions(4,941) 14,975
 69
Net gain (loss) on securities transactions108,989 293 (156)
Other37,222
 41,144
 35,656
Other47,712 43,563 46,790 
Total non-interest income336,470
 349,708
 328,730
Total non-interest income465,454 363,902 351,286 
Non-interest expense:     Non-interest expense:
Salaries and wages337,068
 318,665
 310,504
Salaries and wages387,328 375,029 350,312 
Employee benefits74,575
 72,615
 69,746
Employee benefits75,676 86,230 77,323 
Net occupancy75,971
 71,627
 65,690
Net occupancy102,938 89,466 76,788 
Technology, furniture and equipment74,335
 71,208
 64,373
Technology, furniture and equipment105,232 91,995 83,102 
Deposit insurance20,128
 17,428
 14,519
Deposit insurance10,502 10,126 16,397 
Intangible amortization1,703
 2,429
 3,325
Intangible amortization918 1,168 1,424 
Other175,289
 178,988
 165,561
Other166,310 180,665 173,466 
Total non-interest expense759,069
 732,960
 693,718
Total non-interest expense848,904 834,679 778,812 
Income before income taxes408,363
 341,411
 319,799
Income before income taxes351,321 499,469 508,681 
Income taxes44,214
 37,150
 40,471
Income taxes20,170 55,870 53,763 
Net income364,149
 304,261
 279,328
Net income331,151 443,599 454,918 
Preferred stock dividends8,063
 8,063
 8,063
Preferred stock dividends2,016 8,063 8,063 
Redemption of preferred stockRedemption of preferred stock5,514 
Net income available to common shareholders$356,086
 $296,198
 $271,265
Net income available to common shareholders$323,621 $435,536 $446,855 
     
Earnings per common share:     Earnings per common share:
Basic$5.56
 $4.73
 $4.31
Basic$5.11 $6.89 $6.97 
Diluted5.51
 4.70
 4.28
Diluted5.10 6.84 6.90 
See accompanying Notes to Consolidated Financial Statements.

86

Table of Content
Cullen/Frost Bankers, Inc.
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Year Ended December 31, Year Ended December 31,
2017 2016 2015 202020192018
Net income$364,149
 $304,261
 $279,328
Net income$331,151 $443,599 $454,918 
Other comprehensive income (loss), before tax:     Other comprehensive income (loss), before tax:   
Securities available for sale and transferred securities:     Securities available for sale and transferred securities:   
Change in net unrealized gain/loss during the period157,016
 (175,061) (12,450)Change in net unrealized gain/loss during the period427,331 418,556 (182,340)
Change in net unrealized gain on securities transferred to held to maturity(16,193) (32,207) (33,601)Change in net unrealized gain on securities transferred to held to maturity(1,256)(1,292)(8,818)
Reclassification adjustment for net (gains) losses included in net income4,941
 (14,975) (69)Reclassification adjustment for net (gains) losses included in net income(108,989)(293)156 
Total securities available for sale and transferred securities145,764
 (222,243) (46,120)Total securities available for sale and transferred securities317,086 416,971 (191,002)
Defined-benefit post-retirement benefit plans:     Defined-benefit post-retirement benefit plans:   
Change in the net actuarial gain/loss(597) 1,914
 (3,877)Change in the net actuarial gain/loss(11,518)(3,644)(7,225)
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)5,429
 7,274
 6,995
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)5,319 5,623 5,002 
Total defined-benefit post-retirement benefit plans4,832
 9,188
 3,118
Total defined-benefit post-retirement benefit plans(6,199)1,979 (2,223)
Other comprehensive income (loss), before tax150,596
 (213,055) (43,002)Other comprehensive income (loss), before tax310,887 418,950 (193,225)
Deferred tax expense (benefit)46,461
 (74,569) (15,051)Deferred tax expense (benefit)65,287 87,980 (40,578)
Other comprehensive income (loss), net of tax104,135
 (138,486) (27,951)Other comprehensive income (loss), net of tax245,600 330,970 (152,647)
Comprehensive income$468,284
 $165,775
 $251,377
Comprehensive income$576,751 $774,569 $302,271 
See accompanying Notes to Consolidated Financial Statements.

87

Table of Content
Cullen/Frost Bankers, Inc.
Consolidated Statement of Changes in Shareholders’ Equity
(Dollars in thousands, except per share amounts)
 
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
 
Treasury
Stock
 Total
Balance at January 1, 2015$144,486
 $637
 $886,476
 $1,710,324
 $141,814
 $(32,334) $2,851,403
Net income
 
 
 279,328
 
 
 279,328
Other comprehensive loss, net of tax
 
 
 
 (27,951) 
 (27,951)
Stock option exercises/stock unit conversions (321,266 shares)
 
 (2,248) (4,240) 
 21,341
 14,853
Tax benefits from stock-based compensation
 
 1,434
 
 
 
 1,434
Stock-based compensation expense recognized in earnings
 
 12,737
 
 
 
 12,737
Non-vested stock awards (15,790 shares)
 
 (1,049) 
 
 1,049
 
Purchase of treasury stock (1,504,146 shares)
 
 
 
 
 (101,237) (101,237)
Cash dividends - preferred stock (approximately $1.34 per share)
 
 
 (8,063) 
 
 (8,063)
Cash dividends - common stock ($2.10 per share)
 
 
 (132,161) 
 
 (132,161)
Balance at December 31, 2015144,486
 637
 897,350
 1,845,188
 113,863
 (111,181) 2,890,343
Net income
 
 
 304,261
 
 
 304,261
Other comprehensive income, net of tax
 
 
 
 (138,486) 
 (138,486)
Stock option exercises/stock unit conversions (1,509,121 shares)
 
 (2,417) (20,915) 
 102,198
 78,866
Stock-based compensation expense recognized in earnings
 
 11,799
 
 
 
 11,799
Purchase of treasury stock (17,233 shares)
 
 
 
 
 (1,290) (1,290)
Cash dividends – preferred stock (approximately $1.34 per share)
 
 
 (8,063) 
 
 (8,063)
Cash dividends – common stock ($2.15 per share)
 
 
 (134,902) 
 
 (134,902)
Balance at December 31, 2016144,486
 637
 906,732
 1,985,569
 (24,623) (10,273) 3,002,528
Net income
 
 
 364,149
 
 
 364,149
Other comprehensive loss, net of tax
 
 
 
 104,135
 
 104,135
Stock option exercises/stock unit conversions (1,150,920 shares)
 5
 33,616
 (10,414) 
 44,539
 67,746
Stock-based compensation expense recognized in earnings
 
 13,013
 
 
 
 13,013
Purchase of treasury stock (1,149,555 shares)
 
 
 
 
 (101,473) (101,473)
Cash dividends – preferred stock (approximately $1.34 per share)
 
 
 (8,063) 
 
 (8,063)
Cash dividends – common stock ($2.25 per share)
 
 
 (144,172) 
 
 (144,172)
Balance at December 31, 2017$144,486
 $642
 $953,361
 $2,187,069
 $79,512
 $(67,207) $3,297,863
Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
Treasury
Stock
Total
Balance at January 1, 2018$144,486 $642 $953,361 $2,187,069 $79,512 $(67,207)$3,297,863 
Cumulative effect of accounting change— — — (2,285)— — (2,285)
Adjusted beginning balance144,486 642 953,361 2,184,784 79,512 (67,207)3,295,578 
Net income— — — 454,918 — — 454,918 
Other comprehensive income, net of tax— — — — (152,647)— (152,647)
Reclassification of certain income tax effects related to the change in the U.S. statutory federal income tax rate under the Tax Cuts and Jobs Act— — — (9,535)9,535 — — 
Stock option exercises/stock unit conversions (548,238 shares)— — — (16,653)— 48,300 31,647 
Stock-based compensation expense recognized in earnings— — 13,943 — — — 13,943 
Purchase of treasury stock (1,037,982 shares)— — — — — (101,010)(101,010)
Cash dividends - preferred stock (approximately $1.34 per share)— — — (8,063)— — (8,063)
Cash dividends – common stock ($2.58 per share)— — — (165,449)— — (165,449)
Balance at December 31, 2018144,486 642 967,304 2,440,002 (63,600)(119,917)3,368,917 
Cumulative effect of accounting change— — — (14,672)— — (14,672)
Adjusted beginning balance144,486 642 967,304 2,425,330 (63,600)(119,917)3,354,245 
Net income— — — 443,599 — — 443,599 
Other comprehensive income, net of tax— — — — 330,970 — 330,970 
Stock option exercises/stock unit conversions (399,224 shares)— — — (16,326)— 37,096 20,770 
Stock-based compensation expense recognized in earnings— — 15,946 — — — 15,946 
Purchase of treasury stock (716,062 shares)— — — — — (68,793)(68,793)
Cash dividends – preferred stock (approximately $1.34 per share)— — — (8,063)— — (8,063)
Cash dividends – common stock ($2.80 per share)— — — (177,006)— — (177,006)
Balance at December 31, 2019144,486 642 983,250 2,667,534 267,370 (151,614)3,911,668 
Cumulative effect of accounting change— — — (29,252)— — (29,252)
Adjusted beginning balance144,486 642 983,250 2,638,282 267,370 (151,614)3,882,416 
Net income— — — 331,151 — — 331,151 
Other comprehensive income, net of tax— — — — 245,600 — 245,600 
Stock option exercises/stock unit conversions (408,563 shares)— — — (27,214)— 39,771 12,557 
Stock-based compensation expense recognized in earnings— — 13,918 — — — 13,918 
Redemption of series A preferred stock (6,000,000 shares)(144,486)— — (5,514)— — (150,000)
Issuance of series B preferred stock (150,000 shares)145,452 — — — — — 145,452 
Purchase of treasury stock (206,951 shares)— — — — — (15,785)(15,785)
Treasury stock issued to the 401(k) stock purchase plan (140,264 shares)— — — (3,382)— 13,689 10,307 
Cash dividends – series A preferred stock (approximately $0.34 per share)— — — (2,016)— — (2,016)
Cash dividends – common stock ($2.85 per share)— — — (180,584)— — (180,584)
Balance at December 31, 2020$145,452 $642 $997,168 $2,750,723 $512,970 $(113,939)$4,293,016 
See accompanying Notes to Consolidated Financial Statements

88

Table of Content
Cullen/Frost Bankers, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Year Ended December 31,Year Ended December 31,
2017 2016 2015202020192018
Operating Activities:     Operating Activities:
Net income$364,149
 $304,261
 $279,328
Net income$331,151 $443,599 $454,918 
Adjustments to reconcile net income to net cash from operating activities:     Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses35,460
 51,673
 51,845
Credit loss expenseCredit loss expense241,230 33,759 21,685 
Deferred tax expense (benefit)(14,493) (11,598) (19,059)Deferred tax expense (benefit)(15,832)7,614 52,923 
Accretion of loan discounts(16,062) (15,582) (14,447)Accretion of loan discounts(15,692)(15,197)(14,341)
Securities premium amortization (discount accretion), net89,933
 79,705
 73,785
Securities premium amortization (discount accretion), net123,785 115,558 100,528 
Net (gain) loss on securities transactions4,941
 (14,975) (69)Net (gain) loss on securities transactions(108,989)(293)156 
Depreciation and amortization47,812
 48,177
 42,138
Depreciation and amortization64,370 54,091 50,172 
Net (gain) loss on sale/write-down of assets/foreclosed assets(4,697) (3,618) (1,765)Net (gain) loss on sale/write-down of assets/foreclosed assets524 (5,712)(5,272)
Stock-based compensation13,013
 11,799
 12,737
Stock-based compensation13,918 15,946 13,943 
Net tax benefit from stock-based compensation9,062
 5,063
 1,434
Net tax benefit from stock-based compensation852 2,447 3,865 
Earnings on life insurance policies(3,190) (3,599) (3,585)Earnings on life insurance policies(3,731)(3,683)(3,380)
Net change in:     Net change in:
Trading account securities(3,842) (124) (1,153)Trading account securities(158)(212)(2,658)
Lease right-of-use assetsLease right-of-use assets23,933 20,124 
Accrued interest receivable and other assets(55,179) (7,395) (13,038)Accrued interest receivable and other assets(158,264)(15,570)(85,898)
Accrued interest payable and other liabilities71,172
 (5,945) (13,291)Accrued interest payable and other liabilities27,146 (18,381)(24,253)
Net cash from operating activities538,079
 437,842
 394,860
Net cash from operating activities524,243 634,090 562,388 
Investing Activities:     Investing Activities:
Securities held to maturity:     Securities held to maturity:
Purchases
 
 (1,350)Purchases(1,500)(649,326)(1,500)
Sales
 136,719
 
Maturities, calls and principal repayments783,176
 228,641
 209,425
Maturities, calls and principal repayments63,577 81,762 300,632 
Securities available for sale:     Securities available for sale:
Purchases(13,529,192) (16,419,833) (14,147,908)Purchases(20,841,622)(23,306,694)(18,191,057)
Sales11,963,359
 14,847,380
 12,683,169
Sales1,162,352 18,660,147 16,806,062 
Maturities, calls and principal repayments1,328,143
 335,750
 658,199
Maturities, calls and principal repayments20,893,464 4,694,927 221,906 
Proceeds from sale of loans
 30,470
 
Proceeds from sale of loans37,535 24,036 21,318 
Net change in loans(1,187,631) (538,989) (500,990)Net change in loans(2,856,395)(693,587)(1,008,789)
Net cash (paid) received in acquisitions
 (492) 
Benefits received on life insurance policies597
 906
 444
Benefits received on life insurance policies903 384 
Proceeds from sales of premises and equipment4,525
 58,774
 2,538
Proceeds from sales of premises and equipment5,988 8,038 13,628 
Purchases of premises and equipment(34,089) (53,648) (147,129)Purchases of premises and equipment(95,422)(206,716)(79,270)
Proceeds from sales of repossessed properties517
 341
 4,682
Proceeds from sales of repossessed properties73 663 3,366 
Net cash from investing activities(670,595) (1,373,981) (1,238,920)Net cash from investing activities(1,631,047)(1,386,750)(1,913,320)
Financing Activities:     Financing Activities:
Net change in deposits1,060,814
 1,467,980
 207,665
Net change in deposits7,376,197 490,360 276,815 
Net change in short-term borrowings170,832
 83,470
 90,403
Net change in short-term borrowings421,655 327,794 219,724 
Proceeds from issuance of subordinated notes98,434
 
 
Principal payments on subordinated notes(100,000) 
 
Proceeds from Federal Home Loan Bank advancesProceeds from Federal Home Loan Bank advances1,250,000 
Principal payments on Federal Home Loan Bank advancesPrincipal payments on Federal Home Loan Bank advances(1,250,000)
Redemption of Series A preferred stockRedemption of Series A preferred stock(150,000)
Proceeds from issuance of Series B preferred stockProceeds from issuance of Series B preferred stock145,452 
Proceeds from stock option exercises67,746
 78,866
 14,853
Proceeds from stock option exercises12,557 20,770 31,647 
Purchase of treasury stock(101,473) (1,290) (101,237)Purchase of treasury stock(15,785)(68,793)(101,010)
Cash dividends paid on preferred stock(8,063) (8,063) (8,063)Cash dividends paid on preferred stock(2,016)(8,063)(8,063)
Cash dividends paid on common stock(144,172) (134,902) (132,161)Cash dividends paid on common stock(180,584)(177,006)(165,449)
Net cash from financing activities1,044,118
 1,486,061
 71,460
Net cash from financing activities7,607,476 585,062 253,664 
Net change in cash and cash equivalents911,602
 549,922
 (772,600)Net change in cash and cash equivalents6,500,672 (167,598)(1,097,268)
Cash and cash equivalents at beginning of year4,141,445
 3,591,523
 4,364,123
Cash and cash equivalents at beginning of year3,788,181 3,955,779 5,053,047 
Cash and cash equivalents at end of year$5,053,047
 $4,141,445
 $3,591,523
Cash and cash equivalents at end of year$10,288,853 $3,788,181 $3,955,779 
See accompanying Notes to Consolidated Financial Statements.

89

Table of Content
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. The terms “Cullen/Frost,” “the Corporation,” “we,” “us” and “our” mean Cullen/Frost Bankers, Inc. and its subsidiaries, when appropriate. In addition to general commercial and consumer banking, other products and services offered include trust and investment management, insurance, brokerage, mutual funds, leasing, treasury management, capital markets advisory and item processing.
Basis of Presentation. The consolidated financial statements include the accounts of Cullen/Frost and all other entities in which Cullen/Frost has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and financial reporting policies we follow conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry.
We determine whether we have 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. We consolidate voting interest entities in which we have 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. Our wholly owned subsidiaries Cullen/Frost Capital Trust II and WNB Capital Trust I are VIEs for which we are not the primary beneficiary. Accordingly, the accounts of these trusts are not included in our consolidated financial statements.
Acquisitions are accounted for using the purchase method with the operating results of the acquired companies included with our results of operations since their respective dates of acquisition.
We have 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 our results of operations since their respective dates of acquisition.
Use of Estimates. 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 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 loancredit losses on loans and off-balance-sheet credit exposures, the fair values of financial instruments and the status of contingencies are particularly subject to change.
Concentrations and Restrictions on Cash and Cash Equivalents. We maintain 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 we are not exposed to any significant credit risks on cash and cash equivalents.
We were required to have $179.6$42.0 million and $176.6$918.0 million of cash on hand or on deposit with the Federal Reserve Bank to meet regulatory reserve and clearing requirements at December 31, 20172020 and 2016. These deposits with the Federal Reserve Bank do not earn interest.2019. Additionally, as of December 31, 20172020 and 2016,2019, we had $19.6$74.0 million and $14.7$37.5 million in cash collateral on deposit with other financial institution counterparties to interest rate swap transactions.

90

Table of Content
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 us, 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,
202020192018
Cash paid for interest$49,300 $124,781 $89,270 
Cash paid for income tax44,140 45,352 5,112 
Significant non-cash transactions:
Transfer of securities from available for sale to held to maturity377,812 
Unsettled securities transactions57,783 330 
Loans foreclosed and transferred to other real estate owned and foreclosed assets140 1,348 2,899 
Loans to facilitate the sale of other real estate owned847 
Right-of-use lease assets obtained in exchange for lessee operating lease liabilities18,284 319,286 
Treasury stock issued to 401(k) stock purchase plan10,307 
 Year Ended December 31,
 2017 2016 2015
Cash paid for interest$24,371
 $11,886
 $12,982
Cash paid for income tax56,359
 50,427
 57,086
Significant non-cash transactions:     
Deferred gain on sale of building and parking garage
 7,099
 
Unsettled purchases/sales of securities37,481
 
 2,998
Loans foreclosed and transferred to other real estate owned and foreclosed assets279
 
 933
Loans to facilitate the sale of other real estate owned
 753
 20
Repurchase/Resell Agreements. We purchase 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. We also sell 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 remainremains 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 (those for which no allowance for credit losses are recorded) 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.
PurchaseInterest income on securities includes amortization of purchase premiums and discounts. Premiums and discounts on securities are generally amortized or accreted to interest income over the expected lives of the securities using the interest method with a constant effective yield. Expectations related toyield without anticipating prepayments, are considered in the calculation of the constant effective yield necessary to apply the interest methodexcept for mortgage-backed securities where prepayments are anticipated. Premiums on callable securities are amortized to their earliest call date. Prior to the adoption of a new accounting standard in 2019, as further discussed below, premiums on callable securities were amortized to their respective maturity dates unless such securities were included in pools for the purposes of assessing prepayment expectations. A security is placed on non-accrual status if (i) principal or interest has been in default for a period of 90 days or more or (ii) full payment of principal and certain pools of municipal securities. Premium amortization and discount accretioninterest is not expected. Interest accrued but not received for mortgage-backed securities and pools of municipal securitiesa security placed on non-accrual status is adjusted for changes in prepayment estimates, as applicable.
Realized gainsreversed against interest income. Gains and losses on sales are recorded on the trade date and 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 our ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
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.terms of the individual loans to which they relate, or, in certain cases, over the average expected term for loans where deferred fees and costs are accounted for on a pooled basis. 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 our accounting policies related to past due loans, non-accrual loans, impaired loans and troubled-debt restructurings is presented in Note 3 - Loans.
Loans Acquired Through Transfer. Loans acquired through
91

Table of Content
Allowance for Credit Losses. As further discussed below, we adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” on January 1, 2020. Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) replaced 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 ofprevious “incurred loss” model for measuring credit quality since originationlosses, which encompassed allowances for current known and inherent losses within the portfolio, with an “expected loss” model, which encompasses allowances for which it is probable, at acquisition, that we will be unable to collect all contractually required payments receivable are consideredlosses expected 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 methodincurred over the life of the loan. Contractually required paymentsportfolio. The new current expected credit loss (“CECL”) model requires the measurement of all expected credit losses for interestfinancial assets measured at amortized cost and principalcertain off-balance-sheet credit exposures based on historical experience, current conditions, and reasonable and supportable forecasts. In connection with the adoption of ASC 326, we revised certain accounting policies and implemented certain accounting policy elections. The revised accounting policies are described below.
Allowance For Credit Losses - Held-to-Maturity Securities: The allowance for credit losses on held-to-maturity securities is a contra-asset valuation account, calculated in accordance with ASC 326, that exceedis deducted from the undiscounted cash flowsamortized cost basis of held-to-maturity securities to present management's best estimate of the net amount expected at acquisition, orto be collected. Held-to-maturity securities are charged-off against the “nonaccretable difference,”allowance when deemed uncollectible by management. Adjustments to the allowance are not recognizedreported in our income statement as a yield adjustmentcomponent of credit loss expense. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management has made the accounting policy election to exclude accrued interest receivable on held-to-maturity securities from the estimate of credit losses. Further information regarding our policies and methodology used to estimate the allowance for credit losses on held-to-maturity securities is presented in Note 2 - Securities.
Allowance For Credit Losses - Available-for-Sale Securities: For available-for-sale securities in an unrealized loss position, we first assess whether (i) we intend to sell or as a loss accrual(ii) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either case is affirmative, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through income. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or a valuation allowance. Increases in expected cash flows subsequentother factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the initial investment are recognized prospectively through adjustmentrating of the yield onsecurity by a rating agency and any adverse conditions specifically related to 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 (meaningsecurity, among other factors. If this assessment indicates that a credit loss exists, the present value of all cash flows expected at acquisition that ultimately are not to be received).collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Management has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.
For acquired loansPrior to the adoption of ASU 2016-13, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are notwere deemed to be purchased credit-impaired at acquisition,other than temporary were reflected in earnings as realized losses. In estimating other-than-temporary impairment losses prior to January 1, 2020, management considered, among other things, (i) the difference betweenlength of time and the initialextent to which the fair value had been less than cost, (ii) the financial condition and the unpaid principal balance is recognized as interest income on a level-yield basis over the livesnear-term prospects of the related loans. Subsequentissuer and (iii) the intent and our ability to acquisition,retain our investment in the issuer for a period of time sufficient to allow for 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.anticipated recovery in fair value.
Allowance for LoanCredit Losses. - Loans: The allowance for loancredit losses on loans is a reservecontra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present management's best estimate of the net amount expected to be collected. Loans are charged-off against the allowance when deemed uncollectible by management. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Management has made the accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses. Further information regarding our policies and methodology used to estimate the allowance for credit losses on loans is presented in Note 3 - Loans.
92

Table of Content
Prior to the adoption of ASU 2016-13, the allowance for credit losses on loans was a contra-asset valuation account established through a provision for loan losses charged to expense, which representsrepresented management’s best estimate of inherent losses that havehad been incurred within the existing portfolio of loans. The allowance in the judgment of management, is necessary to reserve for estimated loancredit losses inherent in the loan portfolio. The allowance for loan losses includeson loans included allowance allocations calculated in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)ASC Topic 310, “Receivables” and allowance allocations calculated in accordance with ASC Topic 450, “Contingencies.”
Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures: The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. The allowance is reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Further information regarding our policies and methodology used to estimate the allowance for loancredit losses on off-balance-sheet credit exposures is presented in Note 38 - Loans.Off-Balance-Sheet Arrangements, Commitments, Guarantees and Contingencies.
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.
We lease certain office facilities and office equipment under operating leases. We also own certain office facilities which we lease to outside parties under operating lessor leases; however, such leases are not significant. In 2019, we adopted certain accounting standard updates related to accounting for leases as further discussed below. Under the new standards, for operating leases other than those considered to be short-term, we recognize lease right-of-use assets and related lease liabilities. Such amounts are reported as components of premises and equipment and accrued interest payable and other liabilities, respectively, on our accompanying consolidated balance sheet. We do not recognize short-term operating leases on our balance sheet. A short-term operating lease has an original term of 12 months or less and does not have a purchase option that is likely to be exercised.
In recognizing lease right-of-use assets and related lease liabilities, we account for lease and non-lease components (such as taxes, insurance, and common area maintenance costs) separately as such amounts are generally readily determinable under our lease contracts. Lease payments over the expected term are discounted using our incremental borrowing rate referenced to the Federal Home Loan Bank Secure Connect advance rates for borrowings of similar term. We also consider renewal and termination options in the determination of the term of the lease. If it is reasonably certain that a renewal or termination option will be exercised, the effects of such options are included in the determination of the expected lease term. Generally, we cannot be reasonably certain about whether or not we will renew a lease until such time the lease is within the last two years of the existing lease term. However, renewal options related to our regional headquarters facilities or operations centers are evaluated on a case-by-case basis, typically in advance of such time frame. When we are reasonably certain that a renewal option will be exercised, we measure/remeasure the right-of-use asset and related lease liability using the lease payments specified for the renewal period or, if such amounts are unspecified, we generally assume an increase (evaluated on a case-by-case basis in light of prevailing market conditions) in the lease payment over the final period of the existing lease term.
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 $2.1 million$850 thousand and $2.4$1.1 million at December 31, 20172020 and 2016.2019.
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 on October 1st, 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 5 - Goodwill and Other Intangible Assets.
93

Table of Content
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. Our 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 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 5 - Goodwill and Other Intangible Assets.
Insurance CommissionsRevenue Recognition. In general, for revenue not associated with financial instruments, guarantees and Fees. Commissionlease contracts, we apply the following steps when recognizing revenue from contracts with customers: (i) identify the contract, (ii) identify the performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations and (v) recognize revenue when a performance obligation is recognized assatisfied. Our contracts with customers are generally short term in nature, typically due within one year or less or cancellable by us or our customer upon a short notice period. Performance obligations for our customer contracts are generally satisfied at a single point in time, typically when the transaction is complete, or over time. For performance obligations satisfied over time, we primarily use the output method, directly measuring the value of the effective dateproducts/services transferred to the customer, to determine when performance obligations have been satisfied. We typically receive payment from customers and recognize revenue concurrent with the satisfaction of our performance obligations. In most cases, this occurs within a single financial reporting period. For payments received in advance of the insurance policy. We also receive contingent commissions from insurance companiessatisfaction of performance obligations, revenue recognition is deferred until such time as additional incentive for achieving specified premium volume goals and/or the loss experienceperformance obligations have been satisfied. In cases where we have not received payment despite satisfaction of our performance obligations, we accrue an estimate of the amount due in the period our performance obligations have been satisfied. For contracts with variable components, only amounts for which collection is probable are accrued. We generally act in a principal capacity, on our own behalf, in most of our contracts with customers. In such transactions, we recognize revenue and the related costs to provide our services on a gross basis in our financial statements. In some cases, we act in an agent capacity, deriving revenue through assisting other entities in transactions with our customers. In such transactions, we recognize revenue and the related costs to provide our services on a net basis in our financial statements. These transactions recognized on a net basis primarily relate to insurance placed by us. Contingentand brokerage commissions and fees derived from insurance companies are recognized when determinable, which is generally when such commissions are received or when we receive data from the insurance companies that allows the reasonable estimationour customers' use of these amounts.various interchange and ATM/debit card networks.
Share-Based Payments. 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 us, is the date of the grant and is recognized ratably over the service period of the award. Compensation expense for performance stock units is based on the fair value of the award on the measurement date, which, for us, is the date of the grant and is recognized over

the service period of the award based upon the probable number of units expected to vest. The fair value of stock options is estimated using a binomial lattice-based valuation model. The fair value of non-vested stock awards/stock units and deferred stock units is generally the market price of our stock on the date of grant. The fair value of performance stock units is generally the market price of our stock on the date of grant discounted by the present value of the dividends expected to be paid on our common stock during the service period of the award because dividend equivalent payments on performance stock units are deferred until such time that the units vest and shares are issued. The impact of forfeitures of share-based payment awards on compensation expense is recognized as forfeitures occur.
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, if needed, 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.income. 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 income tax effects related to settlements of share-based payment awards are reported in earnings as an increase (or decrease) to income tax expense (seeexpense. See Note 13 - Income Taxes). Prior to 2016, income tax benefits at settlementTaxes.
94

Table of an award were reported as an increase (or decrease) to additional paid-in capital to the extent that those benefits were greater than (or less than) the income tax benefits recognized in earnings during the award's vesting period.Content
We file a consolidated income tax return with our 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. We have determined that our 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 10 - 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 our 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 and changes in the net actuarial gain/loss on defined benefit post-retirement benefit plans. See Note 14 - Other Comprehensive Income (Loss).
Derivative Financial Instruments. Our 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 our 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. We may be required to recognize certain contracts and commitments as derivatives when the characteristics of those 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. We consider 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, we formally assess 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, we 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 our creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. See Note 17 - Fair Value Measurements.
95

Table of Content
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 us, (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) we do 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 our trust department, other than cash on deposit at Frost Bank, are not included in the accompanying financial statements because they are not our assets.
Accounting Changes, Reclassifications and Restatement. Restatements. Certain items in prior financial statements have been reclassified to conform to the current presentation.
As discussed above, on January 1, 2020 we adopted the provisions of ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Upon adoption, we recognized an after-tax cumulative effect reduction to retained earnings totaling $29.3 million, as detailed in the table below. Operating results for periods after January 1, 2020 are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable standards and the accounting policies as described above.
The following table details the impact of the adoption of ASC 326 on the allowance for credit losses as of January 1, 2020.
January 1, 2020
Pre-Adoption AllowanceImpact of AdoptionPost-Adoption AllowanceCumulative Effect on Retained Earnings
Securities held to maturity:
U.S. Treasury$$$$
Residential mortgage-backed securities
States and political subdivisions215 215 (170)
Other
Total$$215 $215 $(170)
Loans:
Commercial and industrial$51,593 $21,263 $72,856 $(16,798)
Energy37,382 (10,453)26,929 8,258 
Commercial real estate31,037 (13,519)17,518 10,680 
Consumer real estate4,113 2,392 6,505 (1,890)
Consumer and other8,042 (2,248)5,794 1,776 
Total$132,167 $(2,565)$129,602 $2,026 
Off-balance-sheet credit exposures$500 $39,377 $39,877 $(31,108)
On January 1, 2019, we adopted certain accounting standard updates related to accounting for leases, primarily ASU 2016-02 “Leases (Topic 842)” and subsequent updates. Among other things, these updates require lessees to recognize a lease liability, measured on a discounted basis, related to the lessee's obligation to make lease payments arising under a lease contract; and a right-of-use asset related to the lessee’s right to use, or control the use of, a specified asset for the lease term. The updates did not significantly change lease accounting requirements applicable to lessors and did not significantly impact our financial statements in relation to contracts whereby we act as a lessor. We adopted the updates using a modified-retrospective transition approach and recognized right-of-use lease assets and related lease liabilities totaling $170.5 million and $174.4 million, respectively, as of January 1, 2019. We elected to apply certain practical adoption expedients provided under the updates whereby we did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We did not elect to apply the recognition requirements of the updates to short-term leases. See Note 4 - Premises and Equipment and Lease Commitments.
96

Table of Content
On January 1, 2019, we also adopted ASU 2017-08 “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities.” ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium to require such premiums to be amortized to the earliest call date unless applicable guidance related to certain pools of securities is applied to consider estimated prepayments. Under prior guidance, entities were generally required to amortize premiums on individual, non-pooled callable debt securities as a yield adjustment over the contractual life of the security. ASU 2017-08 does not change the accounting for callable debt securities held at a discount. Upon adoption, using a modified retrospective transition adoption approach, we recognized a cumulative effect reduction to retained earnings totaling $14.7 million.
On January 1, 2018, we adopted ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” In accordance with ASU 2018-02, we elected to reclassify certain income tax effects related to the change in the U.S. statutory federal income tax rate under the Tax Cuts and Jobs Act, which was enacted on December 22, 2017 from accumulated other comprehensive income to retained earnings. Such amounts, which totaled $9.5 million, related to a net actuarial loss on defined benefit post-retirement plans and unrealized gains on securities available for sale and securities transferred to held to maturity. See Note 14 - Other Comprehensive Income (Loss). Notwithstanding this election made in accordance with ASU 2018-02, our policy is to release such income tax effects only when the entire portfolio to which the underlying transactions relate is liquidated, sold or extinguished.
On January 1, 2018, we also adopted, ASU 2014-09, "Revenue from Contracts with Customers (Topic 606).” Using a modified retrospective transition approach for contracts that were not complete as of our adoption, we recognized a cumulative effect reduction to beginning retained earnings totaling $2.3 million. The amount was related to certain revenue streams within trust and investment management fees.
Note 2 - Securities
Securities. Year-endSecurities - Held to Maturity. A summary of the amortized cost, fair value and allowance for credit losses related to securities held to maturity as of December 31, 2020 and 2019 is presented below.
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Allowance
for Credit
Losses
Net
Carrying
Amount
December 31, 2020
Residential mortgage-backed securities$528,784 $41,742 $$570,526 $$528,784 
States and political subdivisions1,415,549 65,321 1,480,870 (160)1,415,389 
Other1,500 1,500 1,500 
Total$1,945,833 $107,063 $$2,052,896 $(160)$1,945,673 
December 31, 2019
Residential mortgage-backed securities$530,861 $22 $9,365 $521,518 $$530,861 
States and political subdivisions1,497,644 28,909 896 1,525,657 1,497,644 
Other1,500 1,500 1,500 
Total$2,030,005 $28,931 $10,261 $2,048,675 $$2,030,005 
All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. The carrying value of held-to-maturity securities pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law was $659.2 million and $561.4 million at December 31, 2020 and 2019, respectively. Accrued interest receivable on held-to-maturity securities totaled $21.7 million and $21.1 million at December 31, 2020 and 2019, respectively and is included in accrued interest receivable and other assets in the accompanying consolidated balance sheets.
From time to time, we have reclassified certain securities from available for sale consistedto held to maturity. During 2019, we reclassified securities with an aggregate fair value of $377.8 million and an aggregate net unrealized gain of $3.3 million ($2.6 million, net of tax) on the date of the following:transfer. The net unamortized, unrealized gain remaining on transferred securities, including those transferred in 2019 and in years prior, included in accumulated other comprehensive income in the accompanying balance sheet totaled $3.5 million ($2.8 million, net of tax) at
97

Table of Content
 2017 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Held to Maturity:               
U.S. Treasury$
 $
 $
 $
 $249,889
 $1,762
 $
 $251,651
Residential mortgage-backed securities3,610
 15
 38
 3,587
 4,511
 39
 
 4,550
States and political subdivisions1,428,488
 26,462
 2,746
 1,452,204
 1,994,710
 16,821
 6,335
 2,005,196
Other
 
 
 
 1,350
 
 
 1,350
Total$1,432,098
 $26,477
 $2,784
 $1,455,791
 $2,250,460
 $18,622
 $6,335
 $2,262,747
Available for Sale:               
U.S. Treasury$3,453,391
 $7,494
 $15,732
 $3,445,153
 $4,003,692
 $24,984
 $8,945
 $4,019,731
Residential mortgage-backed securities648,288
 19,048
 2,250
 665,086
 756,072
 30,388
 1,293
 785,167
States and political subdivisions6,185,711
 167,293
 16,795
 6,336,209
 5,403,918
 50,101
 98,134
 5,355,885
Other42,561
 
 
 42,561
 42,494
 
 
 42,494
Total$10,329,951
 $193,835
 $34,777
 $10,489,009
 $10,206,176
 $105,473
 $108,372
 $10,203,277
December 31, 2020 and $4.8 million ($3.8 million, net of tax) at December 31, 2019. 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.

The allowance for credit losses on held-to-maturity securities is a contra-asset valuation account that is deducted from the amortized cost basis of held-to-maturity securities to present the net amount expected to be collected. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to U.S. Treasury and residential mortgage-backed securities issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to securities issued by States and political subdivisions and other held-to-maturity securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, (iv) internal forecasts and (v) whether or not such securities are guaranteed by the Texas Permanent School Fund (“PSF”) or pre-refunded by the issuers.
The following table summarizes Moody's and/or Standard & Poor's bond ratings for our portfolio of held-to-maturity securities issued by States and political subdivisions and other securities as of December 31, 2020:
States and Political Subdivisions
Not Guaranteed or Pre-RefundedGuaranteed by the Texas PSFPre-RefundedTotalOther
Securities
Aaa/AAA$115,016 $659,999 $470,745 $1,245,760 $
Aa/AA107,065 107,065 
A62,724 62,724 
Not rated1,500 
Total$284,805 $659,999 $470,745 $1,415,549 $1,500 
Historical loss rates associated with securities having similar grades as those in our portfolio have generally not been significant. Furthermore, as of December 31, 2020, there were 0 past due principal or interest payments associated with these securities. The PSF is a sovereign wealth fund which serves to provide revenues for funding of public primary and secondary education in the State of Texas. Based upon (i) the PSF's AAA insurer financial strength rating, (ii) the PSF's substantial capitalization and excess guarantee capacity and (iii) a zero historical loss rate, 0 allowance for credit losses has been recorded for securities guaranteed by the PSF as there is 0 current expectation of credit losses related to these securities. Pre-refunded securities have been defeased by the issuer and are fully secured by cash and/or U.S. Treasury securities held in escrow for payment to holders when the underlying call dates of the securities are reached. Accordingly, 0 allowance for credit losses has been recorded for securities that have been defeased as there is 0 current expectation of credit losses related to these securities.
The following table details activity in the allowance for credit losses on held-to-maturity securities during 2020.
Beginning balance$
Impact of adopting ASC 326215 
Credit loss expense (benefit)(55)
Ending balance$160 
98

Table of Content
Securities - Available for Sale. A summary of the amortized cost, fair value and allowance for credit losses related to securities available for sale as of December 31, 2020 and 2019 is presented below.
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance
for Credit
Losses
Estimated
Fair Value
December 31, 2020
U.S. Treasury$1,084,542 $35,091 $$$1,119,633 
Residential mortgage-backed securities1,916,581 71,102 1,987,679 
States and political subdivisions6,683,927 603,975 7,287,902 
Other42,351 42,351 
Total$9,727,401 $710,168 $$$10,437,565 
December 31, 2019
U.S. Treasury$1,941,283 $18,934 $12,084 $$1,948,133 
Residential mortgage-backed securities2,176,275 32,608 1,289 2,207,594 
States and political subdivisions6,717,344 353,857 204 7,070,997 
Other42,867 42,867 
Total$10,877,769 $405,399 $13,577 $$11,269,591 
All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. At December 31, 2017, approximately 98.2%2020 all of the securities in our available for sale municipal bond portfolio were issued by the State of Texas or political subdivisions or agencies within the State of Texas, of which approximately 67.8%77.8% are either guaranteed by the Texas Permanent School Fund, which has a “triple-A” insurer financial strength rating,PSF or are secured by U.S. Treasury securities via defeasance of the debt by the issuers.have been pre-refunded. 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 available-for-sale securities pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law was $3.8$4.4 billion and $3.4 billion at December 31, 20172020 and $3.9 billion2019, respectively. Accrued interest receivable on available-for-sale securities totaled $111.0 million and $115.9 million at December 31, 2016.2020 and 2019, respectively, and is included in accrued interest receivable and other assets in the accompanying consolidated balance sheets.
During 2012, we reclassified certainThe table below summarizes, as of December 31, 2020, securities from available for sale to held to maturity. Thein an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by type of security and length of time in a continuous unrealized loss position.
Less than 12 MonthsMore than 12 MonthsTotal
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Residential mortgage-backed securities$1,711 $$121 $$1,832 $
Total$1,711 $$121 $$1,832 $
As of December 31, 2020, 0 allowance for credit losses has been recognized on available for sale securities hadin 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 dateloss position as management does not believe any of the transfer. The net unamortized, unrealized gain on the remaining transferred securities included in accumulated other comprehensive income in the accompanying balance sheet totaled $11.6 million ($7.5 million, netare impaired due to reasons of tax) at December 31, 2017 and $27.7 million ($18.0 million, net of tax) at December 31, 2016.credit quality. This amount will be amortized out of accumulated other comprehensive income over the remaining lifeis based upon our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our available for sale securities as an adjustmentand in consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the yield on those securities.
Unrealized Losses. Year-end securities with unrealized losses, segregated by length of impairment, were as follows:
 Less than 12 Months More than 12 Months Total
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
2017           
Held to Maturity:           
Residential mortgage-backed securities$2,694
 $38
 $
 $
 $2,694
 $38
States and political subdivisions28,591
 58
 74,113
 2,688
 102,704
 2,746
Total$31,285
 $96
 $74,113
 $2,688
 $105,398
 $2,784
Available for Sale:           
U.S. Treasury$2,336,081
 $9,861
 $517,575
 $5,871
 $2,853,656
 $15,732
Residential mortgage-backed securities144,264
 949
 45,436
 1,301
 189,700
 2,250
States and political subdivisions148,575
 1,194
 838,329
 15,601
 986,904
 16,795
Total$2,628,920
 $12,004
 $1,401,340
 $22,773
 $4,030,260
 $34,777
 Less than 12 Months More than 12 Months Total
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
2016           
Held to Maturity:           
States and political subdivisions$425,896
 $2,596
 $183,245
 $3,739
 $609,141
 $6,335
Total$425,896
 $2,596
 $183,245
 $3,739
 $609,141
 $6,335
Available for Sale:           
U.S. Treasury$1,421,216
 $8,945
 $
 $
 $1,421,216
 $8,945
Residential mortgage-backed securities81,442
 1,031
 6,413
 262
 87,855
 1,293
States and political subdivisions2,695,997
 98,134
 
 
 2,695,997
 98,134
Total$4,198,655
 $108,110
 $6,413
 $262
 $4,205,068
 $108,372
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 our ability to retain our 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 we expect to receive full value for the securities. Furthermore, as of December 31, 2017, 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 we will not have to sell any such securities before a recovery of cost. AnyThe unrealized losses are 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 securities approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any
99

Table of Content
Contractual Maturities. The following table summarizes the maturity distribution schedule of securities held to maturity and securities available for sale as of December 31, 2020. Mortgage-backed securities are impaired due to reasons of credit quality. Accordingly, as of December 31, 2017, management believes the impairments detailedincluded in the table above are temporary and no impairment loss has been realized in our consolidated income statement.
Contractual Maturities. The amortized cost and estimated fair value of securities, excluding trading securities, at December 31, 2017 are presented below by contractual maturity.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. Residential mortgage-backedOther securities classified as available for sale include stock in the Federal Reserve Bank and equity securities are shown separately since they are not due at a singlethe Federal Home Loan Bank, which have no maturity date. These securities have been included in the total column only.
Within 1 Year1 - 5 Years5 - 10 YearsAfter 10 YearsTotal
Held To Maturity
Amortized Cost
Residential mortgage-backed securities$22 $165 $516,118 $12,479 $528,784 
States and political subdivisions155,941 463,302 207,076 589,230 1,415,549 
Other1,500 1,500 
Total$155,963 $464,967 $723,194 $601,709 $1,945,833 
Estimated Fair Value
Residential mortgage-backed securities$22 $167 $556,610 $13,727 $570,526 
States and political subdivisions156,689 480,530 212,937 630,714 1,480,870 
Other1,500 1,500 
Total$156,711 $482,197 $769,547 $644,441 $2,052,896 
Available For Sale
Amortized Cost
U. S. Treasury$798,742 $285,800 $$$1,084,542 
Residential mortgage-backed securities11,833 25,336 22,583 1,856,829 1,916,581 
States and political subdivisions199,697 1,323,635 638,720 4,521,875 6,683,927 
Other42,351 
Total$1,010,272 $1,634,771 $661,303 $6,378,704 $9,727,401 
Estimated Fair Value
U. S. Treasury$811,778 $307,855 $$$1,119,633 
Residential mortgage-backed securities12,278 26,724 23,116 1,925,561 1,987,679 
States and political subdivisions201,166 1,442,871 694,760 4,949,105 7,287,902 
Other42,351 
Total$1,025,222 $1,777,450 $717,876 $6,874,666 $10,437,565 
 Held to Maturity Available for Sale
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less$264,587
 $267,924
 $57,390
 $58,057
Due after one year through five years159,765
 163,819
 4,063,797
 4,056,508
Due after five years through ten years386,711
 391,784
 425,148
 439,008
Due after ten years617,425
 628,677
 5,092,767
 5,227,789
Residential mortgage-backed securities3,610
 3,587
 648,288
 665,086
Equity securities
 
 42,561
 42,561
Total$1,432,098
 $1,455,791
 $10,329,951
 $10,489,009
Sales of Securities. During 2016, we sold certain securities issued by municipalities that, based upon our internal credit analysis, had experienced significant deterioration in creditworthiness. The risk exposure presented by these municipalities had increased beyond acceptable levels and we determined that it was reasonably possible that all amounts due would not be collected. In the first case, our credit analysis determined that most of the affected municipalities had been significantly impacted by the significant decline in market oil prices due to the fact that their tax bases are heavily reliant on the energy industry relative to other sectors of the economy. Specifically, the revenues of these municipalities had been adversely impacted by the sustained low-level of oil prices. Additionally, some of these municipalities had already been downgraded or had been put on credit watch and were subsequently downgraded by various credit rating agencies. In the second case, we sold certain securities related to a municipality that was unrelated to a reliance on the energy industry. This municipality had experienced significant deterioration in creditworthiness as a result of the emergence of significant funding obligations which resulted in credit downgrades. In both cases, some of the securities we sold were classified as held to maturity prior to their sale. Despite their classification as held to maturity, we believe the sale of these securities was merited and permissible under the applicable accounting guidelines because of the significant deterioration in the creditworthiness of the issuers.
Sales of securities held to maturity were as follows:
 2017 2016 2015
Proceeds from sales$
 $136,719
 $
Amortized cost
 132,974
 
Gross realized gains
 3,770
 
Gross realized losses
 (25) 
Tax expense related to securities gains/losses
 (1,311) 
Sales of securities available for sale were as follows:
202020192018
Proceeds from sales$1,162,352 $18,660,147 $16,806,062 
Gross realized gains108,989 930 
Gross realized losses(637)(159)
Tax benefit (expense) related to securities gains/losses(22,888)(62)33 
 2017 2016 2015
Proceeds from sales$11,963,359
 $14,847,380
 $12,683,169
Gross realized gains1
 13,289
 228
Gross realized losses(4,942) (2,059) (159)
Tax benefit (expense) related to securities gains/losses1,729
 (3,931) (24)

Premiums and Discounts. Premium amortization and discount accretion included in interest income on securities was as follows:
202020192018
Premium amortization$(126,210)$(120,785)$(108,483)
Discount accretion2,425 5,227 7,955 
Net (premium amortization) discount accretion$(123,785)$(115,558)$(100,528)
100

Table of Content
 2017 2016 2015
Premium amortization$(97,841) $(90,782) $(84,467)
Discount accretion7,908
 11,077
 10,682
Net (premium amortization) discount accretion$(89,933) $(79,705) $(73,785)
Trading Account Securities. Year-end trading account securities, at estimated fair value, were as follows:
2017 201620202019
U.S. Treasury$19,210
 $16,594
U.S. Treasury$23,996 $24,298 
States and political subdivisions1,888
 109
States and political subdivisions460 
Total$21,098
 $16,703
Total$24,456 $24,298 
Net gains and losses on trading account securities were as follows:
202020192018
Net gain on sales transactions$1,102 $2,173 $1,816 
Net mark-to-market gains (losses)85 (176)105 
Net gain on trading account securities$1,187 $1,997 $1,921 

2017
2016
2015
Net gain on sales transactions$1,408

$1,236

$1,109
Net mark-to-market gains (losses)(43)
(157)
(53)
Net gain on trading account securities$1,365

$1,079

$1,056
Note 3 - Loans
Year-end loans, including leases net of unearned discounts, consisted of the following:
20202019
Commercial and industrial$4,955,341 $5,187,466 
Energy:
Production976,473 1,348,900 
Service116,825 192,996 
Other141,900 110,986 
Total energy1,235,198 1,652,882 
Paycheck Protection Program2,433,849 
Commercial real estate:
Commercial mortgages5,478,806 4,594,113 
Construction1,223,814 1,312,659 
Land317,847 289,467 
Total commercial real estate7,020,467 6,196,239 
Consumer real estate:
Home equity loans329,390 375,596 
Home equity lines of credit452,854 354,671 
Other548,530 464,146 
Total consumer real estate1,330,774 1,194,413 
Total real estate8,351,241 7,390,652 
Consumer and other505,680 519,332 
Total loans$17,481,309 $14,750,332 
 2017 2016
Commercial and industrial$4,792,388
 $4,344,000
Energy:   
Production1,182,326
 971,767
Service171,795
 221,213
Other144,972
 193,081
Total energy1,499,093
 1,386,061
Commercial real estate:   
Commercial mortgages3,887,742
 3,481,157
Construction1,066,696
 1,043,261
Land331,986
 311,030
Total commercial real estate5,286,424
 4,835,448
Consumer real estate:   
Home equity loans355,342
 345,130
Home equity lines of credit291,950
 264,862
Other376,002
 326,793
Total consumer real estate1,023,294
 936,785
Total real estate6,309,718
 5,772,233
Consumer and other544,466
 473,098
Total loans$13,145,665
 $11,975,392
Concentrations of Credit. Most of our 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 our loan portfolio consists of commercial and industrial and commercial real estate loans. As of December 31, 2017 and 2016,2020, there were no concentrations of loans related to any single industry in excess of 10% of total loans. The largest industry concentration was related to the energy industry, which totaled 7.1% of total loans, or 8.2% excluding PPP Loans. As of December 31, 2019, there were 0 concentrations of loans related to any single industry in excess of 10% of total loans other than energy loans, which totaled 11.4% and 11.6%11.2% of total loans respectively.at such date. Unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled $1.1 billion$919.1 million and $46.7$60.7 million, respectively, as of December 31, 2017.2020.

Foreign Loans. We have 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, 20172020 or 2016.2019.
Overdrafts. Deposit account overdrafts reported as loans totaled $7.3$5.6 million and $6.3$9.0 million at December 31, 20172020 and 2016.2019.
101

Table of Content
Related Party Loans. In the ordinary course of business, we have granted loans to certain directors, executive officers and their affiliates (collectively referred to as “related parties”). Activity in related party loans during 20172020 is presented in the following table. Other changes were primarily related to changes in related-party status.
Balance outstanding at December 31, 2019$298,528 
Principal additions267,951 
Principal reductions(212,157)
Other changes(1,217)
Balance outstanding at December 31, 2020$353,105 
Balance outstanding at December 31, 2016$142,771
Principal additions270,684
Principal reductions(271,325)
Other changes24,273
Balance outstanding at December 31, 2017$166,403
Accrued Interest Receivable. Accrued interest receivable on loans totaled $48.7 million and $45.5 million at December 31, 2020 and 2019, respectively and is included in accrued interest receivable and other assets in the accompany consolidated balance sheets.
COVID-19 Loan Deferments. Certain borrowers are currently unable to meet their contractual payment obligations because of the adverse effects of COVID-19. To help mitigate these effects, loan customers may apply for a deferral of payments, or portions thereof, for up to 90 days. After 90 days, customers may apply for an additional deferral, and a small proportion of our customers have requested such an additional deferral. In the absence of other intervening factors, such short-term modifications made on a good faith basis are not categorized as troubled debt restructurings, nor are loans granted payment deferrals related to COVID-19 reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral). At December 31, 2020, there were 39 loans in COVID-19 related deferment with an aggregate outstanding balance of approximately $45.9 million.
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, we consider the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regards to our 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 of principal 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:
December 31, 2020December 31, 2019
Total Non-AccrualNon-Accrual with No Credit Loss AllowanceTotal Non-AccrualNon-Accrual with No Credit Loss Allowance
Commercial and industrial$19,849 $4,479 $26,038 $13,266 
Energy23,168 639 65,761 3,281 
Paycheck Protection Program
Commercial real estate:
Buildings, land and other15,737 14,116 8,912 6,558 
Construction1,684 1,684 665 665 
Consumer real estate993 993 922 922 
Consumer and other18 
Total$61,449 $21,911 $102,303 $24,692 
102

Table of Content
 2017 2016
Commercial and industrial$46,186
 $31,475
Energy94,302
 57,571
Commercial real estate:   
Buildings, land and other7,589
 8,550
Construction
 
Consumer real estate2,109
 2,130
Consumer and other128
 425
Total$150,314
 $100,151
AsThe following table presents non-accrual loans as of December 31, 20172020 by class and 2016, non-accrual loans reported inyear of origination.
20202019201820172016PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial and industrial$9,479 $3,351 $1,846 $1,489 $105 $29 $839 $2,711 $19,849 
Energy2,421 6,772 2,144 359 11,193 279 23,168 
Paycheck Protection Program
Commercial real estate:
Buildings, land and other2,914 5,031 999 2,019 1,933 2,736 105 15,737 
Construction1,684 1,684 
Consumer real estate211 408 259 115 993 
Consumer and other18 18 
Total$16,498 $15,154 $4,989 $3,719 $2,038 $3,532 $12,414 $3,105 $61,449 
In the table above, included $53.6 million and $44.9 million relatedloans reported as 2020 originations were, for the most part, first originated in various years prior to loans that2020 but were restructured as “troubled debt restructurings” during 2017 and 2016, respectively. Seerenewed in the section captioned “Troubled Debt Restructurings” elsewhere in this note.
current year. Had non-accrual loans performed in accordance with their original contract terms, we would have recognized additional interest income, net of tax, of approximately $3.7$2.9 million in 2017, $3.12020, $3.9 million in 20162019 and $1.6$5.2 million in 2015.

2018.
An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of December 31, 20172020 was as follows:
Loans
30-89 Days
Past Due
Loans
90 or More
Days
Past Due
Total Past
Due Loans
Current
Loans
Total LoansAccruing
Loans 90 or
More Days
Past Due
Commercial and industrial$45,416 $9,616 $55,032 $4,900,309 $4,955,341 $5,615 
Energy14,833 11,237 26,070 1,209,128 1,235,198 3,696 
Paycheck Protection Program2,433,849 2,433,849 
Commercial real estate:
Buildings, land and other22,130 6,304 28,434 5,768,219 5,796,653 1,275 
Construction856 856 1,222,958 1,223,814 
Consumer real estate8,090 3,047 11,137 1,319,637 1,330,774 2,469 
Consumer and other5,537 1,251 6,788 498,892 505,680 1,233 
Total$96,862 $31,455 $128,317 $17,352,992 $17,481,309 $14,288 
 
Loans
30-89 Days
Past Due
 
Loans
90 or More
Days
Past Due
 
Total Past
Due Loans
 
Current
Loans
 Total Loans 
Accruing
Loans 90 or
More Days
Past Due
Commercial and industrial$41,169
 $12,418
 $53,587
 $4,738,801
 $4,792,388
 $5,589
Energy22,100
 49,214
 71,314
 1,427,779
 1,499,093
 100
Commercial real estate:           
Buildings, land and other29,714
 4,482
 34,196
 4,185,532
 4,219,728
 2,615
Construction2,191
 2,331
 4,522
 1,062,174
 1,066,696
 2,331
Consumer real estate7,707
 4,427
 12,134
 1,011,160
 1,023,294
 3,138
Consumer and other4,791
 665
 5,456
 539,010
 544,466
 659
Total$107,672
 $73,537
 $181,209
 $12,964,456
 $13,145,665
 $14,432
Impaired Loans. Loans are considered Prior to the adoption of ASC 326 on January 1, 2020, loans were reported as impaired when, based on then current information and events, it iswas probable we willwould 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 iswas evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan iswas impaired, a specific valuation allowance iswas allocated, if necessary, so that the loan iswas 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 iswas expected solely from the collateral. Interest payments on impaired loans arewere typically applied to principal unless collectibility of the principal amount iswas reasonably assured, in which case interest iswas recognized on a cash basis. Impaired loans, or portions thereof, arewere charged off when deemed uncollectible.
Regulatory guidelines require us to reevaluate
103

Table of Content
Impaired loans as of December 31, 2019 and the fair value of collateral supporting impaired collateral dependent loans on at least an annual basis. While our policy is to comply with the regulatory guidelines, our general practice is to reevaluate the fair value of collateral supporting impaired collateral dependent loans on a quarterly basis. Thus, appraisals are generally not considered to be outdated, and we typically do not make any adjustments to the appraised values. The fair value of collateral supporting impaired collateral dependent loans is evaluated by our 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-endaverage recorded investment in impaired loans during 2019 and 2018 are set forth in the following table. NoNaN interest income was recognized on impaired loans subsequent to their classification as impaired.
Unpaid
Contractual
Principal
Balance
Recorded
Investment
With No
Allowance
Recorded
Investment
With
Allowance
Total
Recorded
Investment
Related
Allowance
Average
Recorded
Investment 2019
Average
Recorded
Investment 2018
2019
Commercial and industrial$30,909 $11,588 $12,772 $24,360 $7,849 $14,913 $18,246 
Energy87,103 2,764 62,480 65,244 20,246 53,563 75,453 
Commercial real estate:
Buildings, land and other9,252 6,255 2,354 8,609 383 13,690 12,799 
Construction697 665 665 354 
Consumer real estate570 570 570 547 704 
Consumer and other1,285 925 
Total$128,536 $21,842 $77,611 $99,453 $28,483 $84,352 $108,127 
 
Unpaid
Contractual
Principal
Balance
 
Recorded
Investment
With No
Allowance
 
Recorded
Investment
With
Allowance
 
Total
Recorded
Investment
 
Related
Allowance
 
Average
Recorded
Investment
2017           
Commercial and industrial$60,781
 $28,038
 $15,722
 $43,760
 $7,553
 $30,073
Energy99,606
 33,080
 61,162
 94,242
 13,267
 76,492
Commercial real estate:           
Buildings, land and other10,795
 6,394
 
 6,394
 
 6,164
Construction
 
 
 
 
 
Consumer real estate1,214
 1,214
 
 1,214
 
 1,167
Consumer and other
 
 
 
 
 11
Total$172,396
 $68,726
 $76,884
 $145,610
 $20,820
 $113,907
2016           
Commercial and industrial$40,288
 $19,862
 $9,047
 $28,909
 $5,436
 $26,074
Energy60,522
 27,759
 29,804
 57,563
 3,750
 57,360
Commercial real estate:           
Buildings, land and other11,369
 6,866
 
 6,866
 
 17,729
Construction
 
 
 
 
 438
Consumer real estate977
 655
 
 655
 
 537
Consumer and other32
 30
 
 30
 
 25
Total$113,188
 $55,172
 $38,851
 $94,023
 $9,186
 $102,163
2015           
Commercial and industrial$26,067
 $18,776
 $4,084
 $22,860
 $2,378
 $27,338
Energy25,240
 8,689
 12,450
 21,139
 2,000
 7,235
Commercial real estate:           
Buildings, land and other37,126
 32,425
 
 32,425
 
 18,211
Construction793
 569
 
 569
 
 1,320
Consumer real estate755
 485
 
 485
 
 664
Consumer and other
 
 
 
 
 
Total$89,981
 $60,944
 $16,534
 $77,478
 $4,378
 $54,768
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 that occurred during 2017, 20162020, 2019 and 20152018 are set forth in the following table.
2017 2016 2015202020192018
Balance at
Restructure
 
Balance at
Year-end
 
Balance at
Restructure
 
Balance at
Year-end
 
Balance at
Restructure
 
Balance at
Year-end
Balance at
Restructure
Balance at
Year-end
Balance at
Restructure
Balance at
Year-end
Balance at
Restructure
Balance at
Year-end
Commercial and industrial$4,026
 $3,766
 $2,148
 $1,022
 $709
 $536
Commercial and industrial$3,661 $192 $3,845 $2,161 $2,203 $
Energy56,096
 54,330
 87,572
 43,841
 
 
Energy2,432 2,421 13,708 — 
Commercial real estate:           Commercial real estate:
Buildings, land and other
 
 1,455
 
 
 
Buildings, land and other9,310 4,922 9,457 9,393 
Construction388
 388
 243
 
 
 
Construction1,017 1,017 
Consumer real estateConsumer real estate124 120 
Consumer and otherConsumer and other1,104 
$60,510
 $58,484
 $91,418
 $44,863
 $709
 $536
$17,524 $8,552 $13,426 $11,674 $15,911 $
Loan modifications are typically related to extending amortization periods, converting loans to interest only for a limited period of time, deferral of interest payments, waiver of certain covenants, consolidating notes and/or reducing collateral or interest rates. The modifications during the reported periods did not significantly impact our determination of the allowance for loan losses. credit losses on loans.
Additional information related to restructured loans was as follows:

202020192018
Restructured loans past due in excess of 90 days at period-end:
Number of loans
Dollar amount of loans$2,008 $3,340 $
Restructured loans on non-accrual status at period end8,552 5,576 
Charge-offs of restructured loans:
Recognized in connection with restructuring337 
Recognized on previously restructured loans3,894 1,500 7,650 
Proceeds from sale of restructured loans15,750 
104

Table of Content
 2017 2016 2015
Restructured loans past due in excess of 90 days at period-end:     
Number of loans1
 2
 1
Dollar amount of loans$43,137
 $3,230
 $259
Restructured loans on non-accrual status at period end53,622
 44,863
 536
Charge-offs of restructured loans:     
Recognized in connection with restructuring
 4,115
 88
Recognized on previously restructured loans9,951
 9,490
 
Proceeds from sale of restructured loans
 30,470
 
Credit Quality Indicators. As part of the on-going monitoring of the credit quality of our 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.
We utilize a risk grading matrix to assign a risk grade to each of our 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.
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.

In monitoring credit quality trends in the context of assessing the appropriate level of the allowance for loancredit losses on loans, we monitor portfolio credit quality by the weighted-average risk grade of each class of commercial loan. Individual relationship managers, under the oversight of credit administration, review updated financial information for all pass grade loans to recalculatereassess 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.
105

Table of Content
The following tables present weighted-average risk grades for all commercial loans, by class and year of origination/renewal as of December 31, 2020. Paycheck Protection Program (“PPP”) loans are excluded as such loans are fully guaranteed by the Small Business Administration (“SBA”).
20202019201820172016PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial and industrial
Risk grades 1-8$1,300,844 $552,885 $290,088 $226,232 $107,063 $113,458 $1,852,341 $63,210 $4,506,121 
Risk grade 950,785 37,865 33,961 20,851 12,348 5,510 85,756 9,122 256,198 
Risk grade 1031,333 7,361 11,379 6,749 710 113 65,180 3,152 125,977 
Risk grade 114,700 7,002 6,551 3,416 1,426 140 15,005 8,956 47,196 
Risk grade 126,899 2,399 1,195 1,005 105 29 480 2,416 14,528 
Risk grade 132,580 952 651 484 359 295 5,321 
$1,397,141 $608,464 $343,825 $258,737 $121,652 $119,250 $2,019,121 $87,151 $4,955,341 
W/A risk grade6.19 6.88 7.22 6.39 6.32 5.84 6.38 7.51 6.45 
Energy
Risk grades 1-8$403,156 $18,911 $9,759 $8,083 $1,415 $4,326 $494,946 $27,548 $968,144 
Risk grade 9105,772 2,272 1,743 18,194 5,566 133,547 
Risk grade 10703 4,049 1,339 759 37,637 1,940 46,427 
Risk grade 1112,218 16,849 1,325 661 30,124 2,735 63,912 
Risk grade 121,101 4,580 654 359 6,768 279 13,741 
Risk grade 131,320 2,192 1,490 4,425 9,427 
$524,270 $48,853 $16,310 $8,083 $2,174 $5,346 $592,094 $38,068 $1,235,198 
W/A risk grade6.86 9.57 8.68 7.40 7.85 8.06 6.45 8.20 6.85 
Commercial real estate:
Buildings, land, other
Risk grades 1-8$1,544,558 $947,102 $749,879 $605,152 $432,941 $661,301 $56,600 $50,340 $5,047,873 
Risk grade 945,527 81,224 75,893 45,485 26,745 37,728 10,521 2,104 325,227 
Risk grade 1014,183 36,414 45,014 71,814 25,343 60,225 200 5,261 258,454 
Risk grade 1122,633 16,302 11,916 39,727 8,655 42,904 6,977 248 149,362 
Risk grade 122,714 5,031 999 2,019 1,683 2,736 42 15,224 
Risk grade 13200 250 63 513 
$1,629,815 $1,086,073 $883,701 $764,197 $495,617 $804,894 $74,403 $57,953 $5,796,653 
W/A risk grade7.13 7.36 7.54 7.55 7.54 7.20 7.54 7.12 7.34 
Construction
Risk grades 1-8$374,661 $436,077 $168,517 $67 $1,144 $1,758 $127,801 $$1,110,025 
Risk grade 937,430 16,567 2,848 14,311 1,131 72,287 
Risk grade 105,846 27,653 5,463 38,962 
Risk grade 11856 856 
Risk grade 121,684 1,684 
Risk grade 13
$420,477 $452,644 $196,170 $2,915 $1,144 $1,758 $147,575 $1,131 $1,223,814 
W/A risk grade6.82 7.18 8.08 8.95 7.30 6.44 7.29 9.00 7.22 
Total commercial real estate$2,050,292 $1,538,717 $1,079,871 $767,112 $496,761 $806,652 $221,978 $59,084 $7,020,467 
W/A risk grade7.06 7.31 7.64 7.56 7.54 7.20 7.37 7.15 7.32 
The weighted-average risk grades for “pass grade” (risk grades 1-8) loans was 6.13 for commercial and industrial, 5.99 for energy, 6.97 for commercial real estate - buildings, land and other and 6.99 for commercial real estate - construction). Furthermore, in the tables above, certain loans are reported as 2020 originations and have risk grades of 11 or higher. These loans were, for the most part, first originated in various years prior to 2020 but were renewed in the current year.
106

Table of Content
The following tables present weighted average risk grades for all commercial loans by class.class as of December 31, 2019.
Commercial and IndustrialEnergyCommercial Real Estate - Buildings, Land and OtherCommercial Real Estate - ConstructionTotal Commercial Real Estate
W/A Risk GradeLoansW/A Risk GradeLoansW/A Risk GradeLoansW/A Risk GradeLoansW/A Risk GradeLoans
Risk grades 1-86.17 $4,788,857 5.90 $1,488,301 6.78 $4,523,271 7.25 $1,274,098 6.88 $5,797,369 
Risk grade 99.00 247,212 9.00 32,163 9.00 163,714 9.00 21,509 9.00 185,223 
Risk grade 1010.00 71,472 10.00 51,898 10.00 103,626 10.00 15,243 10.00 118,869 
Risk grade 1111.00 53,887 11.00 14,760 11.00 84,057 11.00 1,144 11.00 85,201 
Risk grade 1212.00 18,189 12.00 45,514 12.00 8,529 12.00 665 12.00 9,194 
Risk grade 1313.00 7,849 13.00 20,246 13.00 383 13.00 13.00 383 
Total6.44 $5,187,466 6.39 $1,652,882 7.01 $4,883,580 7.31 $1,312,659 7.07 $6,196,239 
Information about the payment status of consumer loans, segregated by portfolio segment and year of origination, as of December 31, 2020 was as follows:
20202019201820172016PriorRevolving LoansRevolving Loans Converted to TermTotal
Consumer real estate:
Past due 30-89 days$225 $1,038 $1,556 $553 $628 $2,907 $652 $531 $8,090 
Past due 90 or more days15 139 109 706 25 1,287 615 151 3,047 
Total past due240 1,177 1,665 1,259 653 4,194 1,267 682 11,137 
Current loans336,441 166,323 94,374 80,625 66,241 124,590 434,939 16,104 1,319,637 
Total$336,681 $167,500 $96,039 $81,884 $66,894 $128,784 $436,206 $16,786 $1,330,774 
Consumer and other:
Past due 30-89 days$1,750 $300 $453 $52 $17 $$2,238 $727 $5,537 
Past due 90 or more days71 10 118 1,031 21 1,251 
Total past due1,821 310 571 52 17 3,269 748 6,788 
Current loans45,286 27,813 5,397 2,799 1,705 572 386,791 28,529 498,892 
Total$47,107 $28,123 $5,968 $2,851 $1,722 $572 $390,060 $29,277 $505,680 
Revolving loans that converted to term during 2020 were as follows:
Commercial and industrial$47,562 
Energy33,150 
Commercial real estate:
Buildings, land and other10,505 
Construction1,131 
Consumer real estate2,264 
Consumer and other16,395 
Total$111,007 
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 118.3 at December 31, 2020 (most recent date available) and 127.1 at December 31, 2019. A lower TLI value implies less favorable economic conditions.
107

Table of Content
 December 31, 2017 December 31, 2016
 Weighted
Average
Risk Grade
 Loans Weighted
Average
Risk Grade
 Loans
Commercial and industrial       
Risk grades 1-86.06
 $4,378,839
 6.01
 $3,989,722
Risk grade 99.00
 170,285
 9.00
 106,988
Risk grade 1010.00
 99,260
 10.00
 115,420
Risk grade 1111.00
 97,818
 11.00
 100,245
Risk grade 1212.00
 38,633
 12.00
 25,939
Risk grade 1313.00
 7,553
 13.00
 5,686
Total6.41
 $4,792,388
 6.35
 $4,344,000
Energy       
Risk grades 1-86.01
 $1,199,207
 6.34
 $854,688
Risk grade 99.00
 50,427
 9.00
 78,524
Risk grade 1010.00
 64,282
 10.00
 150,872
Risk grade 1111.00
 90,875
 11.00
 244,406
Risk grade 1212.00
 81,035
 12.00
 53,821
Risk grade 1313.00
 13,267
 13.00
 3,750
Total6.97
 $1,499,093
 7.95
 $1,386,061
Commercial real estate:       
Buildings, land and other       
Risk grades 1-86.75
 $3,868,659
 6.67
 $3,463,064
Risk grade 99.00
 151,487
 9.00
 109,110
Risk grade 1010.00
 129,391
 10.00
 145,067
Risk grade 1111.00
 62,602
 11.00
 66,396
Risk grade 1212.00
 7,589
 12.00
 8,550
Risk grade 1313.00
 
 13.00
 
Total7.00
 $4,219,728
 6.95
 $3,792,187
Construction       
Risk grades 1-87.11
 $1,019,635
 6.97
 $1,023,194
Risk grade 99.00
 18,042
 9.00
 15,829
Risk grade 1010.00
 23,393
 10.00
 2,889
Risk grade 1111.00
 5,626
 11.00
 1,349
Risk grade 1212.00
 
 12.00
 
Risk grade 1313.00
 
 13.00
 
Total7.23
 $1,066,696
 7.01
 $1,043,261
We have established maximum loanAllowance For Credit Losses - Loans. The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to value standardspresent the net amount expected to be applied duringcollected. The amount of the origination processallowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectibility over the loans' contractual terms, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless (i) management has a reasonable expectation that a trouble debt restructuring will be executed with an individual borrower or (ii) such extension or renewal options are not unconditionally cancellable by us and, in such cases, the borrower is likely to meet applicable conditions and likely to request extension or renewal. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. The allowance for credit losses is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
Credit loss expense related to loans reflects the totality of actions taken on all loans for a particular period including any necessary increases or decreases in the allowance related to changes in credit loss expectations associated with specific loans or pools of loans. 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 appropriateness of the allowance is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.
In calculating the allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles. Common characteristics and risk profiles include the type/purpose of loan, underlying collateral, geographical similarity and historical/expected credit loss patterns. In developing these loan pools for the purposes of modeling expected credit losses, we also analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors. For modeling purposes, our loan pools include (i) commercial and industrial and energy - non-revolving, (ii) commercial and industrial and energy - revolving, (iii) commercial real estate - owner occupied, (iv) commercial real estate - non-owner occupied, (v) commercial real estate - construction/land development, (vi) consumer real estate loans.and (vii) consumer and other. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary.
For each loan pool, we measure expected credit losses over the life of each loan utilizing a combination of models which measure (i) probability of default (“PD”), which is the likelihood that loan will stop performing/default, (ii) probability of attrition (“PA”), which is the likelihood that a loan will pay-off prior to maturity, (iii) loss given default (“LGD”), which is the expected loss rate for loans in default and (iv) exposure at default (“EAD”), which is the estimated outstanding principal balance of the loans upon default, including the expected funding of unfunded commitments outstanding as of the measurement date. For certain commercial loan portfolios, the PD is calculated using a transition matrix to determine the likelihood of a customer’s risk grade migrating from one specified range of risk grades to a different specified range. Expected credit losses are calculated as the product of PD (adjusted for attrition), LGD and EAD. This methodology builds on default probabilities already incorporated into our risk grading process by utilizing pool-specific historical loss rates to calculate expected credit losses. These pool-specific historical loss rates may be adjusted for current macroeconomic assumptions, as further discussed below, and other factors such as differences in underwriting standards, portfolio mix, or when historical asset terms do not subsequently monitor loan-to-value ratios (either individuallyreflect the contractual terms of the financial assets being evaluated as of the measurement date. Each time we measure expected credit losses, we assess the relevancy of historical loss information and consider any necessary adjustments to address any differences in asset-specific characteristics. Due to their short-term nature, expected credit losses for overdrafts included in consumer and other loans are based solely upon a weighting of recent historical charge-offs over a period of three years.
108

Table of Content
The measurement of expected credit losses is impacted by loan/borrower attributes and certain macroeconomic variables. Significant loan/borrower attributes utilized in our modeling processes include, among other things, (i) origination date, (ii) maturity date, (iii) payment type, (iv) collateral type and amount, (v) current risk grade, (vi) current unpaid balance and commitment utilization rate, (vii) payment status/delinquency history and (viii) expected recoveries of previously charged-off amounts. Significant macroeconomic variables utilized in our modeling processes include, among other things, (i) Gross State Product for Texas and U.S. Gross Domestic Product, (ii) selected market interest rates including U.S. Treasury rates, bank prime rate, 30-year fixed mortgage rate, BBB corporate bond rate, among others, (iii) unemployment rates, (iv) commercial and residential property prices in Texas and the U.S. as a whole, (v) West Texas Intermediate crude oil price and (vi) total stock market index.
PD and PA were estimated by analyzing internally-sourced data related to historical performance of each loan pool over a complete economic cycle. PD and PA are adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period. We have determined that we are reasonably able to forecast the macroeconomic variables used in our modeling processes with an acceptable degree of confidence for a total of two years with the last twelve months of the forecast period encompassing a reversion process whereby the forecasted macroeconomic variables are reverted to their historical mean utilizing a rational, systematic basis. The macroeconomic variables utilized as inputs in our modeling processes were subjected to a variety of analysis procedures and were selected primarily based on statistical relevancy and correlation to our historical credit losses. By reverting these modeling inputs to their historical mean and considering loan/borrower specific attributes, our models are intended to yield a measurement of expected credit losses that reflects our average historical loss rates for periods subsequent to the twelve-month reversion period. The LGD is based on historical recovery averages for each loan pool, adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a two-year forecast period, with the final twelve months of the forecast period encompassing a reversion process, which management considers to be both reasonable and supportable. This same forecast/reversion period is used for all macroeconomic variables used in all of our models. EAD is estimated using a linear regression model that estimates the average percentage of the loan balance that remains at the time of a default event.
Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor (“Q-Factor”) adjustments may increase or ondecrease management's estimate of expected credit losses by a weighted-average basis)calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor adjustments include, among other things, the impact of (i) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (ii) actual and expected changes in international, national, regional, and local economic and business conditions and developments that affect the collectibility of the loan pools, (iii) changes in the nature and volume of the loan pools and in the terms of the underlying loans, (iv) changes in the experience, ability, and depth of our lending management and staff, (v) changes in volume and severity of past due financial assets, the volume of non-accrual assets, and the volume and severity of adversely classified or graded assets, (vi) changes in the quality of our credit review function, (vii) changes in the value of the underlying collateral for loans that are subsequently considered to benon-collateral dependent, (viii) the existence, growth, and effect of a pass grade (grades 9any concentrations of credit and (ix) other factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters or better) and/or current with respect to principal and interest payments. As stated above, whenhealth pandemics.
In some cases, management may determine that an individual commercial real estate loan has a calculatedexhibits unique risk grade of 10 or higher, a special assets officer analyzescharacteristics which differentiate the loan to determine whetherfrom other loans within our loan pools. In such cases, the loan is impaired. At that time, we reassessloans are evaluated for expected credit losses on an individual basis and excluded from the loan to value position in the loan. If the loan is determined to be collateral dependent, specificcollective evaluation. Specific allocations of the allowance for loancredit losses are made fordetermined by analyzing the amount of anyborrower’s ability to repay amounts owed, collateral deficiency. If a collateral deficiency is ultimately deemed to be uncollectible,deficiencies, the amount is charged-off. These loans and related assessments of collateral position are monitored on an individual, case-by-case basis. We do not monitor loan-to-value ratios on a weighted-average portfolio-basis for commercial real estate loans having a calculatedrelative risk grade of 10the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or higher as excesssale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral from one borrower cannot be used to offsetat the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a collateral deficit for another borrower. When

an individual consumerquarterly basis. The fair value of real estate loan becomes past due by more than 10 days, the assigned relationship manager will begin collection efforts. We only reassess 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 becomecollateral supporting collateral dependent and anyloans is evaluated by our internal appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. The fair value of collateral deficiencysupporting collateral dependent construction loans is recognized as a charge-off tobased on an “as is” valuation.
109

Table of Content
The following table presents details of the allowance for credit losses on loans segregated by loan losses. Accordingly, we doportfolio segment as of December 31, 2020, calculated in accordance with the CECL methodology described above. NaN allowance for credit losses has been recognized for PPP loans as such loans are fully guaranteed by the SBA.
Commercial
and
Industrial
EnergyCommercial
Real Estate
Consumer
Real Estate
Consumer
and Other
Total
Modeled expected credit losses$65,645 $8,910 $125,126 $7,926 $6,945 $214,552 
Q-Factor and other qualitative adjustments2,877 21,216 9,253 33,346 
Specific allocations5,321 9,427 513 18 15,279 
Total$73,843 $39,553 $134,892 $7,926 $6,963 $263,177 
The following table presents details of the allowance for credit losses on loans segregated by loan portfolio segment as of December 31, 2019, calculated in accordance with our prior incurred loss methodology described in our 2019 Form 10-K.
Commercial
and
Industrial
EnergyCommercial
Real Estate
Consumer
Real Estate
Consumer
and Other
Total
Historical valuation allowances$29,015 $7,873 $21,947 $2,690 $7,562 $69,087 
Specific valuation allowances7,849 20,246 383 28,483 
General valuation allowances9,840 5,196 4,201 904 (409)19,732 
Macroeconomic valuation allowances4,889 4,067 4,506 519 884 14,865 
Total$51,593 $37,382 $31,037 $4,113 $8,042 $132,167 
The following table details activity in the allowance for credit losses on loans by portfolio segment for 2020, 2019 and 2018. Allocation of a portion of the allowance to one category of loans does not monitor loan-to-value ratios on a weighted-average basispreclude its availability to absorb losses in other categories. NaN allowance for collateral dependent consumer real estate loans.credit losses has been recognized for PPP loans as such loans are fully guaranteed by the SBA.
Commercial
and
Industrial
EnergyCommercial
Real Estate
Consumer
Real Estate
Consumer
and Other
Total
2020
Beginning balance$51,593 $37,382 $31,037 $4,113 $8,042 $132,167 
Impacting of adopting ASC 32621,263 (10,453)(13,519)2,392 (2,248)(2,565)
Credit loss expense15,156 85,889 124,427 1,906 9,632 237,010 
Charge-offs(18,908)(76,107)(7,499)(2,186)(17,830)(122,530)
Recoveries4,739 2,842 446 1,701 9,367 19,095 
Net charge-offs(14,169)(73,265)(7,053)(485)(8,463)(103,435)
Ending balance$73,843 $39,553 $134,892 $7,926 $6,963 $263,177 
2019
Beginning balance$48,580 $29,052 $38,777 $6,103 $9,620 $132,132 
Credit loss expense13,144 14,388 (6,934)467 12,694 33,759 
Charge-offs(14,117)(7,500)(1,025)(3,665)(24,725)(51,032)
Recoveries3,986 1,442 219 1,208 10,453 17,308 
Net charge-offs(10,131)(6,058)(806)(2,457)(14,272)(33,724)
Ending balance$51,593 $37,382 $31,037 $4,113 $8,042 $132,167 
2018
Beginning balance$59,614 $51,528 $30,948 $5,657 $7,617 $155,364 
Credit loss expense11,354 (9,355)8,079 1,984 9,551 21,613 
Charge-offs(26,076)(13,940)(619)(2,143)(17,197)(59,975)
Recoveries3,688 819 369 605 9,649 15,130 
Net charge-offs(22,388)(13,121)(250)(1,538)(7,548)(44,845)
Ending balance$48,580 $29,052 $38,777 $6,103 $9,620 $132,132 
110

Table of Content
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 our 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 we become 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 any event the charge-off must be taken within 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,The following table presents loans that were as follows:
 2017 2016 2015
Commercial and industrial$(17,453) $(12,259) $(6,535)
Energy(10,009) (18,588) (5,997)
Commercial real estate:     
Buildings, land and other735
 813
 314
Construction11
 23
 18
Consumer real estate(506) (257) (91)
Consumer and other(5,919) (4,219) (3,237)
Total$(33,141) $(34,487) $(15,528)
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 overallevaluated for expected 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 128.7 at December 31, 2017 and 123.1 at December 31, 2016. A higher TLI value implies more favorable economic conditions.
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 inherent 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. Our allowance for loan loss methodology follows the accounting guidance set forth in U.S. generally accepted accounting principleson an individual basis 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, our allowance for loan losses includes allowancerelated specific 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. Our 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 our control, including, among other things, the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications. We monitor 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 we experience over time.
Our allowance for loan losses consists of: (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; (iii) general valuation allowances determined in accordance with ASC Topic 450 based on various risk factors that are internal to us; and (iv) macroeconomic valuation allowances determined in accordance with ASC Topic 450 based on general economic conditions and other risk factors that are external to us.
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. We calculate 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. Our pools of similar loans include similarly risk-graded groups of commercial and industrial loans, energy loans, commercial real estate loans, consumer real estate loans, consumer and other loans and overdrafts. Prior to 2016, we used a single, combined historical loss allocation factor for all consumer and other loans, which included overdrafts. In 2016, we began using two separate historical loss allocation factors for consumer and other loans, one historical loss allocation factor for consumer and other loans, excluding overdrafts, and a separate historical loss allocation factor for overdrafts. While the effect of this change resulted in a decrease in the estimated valuation allowances needed for consumer and other loans, the impact of the change was not significant to our overall allocation of the allowance for loan losses.
General valuation allowances include allocations for groups of similar loans with similar risk characteristics that exceed certain concentration limits established by management and/or our 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 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). Our 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 by loan portfolio segment for the preceding four quarters, adjusted, when necessary, for expected future trends in recoveries.

The componentsas of the macroeconomic valuation allowance include (i) reserves allocated as a result of applying an environmental risk adjustment factor to the base historical loss allocation, (ii) reserves allocated for loans to borrowers in distressed industries and (iii) reserves allocated based upon current economic trends and other quantitative and qualitative factors that could impact our loan portfolio segments. The aggregate sum of these components for each portfolio segment reflects management's assessment of current and expected economic conditions and other external factors that impact the inherent credit quality of loans in that portfolio segment.
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 our 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.
Macroeconomic valuation allowances also include amounts allocated for loans to borrowers in distressed industries within our commercial loan portfolio segments. To determine the amount of the allocation for our commercial and industrial and commercial real estate loan portfolio segments, 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, 20172020 and 2016, 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 our commercial loan portfolios. Furthermore, we 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.December 31, 2019.
The aforementioned methodology for allocating reserves for distressed industries within commercial and industrial and commercial real estate loan portfolio segments does not translate to our energy loan portfolio segment as the segment is made up of a single industry. For energy loans, management analyzes current economic trends, commodity prices and various other quantitative and qualitative factors that impact the inherent credit quality of our energy loan portfolio segment. If, based upon this analysis, management concludes that the prevailing conditions could have an adverse impact on the credit quality of our energy loan portfolio, management performs a sensitivity stress test on individual loans within our energy loan portfolio. The sensitivity stress test includes a commodity price shock to 75% of the commodity price deck. We also assess the financial strength of individual borrowers, the quality of collateral, the relative experience of the individual borrowers and their ability to withstand an economic downturn. The sensitivity stress test allows us to identify potential credit issues during periods of economic uncertainty. Reserve allocations resulting from the sensitivity stress test are calculated by hypothetically increasing the risk grades for affected borrowers and applying our allowance methodology to determine the incremental reserves that would be required.
December 31, 2020December 31, 2019
Loan
Balance
Specific AllocationsLoan
Balance
Specific Allocations
Commercial and industrial$21,287 $5,321 $24,360 $7,849 
Energy22,888 9,427 65,244 20,246 
Paycheck Protection Program
Commercial real estate:
Buildings, land and other34,057 513 8,609 383 
Construction1,684 665 
Consumer real estate561 570 
Consumer and other18 18 
Total$80,495 $15,279 $99,453 $28,483 
Macroeconomic valuation allowances may also include additional reserves allocated based upon management's assessment of current and expected economic conditions, trends and other quantitative and qualitative factors that could impact the credit quality of our loan portfolio segments. Additional reserves are allocated when, based upon this assessment, management believes that there are inherent credit risks for a given portfolio segment that have not yet materialized through the migration of loan risk grades and, therefore, have not yet impacted our historical or general valuation allowances.

The following table presents details of the allowance for loan losses, segregated by loan portfolio segment.
 
Commercial
and
Industrial
 Energy 
Commercial
Real Estate
 
Consumer
Real Estate
 
Consumer
and Other
 Total
December 31, 2017           
Historical valuation allowances$26,401
 $22,073
 $18,931
 $2,473
 $5,603
 $75,481
Specific valuation allowances7,553
 13,267
 
 
 
 20,820
General valuation allowances9,112
 7,964
 4,165
 2,133
 (91) 23,283
Macroeconomic valuation allowances16,548
 8,224
 7,852
 1,051
 2,105
 35,780
Total$59,614
 $51,528
 $30,948
 $5,657
 $7,617
 $155,364
December 31, 2016           
Historical valuation allowances$33,251
 $34,626
 $16,976
 $2,225
 $4,585
 $91,663
Specific valuation allowances5,436
 3,750
 
 
 
 9,186
General valuation allowances6,708
 3,769
 5,004
 1,506
 (144) 16,843
Macroeconomic valuation allowances7,520
 18,508
 8,233
 507
 585
 35,353
Total$52,915
 $60,653
 $30,213
 $4,238
 $5,026
 $153,045
We monitor 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 we experience over time. In assessing the general macroeconomic trends/conditions, we analyze 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 us and our customers. With regard to assessing loan portfolio conditions, we analyze 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, we 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.
The Corporation’s recorded investment in loans 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
Industrial
 Energy 
Commercial
Real Estate
 
Consumer
Real Estate
 
Consumer
and Other
 Total
December 31, 2017           
Individually evaluated$43,760
 $94,242
 $6,394
 $1,214
 $
 $145,610
Collectively evaluated4,748,628
 1,404,851
 5,280,030
 1,022,080
 544,466
 13,000,055
Total$4,792,388
 $1,499,093
 $5,286,424
 $1,023,294
 $544,466
 $13,145,665
December 31, 2016           
Individually evaluated$28,909
 $57,563
 $6,866
 $655
 $30
 $94,023
Collectively evaluated4,315,091
 1,328,498
 4,828,582
 936,130
 473,068
 11,881,369
Total$4,344,000
 $1,386,061
 $4,835,448
 $936,785
 $473,098
 $11,975,392

The following table details activity in the allowance for loan losses by portfolio segment for 2017, 2016 and 2015. 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
Industrial
 Energy 
Commercial
Real Estate
 
Consumer
Real Estate
 
Consumer
and Other
 Total
2017           
Beginning balance$52,915
 $60,653
 $30,213
 $4,238
 $5,026
 $153,045
Provision for loan losses24,152
 884
 (11) 1,925
 8,510
 35,460
Charge-offs(20,619) (10,595) (86) (925) (15,579) (47,804)
Recoveries3,166
 586
 832
 419
 9,660
 14,663
Net charge-offs(17,453) (10,009) 746
 (506) (5,919) (33,141)
Ending balance$59,614
 $51,528
 $30,948
 $5,657
 $7,617
 $155,364
Allocated to loans:           
Individually evaluated for impairment$7,553
 $13,267
 $
 $
 $
 $20,820
Collectively evaluated for impairment52,061
 38,261
 30,948
 5,657
 7,617
 134,544
Ending balance$59,614
 $51,528
 $30,948
 $5,657
 $7,617
 $155,364
2016           
Beginning balance$42,993
 $54,696
 $24,313
 $4,659
 $9,198
 $135,859
Provision for loan losses22,181
 24,545
 5,064
 (164) 47
 51,673
Charge-offs(15,910) (18,644) (82) (814) (12,878) (48,328)
Recoveries3,651
 56
 918
 557
 8,659
 13,841
Net charge-offs(12,259) (18,588) 836
 (257) (4,219) (34,487)
Ending balance$52,915
 $60,653
 $30,213
 $4,238
 $5,026
 $153,045
Allocated to loans:           
Individually evaluated for impairment$5,436
 $3,750
 $
 $
 $
 $9,186
Collectively evaluated for impairment47,479
 56,903
 30,213
 4,238
 5,026
 143,859
Ending balance$52,915
 $60,653
 $30,213
 $4,238
 $5,026
 $153,045
2015           
Beginning balance$44,273
 $14,919
 $27,163
 $5,178
 $8,009
 $99,542
Provision for loan losses5,255
 45,774
 (3,182) (428) 4,426
 51,845
Charge-offs(11,092) (6,000) (657) (577) (11,246) (29,572)
Recoveries4,557
 3
 989
 486
 8,009
 14,044
Net charge-offs(6,535) (5,997) 332
 (91) (3,237) (15,528)
Ending balance$42,993
 $54,696
 $24,313
 $4,659
 $9,198
 $135,859
Allocated to loans:           
Individually evaluated for impairment$2,378
 $2,000
 $
 $
 $
 $4,378
Collectively evaluated for impairment40,615
 52,696
 24,313
 4,659
 9,198
 131,481
Ending balance$42,993
 $54,696
 $24,313
 $4,659
 $9,198
 $135,859

Note 4 - Premises and Equipment and Lease Commitments
Year-end premises and equipment were as follows:
20202019
Land$128,739 $112,818 
Buildings458,693 441,404 
Technology, furniture and equipment243,395 226,925 
Leasehold improvements183,827 156,144 
Construction and projects in progress41,202 44,251 
Lease right-of-use assets292,087 297,736 
1,347,943 1,279,278 
Less accumulated depreciation and amortization(302,365)(267,331)
Total premises and equipment, net$1,045,578 $1,011,947 
 2017 2016
Land$107,249
 $106,505
Buildings379,829
 361,573
Furniture and equipment179,424
 167,723
Leasehold improvements74,314
 67,540
Construction in progress11,107
 19,508
 751,923
 722,849
Less accumulated depreciation and amortization(230,965) (197,028)
Total premises and equipment, net$520,958
 $525,821
Depreciation and amortization of premises and equipment totaled $36.3 million in 2017, $36.0$49.9 million in 20162020, $41.0 million 2019 and $28.5$37.2 million in 2015.2018.
Comprehensive Development Agreement. In July 2015,Lease Commitments. We lease certain office facilities and office equipment under operating leases. Rent expense for all operating leases totaled $46.0 million in 2020, $42.1 million in 2019 and $31.1 million in 2018. On January 1, 2019, we entered intoadopted a new accounting standard which required the recognition of certain operating leases on our balance sheet as lease right-of-use assets (reported as component of premises and equipment) and related lease liabilities (reported as a component of accrued interest payable and other liabilities). See Note 1 - Summary of Significant Accounting Policies.
111

Table of Content
The components of total lease expense in 2020 and 2019 were as follows:
20202019
Amortization of lease right-of-use assets$32,772 $27,626 
Short-term lease expense1,799 4,592 
Non-lease components (including taxes, insurance, common maintenance, etc.)11,396 9,896 
Total$45,967 $42,114 
Right-of-use lease assets totaled $292.1 million and $297.7 million at December 31, 2020 and 2019, respectively, and are reported as a component of premises and equipment on our accompanying consolidated balance sheets. The related lease liabilities totaled $323.0 million and $323.7 million at December 31, 2020 and 2019, respectively, and are reported as a component of accrued interest payable and other liabilities in the accompanying consolidated balance sheets. Lease payments under operating leases that were applied to our operating lease liability totaled $31.6 million during 2020 and $27.5 million during 2019. The following table reconciles future undiscounted lease payments due under non-cancelable operating leases (those amounts subject to recognition) to the aggregate operating lessee lease liability as of December 31, 2020:
Future lease payments
2021$32,357 
202230,741 
202328,927 
202427,487 
202526,240 
Thereafter267,707 
Total undiscounted operating lease liability413,459 
Imputed interest90,415 
Total operating lease liability included in the accompanying balance sheet$323,044 
Weighted-average lease term in years15.57
Weighted-average discount rate3.10%
We lease certain buildings and branch facilities from various entities which are controlled by or affiliated with certain directors. Payments related to these leases totaled $9.8 million in 2020, $5.9 million in 2019 and $464 thousand in 2018. The increase in these lease payments during the comparable periods was primarily related to the commencement of the lease of our new headquarters building during the second quarter of 2019. We recognized a right-of-use asset totaling $121.7 million and a related lease liability totaling $121.7 million in connection with this lease. The lease was a separate agreement under a comprehensive development agreement withbetween us, the City of San Antonio and a third party controlled by one of our directors whereby under separate agreements, (i) wedirectors. We sold our existingold headquarters building to the City of San Antonio in 2016 and other adjacent properties to the third party in the fourth quarter of 2016, (ii) the third party has agreed to build a new office building where we will be the primary tenant (the "New Frost Headquarters"), and (iii) we have agreed to leaseleased it back our existing headquarters building from the City of San Antonio untilduring the construction period of our new headquarters building. A portion of the New Frost Headquarters is complete, which is currently expected to take place in 2019. In connection with the sale and subsequent leaseback of our existing headquarters building with the City of San Antonio andgain from the sale of other adjacent propertiesour old headquarters building was deferred and amortized to the third party in the fourth quarter of 2016, we recognized a net gain totaling $10.3 million in 2016 and a deferred gain. The deferred gain totaled $4.2 million at December 31, 2017 and $7.1 million at December 31, 2016, and will be amortized into income over the term of the lease. During 2017, amortizationlease, which ended in the second quarter of 2019. Amortization of the deferred gain totaled $2.9 million. Under the comprehensive development agreement, we also agreed to sell various properties adjacent to the New Frost Headquarters to the third party$1.4 million in 2019. We do not expect any gains or losses that may be realized on those future sales to have a significant impact on our financial statements.2019 and $2.8 million in 2018.
112

Table of Content
Note 5 - Goodwill and Other Intangible Assets
Goodwill and other intangible assets are presented in the tables below. During 2016, we recorded goodwill totaling $284 thousand and other intangible assets totaling $405 thousand in connection with an insurance acquisition.
Goodwill. Year-end goodwill was as follows:
20202019
Goodwill$654,952 $654,952 
 2017 2016
Goodwill$654,952
 $654,952
Other Intangible Assets. Year-end other intangible assets were as follows:
Gross
Intangible
Assets
Accumulated
Amortization
Net
Intangible
Assets
2020
Core deposits$9,300 $(8,004)$1,296 
Customer relationships2,886 (2,619)267 
$12,186 $(10,623)$1,563 
2019
Core deposits$9,300 $(7,257)$2,043 
Customer relationships3,388 (2,950)438 
$12,688 $(10,207)$2,481 
 
Gross
Intangible
Assets
 
Accumulated
Amortization
 
Net
Intangible
Assets
2017     
Core deposits$9,300
 $(5,256) $4,044
Customer relationships4,669
 (3,683) 986
Non-compete agreements74
 (31) 43
 $14,043
 $(8,970) $5,073
2016     
Core deposits$9,300
 $(4,002) $5,298
Customer relationships6,102
 (4,692) 1,410
Non-compete agreements74
 (6) 68
 $15,476
 $(8,700) $6,776

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 $1.7$918 thousand in 2020, $1.2 million in 2017, $2.42019, and $1.4 million in 2016, and $3.3 million in 2015.2018. The estimated aggregate future amortization expense for intangible assets remaining as of December 31, 20172020 is as follows:
2021$697 
2022481 
2023282 
202487 
202511 
Thereafter
$1,563 
113
2018$1,424
20191,167
2020918
2021697
2022481
Thereafter386
 $5,073

Table of Content
Note 6 - Deposits
Year-end deposits were as follows:
2017 201620202019
Non-interest-bearing demand deposits:   Non-interest-bearing demand deposits:
Commercial and individual$10,412,882
 $9,670,989
Commercial and individual$13,914,754 $10,212,265 
Correspondent banks222,648
 280,751
Correspondent banks242,225 246,181 
Public funds561,563
 561,629
Public funds960,072 415,183 
Total non-interest-bearing demand deposits11,197,093
 10,513,369
Total non-interest-bearing demand deposits15,117,051 10,873,629 
Interest-bearing deposits:   Interest-bearing deposits:
Private accounts:   Private accounts:
Savings and interest checking6,788,766
 6,436,065
Savings and interest checking9,132,789 7,147,327 
Money market accounts7,624,471
 7,486,431
Money market accounts8,977,585 7,888,433 
Time accounts of $100,000 or more453,668
 460,028
Time accounts of $100,000 or more804,232 736,481 
Time accounts under $100,000324,636
 338,714
Time accounts under $100,000331,343 347,418 
Total private accounts15,191,541
 14,721,238
Total private accounts19,245,949 16,119,659 
Public funds:   Public funds:
Savings and interest checking410,140
 446,872
Savings and interest checking597,503 548,399 
Money market accounts59,008
 113,669
Money market accounts50,070 73,180 
Time accounts of $100,000 or more14,301
 15,748
Time accounts of $100,000 or more5,163 24,672 
Time accounts under $100,000306
 679
Time accounts under $100,00025 25 
Total public funds483,755
 576,968
Total public funds652,761 646,276 
Total interest-bearing deposits15,675,296
 15,298,206
Total interest-bearing deposits19,898,710 16,765,935 
Total deposits$26,872,389
 $25,811,575
Total deposits$35,015,761 $27,639,564 
The following table presents additional information about our year-end deposits:
20202019
Deposits from the Certificate of Deposit Account Registry Service (CDARS)Deposits from the Certificate of Deposit Account Registry Service (CDARS)$372 $361 
2017 2016
Deposits from foreign sources (primarily Mexico)$716,339
 $776,003
Deposits from foreign sources (primarily Mexico)884,169 805,828 
Deposits not covered by deposit insurance13,281,040
 12,889,047
Deposits not covered by deposit insurance18,694,320 13,115,796 
Deposits from certain directors, executive officers and their affiliates196,686
 199,969
Deposits from certain directors, executive officers and their affiliates210,389 197,919 
Scheduled maturities of time deposits, including both private and public funds, at December 31, 20172020 were as follows:
2018$643,058
2019149,853
2020
2021
2022
 $792,911

2021$979,825 
2022160,938 
$1,140,763 
Scheduled maturities of time deposits in amounts of $100,000 or more, including both private and public funds, at December 31, 2017,2020, were as follows:
Due within 3 months or less$327,284 
Due after 3 months and within 6 months178,403 
Due after 6 months and within 12 months195,766 
Due after 12 months107,942 
$809,395 
114
Due within 3 months or less$138,888
Due after 3 months and within 6 months75,805
Due after 6 months and within 12 months163,756
Due after 12 months89,520
 $467,969

Table of Content
Note 7 - 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 $30.6$48.9 million and $13.7$27.2 million at December 31, 20172020 and 2016.2019. Securities sold under agreements to repurchase are secured short-term borrowings that typically mature overnight or within thirty to ninety days. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. We may be required to provide additional collateral based on the fair value of the underlying securities. Securities sold under agreements to repurchase totaled $1.1$2.1 billion and $963.3 million$1.7 billion at December 31, 20172020 and 2016.2019.
Subordinated Notes Payable. In March 2017, we issued $100 million of 4.50% subordinated notes that mature on March 17, 2027. The notes, which qualify as Tier 2 capital for Cullen/Frost, bear interest at the rate of 4.50% per annum, payable semi-annually on each March 17 and September 17. The notes are unsecured and subordinated in right of payment to the payment of our existing and future senior indebtedness and structurally subordinated to all existing and future indebtedness of our subsidiaries. Unamortized debt issuance costs related to these notes, totaled approximately $1.4$979 thousand and $1.1 million at December 31, 2017.2020 and 2019. Proceeds from sale of the notes were used for general corporate purposes.
Our $100 million of 5.75% fixed-to-floating rate subordinated notes originally issued in February 2007 matured and were redeemed on February 15, 2017. The notes qualified as Tier 2 capital for Cullen/Frost under the capital rules in effect prior to 2015. Prior to February 2012, the notes had a fixed interest rate of 5.75% per annum, after which the notes bore interest at a rate per annum equal to three-month LIBOR for the related interest period plus 0.53% (1.43% at December 31, 2016), paid quarterly.
Junior Subordinated Deferrable Interest Debentures. At December 31, 20172020 and 2016,2019, we had $123.7 million of junior 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 totaled $931$758 thousand and $988$816 thousand at December 31, 20172020 and 2016.2019. At December 31, 20172020 and 2016,2019, we also had $13.4 million of junior 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 Bancshares, Inc. (“WNB”) in 2014. Trust II and WNB Trust are variable interest entities for which we are not the primary beneficiary. As such, the accounts of Trust II and WNB Trust are not included in our consolidated financial statements. See Note 1 - Summary of Significant Accounting Policies for additional information about our consolidation policy. Details of our transactions with the capital trust are presented below.
Trust II was formed in 2004 for the purpose of issuing $120$120.0 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 currently redeemable with the approval of the Federal Reserve Board in whole or in part at our option. 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 3.03%1.78% and 2.48%3.46% at December 31, 20172020 and 2016)2019) junior subordinated deferrable interest debentures issued by us, which have terms substantially similar to the trust preferred securities.
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 currently redeemable with the approval of the Federal Reserve Board in whole or in part at our option. 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 3.71%2.56% and 3.23%4.28% at December 31, 2017and 2016)2020 and 2019) junior subordinated deferrable interest debentures issued by WNB, which have terms substantially similar to the trust preferred securities.
We have 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 we have elected to defer interest on the debentures, we may not, with certain exceptions, declare or pay any dividends or distributions on our capital stock or purchase or acquire any of our capital stock.
115

Table of Content
Payments of distributions on the trust preferred securities and payments on redemption of the trust preferred securities are guaranteed by us on a limited basis. We are 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. Our obligations 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 us 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 our 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 capital of Cullen/Frost for regulatory capital purposes as of December 31, 20172020 and 2016.2019. See Note 9 - Capital and Regulatory Matters.
Note 8 - Off-Balance-Sheet Arrangements, Commitments, Guarantees and Contingencies
Financial Instruments with Off-Balance-Sheet Risk. In the normal course of business, we enter into various transactions, which, in accordance with generally accepted accounting principles are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our 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. We minimize our exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.
We enter into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of our 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 we issued 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, we would be required to fund the commitment. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment. If the commitment were funded, we would be entitled to seek recovery from the customer. Our policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements.
We consider the fees collected in connection with the issuance of standby letters of credit to be representative of the fair value of our obligation undertaken in issuing the guarantee. In accordance with applicable accounting standards related to guarantees, we defer 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 our potential obligations under the standby letter of credit guarantees.
Year-end financial instruments with off-balance-sheet risk were as follows:
20202019
Commitments to extend credit$9,814,475 $9,306,043 
Standby letters of credit241,345 260,587 
Deferred standby letter of credit fees1,723 1,276 
Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures. The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. Off-balance-sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit detailed in the table above. For the period of exposure, the estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment or other off-balance-sheet exposure. The likelihood and expected amount of funding are based on historical utilization rates. The amount of the allowance represents management's best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment. Estimating credit losses on amounts expected to be funded uses the same methodology as described for loans in Note 3 - Loans as if such commitments were funded.
116

Table of Content
 2017 2016
Commitments to extend credit$7,949,400
 $7,476,420
Standby letters of credit236,595
 239,482
Deferred standby letter of credit fees1,843
 2,054
The following table details activity in the allowance for credit losses on off-balance-sheet credit exposures.
202020192018
Beginning balance$500 $500 $428 
Impact of adopting ASC 32639,377 
Credit loss expense4,275 72 
Ending balance$44,152 $500 $500 
Credit Card Guarantees. We guarantee the credit card debt of certain customers to the merchant bank that issues the cards. At December 31, 20172020 and 2016,2019, the guarantees totaled approximately $8.4$9.1 million and $8.3$8.5 million, of which amounts, $1.2$8.2 million and $975 thousand$1.3 million were fully collateralized.

Lease Commitments. We lease certain office facilities and office equipment under operating leases. Rent expense for all operating leases totaled $30.5 million in 2017, $28.9 million in 2016 and $28.9 million in 2015. Future minimum lease payments due under non-cancelable operating leases at December 31, 2017 were as follows:
2018$27,990
201928,790
202031,907
202130,855
202228,639
Thereafter347,187
 $495,368
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, 2017, were $445 thousand.
We lease certain branch facilities from various partnership interests of certain directors. Payments related to these leases totaled $1.4 million in 2017, $1.0 million in 2016 and $963 thousand in 2015.
Change in ControlChange-In-Control Agreements. We have 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 hertheir 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. We are 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 our financial statements.
In May of 2020, a purported class action lawsuit was filed against Frost Bank in a Texas Federal court alleging that Frost Bank had refused to pay agent fees to purported agents of borrowers under the PPP in violation of SBA regulations. The Plaintiff's motion to dismiss the Federal lawsuit was effected and as a result the Federal lawsuit is resolved. In July 2020, a purported class action lawsuit was filed against Frost Bank in a California Federal court alleging that Frost Bank had refused to pay agent fees to purported agents of borrowers under the PPP in violation of SBA regulations. The Plaintiff subsequently filed a motion to dismiss the lawsuit and the lawsuit was thereby resolved. In October 2020, a lawsuit was filed against Frost Bank in Texas State court alleging, among other claims, that Frost Bank had refused to provide a PPP loan to the purported applicant. Frost Bank removed the lawsuit to Federal court, and the presiding Federal judge subsequently dismissed the lawsuit with prejudice.
Note 9 - Capital and Regulatory Matters
Banks and bank holding companies are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.
The Basel III Capital Rules, a new comprehensive capital framework for U.S. banking organizations, became effective for Cullen/Frost and Frost Bank on January 1, 2015 (subjectare each required to a phase-in period for certain provisions)comply with applicable capital adequacy standards established by the Federal Reserve Board (the “Basel III Capital Rules”). Quantitative measures established by the Basel III Capital Rules designed to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1 capital, Tier 1 capital and Total 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 Common Equity Tier 1 capital includes common stock and related paid-in capital, net of treasury stock, and retained earnings. In connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include most components of accumulated other comprehensive income in Common Equity Tier 1. We also elected, for a five-year transitional period, the effects of credit loss accounting under CECL form Common Equity Tier 1, as further discussed below. Common Equity Tier 1 for both Cullen/Frost and Frost Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities, and subject to transition provisions.liabilities. Frost Bank's Common Equity Tier 1 is also reduced by its equity investment in its financial subsidiary, Frost Insurance Agency (“FIA”).

117

Table of Content
Tier 1 capital includes Common Equity Tier 1 capital and additional Tier 1 capital. For Cullen/Frost, additional Tier 1 capital at December 31, 20172020 included $145.5 million of 4.450% non-cumulative perpetual preferred stock and, 2016 includedat December 31, 2019, $144.5 million of 5.375% non-cumulative perpetual preferred stock.stock, the details of which is are further discussed below. Frost Bank did not0t have any additional Tier 1 capital beyond Common Equity Tier 1 at December 31, 20172020 or 2016.2019.
Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital for both Cullen/Frost and Frost Bank includes a permissible portion of the allowance for loan losses.credit losses on securities, loans and off-balance sheet exposures. Tier 2 capital for Cullen/Frost also includes trust preferred

securities that were excluded from Tier 1 capital and qualified subordinated debt. At both December 31, 20172020 and 2016,2019, Cullen/Frost's Tier 2 capital included $133.0 million of trust preferred securities. At both December 31, 2017,2020 and 2019, Tier 2 Capital for Cullen/Frost also included $100.0 million related to the permissible portion of our aggregate $100 million of 4.50% subordinated notes. The permissible portion of qualified subordinated notes decreases 20% per year during the final five years of the term of the notes. Accordingly, no portion of our $100 million of floating rate subordinated notes that matured on February 15, 2017 were included in Tier 2 capital at December 31, 2016.
The Common Equity Tier 1, 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, with certain exclusions, allocated by risk weight category, and certain off-balance-sheet items, among other things. The leverage ratio is calculated by dividing Tier 1 capital by adjusted quarterly average total assets, which exclude goodwill and other intangible assets, among other things.
When fully phased in on January 1, 2019, theThe Basel III Capital Rules will require Cullen/Frost and Frost Bank to maintain (i) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% Common Equity Tier 1 capital ratio, as that buffer is phased in, effectively resulting in a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of at least 7.0% 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 4.0%, calculated as the ratio of Tier 1 capital to average quarterly assets.
The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will 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). 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 capital conservation buffer is designed to absorb losses during periods of economic stress and, as detailed above, effectively increases the minimum required risk-weighted capital ratios. Banking institutions with a ratio of Common Equity Tier 1 capital to risk-weighted assets below the effective minimum (4.5% plus the capital conservation buffer and, if applicable, the countercyclical“countercyclical capital buffer)buffer,” which is discussed below) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.shortfall and the institution's “eligible retained income” (that is, four quarter trailing net income, net of distributions and tax effects not reflected in net income). The countercyclical capital buffer is applicable to only certain covered institutions and does not have any current applicability to Cullen/Frost or Frost Bank.

As discussed in Note 1 - Significant Accounting Policies, in connection with the adoption of ASC 326, we recognized an after-tax cumulative effect reduction to retained earnings totaling $29.3 million on January 1, 2020. In February 2019, the federal bank regulatory agencies issued a final rule (the “2019 CECL Rule”) that revised certain capital regulations to account for changes to credit loss accounting under U.S. GAAP. The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year period, the day-one adverse effects of CECL on their regulatory capital ratios (three-year transition option). In March 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three-year transition option of the 2019 CECL Rule and also provides banking organizations that were required under U.S. GAAP (as of January 2020) to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). We elected to adopt the five-year transition option. Accordingly, a CECL transitional amount totaling $63.7 million has been added back to CET1 as of December 31, 2020. The CECL transitional amount includes $29.3 million related to cumulative effect of adopting CECL and $34.4 million related to the estimated incremental effect of CECL since adoption.

118

Table of Content
In April 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA. Federal bank regulatory agencies have issued an interim final rule that permits banks to neutralize the regulatory capital effects of participating in the Paycheck Protection Program Lending Facility (the “PPP Facility”) and clarify that PPP loans have a zero percent risk weight under applicable risk-based capital rules. Specifically, a bank may exclude all PPP loans pledged as collateral to the PPP Facility from its average total consolidated assets for the purposes of calculating its leverage ratio, while PPP loans that are not pledged as collateral to the PPP Facility will be included. Our PPP loans are included in the calculation of our leverage ratio as of December 31, 2020 as we did not utilize the PPP Facility for funding purposes.
The following table presents actual and required capital ratios as of December 31, 20172020 and December 31, 20162019 for Cullen/Frost and Frost Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of December 31, 2017 and December 31, 2016 based on the phase-in provisions of the Basel III Capital Rules and the minimum required capital levels as of January 1, 2019 when the Basel III Capital Rules have been fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.
ActualMinimum Capital Required - Basel III Fully Phased-InRequired to be
Considered Well
Capitalized
Capital
Amount
RatioCapital
Amount
RatioCapital
Amount
Ratio
2020
Common Equity Tier 1 to Risk-Weighted Assets
Cullen/Frost$3,058,447 12.86 %$1,664,867 7.00 %$1,545,948 6.50 %
Frost Bank3,030,093 12.77 1,661,620 7.00 1,542,933 6.50 
Tier 1 Capital to Risk-Weighted Assets
Cullen/Frost3,203,899 13.47 2,021,624 8.50 1,902,705 8.00 
Frost Bank3,030,093 12.77 2,017,682 8.50 1,898,995 8.00 
Total Capital to Risk-Weighted Assets
Cullen/Frost3,672,912 15.44 2,497,300 10.50 2,378,381 10.00 
Frost Bank3,266,106 13.76 2,492,430 10.50 2,373,743 10.00 
Leverage Ratio
Cullen/Frost3,203,899 8.07 1,589,004 4.00 1,986,255 5.00 
Frost Bank3,030,093 7.63 1,588,200 4.00 1,985,250 5.00 
Actual Minimum Capital Required - Basel III Phase-In Schedule Minimum Capital Required - Basel III Fully Phased-In 
Required to be
Considered Well
Capitalized
Capital
Amount
 Ratio 
Capital
Amount
 Ratio 
Capital
Amount
 Ratio 
Capital
Amount
 Ratio
2017               
20192019
Common Equity Tier 1 to Risk-Weighted Assets               Common Equity Tier 1 to Risk-Weighted Assets
Cullen/Frost$2,426,048
 12.42% $1,123,430
 5.75% $1,367,583
 7.00% $1,269,965
 6.50%Cullen/Frost$2,857,250 12.36 %$1,617,886 7.00 %$1,502,323 6.50 %
Frost Bank2,518,999
 12.92
 1,120,663
 5.75
 1,364,214
 7.00
 1,266,836
 6.50
Frost Bank2,958,326 12.82 1,615,206 7.00 1,499,834 6.50 
Tier 1 Capital to Risk-Weighted Assets               Tier 1 Capital to Risk-Weighted Assets
Cullen/Frost2,570,534
 13.16
 1,416,499
 7.25
 1,660,637
 8.50
 1,563,033
 8.00
Cullen/Frost3,001,736 12.99 1,964,576 8.50 1,849,013 8.00 
Frost Bank2,518,999
 12.92
 1,413,010
 7.25
 1,656,546
 8.50
 1,559,183
 8.00
Frost Bank2,958,326 12.82 1,961,322 8.50 1,845,950 8.00 
Total Capital to Risk-Weighted Assets               Total Capital to Risk-Weighted Assets
Cullen/Frost2,959,326
 15.15
 1,807,257
 9.25
 2,051,375
 10.50
 1,953,792
 10.00
Cullen/Frost3,367,403 14.57 2,426,829 10.50 2,311,266 10.00 
Frost Bank2,674,791
 13.72
 1,802,805
 9.25
 2,046,321
 10.50
 1,948,979
 10.00
Frost Bank3,090,993 13.40 2,422,809 10.50 2,307,438 10.00 
Leverage Ratio               Leverage Ratio
Cullen/Frost2,570,534
 8.46
 1,215,227
 4.00
 1,215,186
 4.00
 1,519,034
 5.00
Cullen/Frost3,001,736 9.28 1,293,188 4.00 1,616,485 5.00 
Frost Bank2,518,999
 8.30
 1,214,295
 4.00
 1,214,254
 4.00
 1,517,869
 5.00
Frost Bank2,958,326 9.15 1,292,743 4.00 1,615,929 5.00 
               
2016               
Common Equity Tier 1 to Risk-Weighted Assets               
Cullen/Frost$2,239,186
 12.52% $916,360
 5.125% $1,251,425
 7.00% $1,162,213
 6.50%
Frost Bank2,296,480
 12.88
 913,460
 5.125
 1,247,463
 7.00
 1,158,535
 6.50
Tier 1 Capital to Risk-Weighted Assets               
Cullen/Frost2,383,672
 13.33
 1,184,563
 6.625
 1,519,587
 8.50
 1,430,416
 8.00
Frost Bank2,296,480
 12.88
 1,180,814
 6.625
 1,514,776
 8.50
 1,425,889
 8.00
Total Capital to Risk-Weighted Assets               
Cullen/Frost2,669,717
 14.93
 1,542,168
 8.625
 1,877,137
 10.50
 1,788,020
 10.00
Frost Bank2,449,525
 13.74
 1,537,286
 8.625
 1,871,194
 10.50
 1,782,361
 10.00
Leverage Ratio               
Cullen/Frost2,383,672
 8.14
 1,171,682
 4.00
 1,171,573
 4.00
 1,464,602
 5.00
Frost Bank2,296,480
 7.85
 1,170,249
 4.00
 1,170,141
 4.00
 1,462,812
 5.00
Management believes that,As of December 31, 2020, capital levels for Cullen/Frost and Frost Bank exceed all capital adequacy requirements under the Basel III Capital Rules. Based on the ratios presented above, capital levels as of December 31, 2017,2020 for Cullen/Frost and its bank subsidiary, Frost Bank wereexceed the minimum levels necessary to be considered “well capitalized” based on the ratios presented above.capitalized.”
Cullen/Frost and Frost Bank are subject to the regulatory capital requirements administered by the Federal Reserve Board and, for Frost Bank, the Federal Deposit Insurance Corporation (“FDIC”). Regulatory authorities can initiate certain mandatory actions if Cullen/Frost or Frost Bank fail to meet the minimum capital requirements, which could have a direct material effect on our financial statements. Management believes, as of December 31, 2017,2020, that Cullen/Frost and Frost Bank meet all capital adequacy requirements to which they are subject.

119

Table of Content
Series B Preferred Stock.On November 19, 2020, we issued 150,000 shares, or $150.0 million in aggregate liquidation preference, of our 4.450% Non-Cumulative Perpetual Preferred Stock, Series B, par value $0.01 and liquidation preference $1,000 per share (“Series B Preferred Stock”). Each share of Series B Preferred Stock issued and outstanding is represented by 40 depositary shares, each representing a 1/40th ownership interest in a share of the Series B Preferred Stock (equivalent to a liquidation preference of $25 per share). Each holder of depositary shares will be entitled, in proportion to the applicable fraction of a share of Series B Preferred Stock represented by such depositary shares, to all rights and preferences of the Series B Preferred Stock represented thereby (including dividend, voting, redemption, and liquidation rights). Such rights must be exercised through the depositary. Dividends on the Series B Preferred Stock will be non-cumulative and, if declared, accrue and are payable quarterly, in arrears, at a rate of 4.450% per annum. The Series B 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 B Preferred Stock, after deducting $4.5 million of issuance costs including the underwriting discount and professional service fees, among other things, were approximately $145.5 million.
The Series B Preferred Stock is perpetual and has no maturity date. We may redeem the Series B Preferred Stock at our option (i) in whole or in part, from time to time, on any dividend payment date on or after December 15, 2025 or (ii) in whole but not in part, within 90 days following certain changes in laws or regulations impacting the regulatory capital treatment of the Series B Preferred Stock, in either case, at a redemption price equal to $1,000 per share of Series B Preferred Stock (equivalent to $25 per depositary share), plus any declared and unpaid dividends for prior dividend periods and accrued but unpaid dividends (whether or not declared) for the then-current dividend period prior to but excluding the redemption date. If we redeem the Series B Preferred Stock, the depositary is expected redeem a proportionate number of depositary shares. Neither the holders of Series B Preferred Stock nor holders of depositary shares will have the right to require the redemption or repurchase of the Series B Preferred Stock or the depositary shares.
Series A Preferred Stock. On February 15, 2013, we issued and sold 6,000,000 shares, or $150.0 million in aggregate liquidation preference, of our 5.375% Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 and liquidation preference $25 per share (“Series A Preferred Stock”). DividendsOn March 16, 2020, we redeemed all of the outstanding shares of our Series A Preferred Stock at a redemption price of $25 per share, or an aggregate redemption of $150.0 million. When issued, the net proceeds of the Series A Preferred Stock totaled $144.5 million after deducting $5.5 million of issuance costs including the underwriting discount and professional service fees, among other things. Upon redemption, these issuance costs were reclassified to retained earnings and reported as a reduction of net income available to common shareholders. Prior to redemption, dividends on the Series A Preferred stock, if declared, accrue and are payableStock were paid quarterly, in arrears, at a rate of 5.375%. The per annum and the Series A Preferred Stock qualifiesqualified 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 approximately $144.5 million. The net proceeds from the offering were used to fund the repurchase of common stock.
Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. On OctoberJuly 24, 2017,2019, our board of directors authorized a $150.0$100.0 million stock repurchase program, allowing us to repurchase shares of our common stock over a two-yearone-year period from time to time at various prices in the open market or through private transactions. Under this plan, we repurchased 177,834 shares at a total cost of $13.7 million during 2020 and 202,724 shares at a total cost of $17.2 million during 2019. No sharesfurther repurchases were repurchasedmade under this plan during 2017.prior to its expiration on July 24, 2020. Under prior plans,stock repurchase programs, we repurchased 1,134,966496,307 shares at a total cost of $50.0 million during 2019 and 1,027,292 shares at a total cost of $100.0 million during 2017 and 1,485,493 shares at2018. In July 2019, the federal bank regulators adopted final rules (the “Capital Simplifications Rules”) that, among other things, eliminated the standalone prior approval requirement in the Basel III Capital Rules for any repurchase of common stock. In certain circumstances, Cullen/Frost’s repurchases of its common stock may be subject to a total costprior approval or notice requirement under other regulations, policies or supervisory expectations of $100.0 million during 2015.the Federal Reserve Board. Any redemption or repurchase of preferred stock or subordinated debt remains subject to the prior approval of the Federal Reserve Board.
Dividend Restrictions. In the ordinary course of business, Cullen/Frost is dependent upon dividends from Frost Bank to provide funds for the payment of dividends to shareholders and to provide for other cash requirements.requirements, including to repurchase its common stock. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of Frost Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years. Under the foregoing dividend
120

Table of Content
restrictions and while maintaining its “well capitalized” status, at December 31, 2017,2020, Frost Bank could pay aggregate dividends of up to $544.8$503.9 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 we have elected to defer interest on the debentures, we may not, with certain exceptions, declare or pay any dividends or distributions on our capital stock or purchase or acquire any of our capital stock.
Under the terms of the Series AB Preferred Stock, in the event that we do not declare and pay dividends on the Series AB Preferred Stock for the most recent dividend period, we may not, with certain exceptions, declare or pay dividends on, or purchase, redeem or otherwise acquire, shares of our common stock or any of our securities that rank junior to the Series AB Preferred Stock.
Note 10 - 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, deferred stock units and performance stock units (during the performance period), though no actual shares of common stock related to any type of stock unit have been issued. Non-vested stock awards/stock units and deferred stock units are considered participating securities because holders of these securities receive non-forfeitable dividends at the same rate as holders of our common stock. Holders of performance stock units receive dividend equivalent payments for dividends paid during the performance period at the vesting date of the award based upon the number of units that ultimately vest. 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.
202020192018
Net Income$331,151 $443,599 $454,918 
Less: Preferred stock dividends2,016 8,063 8,063 
Redemption of preferred stock5,514 
Net income available to common shareholders323,621 435,536 446,855 
Less: Earnings allocated to participating securities3,136 3,687 3,169 
Net earnings allocated to common stock$320,485 $431,849 $443,686 
Distributed earnings allocated to common stock$178,863 $175,540 $164,268 
Undistributed earnings allocated to common stock141,622 256,309 279,418 
Net earnings allocated to common stock$320,485 $431,849 $443,686 
Weighted-average shares outstanding for basic earnings per common share62,727,053 62,741,769 63,704,508 
Dilutive effect of stock compensation276,784 700,101 982,208 
Weighted-average shares outstanding for diluted earnings per common share63,003,837 63,441,870 64,686,716 

 2017 2016 2015
Net Income$364,149
 $304,261
 $279,328
Less: Preferred stock dividends8,063
 8,063
 8,063
Net income available to common shareholders356,086
 296,198
 271,265
Less: Earnings allocated to participating securities2,016
 1,145
 941
Net earnings allocated to common stock$354,070
 $295,053
 $270,324
      
Distributed earnings allocated to common stock$143,356
 $134,374
 $131,702
Undistributed earnings allocated to common stock210,714
 160,679
 138,622
Net earnings allocated to common stock$354,070
 $295,053
 $270,324
      
Weighted-average shares outstanding for basic earnings per common share63,693,927
 62,376,260
 62,758,074
Dilutive effect of stock compensation968,161
 592,615
 715,250
Weighted-average shares outstanding for diluted earnings per common share64,662,088
 62,968,875
 63,473,324
121

Table of Content
Note 11 - Employee Benefit Plans
Retirement Plans
Profit Sharing Plans. The profit-sharing plan is Prior to 2019, we maintained a qualified defined contribution retirementprofit sharing plan that coverscovered employees who havehad completed at least one year of service and arewere age 21 or older. All contributionsThe Plan was merged with and into our 401(k) plan effective January 1, 2019, as further discussed below. Expense related to thethis plan are made at our discretion and may be made without regardtotaled $11.9 million in 2018.
We continue to current or accumulated profits. Contributions are allocated to eligible participants uniformly, 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. We also maintain a separate non-qualified profit sharing plan for certain employees whose participation in the qualified profit sharing plan iswas limited. The plan offers such employees an alternative means of receiving comparable benefits. Expense related to these plans totaled $12.7 million in 2017, $11.6 million in 2016this plan was not significant during 2020, 2019 and $11.3 million in 2015.2018.
Retirement Plan and Restoration Plan. We maintain 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. Our funding policy is to contribute yearly, at least the amount necessary to satisfy the funding standards of the Employee Retirement Income Security Act (“ERISA”).
Our 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 our contributions.

We use a December 31 measurement date for our defined benefit plans. Combined activity in our defined benefit pension plans was as follows:
2017 2016 2015202020192018
Change in plan assets:     Change in plan assets:
Fair value of plan assets at beginning of year$157,214
 $163,270
 $168,185
Fair value of plan assets at beginning of year$174,173 $152,820 $168,450 
Actual return on plan assets23,518
 5,174
 1,567
Actual return on plan assets16,599 29,945 (7,739)
Employer contributions1,049
 4,819
 736
Employer contributions1,201 1,163 1,077 
Benefits paid(13,331) (16,049) (7,218)Benefits paid(9,885)(9,755)(8,968)
Fair value of plan assets at end of year168,450
 157,214
 163,270
Fair value of plan assets at end of year182,088 174,173 152,820 
Change in benefit obligation:     Change in benefit obligation:
Benefit obligation at beginning of year176,751
 194,140
 199,637
Benefit obligation at beginning of year186,641 167,107 182,607 
Interest cost6,189
 6,958
 8,210
Interest cost5,010 6,472 5,898 
Actuarial (gain) loss12,998
 (8,298) (6,489)Actuarial (gain) loss15,827 22,817 (12,430)
Benefits paid(13,331) (16,049) (7,218)Benefits paid(9,885)(9,755)(8,968)
Benefit obligation at end of year182,607
 176,751
 194,140
Benefit obligation at end of year197,593 186,641 167,107 
Funded status of the plan at end of year and accrued benefit (liability) recognized$(14,157) $(19,537) $(30,870)Funded status of the plan at end of year and accrued benefit (liability) recognized$(15,505)$(12,468)$(14,287)
Accumulated benefit obligation at end of year$182,607
 $176,751
 $194,140
Accumulated benefit obligation at end of year$197,593 $186,641 $167,107 
Certain disaggregated information related to our defined benefit pension plans as of year-end was as follows:
Retirement PlanRestoration Plan
2020201920202019
Projected benefit obligation$180,986 $170,541 $16,607 $16,100 
Accumulated benefit obligation180,986 170,541 16,607 16,100 
Fair value of plan assets182,088 174,173 
Funded status of the plan at end of year and accrued benefit (liability) recognized1,102 3,632 (16,607)(16,100)
122

 Retirement Plan Restoration Plan
 2017 2016 2017 2016
Projected benefit obligation$166,191
 $160,778
 $16,416
 $15,973
Accumulated benefit obligation166,191
 160,778
 16,416
 15,973
Fair value of plan assets168,450
 157,214
 
 
Funded status of the plan at end of year and accrued benefit (liability) recognized2,259
 (3,564) (16,416) (15,973)
Table of Content
The components of the combined net periodic cost (benefit) for our defined benefit pension plans are presented in the table below. Supplemental executive retirement plan (“SERP”) settlement costs were related to the retirement of a former executive officer.
 2017 2016 2015
Expected return on plan assets, net of expenses$(11,117) $(11,558) $(11,932)
Interest cost on projected benefit obligation6,189
 6,958
 8,210
Net amortization and deferral5,429
 6,247
 6,995
SERP settlement costs
 1,027
 
Net periodic expense (benefit)$501
 $2,674
 $3,273
As of December 31, 2015, we changed the method we use to estimate the interest cost component of net periodic benefit cost for our defined benefit pension and other post-retirement benefit plans. Prior to the change, we estimated the interest cost component utilizing a single weighted-average discount rate derived from the yield curve used to measure our projected benefit obligation. Under the new method, we utilize a full yield curve approach in the estimation of the interest cost component by applying the specific annual spot rates along the yield curve used in the measurement of our projected benefit obligation to the relevant projected cash flows. We view the full yield curve method as more representationally faithful of effective settlement rates as the interest cost component of the net periodic cost is measured more precisely, reflecting the difference in the timing of future benefit payment cash flows. This new method constituted a change in an accounting estimate that was inseparable from a change in accounting principle and was accounted for prospectively, with the resulting change impacting the recognition of net periodic benefit cost beginning January 1, 2016.

202020192018
Expected return on plan assets, net of expenses$(12,289)$(10,772)$(11,916)
Interest cost on projected benefit obligation5,010 6,472 5,898 
Net amortization and deferral5,319 5,623 5,002 
Net periodic expense (benefit)$(1,960)$1,323 $(1,016)
Amounts related to our defined benefit pension plans recognized as a component of other comprehensive income were as follows:
2017 2016 2015202020192018
Net actuarial gain (loss)$4,832
 $9,188
 $3,118
Net actuarial gain (loss)$(6,199)$1,979 $(2,223)
Deferred tax (expense) benefit(1,774) (3,216) (1,091)Deferred tax (expense) benefit1,302 (416)466 
Other comprehensive income (loss), net of tax$3,058
 $5,972
 $2,027
Other comprehensive income (loss), net of tax$(4,897)$1,563 $(1,757)
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 periodperiodic benefit cost of our defined benefit pension plans are presented in the following table. We expect to recognize approximately $5.0$6.1 million of the net actuarial loss reported in the following table as of December 31, 20172020 as a component of net periodic benefit cost during 2018.2021.
2017 201620202019
Net actuarial loss$(57,900) $(62,732)Net actuarial loss$(64,343)$(57,964)
Deferred tax benefit12,160
 21,956
Deferred tax benefit13,512 12,210 
Amounts included in accumulated other comprehensive income/loss, net of tax(37,718) (40,776)Amounts included in accumulated other comprehensive income/loss, net of tax(50,831)(45,934)
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.
2017 2016 2015202020192018
Benefit obligations:     Benefit obligations:
Discount rate3.68% 4.24% 4.55%Discount rate2.43 %3.20 %4.36 %
Net periodic benefit cost:     Net periodic benefit cost:
Discount rate4.24% 4.55% 4.20%Discount rate3.20 %4.36 %3.68 %
Expected return on plan assets7.25
 7.25
 7.25
Expected return on plan assets7.25 7.25 7.25 
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, 2017,2020, management’s investment objective for our defined benefit plans is to achieve long-term growth. This strategy provides for a target asset allocation of approximately 65%62% invested in equity securities, approximately 32%36% invested in fixed income debt securities with any remainder invested in cash or short-term cash equivalents. The modelingasset allocation optimization process calculates, with a 90% confidence ratio,provides portfolio allocations which best represent the potential risk associated with a given asset allocation and helpsover a full market cycle. This is used to help management determine an appropriate mix of assets in order to achieve adequate diversification ofthe plan's long term investment assets.goals. 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 our 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 17 - Fair Value Measurements). Our Restoration Plan is unfunded.
20202019
Level 1:
Mutual funds$180,693 $172,773 
Cash and cash equivalents1,395 1,400 
Total fair value of plan assets$182,088 $174,173 
123

 2017 2016
Level 1:   
Mutual funds$165,322
 $153,765
Cash and cash equivalents3,128
 3,208
Level 2:   
U.S. government agency securities
 241
Total fair value of plan assets$168,450
 $157,214
Table of Content
Mutual funds include various equity, fixed-income and blended funds with varying investment strategies. Approximately 65%66% of mutual fund investments consist of equity investments as of December 31, 2017.2020. 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.

U.S. government agency securities include obligations of Ginnie Mae. Our investment strategies prohibit selling assets short and the use of derivatives. Additionally, our defined benefit plans do not directly invest in real estate, commodities, or private investments.
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 7.25% in the determination of the net periodic benefit cost for 2017.2020. 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, 2017,2020, expected future benefit payments related to our defined benefit plans were as follows:
2018$9,395
20199,837
202010,230
202110,524
202210,770
2023 through 202655,927
 $106,683
2021$11,315 
202211,507 
202311,668 
202411,800 
202511,880 
2026 through 203057,248 
$115,418 
We expect to contribute $1.1$1.2 million to the defined benefit plans during 2018.
Supplemental Executive Retirement Plan. We maintained a supplemental executive retirement plan (“SERP”) for one key executive who retired in 2016. The plan provided for target retirement benefits, as a percentage of pay, beginning at age 55. The target percentage was 45 percent of pay at age 55, increasing to 60 percent at age 60 and later. Benefits under the SERP were 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. Settlement costs related to the SERP during 2016 are reported as a component of net periodic pension expense, detailed above.2021.
Savings Plans
401(k) Plan and Thrift Incentive Plan. We maintain a 401(k) stock purchase plan that permits each participant to make before- or after-taxbefore-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. We match 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 9030 days of service in order to enroll and vest in our matching contributions immediately. Expense related to the plan totaled $14.3 million in 2017, $13.6 million in 2016, and $13.3 million in 2015. Our matching contribution is initially invested in the Cullen/Frost common stock fund. However, employees may immediately reallocate our matching portion, as well as invest their individual contribution, to any of a variety of investment alternatives offered under the 401(k) Plan. In 2019, we merged our qualified profit sharing plan with and into the 401(k) plan. All profit contributions to the plan are made at our discretion and may be made without regard to current or accumulated profits. Contributions are allocated to eligible participants uniformly, based upon compensation, age and other factors. Plan participants self-direct the investment of allocated contributions by choosing from a menu of investment options. Profit sharing contributions are subject to withdrawal restrictions and participants vest in their allocated contributions after three years of service. Expense related to the plan totaled $16.0 million, which was primarily related to matching contributions, in 2020, $28.9 million ($16.3 million matching contributions and $12.6 million profit sharing) in 2019, and $15.0 million in 2018.
We maintain 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 2017, 20162020, 2019 and 2015.2018.

124

Table of Content
Stock Compensation Plans
We have three3 active stock compensation plans (the 2005 Omnibus Incentive Plan, the 2007 Outside Directors Incentive Plan and the 2015 Omnibus Incentive Plan). All of the plans have been approved by our shareholders. During 2015, the 2015 Omnibus Incentive Plan (“2015 Plan”) was established to replace both the 2005 Omnibus Incentive Plan (“2005 Plan”) and the 2007 Outside Directors Incentive Plan (the “2007 Directors Plan”). All remaining shares authorized for grant under the superseded 2005 Plan and 2007 Directors Plan were transferred to the 2015 Plan. Our stock compensation plans were established to (i) motivate superior performance by means of performance-related incentives, (ii) encourage and provide for the acquisition of an ownership interest in our company by employees and

non-employee directors and (iii) enable us to attract and retain qualified and competent persons as employees and to serve as members of our board of directors.
Under the 2015 Plan, we may grant, among other things, nonqualified stock options, incentive stock options, stock awards, stock appreciation rights, restricted stock units, performance share units or any combination thereof to certain employees and non-employee directors. Any of the authorized shares may be used for any type of award allowable under the Plan. The Compensation and Benefits Committee (“Committee”) of our Board of Directors has sole authority to (i) establish the awards to be issued, (ii) select the employees and non-employee directors to receive awards, and (iii) approve the terms and conditions of each award contract. Each award under the stock plans is evidenced by an award agreement that specifies the award price, the duration of the award, the number of shares to which the award pertains, and such other provisions as the Committee determines. For stock options, 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. As defined in the plans, outstanding awards may immediately vest upon a change-in-control of Cullen/Frost and, in the case of awards granted under the 2015 Plan, subsequent termination resulting from the change in control.
A combined summary of activity in our active stock plans is presented in the table. Performance stock units outstanding are presented assuming attainment of the maximum payout rate as set forth by the performance criteria. The target award level for performance stock units granted in 20172020, 2019 and 20162018 was 24,16248,409, 34,317 and 29,240,30,466, respectively.As of December 31, 2017,2020, there were 1,367,750887,189 shares remaining available for grant for future awards.
Director Deferred
Stock Units
Outstanding
Non-Vested Stock
Awards/Stock Units
Outstanding
Performance Stock Units OutstandingStock Options
Outstanding
Number of UnitsWeighted-
Average
Fair Value
at Grant
Number
of Shares/Units
Weighted-
Average
Fair Value
at Grant
Number of UnitsWeighted-
Average
Fair Value
at Grant
Number
of Shares
Weighted-
Average
Exercise
Price
January 1, 201853,008 $64.87 312,656 $81.71 80,106 $79.91 2,917,142 $63.34 
Granted6,576 109.58 109,847 94.81 45,703 87.18 — 
Exercised/vested(10,674)63.68 (32,050)78.92 — — (513,134)61.68 
Forfeited/expired— — (6,656)87.60 — — (52,000)70.42 
December 31, 201848,910 71.14 383,797 85.59 125,809 82.55 2,352,008 63.55 
Granted7,592 102.70 127,091 93.46 51,479 85.74 — 
Exercised/vested(1,132)106.03 (53,990)65.11 — — (359,892)57.71 
Forfeited/expired— — (16,251)89.71 — — (11,250)65.11 
December 31, 201955,370 74.76 440,647 90.22 177,288 83.48 1,980,866 64.60 
Granted10,428 73.84 151,038 66.79 72,618 57.89 — 
Exercised/vested(12,938)71.09 (117,990)76.07 (41,755)69.70 (235,880)53.23 
Forfeited/expired— — (3,336)91.07 (6,894)81.33 (5,427)75.74 
December 31, 202052,860 75.47 470,359 86.24 201,257 77.18 1,739,559 66.11 
  
Director Deferred
Stock Units
Outstanding
 
Non-Vested Stock
Awards/Stock Units
Outstanding
 Performance Stock Units Outstanding 
Stock Options
Outstanding
  Number of Units 
Weighted-
Average
Fair Value
at Grant
 
Number
of Shares/Units
 
Weighted-
Average
Fair Value
at Grant
 Number of Units 
Weighted-
Average
Fair Value
at Grant
 
Number
of Shares
 
Weighted-
Average
Exercise
Price
January 1, 2015 38,867
 $59.39
 175,490
 $60.55
 
 $
 5,029,882
 $58.99
Authorized 
 
 
 
 
 
 
 
Granted 6,576
 72.94
 53,990
 65.11
 
 
 890,940
 65.11
Exercised/vested 
 
 (56,300) 48.00
 
 
 (287,326) 51.70
Forfeited/expired 
 
 
 
 
 
 (21,256) 66.72
December 31, 2015 45,443
 61.35
 173,180
 66.05
 
 
 5,612,240
 60.30
Authorized 
 
 
 
 
 
 
 
Granted 8,216
 63.25
 132,800
 76.07
 43,860
 69.70
 
 
Exercised/vested 
 
 (49,130) 54.56
 
 
 (1,476,841) 53.40
Forfeited/expired 
 
 
 
 
 
 (46,371) 71.04
December 31, 2016 53,659
 61.48
 256,850
 73.43
 43,860
 69.70
 4,089,028
 62.67
Authorized 
 
 
 
 
 
 
 
Granted 5,447
 95.37
 99,833
 98.90
 36,243
 92.27
 
 
Exercised/vested (6,098) 62.29
 (39,740) 71.59
 
 
 (1,118,122) 60.59
Forfeited/expired 
 
 (4,287) 79.52
 
 
 (53,764) 69.78
December 31, 2017 53,008
 $64.87
 312,656
 $81.71
 80,103
 $79.91
 2,917,142
 $63.34
Options awarded to employees generally have a ten-yearten-year life and vest in equal annual installments over a four-yearfour-year period. Non-vested stock awards/stock units awarded to employees generally have a four-year-clifffour-year-cliff vesting period. No options were awarded to non-employee directors during the reported periods. Deferred stock units awarded to non-employee directors generally have immediate vesting. Upon retirement from our board of directors, non-employee directors will receive one share of our common stock for each deferred stock unit held. Outstanding non-vested stock units and deferred stock units receive equivalent dividend payments as such dividends are declared on our common stock.
125

Table of Content
Performance stock units represent shares potentially issuable in the future. Issuance is based upon the measure of our achievement of relative return on assets over a three-year performance period compared to an identified peer group's achievement of relative return on assets over the same three-year performance period. The ultimate number of shares issuable under each performance award is the product of the award target and the award payout percentage for the given

level of achievement. The level of achievement is measured as the percentile rank of relative return on assets among the peer group. The award payout percentages by level of achievement are as follows: (i) less than 25th percentile pays out at 0% of target, (ii) 25th percentile pays out at 50% of target, (iii) 50th percentile pays out at 100% of target and (iv) 75th percentile or more pays out at 150% of target. Achievement between the aforementioned percentiles will result in an award payout percentage determined based on straight-line interpolation between the percentiles. Performance stock units are eligible to receive equivalent dividend payments as such dividends are declared on our common stock during the performance period. Equivalent dividend payments are based upon the ultimate number of shares issued under each performance award and are deferred until such time that the units vest and shares are issued.
Other information regarding options outstanding and exercisable as of December 31, 20172020 is as follows:
      Options Outstanding Options Exercisable
Range of
Exercise Prices
 
Number
of Shares
 
Weighted-
Average
Exercise Price
 
Weighted-
Average
Remaining
Contractual Life
in Years
 
Number
of Shares
 
Weighted-
Average
Exercise
Price
$45.01
 to $50.00
 294,230
 $48.00
 3.82 294,230
 $48.00
50.01
 to 55.00
 915,923
 52.79
 3.04 915,923
 52.79
65.01
 to 70.00
 711,477
 65.11
 7.49 294,507
 65.11
70.01
 to 75.00
 345,195
 71.39
 5.78 345,195
 71.39
75.01
 to 80.00
 650,317
 78.94
 6.58 445,131
 78.94
    Total 2,917,142
 63.34
 5.32 2,294,986
 61.63
The total intrinsic value of outstanding in-the-money stock options and outstanding in-the-money exercisable stock options was $91.3 million and $75.8 million at December 31, 2017.
Options OutstandingOptions Exercisable
Range of
Exercise Prices
Number
of Shares
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual Life
in Years
Number
of Shares
Weighted-
Average
Exercise
Price
$45.01 to$50.00 204,480 $48.00 0.82204,480 $48.00 
50.01 to55.00 282,204 54.56 1.81282,204 54.56 
65.01 to70.00 509,221 65.11 4.67509,221 65.11 
70.01 to75.00 275,654 71.39 2.80275,654 71.39 
75.01 to80.00 468,000 78.95 3.74468,000 78.95 
Total1,739,559 66.11 3.211,739,559 66.11 
Total intrinsic value$36,745 $36,745 
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:
202020192018
Shares issued from available treasury stock408,563 399,224 548,238 
Proceeds from stock option exercises$12,557 $20,770 $31,647 
Intrinsic value of stock options exercised5,365 13,713 23,292 
Fair value of stock awards/units vested9,465 5,192 4,212 
 2017 2016 2015
New shares issued from available authorized shares603,842
 
 
Issued from available treasury stock547,078
 1,509,121
 337,056
Total1,150,920
 1,509,121
 337,056
Proceeds from stock option exercises$67,746
 $78,866
 $14,853
Intrinsic value of stock options exercised38,275
 30,935
 5,766
Fair value of stock awards/units vested4,578
 3,679
 3,728
Stock-based Compensation Expense. Stock-based compensation expense is recognized ratably over the requisite service period for all awards. For most stock option awards, the service period generally matches the vesting period. For stock options granted to certain executive officers and for non-vested stock units granted to all participants, the service period does not extend past the date the participant reaches 65 years of age. Deferred stock units granted to non-employee directors generally have immediate vesting and the related expense is fully recognized on the date of grant. For performance stock units, the service period generally matches the three-year performance period specified by the award, however, the service period does not extend past the date the participant reaches 65 years of age. Expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued.

126

Table of Content
Stock-based compensation expense and the related income tax benefit is presented in the following table. The service period for performance stock units granted each year begins on January 1 of the following year.
202020192018
Stock options$$1,185 $3,652 
Non-vested stock awards/stock units10,240 9,339 6,983 
Deferred stock-units770 780 721 
Performance stock units2,908 4,642 2,587 
Total$13,918 $15,946 $13,943 
Income tax benefit$2,142 $2,359 $2,831 
 2017 2016 2015
Stock options$6,230
 $8,235
 $9,660
Non-vested stock awards/stock units4,992
 3,044
 2,597
Deferred stock-units519
 520
 480
Performance stock units1,272
 
 
Total$13,013
 $11,799
 $12,737
Income tax benefit$4,555
 $4,130
 $4,458
Unrecognized stock-based compensation expense and the weighted-average period over which the expense is expected to be recognized at December 31, 20172020 is presented in the table below. Unrecognized stock-based compensation expense related to performance stock units is presented assuming attainment of the maximum payout rate as set forth by the performance criteria.
Unrecognized ExpenseWeighted-Average Number of Years for Expense Recognition
Non-vested stock awards/stock units$18,430 2.69
Performance stock units7,034 1.99
Total$25,464 
 Unrecognized Expense Weighted-Average Number of Years for Expense Recognition
Stock options$5,575
 1.4
Non-vested stock awards/stock units14,953
 3.0
Performance stock units5,129
 2.1
Total$25,657
  
Valuation of Stock-Based Compensation. For the purposes of recognizing stock-based compensation expense, the fair value of non-vested stock awards/stock units and deferred stock units is generally the market price of the stock on the measurement date, which, for us, is the date of the award. The fair value of performance stock units is determined in a similar manner except that the market price of the stock on the measurement date is discounted by the present value of the dividends expected to be paid on our common stock during the service period of the award because dividend equivalent payments on performance stock units are deferred until such time that the units vest and shares are issued. In applying this discount to the market price of our stock on the measurement date, we assumed we would pay a flat quarterly dividend during the service period equal to our most recent dividend payment, which was $0.57$0.72, $0.71 and $0.67 in 20172020, 2019, and $0.54 in 2016,2018 respectively discounted at a weighted-average risk-free rate of 1.7%0.19%, 1.65% and 2.95% in 20172020, 2019, and 1.0% in 2016.2018 respectively.
The fair value of employee stock options granted is estimated on the measurement date, which, for us, 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 our stock price and other variables, and allows for the use of dynamic assumptions about interest rates and expected volatility.
No NaN stock options werehave been granted during 2017 or 2016. The weighted-average fair value of stock options granted during 2015, estimated using a binomial lattice-based valuation model, was $10.23. The assumptions used to determine the fair value of options granted in 2015 included (i) weighted-average risk free rate of 2.05%, (ii) dividend yield of 3.02%, (iii) weighted-average expected market price volatility of 26.48% and (iv) weighted-average expected term of 5.7 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 our 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.since 2015.

Note 12 - 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.
202020192018
Other non-interest income:
Other$47,712 $43,563 $46,790 
Total$47,712 $43,563 $46,790 
Other non-interest expense:
Professional services$37,253 $39,238 $35,941 
Advertising, promotions and public relations34,390 38,001 32,514 
Travel/meals and entertainment7,109 16,459 15,030 
Other87,558 86,967 89,981 
Total$166,310 $180,665 $173,466 
In the ordinary course of business, we transact with certain directors and/or their affiliates. Payments for services provided totaled $551 thousand in 2020, $567 thousand in 2019 and $568 thousand in 2018.
127
 2017 2016 2015
Other non-interest income:     
Other$37,222
 $41,144
 $35,656
Total$37,222
 $41,144
 $35,656
Other non-interest expense:     
Advertising, promotions and public relations$29,337
 $27,677
 $28,858
Professional services27,968
 26,664
 26,283
Travel/meals and entertainment15,066
 14,393
 15,346
Check card expense12,479
 15,572
 13,008
Other90,439
 94,682
 82,066
Total$175,289
 $178,988
 $165,561

Table of Content
Note 13 - Income Taxes
Income tax expense was as follows:
202020192018
Current income tax expense$36,002 $48,256 $840 
Deferred income tax expense (benefit)(15,832)7,614 52,923 
Income tax expense, as reported$20,170 $55,870 $53,763 
Effective tax rate5.7 %11.2 %10.6 %
 2017 2016 2015
Current income tax expense$58,707
 $48,748
 $59,530
Deferred income tax expense (benefit)(14,493) (11,598) (19,059)
Income tax expense, as reported$44,214
 $37,150
 $40,471
      
Effective tax rate10.8% 10.9% 12.7%
A reconciliation between reported income tax expense and the amounts computed by applying the U.S. federal statutory income tax rate of 35%21% to income before income taxes is presented in the following table.
202020192018
Income tax expense computed at the statutory rate$73,777 $104,888 $106,823 
Effect of tax-exempt interest(51,624)(49,166)(49,700)
Tax benefit on dividends paid in our 401k plan(1,851)(1,743)(1,551)
Bank owned life insurance income(783)(774)(710)
Non-deductible compensation1,123 1,708 210 
Non-deductible FDIC premiums1,790 1,267 1,771 
Non-deductible meals and entertainment786 1,299 1,193 
Net tax benefit from stock-based compensation(852)(2,447)(3,865)
Asset contribution to a charitable trust(2,556)
Deferred tax adjustment related to reduction in U.S. federal statutory income tax rate(231)
Other360 838 (177)
Income tax expense, as reported$20,170 $55,870 $53,763 
 2017 2016 2015
Income tax expense computed at the statutory rate$142,927
 $119,494
 $111,930
Effect of tax-exempt interest(81,995) (75,696) (70,889)
Bank owned life insurance income(1,116) (1,260) (1,255)
Net tax benefit from stock-based compensation(9,062) (5,063) 
Provisional deferred tax adjustment related to reduction in U.S. federal statutory income tax rate(4,047) 
 
Correction for prior year tax-exempt interest(2,906) 
 
Other413
 (325) 685
Income tax expense, as reported$44,214
 $37,150
 $40,471
Income tax expense for 2017 was impacted by the adjustment of our deferred tax assets and liabilities related to the reduction in the U.S. federal statutory income tax rate to 21% under the Tax Cuts and Jobs Act, which was enacted on December 22, 2017. As a result of the new law, which is more fully discussed below, we recognized a provisional net tax benefit totaling $4.0 million, as detailed in the table above. Income tax expense for 2017 was also impacted by the correction of an over-accrual of taxes that resulted from incorrectly classifying certain tax-exempt loans as taxable for federal income tax purposes since 2013. As a result, we recognized tax benefits totaling $2.9 million related to the 2013 through 2016 tax years, as detailed in the table above. During 2016, we adopted a new accounting standard that requires the income tax effects associated with stock-based compensation to be recognized as a component of income tax expense. We recognized net tax benefits related to stock-based compensation totaling $9.1 million in 2017 and $5.1 million in 2016, as detailed in the table above. See Note 1 - Significant Accounting Policies for additional information related to the accounting for the income tax effects of stock-based compensation. There were no0 unrecognized tax benefits during any of the reported periods. Interest and/or penalties related to income taxes are reported as a component of income tax expense. Such amounts were not significant during the reported periods.

Year-end deferred taxes are presented in the table below. As a result of the Tax Cuts and Jobs Act enacted on December 22, 2017 (discussed below), deferredDeferred taxes as of December 31, 2017 are based on the newly enacted U.S. statutory federal income tax rate of 21%. Deferred taxes as
20202019
Deferred tax assets:
Lease liabilities under operating leases$67,839 $67,975 
Allowance for credit losses64,573 27,860 
Net actuarial loss on defined benefit post-retirement benefit plans13,512 12,210 
Stock-based compensation10,033 11,211 
Bonus accrual3,961 5,055 
Deferred loan and lease origination fees10,252 2,254 
Other3,834 2,058 
Total gross deferred tax assets174,004 128,623 
Deferred tax liabilities:
Net unrealized gain on securities available for sale and transferred securities(149,870)(83,281)
Right-of-use assets under operating leases(61,963)(63,463)
Premises and equipment(49,602)(29,730)
Intangible assets(14,596)(12,642)
Defined benefit post-retirement benefit plans(10,081)(9,419)
Partnership interests(2,913)(2,894)
Leases(1,090)(1,572)
Other(1,387)(1,440)
Total gross deferred tax liabilities(291,502)(204,441)
Net deferred tax asset (liability)$(117,498)$(75,818)
128

Table of December 31, 2016 are based on the previously enacted U.S. statutory federal income tax rate of 35%.
 2017 2016
Deferred tax assets:   
Allowance for loan losses$32,626
 $53,566
Alternative minimum tax carryforward, no expiration date47,104
 30,384
Net actuarial loss on defined benefit post-retirement benefit plans12,160
 21,956
Stock-based compensation9,904
 18,140
Bonus accrual1,136
 7,035
Gain on sale of assets883
 2,485
Transaction costs875
 1,587
Other3,996
 4,449
Total gross deferred tax assets108,684
 139,602
Deferred tax liabilities:   
Premises and equipment(20,236) (33,777)
Defined benefit post-retirement benefit plans(9,012) (14,828)
Intangible assets(9,014) (11,697)
Net unrealized gain on securities available for sale and transferred securities(35,829) (8,699)
Leases(1,646) (3,042)
Section 481(a) change in accounting method (tangible property)
 (1,694)
Prepaid expenses(996) (1,743)
Other(233) (436)
Total gross deferred tax liabilities(76,966) (75,916)
Net deferred tax asset (liability)$31,718
 $63,686
NoNaN valuation allowance for deferred tax assets was recorded at December 31, 20172020 and 20162019 as management believes it is more likely than not that all of the deferred tax assets will be realized against deferred tax liabilities and projected future taxable income. There were no0 unrecognized tax benefits during any of the reported periods.
We file income tax returns in the U.S. federal jurisdiction. We are no longer subject to U.S. federal income tax examinations by tax authorities for years before 2014.2017.
Tax Cuts and Jobs Act. The Tax Cuts and Jobs Act was enacted on December 22, 2017. Among other things, the new law (i) establishes a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limits the deduction for net interest expense incurred by U.S. corporations, (iv) allows businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminates or reduces certain deductions related to meals and entertainment expenses, (vi) modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee and (vii) limits the deductibility of deposit insurance premiums. The Tax Cuts and Jobs Act also significantly changes U.S. tax law related to foreign operations, however, such changes do not currently impact us.
As stated above, as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, we remeasured our deferred tax assets and liabilities based upon the newly enacted U.S. statutory federal income tax rate of 21%, which is the tax rate at which these assets and liabilities are expected to reverse in the future. Notwithstanding the foregoing, we are still analyzing certain aspects of the new law and refining our calculations, which could affect the measurement of these assets and liabilities or give rise to new deferred tax amounts. Nonetheless, we recognized a provisional net tax benefit related to the remeasurement of our deferred tax assets and liabilities totaling $4.0 million.

Note 14 - Other Comprehensive Income (Loss)
The tax effects allocated to each component of other comprehensive income (loss) were as follows:
Before Tax
Amount
Tax Expense,
(Benefit)
Net of Tax
Amount
2020
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period$427,331 $89,741 $337,590 
Change in net unrealized gain on securities transferred to held to maturity(1,256)(264)(992)
Reclassification adjustment for net (gains) losses included in net income(108,989)(22,888)(86,101)
Total securities available for sale and transferred securities317,086 66,589 250,497 
Defined-benefit post-retirement benefit plans:
Change in the net actuarial gain/loss(11,518)(2,419)(9,099)
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)5,319 1,117 4,202 
Total defined-benefit post-retirement benefit plans(6,199)(1,302)(4,897)
Total other comprehensive income (loss)$310,887 $65,287 $245,600 
2019
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period$418,556 $87,897 $330,659 
Change in net unrealized gain on securities transferred to held to maturity(1,292)(271)(1,021)
Reclassification adjustment for net (gains) losses included in net income(293)(62)(231)
Total securities available for sale and transferred securities416,971 87,564 329,407 
Defined-benefit post-retirement benefit plans:
Change in the net actuarial gain/loss(3,644)(765)(2,879)
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)5,623 1,181 4,442 
Total defined-benefit post-retirement benefit plans1,979 416 1,563 
Total other comprehensive income (loss)$418,950 $87,980 $330,970 
2018
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period$(182,340)$(38,292)$(144,048)
Change in net unrealized gain on securities transferred to held to maturity(8,818)(1,853)(6,965)
Reclassification adjustment for net (gains) losses included in net income156 33 123 
Total securities available for sale and transferred securities(191,002)(40,112)(150,890)
Defined-benefit post-retirement benefit plans:
Change in the net actuarial gain/loss(7,225)(1,517)(5,708)
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)5,002 1,051 3,951 
Total defined-benefit post-retirement benefit plans(2,223)(466)(1,757)
Total other comprehensive income (loss)$(193,225)$(40,578)$(152,647)
129

 
Before Tax
Amount
 
Tax Expense,
(Benefit)
 
Net of Tax
Amount
2017     
Securities available for sale and transferred securities:     
Change in net unrealized gain/loss during the period$157,016
 $48,626
 $108,390
Change in net unrealized gain on securities transferred to held to maturity(16,193) (5,668) (10,525)
Reclassification adjustment for net (gains) losses included in net income4,941
 1,729
 3,212
Total securities available for sale and transferred securities145,764
 44,687
 101,077
Defined-benefit post-retirement benefit plans:     
Change in the net actuarial gain/loss(597) (126) (471)
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)5,429
 1,900
 3,529
Total defined-benefit post-retirement benefit plans4,832
 1,774
 3,058
Total other comprehensive income (loss)$150,596
 $46,461
 $104,135
      
2016     
Securities available for sale and transferred securities:     
Change in net unrealized gain/loss during the period$(175,061) $(61,271) $(113,790)
Change in net unrealized gain on securities transferred to held to maturity(32,207) (11,272) (20,935)
Reclassification adjustment for net (gains) losses included in net income(14,975) (5,242) (9,733)
Total securities available for sale and transferred securities(222,243) (77,785) (144,458)
Defined-benefit post-retirement benefit plans:     
Change in the net actuarial gain/loss1,914
 670
 1,244
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)7,274
 2,546
 4,728
Total defined-benefit post-retirement benefit plans9,188
 3,216
 5,972
Total other comprehensive income (loss)$(213,055) $(74,569) $(138,486)
      
2015     
Securities available for sale and transferred securities:     
Change in net unrealized gain/loss during the period$(12,450) $(4,358) $(8,092)
Change in net unrealized gain on securities transferred to held to maturity(33,601) (11,760) (21,841)
Reclassification adjustment for net (gains) losses included in net income(69) (24) (45)
Total securities available for sale and transferred securities(46,120) (16,142) (29,978)
Defined-benefit post-retirement benefit plans:  
 
Change in the net actuarial gain/loss(3,877) (1,357) (2,520)
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)6,995
 2,448
 4,547
Total defined-benefit post-retirement benefit plans3,118
 1,091
 2,027
Total other comprehensive income (loss)$(43,002) $(15,051) $(27,951)
Table of Content

Activity in accumulated other comprehensive income, net of tax, was as follows:
Securities
Available
For Sale
Defined
Benefit
Plans
Accumulated
Other
Comprehensive
Income
Balance January 1, 2020$313,304 $(45,934)$267,370 
Other comprehensive income (loss) before reclassification336,598 (9,099)327,499 
Reclassification of amounts included in net income(86,101)4,202 (81,899)
Net other comprehensive income (loss) during period250,497 (4,897)245,600 
Balance December 31, 2020$563,801 $(50,831)$512,970 
Balance January 1, 2019$(16,103)$(47,497)$(63,600)
Other comprehensive income (loss) before reclassification329,638 (2,879)326,759 
Reclassification of amounts included in net income(231)4,442 4,211 
Net other comprehensive income (loss) during period329,407 1,563 330,970 
Balance December 31, 2019$313,304 $(45,934)$267,370 
Balance January 1, 2018$117,230 $(37,718)$79,512 
Other comprehensive income (loss) before reclassification(151,013)(5,708)(156,721)
Reclassification of amounts included in net income123 3,951 4,074 
Net other comprehensive income (loss) during period(150,890)(1,757)(152,647)
Reclassification of certain income tax effects related to the change in the U.S. statutory federal income tax rate under the Tax Cuts and Jobs Act to retained earnings17,557 (8,022)9,535 
Balance December 31, 2018$(16,103)$(47,497)$(63,600)
 
Securities
Available
For Sale
 
Defined
Benefit
Plans
 
Accumulated
Other
Comprehensive
Income
Balance January 1, 2017$16,153
 $(40,776) $(24,623)
Other comprehensive income (loss) before reclassification97,865
 (471) 97,394
Amounts reclassified from accumulated other comprehensive income (loss)3,212
 3,529
 6,741
Net other comprehensive income (loss) during period101,077
 3,058
 104,135
Balance December 31, 2017$117,230
 $(37,718) $79,512
      
Balance January 1, 2016$160,611
 $(46,748) $113,863
Other comprehensive income (loss) before reclassification(134,725) 1,244
 (133,481)
Amounts reclassified from accumulated other comprehensive income (loss)(9,733) 4,728
 (5,005)
Net other comprehensive income (loss) during period(144,458) 5,972
 (138,486)
Balance December 31, 2016$16,153
 $(40,776) $(24,623)
      
Balance January 1, 2015$190,589
 $(48,775) $141,814
Other comprehensive income (loss) before reclassification(29,933) (2,520) (32,453)
Amounts reclassified from accumulated other comprehensive income (loss)(45) 4,547
 4,502
Net other comprehensive income (loss) during period(29,978) 2,027
 (27,951)
Balance December 31, 2015$160,611
 $(46,748) $113,863
Note 15 - 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. We utilize interest rate swaps, caps and floors to mitigate exposure to interest rate risk and to facilitate the needs of our customers. Our objectives for utilizing these derivative instruments are described below:
We have entered into certain interest rate swap contracts that are matched to specific fixed-rate commercial loans or leases that we have entered into with our 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.
We have 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 we enter 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 a third-party financial institution. In connection with each swap transaction, we agree 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, we agree to pay a third-party 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 our customer to effectively convert a variable rate loan to a fixed rate. Because we act as an intermediary for our customer, changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact our results of operations.

130

Table of Content
The notional amounts and estimated fair values of interest rate derivative contracts outstanding at December 31, 20172020 and 20162019 are presented in the following table. The fair values of interest rate derivative contracts are estimated utilizing internal valuation models with observable market data inputs, or as determined by the Chicago Mercantile Exchange (“CME”) for centrally cleared derivative contracts. Beginning in 2017, CME rules legally characterize variation margin payments for centrally cleared derivatives as settlements of the derivatives' exposure rather than collateral. As a result, the variation margin payment and the related derivative instruments are considered a single unit of account for accounting and financial reporting purposes. Variation margin, as determined by the CME, is settled daily. As a result, derivative contracts that clear through the CME have an estimated fair value of zero0 as of December 31, 2017.2020 and 2019.
 December 31, 2020December 31, 2019
 Notional
Amount
Estimated
Fair Value
Notional
Amount
Estimated
Fair Value
Derivatives designated as hedges of fair value:
Financial institution counterparties:
Loan/lease interest rate swaps - assets$$$2,545 $
Loan/lease interest rate swaps - liabilities3,724 (134)6,000 (138)
Non-hedging interest rate derivatives:
Financial institution counterparties:
Loan/lease interest rate swaps - assets122,788 67 
Loan/lease interest rate swaps - liabilities1,173,173 (33,812)1,002,860 (19,483)
Loan/lease interest rate caps - assets356,601 1,241 107,835 266 
Customer counterparties:
Loan/lease interest rate swaps - assets1,173,173 84,424 1,002,860 43,857 
Loan/lease interest rate swaps - liabilities122,788 (310)
Loan/lease interest rate caps - liabilities356,601 (1,241)107,835 (266)
 December 31, 2017 December 31, 2016
 
Notional
Amount
 
Estimated
Fair Value
 
Notional
Amount
 
Estimated
Fair Value
Derivatives designated as hedges of fair value:       
Financial institution counterparties:       
Loan/lease interest rate swaps - assets$13,679
 $242
 $41,818
 $368
Loan/lease interest rate swaps - liabilities11,147
 (593) 18,812
 (1,278)
Non-hedging interest rate derivatives:       
Financial institution counterparties:       
Loan/lease interest rate swaps - assets430,449
 1,418
 206,745
 2,649
Loan/lease interest rate swaps - liabilities541,496
 (12,820) 694,965
 (25,466)
Loan/lease interest rate caps - assets114,619
 480
 85,966
 575
Customer counterparties:       
Loan/lease interest rate swaps - assets541,496
 17,882
 694,965
 25,467
Loan/lease interest rate swaps - liabilities430,449
 (4,861) 206,745
 (2,649)
Loan/lease interest rate caps - liabilities114,619
 (480) 85,966
 (575)
The weighted-average rates paid and received for interest rate swaps outstanding at December 31, 20172020 were as follows:
Weighted-Average
Interest
Rate
Paid
Interest
Rate
Received
Interest rate swaps:  
Fair value hedge loan/lease interest rate swaps3.27 %0.15 %
Non-hedging interest rate swaps - financial institution counterparties3.97 1.95 
Non-hedging interest rate swaps - customer counterparties1.95 3.97 
 Weighted-Average
 
Interest
Rate
Paid
 
Interest
Rate
Received
Interest rate swaps:   
Fair value hedge loan/lease interest rate swaps3.09% 1.47%
Non-hedging interest rate swaps - financial institution counterparties3.93
 2.97
Non-hedging interest rate swaps - customer counterparties2.97
 3.93
The weighted-average strike rate for outstanding interest rate caps was 3.07%3.36% at December 31, 2017.2020.

131

Table of Content
Commodity Derivatives. We enter into commodity swaps and option contracts that are not designated as hedging instruments primarily to accommodate the business needs of our customers. Upon the origination of a commodity swap or option contract with a customer, we simultaneously enter 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. We obtain dealer quotations and use internal valuation models with observable market data inputs to value our commodity derivative positions.
December 31, 2020December 31, 2019
Notional
Units
Notional
Amount
Estimated
Fair Value
Notional
Amount
Estimated
Fair Value
Financial institution counterparties:
Oil - assetsBarrels3,056 $8,341 1,214 $2,796 
Oil - liabilitiesBarrels6,391 (32,112)2,148 (6,916)
Natural gas - assetsMMBTUs9,281 1,529 8,295 2,131 
Natural gas - liabilitiesMMBTUs15,079 (3,265)2,689 (70)
Customer counterparties:
Oil - assetsBarrels6,391 32,670 2,172 7,208 
Oil - liabilitiesBarrels3,056 (8,264)1,190 (2,652)
Natural gas - assetsMMBTUs17,636 3,451 2,689 83 
Natural gas - liabilitiesMMBTUs6,724 (1,458)8,295 (2,039)
  December 31, 2017 December 31, 2016
 
Notional
Units
 
Notional
Amount
 
Estimated
Fair Value
 
Notional
Amount
 
Estimated
Fair Value
Financial institution counterparties:         
Oil - assetsBarrels 253
 $193
 227
 $206
Oil - liabilitiesBarrels 2,731
 (13,448) 944
 (4,400)
Natural gas - assetsMMBTUs 5,927
 1,399
 
 
Natural gas - liabilitiesMMBTUs 3,917
 (326) 1,299
 (1,357)
Customer counterparties:         
Oil - assetsBarrels 2,731
 13,709
 944
 4,580
Oil - liabilitiesBarrels 253
 (187) 227
 (206)
Natural gas - assetsMMBTUs 3,917
 340
 1,299
 1,393
Natural gas - liabilitiesMMBTUs 5,927
 (1,366) 
 
Foreign Currency Derivatives. We enter into foreign currency forward contracts that are not designated as hedging instruments primarily to accommodate the business needs of our customers. Upon the origination of a foreign currency denominated transaction with a customer, we simultaneously enter into an offsetting contract with a third party financial institution to negate the exposure to fluctuations in foreign currency exchange rates. We also utilize 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, 2020December 31, 2019
Notional
Currency
Notional
Amount
Estimated
Fair Value
Notional
Amount
Estimated
Fair Value
Financial institution counterparties:
Forward contracts - liabilitiesCAD$4,593 $(33)
Customer counterparties:
Forward contracts - assetsCAD4,583 45 
   December 31, 2017 December 31, 2016
 
Notional
Currency
 
Notional
Amount
 
Estimated
Fair Value
 
Notional
Amount
 
Estimated
Fair Value
Financial institution counterparties:         
Forward contracts - assetsEUR 4,014
 $77
 
 $
Forward contracts - assetsGBP 127
 1
 
 
Forward contracts - liabilitiesEUR 4,846
 (37) 870
 (9)
Forward contracts - liabilitiesCAD 25,413
 (142) 2,214
 (21)
Forward contracts - liabilitiesGBP 1,178
 (9) 419
 (3)
Customer counterparties:         
Forward contracts - assetsEUR 3,867
 58
 
 
Forward contracts - assetsCAD 25,282
 279
 2,205
 29
Forward contracts - liabilitiesEUR 4,041
 (51) 
 
Forward contracts - liabilitiesGBP 127
 
 
 
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 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:
202020192018
Commercial loan/lease interest rate swaps:
Amount of gain (loss) included in interest income on loans$(111)$86 $25 
Amount of (gain) loss included in other non-interest expense(1)
132

 2017 2016 2015
Commercial loan/lease interest rate swaps:     
Amount of gain (loss) included in interest income on loans$(726) $(1,362) $(1,796)
Amount of (gain) loss included in other non-interest expense(14) (44) 11
Table of Content
As stated above, we enter into non-hedge related derivative positions primarily to accommodate the business needs of our customers. Upon the origination of a derivative contract with a customer, we simultaneously enter into an offsetting derivative contract with a third party financial institution. We recognize immediate income based upon the difference in the bid/ask spread of the underlying transactions with our customers and the third party. Because we act only as an intermediary for our customer, subsequent changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact our results of operations.
Amounts included in the consolidated statements of income related to non-hedging interest rate, commodity, and foreign currency and other derivative instruments are presented in the table below.
202020192018
Non-hedging interest rate derivatives:
Other non-interest income$3,413 $2,005 $4,112 
Other non-interest expense(1)
Non-hedging commodity derivatives:
Other non-interest income1,768 503 795 
Non-hedging foreign currency derivatives:
Other non-interest income28 51 246 
Non-hedging other derivatives:
Other non-interest income5,992 750 
 2017 2016 2015
Non-hedging interest rate derivatives:     
Other non-interest income$3,123
 $2,883
 $2,580
Other non-interest expense1
 
 (43)
Non-hedging commodity derivatives:     
Other non-interest income440
 421
 208
Non-hedging foreign currency derivatives:     
Other non-interest income300
 30
 78
During 2020, we sold certain non-hedge related, short-term put options on U.S. Treasury securities and realized gains totaling approximately $6.0 million in connection with the sales. The put options expired without being exercised. Gains realized from similar transactions totaled $750 thousand in 2019. These gains are included in the table above as a component of non-hedging other derivatives.
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 our Asset/Liability Management Committee. Our credit exposure on interest rate swaps is limited to the net favorable value and interest payments of all swaps by each counterparty, while our 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 our 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.
Our credit exposure relating to interest rate swaps, commodity swaps/options and foreign currency forward contracts with bank customers was approximately $30.8$112.6 million at December 31, 2017.2020. This credit exposure is partly mitigated as transactions with customers are generally secured by the collateral, if any, securing the underlying transaction being hedged. Our 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 $7.6$16.9 million at December 31, 2017.2020. This amount was primarily related to excess collateral we posted to counterparties. Collateral levels for upstream financial institution counterparties are monitored and adjusted as necessary. See Note 16 – Balance Sheet Offsetting and Repurchase Agreements for additional information regarding our credit exposure with upstream financial institution counterparties.
The aggregate fair value of securities At December 31, 2020 we posted ashad $74.0 million in cash collateral related to derivative contracts totaled $10.7 million at December 31, 2017. At such date, we also had $19.6 million in cash collateral on deposit with other financial institution counterparties.
133

Table of Content
Note 16 - Balance Sheet Offsetting and Repurchase Agreements
Balance Sheet Offsetting. Certain financial instruments, including resell and repurchase agreements and derivatives, may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements or similar agreements. Our 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, we do 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, 2017 is presented in the following tables.
 
Gross Amount
Recognized
 
Gross Amount
Offset
 
Net Amount
Recognized
December 31, 2017     
Financial assets:     
Derivatives:     
Loan/lease interest rate swaps and caps$2,140
 $
 $2,140
Commodity swaps and options1,592
 
 1,592
Foreign currency forward contracts78
 
 78
Total derivatives3,810
 
 3,810
Resell agreements9,642
 
 9,642
Total$13,452
 $
 $13,452
Financial liabilities:     
Derivatives:     
Loan/lease interest rate swaps$13,413
 $
 $13,413
Commodity swaps and options13,774
 
 13,774
Foreign currency forward contracts188
 
 188
Total derivatives27,375
 
 27,375
Repurchase agreements1,117,199
 
 1,117,199
Total$1,144,574
 $
 $1,144,574
   Gross Amounts Not Offset  
 
Net Amount
Recognized
 
Financial
Instruments
 Collateral 
Net
Amount
December 31, 2017       
Financial assets:       
Derivatives:       
Counterparty A$395
 $(395) $
 $
Counterparty B1,028
 (1,028) 
 
Counterparty C55
 (55) 
 
Counterparty D
 
 
 
Other counterparties2,332
 (1,830) (387) 115
Total derivatives3,810
 (3,308) (387) 115
Resell agreements9,642
 
 (9,642) 
Total$13,452
 $(3,308) $(10,029) $115
Financial liabilities:       
Derivatives:       
Counterparty A$7,397
 $(395) $(7,002) $
Counterparty B4,466
 (1,028) (3,101) 337
Counterparty C1,520
 (55) (1,450) 15
Counterparty D
 
 
 
Other counterparties13,992
 (1,830) (11,215) 947
Total derivatives27,375
 (3,308) (22,768) 1,299
Repurchase agreements1,117,199
 
 (1,117,199) 
Total$1,144,574
 $(3,308) $(1,139,967) $1,299

Information about financial instruments that are eligible for offset in the consolidated balance sheet as of December 31, 20162020 is presented in the following tables.
Gross Amount
Recognized
Gross Amount
Offset
Net Amount
Recognized
December 31, 2020
Financial assets:
Derivatives:
Loan/lease interest rate swaps and caps$1,241 $$1,241 
Commodity swaps and options9,870 9,870 
Total derivatives11,111 11,111 
Resell agreements
Total$11,111 $$11,111 
Financial liabilities:
Derivatives:
Loan/lease interest rate swaps$33,946 $$33,946 
Commodity swaps and options35,377 35,377 
Foreign currency forward contracts
Total derivatives69,323 69,323 
Repurchase agreements2,068,147 2,068,147 
Total$2,137,470 $$2,137,470 
Gross Amounts Not Offset
Net Amount
Recognized
Financial
Instruments
CollateralNet
Amount
December 31, 2020
Financial assets:
Derivatives:
Counterparty A$$(2)$$
Counterparty B5,838 (5,838)
Counterparty C
Other counterparties5,271 (5,271)
Total derivatives11,111 (11,111)
Resell agreements
Total$11,111 $(11,111)$$
Financial liabilities:
Derivatives:
Counterparty A$6,430 $(2)$(6,428)$
Counterparty B20,722 (5,838)(14,700)184 
Counterparty C71 (71)
Other counterparties42,100 (5,271)(35,832)997 
Total derivatives69,323 (11,111)(57,031)1,181 
Repurchase agreements2,068,147 (2,068,147)
Total$2,137,470 $(11,111)$(2,125,178)$1,181 
134

Table of Content
 
Gross Amount
Recognized
 
Gross Amount
Offset
 
Net Amount
Recognized
December 31, 2016     
Financial assets:     
Derivatives:     
Loan/lease interest rate swaps and caps$3,592
 $
 $3,592
Commodity swaps and options206
 
 206
Foreign currency forward contracts
 
 
Total derivatives3,798
 
 3,798
Resell agreements9,642
 
 9,642
Total$13,440
 $
 $13,440
Financial liabilities:     
Derivatives:     
Loan/lease interest rate swaps$26,744
 $
 $26,744
Commodity swaps and options5,757
 
 5,757
Foreign currency forward contracts33
 
 33
Total derivatives32,534
 
 32,534
Repurchase agreements963,317
 
 963,317
Total$995,851
 $
 $995,851
Information about financial instruments that are eligible for offset in the consolidated balance sheet as of December 31, 2019 is presented in the following tables.
Gross Amount
Recognized
Gross Amount
Offset
Net Amount
Recognized
December 31, 2019
Financial assets:
Derivatives:
Loan/lease interest rate swaps and caps$339 $$339 
Commodity swaps and options4,927 4,927 
Total derivatives5,266 5,266 
Resell agreements31,299 31,299 
Total$36,565 $$36,565 
Financial liabilities:
Derivatives:
Loan/lease interest rate swaps$19,621 $$19,621 
Commodity swaps and options6,986 6,986 
Foreign currency forward contracts33 33 
Total derivatives26,640 26,640 
Repurchase agreements1,668,142 1,668,142 
Total$1,694,782 $$1,694,782 
Gross Amounts Not Offset
Net Amount
Recognized
Financial
Instruments
CollateralNet
Amount
December 31, 2019
Financial assets:
Derivatives:
Counterparty A$39 $(39)$$
Counterparty B1,650 (1,650)
Counterparty C(1)
Other counterparties3,576 (3,546)30 
Total derivatives5,266 (5,236)30 
Resell agreements31,299 (31,299)
Total$36,565 $(5,236)$(31,299)$30 
Financial liabilities:
Derivatives:
Counterparty A$5,192 $(39)$(5,153)$
Counterparty B7,424 (1,650)(5,774)
Counterparty C135 (1)(134)
Other counterparties13,889 (3,546)(10,343)
Total derivatives26,640 (5,236)(21,404)
Repurchase agreements1,668,142 (1,668,142)
Total$1,694,782 $(5,236)$(1,689,546)$
135

Table of Content
   Gross Amounts Not Offset  
 
Net Amount
Recognized
 
Financial
Instruments
 Collateral 
Net
Amount
December 31, 2016       
Financial assets:       
Derivatives:       
Counterparty A$687
 $(687) $
 $
Counterparty B223
 (223) 
 
Counterparty C158
 (158) 
 
Counterparty D1,820
 (1,820) 
 
Other counterparties910
 (677) (64) 169
Total derivatives3,798
 (3,565) (64) 169
Resell agreements9,642
 
 (9,642) 
Total$13,440
 $(3,565) $(9,706) $169
Financial liabilities:       
Derivatives:       
Counterparty A$11,233
 $(687) $(10,026) $520
Counterparty B6,867
 (223) (6,344) 300
Counterparty C4,578
 (158) (4,415) 5
Counterparty D7,706
 (1,820) (5,886) 
Other counterparties2,150
 (677) (676) 797
Total derivatives32,534
 (3,565) (27,347) 1,622
Repurchase agreements963,317
 
 (963,317) 
Total$995,851
 $(3,565) $(990,664) $1,622

Repurchase Agreements. We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. We monitor collateral levels on a continuous basis. We may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.
The remaining contractual maturity of repurchase agreements in the consolidated balance sheets as of December 31, 20172020 and December 31, 20162019 is presented in the following tables.
Remaining Contractual Maturity of the Agreements
Overnight and ContinuousUp to 30 Days30-90 DaysGreater than 90 DaysTotal
December 31, 2020
Repurchase agreements:
U.S. Treasury$692,860 $$$$692,860 
Residential mortgage-backed securities1,375,287 1,375,287 
Total borrowings$2,068,147 $$$$2,068,147 
Gross amount of recognized liabilities for repurchase agreements$2,068,147 
Amounts related to agreements not included in offsetting disclosures above$
December 31, 2019
Repurchase agreements:
U.S. Treasury$435,904 $$$$435,904 
Residential mortgage-backed securities1,232,238 1,232,238 
Total borrowings$1,668,142 $$$$1,668,142 
Gross amount of recognized liabilities for repurchase agreements$1,668,142 
Amounts related to agreements not included in offsetting disclosures above$
 Remaining Contractual Maturity of the Agreements
 Overnight and Continuous Up to 30 Days 30-90 Days Greater than 90 Days Total
December 31, 2017         
Repurchase agreements:         
U.S. Treasury$1,036,891
 $
 $
 $
 $1,036,891
Residential mortgage-backed securities80,308
 
 
 
 80,308
Total borrowings$1,117,199
 $
 $
 $
 $1,117,199
Gross amount of recognized liabilities for repurchase agreements $1,117,199
Amounts related to agreements not included in offsetting disclosures above $
          
December 31, 2016         
Repurchase agreements:         
U.S. Treasury$841,475
 $
 $
 $
 $841,475
Residential mortgage-backed securities121,842
 
 
 
 121,842
Total borrowings$963,317
 $
 $
 $
 $963,317
Gross amount of recognized liabilities for repurchase agreements $963,317
Amounts related to agreements not included in offsetting disclosures above $
Note 17 - 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, we utilize 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 1 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.

136

Table of Content
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 our creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Our 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 our valuation 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 our 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, we obtain 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.
We review 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, we do not purchase investment portfolio securities that are esoteric or that have a complicated structure. Our 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, we 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. We obtain dealer quotations and utilize internally developed valuation models to value commodity swaps/options. We utilize 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, we would obtain price verification from a third-party dealer. We utilize internal valuation models with observable market data inputs to estimate fair values of customer interest rate swaps, caps and floors. We also obtain 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 our derivative positions, we evaluate the credit risk of our counterparties as well as ours. Accordingly, we have considered factors such as the likelihood of our default and the default of our counterparties, our 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. We review our counterparty exposure on a regular basis, and, when necessary, appropriate business actions are taken to adjust the exposure. We also utilize this approach to estimate our own credit risk on derivative liability positions. To date, we have not realized any significant losses due to a counterparty’s inability to pay any net uncollateralized
137

Table of Content
position. The change in value of derivative assets and derivative liabilities attributable to credit risk was not significant during the reported periods.

The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis as of December 31, 20172020 and 2016,2019, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
Level 1
Inputs
 
Level 2
Inputs
 
Level 3
Inputs
 
Total
Fair Value
2017       
20202020
Securities available for sale:       Securities available for sale:
U.S. Treasury$3,445,153
 $
 $
 $3,445,153
U.S. Treasury$1,119,633 $— $— $1,119,633 
Residential mortgage-backed securities
 665,086
 
 665,086
Residential mortgage-backed securities— 1,987,679 — 1,987,679 
States and political subdivisions
 6,336,209
 
 6,336,209
States and political subdivisions— 7,287,902 — 7,287,902 
Other
 42,561
 
 42,561
Other— 42,351 — 42,351 
Trading account securities:       Trading account securities:
U.S. Treasury19,210
 
 
 19,210
U.S. Treasury23,996 — — 23,996 
States and political subdivisions
 1,888
 
 1,888
States and political subdivisions— 460 — 460 
Derivative assets:       Derivative assets:
Interest rate swaps, caps and floors
 20,022
 
 20,022
Interest rate swaps, caps and floors— 85,665 — 85,665 
Commodity swaps and options
 14,408
 1,233
 15,641
Commodity swaps and options— 45,535 456 45,991 
Foreign currency forward contracts415
 
 
 415
Foreign currency forward contracts— — 
Derivative liabilities:       Derivative liabilities:
Interest rate swaps, caps and floors
 18,754
 
 18,754
Interest rate swaps, caps and floors— 35,187 — 35,187 
Commodity swaps and options
 15,327
 
 15,327
Commodity swaps and options— 45,099 — 45,099 
Foreign currency forward contracts239
 
 
 239
Foreign currency forward contracts— — 
2016       
20192019
Securities available for sale:       Securities available for sale:
U.S. Treasury$4,019,731
 $
 $
 $4,019,731
U.S. Treasury$1,948,133 $— $— $1,948,133 
Residential mortgage-backed securities
 785,167
 
 785,167
Residential mortgage-backed securities— 2,207,594 — 2,207,594 
States and political subdivisions
 5,355,885
 
 5,355,885
States and political subdivisions— 7,070,997 — 7,070,997 
Other
 42,494
 
 42,494
Other— 42,867 — 42,867 
Trading account securities:       Trading account securities:
U.S. Treasury16,594
 
 
 16,594
U.S. Treasury24,298 — — 24,298 
States and political subdivisions
 109
 
 109
Derivative assets:       Derivative assets:
Interest rate swaps, caps and floors
 29,059
 
 29,059
Interest rate swaps, caps and floors— 44,196 — 44,196 
Commodity swaps and options
 6,179
 
 6,179
Commodity swaps and options— 12,218 12,218 
Foreign currency forward contracts29
 
 
 29
Foreign currency forward contracts45 — — 45 
Derivative liabilities:       Derivative liabilities:
Interest rate swaps, caps and floors
 29,968
 
 29,968
Interest rate swaps, caps and floors— 20,197 — 20,197 
Commodity swaps and options
 5,963
 
 5,963
Commodity swaps and options— 11,677 — 11,677 
Foreign currency forward contracts33
 
 
 33
Foreign currency forward contracts33 — — 33 
Derivative assets, measured at fair value on a recurring basis using significant unobservable (Level 3) inputs during the reported periods consist of commodity swaps sold to loan customers. The significant unobservable (Level 3) inputs used in the fair value measurement of these commodity 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 3 – Loans) underlying the commodity 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 commodity 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, 2017, 2017,2020, the weighted-average risk grade of loans underlying commodity swaps measured at fair value using significant unobservable (Level 3) inputs was 12.0.14.0. The weighted-average loss severity in the event of default on the commodity swaps was 15.4%10.0%. 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.

138

Table of Content
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 of real estate collateral, or Level 3 inputs based on customized discounting criteria, typically in the case of non-real estate collateral such as inventory, oil and gas reserves, accounts receivable, equipment or other business assets. During the reported periods, all fair value measurements for impaired loans utilized Level 3 inputs.
The following table presents impaired loans that were remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for loancredit losses on loans based upon the fair value of the underlying collateral:
202020192018
Level 2
Carrying value of impaired loans before allocations$1,559 $2,354 $12,517 
Specific valuation allowance allocations(450)(383)(2,599)
Fair value$1,109 $1,971 $9,918 
Level 3
Carrying value of impaired loans before allocations$34,302 $65,176 $22,688 
Specific valuation allowance allocations(11,151)(18,019)9,260 
Fair value$23,151 $47,157 $31,948 
 2017 2016 2015
Carrying value of impaired loans before allocations$75,435
 $33,626
 $14,921
Specific valuation allowance allocations(19,533) (3,961) (2,765)
Fair value$55,902
 $29,665
 $12,156
Non-Financial Assets and Non-Financial Liabilities: We do not have any 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 loancredit losses on loans 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:
2017 2016 2015202020192018
Foreclosed assets remeasured at initial recognition:     Foreclosed assets remeasured at initial recognition:
Carrying value of foreclosed assets prior to remeasurement$279
 $756
 $1,102
Carrying value of foreclosed assets prior to remeasurement$$1,348 $2,899 
Charge-offs recognized in the allowance for loan losses
 (3) (169)
Charge-offs recognized in the allowance for credit losses on loansCharge-offs recognized in the allowance for credit losses on loans(76)
Fair value$279
 $753
 $933
Fair value$$1,272 $2,899 
Foreclosed assets remeasured subsequent to initial recognition:     Foreclosed assets remeasured subsequent to initial recognition:
Carrying value of foreclosed assets prior to remeasurement$89
 $492
 $205
Carrying value of foreclosed assets prior to remeasurement$328 $$1,823 
Write-downs included in other non-interest expense(16) (217) (36)Write-downs included in other non-interest expense(231)(473)
Fair value$73
 $275
 $169
Fair value$97 $$1,350 
Charge-offs recognized upon loan foreclosures are generally offset by general or specific allocations of the allowance for loancredit losses on loans and generally do not, and did not during the reported periods, significantly impact our provision for loan losses.credit loss expense. Regulatory guidelines require us to reevaluate the fair value of other real estate owned on at least an annual basis. While our policy is to comply with the regulatory guidelines, our general practice is to reevaluate the fair value of collateral supporting impaired collateral dependent loans on a quarterly basis. Thus, appraisals are generally not considered to be outdated, and we typically do not make any adjustments to the appraised values.

139

Table of Content
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:
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 our long-term relationships with depositors, commonly known as core deposit intangibles, which are separate intangible assets, and not considered financial instruments. Nonetheless, we would likely realize a core deposit premium if our 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. Our 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 our 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, 2017 December 31, 2016December 31, 2020December 31, 2019
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Financial assets:       Financial assets:
Level 2 inputs:       Level 2 inputs:
Cash and cash equivalents$5,053,047
 $5,053,047
 $4,141,445
 $4,141,445
Cash and cash equivalents$10,288,853 $10,288,853 $3,788,181 $3,788,181 
Securities held to maturity1,432,098
 1,455,791
 2,250,460
 2,262,747
Securities held to maturity1,945,673 2,052,896 2,030,005 2,048,675 
Cash surrender value of life insurance policies180,477
 180,477
 177,884
 177,884
Cash surrender value of life insurance policies189,984 189,984 187,156 187,156 
Accrued interest receivable167,508
 167,508
 156,714
 156,714
Accrued interest receivable181,432 181,432 183,850 183,850 
Level 3 inputs:       Level 3 inputs:
Loans, net12,990,301
 12,981,165
 11,822,347
 11,903,956
Loans, net17,218,132 17,390,683 14,618,165 14,654,615 
Financial liabilities:       Financial liabilities:
Level 2 inputs:       Level 2 inputs:
Deposits26,872,389
 26,866,676
 25,811,575
 25,812,039
Deposits35,015,761 35,018,185 27,639,564 27,641,255 
Federal funds purchased and repurchase agreements1,147,824
 1,147,824
 976,992
 976,992
Federal funds purchased and repurchase agreements2,116,997 2,116,997 1,695,342 1,695,342 
Junior subordinated deferrable interest debentures136,184
 137,115
 136,127
 137,115
Junior subordinated deferrable interest debentures136,357 137,115 136,299 137,115 
Subordinated notes payable and other borrowings98,552
 105,311
 99,990
 100,000
Subordinated notes payable and other borrowings99,021 115,717 98,865 89,077 
Accrued interest payable3,358
 3,358
 1,204
 1,204
Accrued interest payable8,127 8,127 12,393 12,393 
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, we had no financial instruments measured at fair value under the fair value measurement option.

140

Table of Content
Note 18 - Operating Segments
We are managed under a matrix organizational structure whereby our two2 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. We are 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 and Frost Insurance Agency and, prior to June 30, 2015, Frost Securities.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. Frost Securities, Inc. provided advisory and private equity services to middle market companies. The operations of Frost Securities were discontinued and the entity was closed effective June 30, 2015. The Frost Wealth Advisors operating segment includes fee-based services within private trust, retirement services, and financial management services, including personal wealth management and securities 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 our banking and non-banking subsidiaries and the issuance of debt and equity. Our principal source of revenue is dividends from our subsidiaries.
The accounting policies of each reportable segment are the same as those of our consolidated entity 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.
We use a match-funded transfer pricing process to assess operating segment performance. The process helps us 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.
Financial results by operating segment are detailed below. Certain prior period amounts have been reclassified to conform to the current presentation. Frost Wealth Advisors excludes off balance sheetoff-balance-sheet managed and custody assets with a total fair value of $32.8$38.6 billion, $29.3$37.8 billion and $30.7$33.3 billion at December 31, 2017, 20162020, 2019 and 2015.2018.
BankingFrost
Wealth
Advisors
Non-BanksConsolidated
2020
Net interest income (expense)$981,441 $2,776 $(8,216)$976,001 
Credit loss expense241,230 241,230 
Non-interest income321,136 145,268 (950)465,454 
Non-interest expense718,519 123,630 6,755 848,904 
Income (loss) before income taxes342,828 24,414 (15,921)351,321 
Income tax expense (benefit)20,347 5,127 (5,304)20,170 
Net income (loss)322,481 19,287 (10,617)331,151 
Preferred stock dividends2,016 2,016 
Redemption of preferred stock5,514 5,514 
Net income (loss) available to common shareholders$322,481 $19,287 $(18,147)$323,621 
Revenues from (expenses to) external customers$1,302,577 $148,044 $(9,166)$1,441,455 
Average assets (in millions)$37,892 $59 $10 $37,961 
141

Table of Content
BankingFrost
Wealth
Advisors
Non-BanksConsolidated
Banking 
Frost
Wealth
Advisors
 Non-Banks Consolidated
2017       
20192019
Net interest income (expense)$856,593
 $17,644
 $(7,815) $866,422
Net interest income (expense)$1,010,368 $4,001 $(10,364)$1,004,005 
Provision for loan losses35,460
 
 
 35,460
Credit loss expenseCredit loss expense33,758 33,759 
Non-interest income207,810
 128,819
 (159) 336,470
Non-interest income218,447 145,905 (450)363,902 
Non-interest expense644,072
 108,931
 6,066
 759,069
Non-interest expense703,121 124,622 6,936 834,679 
Income (loss) before income taxes384,871
 37,532
 (14,040) 408,363
Income (loss) before income taxes491,936 25,283 (17,750)499,469 
Income tax expense (benefit)37,837
 13,137
 (6,760) 44,214
Income tax expense (benefit)55,520 5,308 (4,958)55,870 
Net income (loss)347,034
 24,395
 (7,280) 364,149
Net income (loss)436,416 19,975 (12,792)443,599 
Preferred stock dividends
 
 8,063
 8,063
Preferred stock dividends8,063 8,063 
Net income (loss) available to common shareholders$347,034
 $24,395
 $(15,343) $356,086
Net income (loss) available to common shareholders$436,416 $19,975 $(20,855)$435,536 
Revenues from (expenses to) external customers$1,064,403
 $146,463
 $(7,974) $1,202,892
Revenues from (expenses to) external customers$1,228,815 $149,906 $(10,814)$1,367,907 
Average assets (in millions)$30,391
 $43
 $16
 $30,450
Average assets (in millions)$32,019 $56 $11 $32,086 
20182018
Net interest income (expense)Net interest income (expense)$963,757 $4,083 $(9,948)$957,892 
Credit loss expenseCredit loss expense21,685 21,685 
Non-interest incomeNon-interest income213,763 138,045 (522)351,286 
Non-interest expenseNon-interest expense657,376 114,166 7,270 778,812 
Income (loss) before income taxesIncome (loss) before income taxes498,459 27,962 (17,740)508,681 
Income tax expense (benefit)Income tax expense (benefit)52,928 5,872 (5,037)53,763 
Net income (loss)Net income (loss)445,531 22,090 (12,703)454,918 
Preferred stock dividendsPreferred stock dividends8,063 8,063 
Net income (loss) available to common shareholdersNet income (loss) available to common shareholders$445,531 $22,090 $(20,766)$446,855 
Revenues from (expenses to) external customersRevenues from (expenses to) external customers$1,177,520 $142,128 $(10,470)$1,309,178 
Average assets (in millions)Average assets (in millions)$30,964 $54 $12 $31,030 

 Banking 
Frost
Wealth
Advisors
 Non-Banks Consolidated
2016       
Net interest income (expense)$769,625
 $11,335
 $(4,624) $776,336
Provision for loan losses51,672
 1
 
 51,673
Non-interest income229,791
 120,102
 (185) 349,708
Non-interest expense624,396
 102,062
 6,502
 732,960
Income (loss) before income taxes323,348
 29,374
 (11,311) 341,411
Income tax expense (benefit)33,683
 10,281
 (6,814) 37,150
Net income (loss)289,665
 19,093
 (4,497) 304,261
Preferred stock dividends
 
 8,063
 8,063
Net income (loss) available to common shareholders$289,665
 $19,093
 $(12,560) $296,198
Revenues from (expenses to) external customers$999,416
 $131,437
 $(4,809) $1,126,044
Average assets (in millions)$28,795
 $34
 $3
 $28,832
        
2015       
Net interest income (expense)$732,671
 $7,634
 $(3,673) $736,632
Provision for loan losses51,848
 (3) 
 51,845
Non-interest income205,606
 121,489
 1,635
 328,730
Non-interest expense589,394
 98,405
 5,919
 693,718
Income (loss) before income taxes297,035
 30,721
 (7,957) 319,799
Income tax expense (benefit)34,997
 10,753
 (5,279) 40,471
Net income (loss)262,038
 19,968
 (2,678) 279,328
Preferred stock dividends
 
 8,063
 8,063
Net income (loss) available to common shareholders$262,038
 $19,968
 $(10,741) $271,265
Revenues from (expenses to) external customers$938,277
 $129,123
 $(2,038) $1,065,362
Average assets (in millions)$28,023
 $36
 $2
 $28,061
Note 19 - 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,
20202019
Assets:
Cash$381,240 $9,116 
Resell agreements258,000 
Total cash and cash equivalents381,240 267,116 
Investment in subsidiaries4,155,619 3,896,962 
Accrued interest receivable and other assets2,164 2,545 
Total assets$4,539,023 $4,166,623 
Liabilities:
Junior subordinated deferrable interest debentures, net of unamortized issuance costs$136,357 $136,299 
Subordinated notes, net of unamortized issuance costs99,021 98,865 
Accrued interest payable and other liabilities10,629 19,791 
Total liabilities246,007 254,955 
Shareholders’ Equity4,293,016 3,911,668 
Total liabilities and shareholders’ equity$4,539,023 $4,166,623 
142

 December 31,
 2017 2016
Assets:   
Cash$9,301
 $9,854
Resell agreements256,000
 279,270
Total cash and cash equivalents265,301
 289,124
Investment in subsidiaries3,274,921
 2,949,346
Accrued interest receivable and other assets3,006
 5,799
Total assets$3,543,228
 $3,244,269
Liabilities:   
Junior subordinated deferrable interest debentures, net of unamortized issuance costs$136,184
 $136,127
Subordinated notes, net of unamortized issuance costs98,552
 99,990
Accrued interest payable and other liabilities10,629
 5,624
Total liabilities245,365
 241,741
Shareholders’ Equity3,297,863
 3,002,528
Total liabilities and shareholders’ equity$3,543,228
 $3,244,269
Table of Content

Condensed Statements of Income
Year Ended December 31,Year Ended December 31,
2017 2016 2015202020192018
Income:     Income:
Dividend income paid by Frost Bank$149,671
 $141,377
 $126,375
Dividend income paid by Frost Bank$298,884 $234,531 $223,371 
Dividend income paid by non-banks915
 895
 1,830
Dividend income paid by non-banks736 1,822 953 
Interest and other income421
 33
 82
Interest and other income446 2,868 1,828 
Total income151,007
 142,305
 128,287
Total income300,066 239,221 226,152 
Expenses:     Expenses:
Interest expense7,815
 4,624
 3,673
Interest expense8,216 10,363 9,948 
Salaries and employee benefits1,202
 1,828
 1,376
Salaries and employee benefits1,581 1,551 1,973 
Other6,373
 5,933
 5,727
Other6,833 7,033 7,016 
Total expenses15,390
 12,385
 10,776
Total expenses16,630 18,947 18,937 
Income before income taxes and equity in undistributed earnings of subsidiaries135,617
 129,920
 117,511
Income before income taxes and equity in undistributed earnings of subsidiaries283,436 220,274 207,215 
Income tax benefit7,092
 7,015
 6,062
Income tax benefit5,406 5,135 5,218 
Equity in undistributed earnings of subsidiaries221,440
 167,326
 155,755
Equity in undistributed earnings of subsidiaries42,309 218,190 242,485 
Net income364,149
 304,261
 279,328
Net income331,151 443,599 454,918 
Preferred stock dividends8,063
 8,063
 8,063
Preferred stock dividends2,016 8,063 8,063 
Redemption of preferred stockRedemption of preferred stock5,514 
Net income available to common shareholders$356,086
 $296,198
 $271,265
Net income available to common shareholders$323,621 $435,536 $446,855 
Condensed Statements of Cash Flows
Year Ended December 31,
202020192018
Operating Activities:
Net income$331,151 $443,599 $454,918 
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries(42,309)(218,190)(242,485)
Stock-based compensation770 780 721 
Net tax benefit from stock-based compensation370 240 304 
Net change in other assets and other liabilities(8,937)22,216 (12,709)
Net cash from operating activities281,045 248,645 200,749 
Investing Activities:
Net cash from investing activities
Financing Activities:
Redemption of Series A preferred stock(150,000)
Proceeds from issuance of Series B preferred stock145,452 
Proceeds from stock option exercises12,557 20,770 31,647 
Proceeds from stock-based compensation activities of subsidiaries13,148 15,166 13,222 
Purchase of treasury stock(15,785)(68,793)(101,010)
Treasury stock issued to 401(k) stock purchase plan10,307 
Cash dividends paid on preferred stock(2,016)(8,063)(8,063)
Cash dividends paid on common stock(180,584)(177,006)(165,449)
Net cash from financing activities(166,921)(217,926)(229,653)
Net change in cash and cash equivalents114,124 30,719 (28,904)
Cash and cash equivalents at beginning of year267,116 236,397 265,301 
Cash and cash equivalents at end of year$381,240 $267,116 $236,397 
143
 Year Ended December 31,
 2017 2016 2015
Operating Activities:     
Net income$364,149
 $304,261
 $279,328
Adjustments to reconcile net income to net cash provided by operating activities:     
Equity in undistributed earnings of subsidiaries(221,440) (167,326) (155,755)
Stock-based compensation519
 520
 480
Net tax benefit from stock-based compensation318
 185
 161
Net change in other assets and other liabilities7,665
 (940) 2,460
Net cash from operating activities151,211
 136,700
 126,674
      
Investing Activities:     
Redemption of investment in Frost Securities, Inc.
 
 216
Net cash from investing activities
 
 216
      
Financing Activities:     
Proceeds from issuance of subordinated notes98,434
 
 
Principal payments on subordinated notes(100,000) 
 
Proceeds from stock option exercises67,746
 78,866
 14,853
Proceeds from stock-based compensation activities of subsidiaries12,494
 11,279
 12,257
Purchase of treasury stock(101,473) (1,290) (101,237)
Cash dividends paid on preferred stock(8,063) (8,063) (8,063)
Cash dividends paid on common stock(144,172) (134,902) (132,161)
Net cash from financing activities(175,034) (54,110) (214,351)
Net change in cash and cash equivalents(23,823) 82,590
 (87,461)
Cash and cash equivalents at beginning of year289,124
 206,534
 293,995
Cash and cash equivalents at end of year$265,301
 $289,124
 $206,534


Table of Content
Note 20 - Accounting Standards Updates
Accounting Standards Update (ASU)(“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. Our revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope ofWe adopted ASU 2014-09 and non-interest income. ASU 2014-09 will require us to change how we recognize certain recurring revenue streams within trust and investment management fees, insurance commissions and fees and other insignificant components of non-interest income; however, these changes will not have a significant impact on our financial statements. ASU 2014-09 will be effective for us on January 1, 2018 using a modified retrospective transition approach and will not have a significant impact on our financial statements.2018. See Note 1 - Summary of Significant Accounting Policies for additional information.
ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. ASU 2016-01 will bebecame effective for us on January 1, 2018 and willdid not have a significant impact on our financial statements.
ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 will, among other things, requirerequires lessees to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. We adopted ASU 2016-02, does not significantly changealong with several other subsequent codification updates related to lease accounting, requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 will be effective for us on January 1, 2019 and will require transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Notwithstanding the foregoing, in January 2018, the Financial Accounting Standards Board issued a proposal to provide an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognized a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We are currently evaluating the potential impact of ASU 2016-02 on our financial statements. In that regard, we have selected, and will soon implement, a third-party vendor solution to assist us in the application of ASU 2016-02.
ASU 2016-05,“Derivatives and Hedging (Topic 815) Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.” ASU 2016-05clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under ASC Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. ASU 2016-05 became effective for us on January 1, 2017 and did not have a significant impact on our financial statements.

ASU 2016-07, “Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.” ASU 2016-07 affects all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. ASU 2016-07 simplifies the transition to the equity method of accounting by eliminating retroactive adjustment of the investment when an investment qualifies for use of the equity method, among other things. ASU 2016-07 became effective for us on January 1, 2017 and did not have a significant impact on our financial statements.
ASU 2016-09,“Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” Under ASU 2016-09 all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provided that an entity make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP at the time) or account for forfeitures when they occur. ASU 2016-09 changed the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. We elected to adopt the provisions of ASU 2016-09 in 2016 in advance of the required application date of January 1, 2017.2019. See Note 1 - Summary of Significant Accounting Policies and Note 13 - Income Taxes.for additional information.
ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition,We adopted ASU 2016-13, amends the accountingas subsequently updated for credit losses on available-for-sale debt securitiescertain clarifications, targeted relief and purchased financial assets with credit deterioration. ASU 2016-13 will be effective oncodification improvements, as of January 1, 2020. We are currently evaluating the potential impact2020 and recognized a cumulative effect adjustment reducing retained earnings by $29.3 million. See Note 1 - Summary of ASU 2016-13 on our financial statements. In that regard, we have formed a cross-functional working group, under the direction of our Chief Financial Officer and our Chief Risk Officer. The working group is comprised of individuals from various functional areas including credit, risk management, finance and information technology, among others. We are currently developing an implementation plan to include assessment of processes, portfolio segmentation, model development, system requirements and the identification of data and resource needs, among other things. We are also currently evaluating selected third-party vendor solutions to assist us in the application of the ASU 2016-13. The adoption of ASU 2016-13 is likely to result in an increase in the allowanceSignificant Accounting Policies for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. Furthermore, ASU 2016-13 will necessitate that we establish an allowance for expected credit losses on debt securities. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan and securities portfolios as well as the prevailing economic conditions and forecasts as of the adoption date.additional information.
ASU 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 provides guidance related to certain cash flow issues in order to reduce the current and potential future diversity in practice. ASU 2016-15 will bebecame effective for us on January 1, 2018 and isdid not expected to have a significant impact on our financial statements.
ASU 2016-16, “Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory.” ASU 2016-16 provides guidance stating that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 will bebecame effective for us on January 1, 2018 and isdid not expected to have a significant impact on our financial statements.


144

Table of Content
ASU 2016-18, “Statement of Cash Flows (Topic 230) - Restricted Cash.” ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will bebecame effective for us on January 1, 2018 and isdid not expected to have a significant impact on our financial statements.
ASU 2017-01, “Business Combinations (Topic 805) - Clarifying the Definition of a Business.” ASU 2017-01 clarifies the definition and provides a more robust framework to use in determining when a set of assets and activities constitutes a business. ASU 2017-01 is intended to provide guidance when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 will bebecame effective for us on January 1, 2018 and isdid not expected to have a significant impact on our financial statements.
ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates Step 2 from the goodwill impairment test which required entities to compute the implied fair value of goodwill. Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 will bebecame effective for us on January 1, 2020 with earlier adoption permitted and isdid not expected to have a significant impact on our financial statements.
ASU 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) - Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” ASU 2017-05 clarifies the scope of Subtopic 610-20 and adds guidance for partial sales of nonfinancial assets, including partial sales of real estate. Historically, U.S. GAAP contained several different accounting models to evaluate whether the transfer of certain assets qualified for sale treatment. ASU 2017-05 reduces the number of potential accounting models that might apply and clarifies which model does apply in various circumstances. ASU 2017-05 will bebecame effective for us on January 1, 2018 and isdid not expected to have a significant impact on our financial statements.
ASU 2017-08,“Receivables “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities.” ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium to require such premiums to be amortized to the earliest call date unless applicable guidance related to certain pools of securities is applied to consider estimated prepayments. Under prior guidance, entities were generally required to amortize premiums on individual, non-pooled callable debt securities as a yield adjustment over the contractual life of the security. ASU 2017-08 does not change the accounting for callable debt securities held at a discount. We adopted ASU 2017-08 will be effective for us on January 1, 2019 with early adoption permitted. We are currently evaluating the potential impactand recognized a cumulative effect adjustment reducing retained earnings by $14.7 million. See Note 1 - Summary of ASU 2017-08 on our financial statements.Significant Accounting Policies for additional information.
ASU 2017-09, “Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting.” ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: (i) the award's fair value, (ii) the award's vesting conditions and (iii) the award's classification as an equity or liability instrument. ASU 2017-09 will bebecame effective for us on January 1, 2018 and isdid not expected to have a significant impact on our financial statements.
ASU 2017-12, “Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 amends the hedge accounting recognition and presentation requirements in ASC 815 to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities to better align the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting. ASU 2017-12 became effective for us on January 1, 2019 and did not have a significant impact on our financial statements.

145

Table of Content
ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” UnderASU 2018-02, entities may elect to reclassify certain income tax effects related to the change in the U.S. statutory federal income tax rate under the Tax Cuts and Jobs Act, which was enacted on December 22, 2017, from accumulated other comprehensive income to retained earnings. ASU 2018-02 also requires certain accounting policy disclosures. We elected to adopt the provisions of ASU 2018-02 as of January 1, 2018 in advance of the required application date of January 1, 2019. See Note 1 - Summary of Significant Accounting Policies for additional information.
ASU 2018-05, “Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 118.” ASU 2018-05 amends the Accounting Standards Codification to incorporate various SEC paragraphs pursuant to the issuance of SAB 118. SAB 118 addresses the application of generally accepted accounting principles in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act. See Note 13 - Income Taxes.
ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in this update remove disclosures that no longer are considered cost beneficial, modify/clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. ASU 2018-13 became effective for us on January 1, 2020 and did not have a significant impact on our financial statements.
ASU 2018-14, “Compensation - Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20).” ASU 2018-14 amends and modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The amendments in this update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. ASU 2018-14 will be effective for us on January 1, 20192021, with early adoption permitted, and is not expected to have a significant impact on our financial statements.

ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU 2018-15 clarifies certain aspects of ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” which was issued in April 2015. Specifically, ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 does not affect the accounting for the service element of a hosting arrangement that is a service contract. ASU 2018-15 became effective for us on January 1, 2020 and did not have a significant impact on our financial statements.
[THIS PAGE INTENTIONALLY LEFT BLANK]ASU 2018-16, “Derivatives and Hedging (Topic 815) - Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.” The amendments in this update permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct U.S. Treasury obligations, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate. ASU 2018-16 became effective for us on January 1, 2019 and did not have a significant impact on our financial statements.

ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.” The guidance issued in this update simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 will be effective for us on January 1, 2021, with early adoption permitted, and is not expected to have a significant impact on our financial statements.

146

Table of Content
ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. ASU 2020-04 was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2020-04 did not significantly impact our financial statements.
ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs.” ASU 2020-08 clarifies the accounting for the amortization of purchase premiums for callable debt securities with multiple call dates. ASU 2020-8 will be effective for us on January 1, 2021 and is not expected to have a significant impact on our financial statements.
ASU 2020-09, “Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762.” ASU 2020-9 amends the ASC to reflect the issuance of an SEC rule related to financial disclosure requirements for subsidiary issuers and guarantors of registered debt securities and affiliates whose securities are pledged as collateral for registered securities. ASU 2020-09 will be effective for us on January 4, 2021, concurrent with the effective date of the SEC release, and is not expected to have a significant impact on our financial statements.
ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” ASU 2021-01 clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU 2021-01 was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2021-01 did not significantly impact our financial statements.

147

Table of Content
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, Year Ended December 31,
  2017     2016    2020  2019 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Cost
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Cost
Average
Balance
Interest
Income/
Expense
Yield
/Cost
Average
Balance
Interest
Income/
Expense
Yield
/Cost
Assets:           Assets:      
Interest-bearing deposits$3,579,737
 $41,608
 1.16% $3,062,189
 $16,103
 0.53%Interest-bearing deposits$5,302,616 $12,893 0.24 %$1,616,896 $35,590 2.20 %
Federal funds sold and resell agreements73,140
 936
 1.28
 42,361
 272
 0.64
Federal funds sold and resell agreements99,740 895 0.90 245,613 5,524 2.25 
Securities:           Securities:     
Taxable4,892,827
 92,979
 1.92
 5,251,192
 103,025
 2.01
Taxable4,234,318 93,569 2.27 5,048,552 117,082 2.33 
Tax-exempt7,353,279
 391,730
 5.37
 6,806,448
 369,335
 5.57
Tax-exempt8,447,036 323,928 4.08 8,248,812 325,058 4.06 
Total securities12,246,106
 484,709
 3.99
 12,057,640
 472,360
 4.02
Total securities12,681,354 417,497 3.46 13,297,364 442,140 3.40 
Loans, net of unearned discount12,460,148
 542,703
 4.36
 11,554,823
 463,299
 4.01
Loans, net of unearned discount17,164,453 684,686 3.99 14,440,549 747,112 5.17 
Total earning assets and average rate earned28,359,131
 1,069,956
 3.79
 26,717,013
 952,034
 3.60
Total earning assets and average rate earned35,248,163 1,115,971 3.22 29,600,422 1,230,366 4.20 
Cash and due from banks505,611
     513,441
    Cash and due from banks527,875  503,929   
Allowance for loan losses(153,505)     (151,901)    
Allowance for credit lossesAllowance for credit losses(232,596) (135,928)  
Premises and equipment, net522,625
     562,875
    Premises and equipment, net1,043,789  876,442   
Accrued interest receivable and other assets1,216,345
     1,190,665
    Accrued interest receivable and other assets1,373,969  1,240,986   
Total assets$30,450,207
     $28,832,093
    Total assets$37,961,200  $32,085,851   
Liabilities:           Liabilities:     
Non-interest-bearing demand deposits:           Non-interest-bearing demand deposits:     
Commercial and individual$10,155,502
     $9,215,962
    Commercial and individual$12,782,723  $9,829,635   
Correspondent banks245,759
     310,445
    Correspondent banks243,856  213,442   
Public funds418,165
     507,912
    Public funds537,117  315,339   
Total non-interest-bearing demand deposits10,819,426
     10,034,319
    Total non-interest-bearing demand deposits13,563,696  10,358,416   
Interest-bearing deposits:           Interest-bearing deposits:     
Private accounts:           Private accounts:     
Savings and interest checking6,376,855
 1,303
 0.02
 5,745,385
 1,054
 0.02
Savings and interest checking7,782,352 1,337 0.02 6,777,473 4,650 0.07 
Money market deposit accounts7,502,494
 12,721
 0.17
 7,466,252
 4,673
 0.06
Money market deposit accounts8,387,903 15,196 0.18 7,738,654 71,584 0.93 
Time accounts775,940
 1,764
 0.23
 811,102
 1,331
 0.16
Time accounts1,120,060 13,955 1.25 989,907 16,298 1.65 
Public funds430,203
 1,400
 0.33
 454,786
 190
 0.04
Public funds584,261 1,530 0.26 548,827 7,210 1.31 
Total interest-bearing deposits15,085,492
 17,188
 0.11
 14,477,525
 7,248
 0.05
Total interest-bearing deposits17,874,576 32,018 0.18 16,054,861 99,742 0.62 
Total deposits25,904,918
     24,511,844
    Total deposits31,438,272  26,413,277   
Federal funds purchased and repurchase agreements978,571
 1,522
 0.16
 770,942
 204
 0.03
Federal funds purchased and repurchase agreements1,469,968 4,482 0.30 1,283,381 19,675 1.53 
Junior subordinated deferrable interest debentures136,157
 3,955
 2.90
 136,100
 3,281
 2.41
Junior subordinated deferrable interest debentures136,330 3,560 2.61 136,272 5,706 4.19 
Subordinated notes payable and other notes90,037
 3,860
 4.29
 99,933
 1,343
 1.34
Subordinated notes payable and other notes98,948 4,656 4.71 98,792 4,657 4.71 
Federal Home Loan Bank advances
 
 
 
 
 
Federal Home Loan Bank advances109,290 318 0.29 — — — 
Total interest-bearing liabilities and average rate paid16,290,257
 26,525
 0.16
 15,484,500
 12,076
 0.08
Total interest-bearing liabilities and average rate paid19,689,112 45,034 0.23 17,573,306 129,780 0.74 
Accrued interest payable and other liabilities167,260
     254,378
    Accrued interest payable and other liabilities669,755   452,090   
Total liabilities27,276,943
     25,773,197
    Total liabilities33,922,563   28,383,812   
Shareholders’ equity3,173,264
     3,058,896
    Shareholders’ equity4,038,637   3,702,039   
Total liabilities and shareholders’ equity$30,450,207
     $28,832,093
    Total liabilities and shareholders’ equity$37,961,200   $32,085,851   
Net interest income  $1,043,431
     $939,958
  Net interest income $1,070,937   $1,100,586  
Net interest spread    3.63%     3.52%Net interest spread  2.99 %  3.46 %
Net interest income to total average earning assets    3.69%     3.56%Net interest income to total average earning assets  3.09 %  3.75 %
For these computations: (i) average balances are presented on a daily average basis, (ii) information is shown on a taxable-equivalent basis assuming a 21% tax rate in 2020, 2019 and 2018 and a 35% tax rate for prior years, (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.

148

Table of Content




Year Ended December 31,
2018201720162015
Average
Balance
Interest
Income/
Expense
Yield
/Cost
Average
Balance
Interest
Income/
Expense
Yield
/Cost
Average
Balance
Interest
Income/
Expense
Yield
/Cost
Average
Balance
Interest
Income/
Expense
Yield
/Cost
$2,951,128 $56,968 1.93 %$3,579,737 $41,608 1.16 %$3,062,189 $16,103 0.53 %$3,047,515 $8,123 0.27 %
265,085 5,500 2.07 73,140 936 1.28 42,361 272 0.64 24,695 107 0.43 
          
4,222,688 86,370 2.03 4,892,827 92,979 1.92 5,251,192 103,025 2.01 5,438,973 112,601 2.11 
7,842,737 322,855 4.11 7,353,279 391,730 5.37 6,806,448 369,335 5.57 6,175,925 340,417 5.59 
12,065,425 409,225 3.38 12,246,106 484,709 3.99 12,057,640 472,360 4.02 11,614,898 453,018 3.97 
13,617,940 674,177 4.95 12,460,148 542,703 4.36 11,554,823 463,299 4.01 11,267,402 439,651 3.90 
28,899,578 1,145,870 3.96 28,359,131 1,069,956 3.79 26,717,013 952,034 3.60 25,954,510 900,899 3.50 
496,418  505,611  513,441   531,534   
(149,315)  (153,505) (151,901)  (107,799)  
536,056   522,625  562,875   513,624   
1,247,113   1,216,345  1,190,665   1,168,757   
$31,029,850   $30,450,207  $28,832,093   $28,060,626   
$10,164,396   $10,155,502  $9,215,962   $9,334,604   
205,727   245,759  310,445   353,766   
386,685   418,165  507,912   491,440   
10,756,808   10,819,426  10,034,319   10,179,810   
        
        
6,667,695 5,369 0.08 6,376,855 1,303 0.02 5,745,385 1,054 0.02 4,831,927 996 0.02 
7,645,624 59,175 0.77 7,502,494 12,721 0.17 7,466,252 4,673 0.06 7,715,890 6,418 0.08 
800,096 6,441 0.81 775,940 1,764 0.23 811,102 1,331 0.16 874,368 1,473 0.17 
418,843 4,352 1.04 430,203 1,400 0.33 454,786 190 0.04 438,763 137 0.03 
15,532,258 75,337 0.49 15,085,492 17,188 0.11 14,477,525 7,248 0.05 13,860,948 9,024 0.07 
26,289,066  25,904,918  24,511,844   24,040,758   
1,054,915 8,021 0.76 978,571 1,522 0.16 770,942 204 0.03 648,851 167 0.03 
136,215 5,291 3.88 136,157 3,955 2.90 136,100 3,281 2.41 136,042 2,725 2.00 
98,635 4,657 4.72 90,037 3,860 4.29 99,933 1,343 1.34 99,814 948 0.95 
— — — — — — — — — — — — 
16,822,023 93,306 0.55 16,290,257 26,525 0.16 15,484,500 12,076 0.08 14,745,655 12,864 0.09 
166,643   167,260   254,378   239,969   
27,745,474   27,276,943   25,773,197   25,165,434   
3,284,376   3,173,264   3,058,896   2,895,192   
$31,029,850   $30,450,207   $28,832,093   $28,060,626   
 $1,052,564   $1,043,431   $939,958   $888,035  
  3.41 %  3.63 %  3.52 %  3.41 %
  3.64 %  3.69 %  3.56 %  3.45 %
149
Year Ended December 31,
2015 2014 2013 2012
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Cost
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Cost
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Cost
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Cost
                       
$3,047,515
 $8,123
 0.27% $4,189,110
 $10,725
 0.26% $2,849,467
 $7,284
 0.26% $1,589,110
 $4,300
 0.27%
24,695
 107
 0.43
 19,683
 83
 0.42
 17,259
 82
 0.48
 25,364
 104
 0.41
 
  
    
  
    
  
  
  
  
  
5,438,973
 112,601
 2.11
 4,439,993
 93,087
 2.14
 5,276,574
 97,873
 1.90
 6,496,224
 132,432
 2.10
6,175,925
 340,417
 5.59
 4,929,665
 271,543
 5.58
 3,618,347
 206,442
 5.75
 2,448,191
 150,807
 6.68
11,614,898
 453,018
 3.97
 9,369,658
 364,630
 3.96
 8,894,921
 304,315
 3.48
 8,944,415
 283,239
 3.31
11,267,402
 439,651
 3.90
 10,299,025
 447,036
 4.34
 9,229,574
 421,114
 4.56
 8,456,818
 407,284
 4.82
25,954,510
 900,899
 3.50
 23,877,476
 822,474
 3.47
 20,991,221
 732,795
 3.52
 19,015,707
 694,927
 3.73
531,534
     554,439
     559,361
     573,023
    
(107,799)     (97,932)     (96,426)     (108,073)    
513,624
     363,790
     310,544
     321,137
    
1,168,757
     1,068,528
     985,722
     1,023,299
    
$28,060,626
     $25,766,301
     $22,750,422
     $20,825,093
    
                       
                       
$9,334,604
     $8,384,376
     $6,967,933
     $6,300,944
    
353,766
     351,803
     323,706
     332,136
    
491,440
     388,851
     366,135
     388,847
    
10,179,810
     9,125,030
     7,657,774
     7,021,927
    
       
  
    
  
  
  
  
  
       
  
    
  
  
  
  
  
4,831,927
 996
 0.02
 4,211,336
 924
 0.02
 3,608,273
 1,321
 0.04
 3,018,116
 1,618
 0.05
7,715,890
 6,418
 0.08
 7,342,967
 7,852
 0.11
 6,596,764
 10,091
 0.15
 5,834,822
 12,085
 0.21
874,368
 1,473
 0.17
 966,420
 2,053
 0.21
 970,984
 2,468
 0.25
 1,025,022
 3,783
 0.37
438,763
 137
 0.03
 407,006
 193
 0.05
 434,299
 579
 0.13
 392,213
 613
 0.16
13,860,948
 9,024
 0.07
 12,927,729
 11,022
 0.09
 11,610,320
 14,459
 0.12
 10,270,173
 18,099
 0.18
24,040,758
     22,052,759
     19,268,094
     17,292,100
    
648,851
 167
 0.03
 560,841
 134
 0.02
 538,656
 121
 0.02
 603,934
 140
 0.02
136,042
 2,725
 2.00
 130,477
 2,488
 1.89
 122,524
 6,426
 5.19
 122,466
 6,806
 5.50
99,814
 948
 0.95
 99,693
 893
 0.89
 99,573
 939
 0.94
 99,454
 1,705
 1.71

 
 
 
 
 
 1
 
 6.00
 16
 1
 6.00
14,745,655
 12,864
 0.09
 13,718,740
 14,537
 0.11
 12,371,074
 21,945
 0.18
 11,096,043
 26,751
 0.24
239,969
     210,305
     266,533
     334,378
    
25,165,434
     23,054,075
     20,295,381
     18,452,348
    
2,895,192
     2,712,226
     2,455,041
     2,372,745
    
$28,060,626
     $25,766,301
     $22,750,422
     $20,825,093
    
  $888,035
     $807,937
     $710,850
     $668,176
  
    3.41%     3.36%     3.34%     3.49%
    3.45%     3.41%     3.41%     3.59%


Table of Content
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 our management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our 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 our 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, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
The management of Cullen/Frost Bankers, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.
As of December 31, 2017,2020, management assessed the effectiveness of our 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”) of the Treadway Commission (“2013 framework”). Based on the assessment, management determined that we maintained effective internal control over financial reporting as of December 31, 2017,2020, based on those criteria.
Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2017.2020. The report, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2017,2020, 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 Shareholders and the Board of Directors of
Cullen/Frost Bankers, Incorporated


Inc.
Opinion on Internal Control over Financial Reporting
We have audited Cullen/Frost Bankers, Inc.’s internal control over financial reporting as of December 31, 2017,2020, 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). In our opinion, Cullen/Frost Bankers, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on allthe COSO criteria.
We also have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)(PCAOB), the consolidated balance sheets of the Company as of December 31, 20172020 and 2016,2019, 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, 2017,2020, and the related notes of the Company and our report dated February 7, 20185, 2021 expressed an unqualified opinion thereon.

150


Table of Content
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the 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 Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.

Definition and Limitations of Internal Control over Financial Reporting
A company’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.


cfr-20201231_g2.jpg
San Antonio, Texas
February 7, 20185, 2021
ITEM 9B. OTHER INFORMATION
None

151

Table of Contents
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 our Proxy Statement (Schedule 14A) for our 20182021 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to our Proxy Statement (Schedule 14A) for our 20182021 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our 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 our 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 our Proxy Statement (Schedule 14A) for our 20182021 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our 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 our Proxy Statement (Schedule 14A) for our 20182021 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated herein by reference to our Proxy Statement (Schedule 14A) for our 20182021 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end.

152

Table of Contents
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.
(a)The following documents are filed as part of this Annual Report on Form 10-K:
      Incorporated by Reference
Exhibit
Number
 Exhibit Description 
Filed
Herewith
 Form File No. Exhibit 
Filing
Date
             
3.1    10-Q 001-13221 3.1
 7/26/2006
3.2    8-K 001-13221 3.2
 1/28/2016
3.3    8-A 001-13221 3.3
 2/15/2013
4.1P* Instruments Defining the Rights of Holders of Long-Term Debt          
10.1+    10-K 001-13221 10.1
 3/31/1999
10.2P+ 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+  10-K 001-13221 10.13
 3/30/1995
10.4+  X        
10.5+  X        
10.6+  X        
10.7+    10-K 001-13221 10.11
 3/28/2003
10.8+    10-K 001-13221 10.12
 2/4/2005
10.9+   DEF 14A001-13221 Annex A
 3/20/2013
10.10+    S-8 333-143397 4.4
 5/31/2007
10.11+   DEF 14A001-13221 Annex A
 3/23/2015
10.12+   10-K011-13221 10.12
 2/3/2017
10.13  X        
10.14  X        
10.15  X        
21.1  X      
  
23.1  X      
  
24.1  X      
  
31.1  X      
  
31.2  X      
  
32.1++  X      
  
32.2++  X      
  
101 Interactive Data File X      
  
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
Number
Exhibit DescriptionFiled
Herewith
FormFile No.ExhibitFiling
Date
3.1 10-Q001-132213.1 7/26/2006
3.2 8-K001-132213.1 7/31/2020
3.38-A001-132213.311/19/2020
4.1X
4.2P(1)
Instruments Defining the Rights of Holders of Long-Term Debt
10.1(2)
10-K001-322110.1 2/6/2019
10.2(2)
10-K001-322110.2 2/6/2019
10.3(2)
10-K001-322110.3 2/6/2019
10.4(2)
10-K001-322110.7 2/6/2019
10.5(2)
10-K001-322110.8 2/6/2019
10.6(2)
DEF 14A001-13221Annex A3/20/2013
10.7(2)
S-8333-1433974.4 5/31/2007
10.8(2)
DEF 14A001-13221Annex A3/23/2015
10.9(2)
10-K001-1322110.12 2/3/2017
10.10(2)
10-Q001-1322110.1 7/30/2020
10.11(2)
10-K001-1322110.4 2/6/2019
10.12(2)
10-K001-1322110.12 2/4/2020
10.13(2)
10-K001-1322110.13 2/4/2020
21.1X
23.1X
24.1X
31.1X
31.2X
32.1(3)
X
32.2(3)
X
101.INS(4)
Inline XBRL Instance DocumentX
101.SCHInline XBRL Taxonomy Extension Schema DocumentX
101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentX
101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentX
101.LABInlineXBRL Taxonomy Extension Label Linkbase DocumentX
101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentX
104(5)
Cover Page Interactive Data File
_________________________
*We agree 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.
(1)We agree to furnish to the SEC, upon request, copies of any such instruments.
(2)Management contract or compensatory plan or arrangement.
(3)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.
(4)The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
(5)Formatted as Inline XBRL and contained within the Inline XBRL Instance Document in Exhibit 101.
(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.
153

Table of Contents
ITEM 16. FORM 10-K SUMMARY
None

154

Table of Contents
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, 2021CULLEN/FROST BANKERS, INC.
(Registrant)
Date:February 7, 2018CULLEN/FROST BANKERS, INC.
By:(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.
SignatureTitleDate
SignatureTitleDate
/s/  PHILLIP D. GREEN*Chairman of the Board, Director and Chief Executive Officer (Principal Executive Officer)February 7, 20185, 2021
Phillip D. Green
/s/  JERRY SALINASGroup Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)February 7, 20185, 2021
Jerry Salinas
/s/  R. DENNY ALEXANDER*DirectorFebruary 7, 2018
R. Denny Alexander
/s/  CARLOS ALVAREZ*DirectorFebruary 7, 2018
Carlos Alvarez
/s/  CHRIS AVERY*DirectorFebruary 7, 2018
Chris Avery
/s/ SAM DAWSON*DirectorFebruary 7, 2018
Sam Dawson
/s/ CRAWFORD H. EDWARDS*DirectorFebruary 7, 2018
Crawford H. Edwards
/s/  RUBEN M. ESCOBEDO*DirectorFebruary 7, 2018
Ruben M. Escobedo
/s/  PATRICK B. FROST*Director and President of Frost BankFebruary 7, 2018
Patrick B. Frost
/s/  DAVID J. HAEMISEGGER*DirectorFebruary 7, 2018
David J. Haemisegger
/s/  KAREN E. JENNINGS*DirectorFebruary 7, 2018
Karen E. Jennings
/s/  RICHARD M. KLEBERG, III*DirectorFebruary 7, 2018
Richard M. Kleberg, III
/s/  CHARLES W. MATTHEWS*DirectorFebruary 7, 2018
Charles W. Matthews
/s/  IDA CLEMENT STEEN*DirectorFebruary 7, 2018
Ida Clement Steen
/s/  GRAHAM WESTON*DirectorFebruary 7, 2018
Graham Weston
/s/  HORACE WILKINS, JR.*DirectorFebruary 7, 2018
Horace Wilkins, Jr.
/s/  CARLOS ALVAREZ*DirectorFebruary 5, 2021
Carlos Alvarez
/s/  CHRIS AVERY*DirectorFebruary 5, 2021
Chris Avery
/s/  ANTHONY R. CHASE*DirectorFebruary 5, 2021
Anthony R. Chase
/s/  CYNTHIA COMPARIN*DirectorFebruary 5, 2021
Cynthia Comparin
/s/  SAM DAWSON*DirectorFebruary 5, 2021
Sam Dawson
/s/  CRAWFORD H. EDWARDS*DirectorFebruary 5, 2021
Crawford H. Edwards
/s/  PATRICK B. FROST*Director and President of Frost BankFebruary 5, 2021
Patrick B. Frost
/s/  DAVID J. HAEMISEGGER*DirectorFebruary 5, 2021
David J. Haemisegger
/s/  KAREN E. JENNINGS*DirectorFebruary 5, 2021
Karen E. Jennings
/s/  CHARLES W. MATTHEWS*DirectorFebruary 5, 2021
Charles W. Matthews
/s/  IDA CLEMENT STEEN*DirectorFebruary 5, 2021
Ida Clement Steen
/s/  GRAHAM WESTON*DirectorFebruary 5, 2021
Graham Weston
*By: /s/  JERRY SALINASGroup Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)February 7, 20185, 2021
Jerry Salinas
As attorney-in-fact for the persons indicated

148155