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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended:    December 31, 20192022
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.)
111 W. Houston Street,San Antonio,Texas78205
(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:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 Par ValueCFRNew York Stock Exchange
5.375%Depositary Shares, each representing a 1/40th interest in a share of 4.450% Non-Cumulative Perpetual Preferred Stock, Series ABCFR.PRACFR.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      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  
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      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company,” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company


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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.  
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes      No  
As of June 30, 2019,2022, 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 $5.6$7.2 billion.
As of January 29, 2020,25, 2023, there were 62,677,15464,360,313 shares of the registrant’s common stock, $.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 20202023 Annual Meeting of Shareholders of Cullen/Frost Bankers, Inc. to be held on April 29, 202026, 2023 are incorporated by reference in this Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.


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CULLEN/FROST BANKERS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
 
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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, 2019,2022, Cullen/Frost had consolidated total assets of $34.0$52.9 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 11.2%5.4% of total loans at December 31, 2019,2022, 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 generallyWhile we are currently focused on organic growth, we may 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. From 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” elsewhere in this item for further discussion of these matters.
Cullen/Frost’s executive offices are located at 111 W. Houston Street, San Antonio, Texas 78205, and its telephone number is (210) 220-4011.

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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 142170 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 1,200approximately 1,729 automated-teller machines (“ATMs”) throughout the State of Texas, approximately halfthe majority of which are operated in connection with a branding arrangement to beand licensing agreements with various retailers throughout the exclusive cash-machine provider for a convenience store chain inState of 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, 2019,2022, Frost Bank had consolidated total assets of $34.1$53.0 billion and total deposits of $27.7$44.4 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 loans, first mortgage 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 168 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, 2022, the estimated fair value of trust assets was $43.6 billion, including managed assets of $21.4 billion and custody assets of $22.2 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.
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 184 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, 2019, the estimated fair value of trust assets was $37.8 billion, including managed assets of $16.4 billion and custody assets of $21.4 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 Trade Services. Frost Bank's Global Trade Services Division supports international business activities including foreign exchange, international letters of credit and export-import financing, among other things.
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.

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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”)II 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 entitiesentity 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 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 are 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 elsewhere in this report.

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, and financial/wealth technology (“fintech/wealthtech”) 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.

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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.
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. The annual dividend rate for larger member banks, with total assets in excess of $10 billion, including Frost Bank, is 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 $688$1.2 million in 2022, $532 thousand in 2019, $1.0 million in 20182021 and $807$313 thousand in 2017.2020.
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 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
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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“Prompt Corrective Action,” 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’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” 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” elsewhere in this item) and its compliance with law, including fair lending, fair housing and other consumer protection laws, and the effectiveness of the subject organizations in combating money laundering activities.
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 $682.9$813.6 million to Cullen/Frost, without obtaining affirmative governmental approvals, at December 31, 2019.2022. This amount is not necessarily indicative of amounts that may be paid or available to be paid in future periods.
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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.
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 prior approval or notice requirement under other regulations, policies or supervisory expectations of 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.
In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted. Among other things, the IRA imposes a new 1% excise tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S. corporations. With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.
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.
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.

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Capital Requirements
Cullen/Frost and Frost Bank are each required to comply with applicable capital adequacy standards establishedadopted by the Federal Reserve Board. In July 2013, the federal bank regulators approved final rulesBoard (the “Basel III Capital Rules”) implementing the Basel III framework set forth by the Basel Committee on Banking Supervision (the “Basel Committee”) as well as certain provisions of the Dodd-Frank Act.
Since fully phased in on January 1, 2019, the. 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 (resulting in a minimum ratio of CET1 to risk-weighted assets of 7.0%);
A minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (resulting in a minimum Tier 1 capital ratio of 8.5%);
A minimum ratio of total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted 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, four quarter trailingthe greater of (i) net income for the preceding four quarters, net of distributions and associated tax effects not reflected in net income)income and (ii) average net income over the preceding four quarters).
The Basel III Capital Rules and the Capital Simplification 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, exceeded 15% of CET1. The 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 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 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, CECL transitional amounts have been added back to CET1 totaling $46.2 million and $61.6 million at December 31, 2022 and 2021, respectively.
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
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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. In November 2019, the federal banking agencies adopted a rule revising the scope of commercial real estate mortgages subject to 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, 2022,2023, with an aggregate output floor phasing in through January 1, 2027.2028. 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
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. 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. Rules applicable to certain large banking organizations have been implemented for LCR and proposed for NSFR; however, based on our asset size, these rules do not currently apply to 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 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 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, theThe 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
Additionally, the FDIC may not pay an interest rate on any deposit in excess of 75 basis points over certain prevailing market rates.
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
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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, 2019,2022, 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.
The prompt corrective action regulations do not apply to bank holding companies. However, the Federal Reserve Board is authorized to take appropriate action at the bank holding company level, based upon the undercapitalized status of the bank holding company’s depository institution subsidiaries.
Safety and Soundness Standards
The FDIA requires the federal bank regulatory agencies to prescribe standards, by regulations or guidelines, relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, stock valuation and compensation, fees and benefits, and such other operational and managerial standards as the agencies deem appropriate. Guidelines adopted by the federal bank regulatory agencies establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal stockholder. In addition, the agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of the FDIA. See “Prompt Corrective Action” above. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties.

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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 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.
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.

In October 2022, the FDIC adopted a final rule to increase the initial base deposit insurance assessment rate schedules uniformly by 2 basis points beginning with the first quarterly assessment period of 2023. The increased assessment is expected to improve the likelihood that the DIF reserve ratio would reach the statutory minimum of 1.35% by the statutory deadline prescribed under the FDIC's amended restoration plan.
Enhanced Prudential Standards
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 and certain non-bank covered companies designated as systemically important by the Financial Stability Oversight 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 2019, the Federal Reserve Board adopted new rules impacting certain capital and liquidity requirements and other enhanced prudential standards. The final rules assign all domestic bank holding companies with $100 billion or more in total consolidated assets to one 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 establish risk committees. Prior to the amendment, the requirement to establish a risk committee was applicable to publicly traded bank holding companies with $10 billion or more in consolidated assets. Cullen/Frost has established and currently maintains a risk committee.
The Volcker Rule
The so-called Volcker Rule under the Dodd-Frank Act restricts 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 and the implementing regulations of which were amended in 2019 and are subject to further amendment expected in 2020, does not significantly impact the operations of Cullen/Frost and its subsidiaries as we do not have any 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.
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.
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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 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, laws relating to fair lending and the authority to prohibit “unfair, deceptive or abusive” acts and practices. Abusive acts or practices are defined as those that materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service or take unreasonable advantage of a consumer’s (i) lack of financial savvy, (ii) inability to protect himself in the selection or use of consumer financial products or services, or (iii) reasonable reliance on a covered entity to act in the consumer’s interests. The CFPB can issue cease-and-desist orders against banks and other entities that violate consumer financial laws. The CFPB may also institute a civil action against an entity in violation of federal consumer financial law in order to impose a civil penalty or injunction. The CFPB has examination and enforcement authority over all banks with more than $10 billion in assets, as well as their affiliates. Banking regulators take into account compliance with consumer protection laws when considering approval of a proposed transaction.
Community Reinvestment Act
The Community Reinvestment Act of 1977 (“CRA”) requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice. Under the CRA, each depository institution is required to help meet the credit needs of its market areas by, among other things, providing credit to low- and moderate-income individuals and communities. Depository institutions are periodically examined for compliance with the CRA and are assigned ratings. In order for a financial holding company to commence any new activity permitted by the BHC Act, or to acquire any company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the CRA. Furthermore, banking regulators take into account CRA ratings when considering a request for an approval of a proposed transaction. Frost Bank received a rating of “satisfactory” in its most recent CRA examination.
In December 2019,May 2022, the Federal Deposit Insurance Corporation (“FDIC”)Reserve Board, the FDIC and the Office of the Comptroller of the Currency (“OCC”) jointly proposed rulesissued a joint proposal that would, significantly change existing CRA regulations. The proposed rules are intendedamong other things (i) expand access to increase bank activitycredit, investment and basic banking services in low- and moderate-income communities, where there is significant need for credit, more responsible lending,(ii) adapt to changes in the banking industry, including internet
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and mobile banking, (iii) provide greater access to banking services,clarity, consistency 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;transparency in the application of the regulations and (iv) revising CRA-related data collection, record keeping,tailor performance standards to account for differences in bank size, business model, and reporting. However, the Federal Reserve Board has not joined the proposed rulemaking. As such, welocal conditions. 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.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 U.S. Department of the Treasury to promulgate priorities for anti-money laundering and countering the financing of terrorism policy; requires the development of standards for testing technology and internal processes for BSA compliance; expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations; and expands BSA whistleblower incentives and protections. Many of the statutory provisions in the AMLA will require additional rulemakings, reports and other measures, and the impact of the AMLA will depend on, among other things, rulemaking and implementation guidance. In June 2021, the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury, issued the priorities for anti-money laundering and countering the financing of terrorism policy required under the AMLA. The priorities include: corruption, cybercrime, terrorist financing, fraud, transnational crime, drug trafficking, human trafficking and proliferation financing.
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.
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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. 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.
In 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), but these proposeproposed rules have not been finalized.
Cybersecurity
In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicatesOctober 2022, the SEC adopted a final rule directing national securities exchanges and associations, including the NYSE, to implement listing standards that financial institutions should design multiple layersrequire listed companies to adopt policies mandating the recovery or “clawback” of security controlsexcess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to establish lines of defense andprepare an accounting restatement, including to ensurecorrect an error 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 thatwould result in 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 datamaterial misstatement if the error were corrected in the current period or left uncorrected in the current period. The final rule requires us to adopt a clawback policy within 60 days after such listing standard becomes effective.

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.Cybersecurity
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. In addition, in March 2022, the SEC proposed rules that would require disclosure of material cybersecurity incidents, as well as cybersecurity risk management, strategy and governance.
The federal banking regulators regularly issue new guidance and standards, and update existing guidance and standards, regarding cybersecurity intended to enhance cyber risk management among financial institutions. Financial institutions are expected to comply with such guidance and standards and to accordingly develop appropriate security controls and risk management processes. If we fail to observe such regulatory guidance or standards, we could be subject to various regulatory sanctions, including financial penalties.
Under a final rule adopted by federal banking agencies in November 2021, banking organizations are required to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver banking products and services to a material portion of its customer base, its businesses and operations that would result in material loss, or its operations that would impact the stability of the United States.
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. Manymany states, including Texas, have also recently implemented or modified their data breach notification, information security and data privacy requirements. We expect this trend of state-level activity
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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 significant compromise, significant 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 it is possible that we could experience a significant event in the future. Risks and exposures related to cybersecurity attacks, including litigation and enforcement risks, are expected to remain highbe elevated 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.
EmployeesHuman Capital Resources
At December 31, 2019,2022, we employed 4,6594,985 full-time equivalent employees. At that date, the average tenure of all of our full-time employees was approximately 9.9 years while the average tenure of our executive officers was approximately 31.3 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 our 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 and 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 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 in 2022.
Our 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 as well as that of their department and the company overall; and recognizing and respecting all of the characteristics 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
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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 2022, this amounted to approximately 14 thousand 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.
Information About Our Executive Officers
The names, ages as of December 31, 2019,2022, 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
6568Officer 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 since April 2016.
Patrick B. Frost

  Director of Cullen/Frost, President of
  Frost Bank,Frost; Group Executive
  Vice
President, Frost Wealth AdvisorsAdvisors;
  President
of Frost
Bank and President of
  Frost Insurance
5962Officer of Frost Bank since 1985. President of Frost Bank from August 1993 to present. Director of Cullen/Frost fromsince May 1997 to present.1997. Group Executive Vice President, Frost Wealth Advisors since April 2016. President of Frost Bank from April 2016 to present.since August 1993. President of Frost Insurance since October 2014.
Jerry Salinas

  Group Executive Vice President, Chief

  Financial Officer of Cullen/Frost
6164Officer 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 since January 2015.
Annette Alonzo

  Group Executive Vice President, Chief

  Human Resources Officer of Frost Bank
5154Officer 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 since April 2016.
Robert A. Berman

  Group Executive Vice President,

  Research and Strategy of Frost Bank
5760Officer of Frost Bank since January 1989. Group Executive Vice President, Research and Strategy of Frost Bank since May 2001.
Paul H. Bracher
  President of Cullen/Frost and Group
  Executive Vice President, Chief
  Banking Officer of Frost Bank
6366Officer 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 fromsince January 2015 to present.2015. President of Cullen/Frost since April 2016.
WilliamHoward L. Perotti
Kasanoff
  Group Executive Vice President, Chief

  Credit Officer of Frost Bank
6253Officer of Frost Bank since December 1982.June 1994. Group Executive Vice President, Chief Credit Officer since January 2023. Senior Executive Vice President, Director of Frost BankComplex Risk from May 2001October 2017 to January 2015.December 2022.
Coolidge E. Rhodes, Jr.
  Group Executive Vice President, Chief Risk Officer of Frost Bank from April 2005 to January 2019. Chief Credit General
  Counsel and Secretary
47Officer of Frost Bank since January 2019.
Carol Severyn
September 2021. Group Executive Vice President, General Counsel since September 2021 and Secretary since October 2021. Prior to joining Frost, Mr. Rhodes was most recently managing director and chief compliance officer at New Fortress Energy Inc. Mr. Rhodes also previously worked as a lawyer in private practice and as associate general counsel for a publicly traded oilfield services company.
Carol Severyn
  Group Executive Vice President,
Chief

  Risk Officer of Frost Bank
5558Officer of Frost Bank since December 1993. Executive Vice President and Auditor of Frost Bank from January 2004 to January 2019. Group Executive Vice President, Chief Risk Officer of Frost Bank since January 2019.
Jimmy Stead

  Group Executive Vice President, Chief

  Consumer Banking Officer of Frost Bank
4447Officer 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 since January 2017.
James L. Waters
Candace Wolfshohl
  Group Executive Vice President, General
  Counsel and Secretary of Cullen/Frost
53Officer 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
5962Officer 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 since July 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.

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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”). 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 and our technology 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 and preferred stock could decline significantly, and you could lose all or part of your investment.
Risks Related To Our Business
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, 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.
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, 2019, approximately 88.4% 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. Past increases in non-performing loans have resulted in a net loss of earnings from particular loans, an increase in the provision for loan losses 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.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, inflationary trends, changes in government spending and debt issuances 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. 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 elsewhere in this report for further discussion related to interest rate sensitivity and our management of interest rate risk.
We May Be Adversely Impacted By The Transition From LIBOR As A Reference Rate
In 2017, theThe United Kingdom’s Financial Conduct Authority and the administrator of LIBOR have announced that after 2021 it would no longer compel banks to submit the rates required to calculatepublication of the most commonly used U.S. dollar London Interbank Offered Rate (“LIBOR”). This announcement indicates that the continuation of LIBOR on the current basis cannot and settings will not be guaranteed after 2021. Consequently, at this time, it is not possible to predict whether and to what extent banks will continue to provide submissions for the calculation of LIBOR. Similarly, it is not possible to predict whether LIBOR will continuecease to be viewedpublished or cease to be representative after June 30, 2023. The publication of all other LIBOR settings ceased to be published as an acceptable marketof December 31, 2021. Given consumer protection, litigation, and reputation risks, the bank
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regulatory agencies 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 would examine bank practices accordingly. The Adjustable Interest Rate (LIBOR) Act, enacted in March 2022, provides a statutory framework to replace U.S. dollar LIBOR with a benchmark what rate or rates may become accepted alternatives to LIBOR, or what the effect of any such changes in views or alternatives may bebased 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., the Secured Overnight Financing Rate as(“SOFR”) for contracts governed by U.S. law that have no or ineffective fallbacks, and in December 2022, the recommended alternativeFederal Reserve Board adopted related implementing rules. Although governmental authorities have endeavored to U.S. Dollar LIBOR),facilitate an orderly discontinuation of LIBOR, no assurance can be provided that this aim will be achieved or that the use, level, and proposed implementationsvolatility of LIBOR or other interest rates or the value of LIBOR-based securities will not be adversely affected. As a result, and despite the enactment of the recommended alternativesLIBOR Act, for the most commonly used LIBOR settings, the use or selection of a successor rate could expose us to risks associated with disputes and litigation with our customers and counterparties and other market participants 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.connection with implementing LIBOR fallback provisions.
We havediscontinued originating LIBOR-based loans effective December 31, 2021 and are now negotiating loans using our preferred replacement index, AMERIBOR, a significant numberbenchmark developed by the American Financial Exchange, as well as SOFR and BSBY, a benchmark developed by Bloomberg Index Services.
As of December 31, 2022, approximately $1.4 billion of our outstanding loans, and, in addition, certain derivative contracts, borrowings and other financial instruments withhave attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR has resulted in and could create considerablecontinue to result in added costs and employee efforts and could present additional risk. We are subject to litigation and reputational risks if we are unable to renegotiate and amend existing contracts with counterparties that are dependent on LIBOR, including contracts that do not have fallback language. The timing and manner in which each customer’s contract transitions to AMERIBOR, SOFR or BSBY will vary on a case-by-case basis. There continues to be substantial uncertainty as to the ultimate effects of the LIBOR transition. Since proposed alternativeAMERIBOR, SOFR and BSBY rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR, which may lead to increased volatility as compared to LIBOR. The transition will changehas impacted our market risk profiles requiringand required changes to our 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, 2022, approximately 86.2% 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. Certain of our credit exposures are concentrated in industries that may be more susceptible to the long-term risks of climate change, natural disasters or global pandemics. To the extent that these risks may have a negative impact on the financial condition of borrowers, it could also 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.
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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, including the possibility of a recession, affecting borrowers and securities issuers; inflation; rising interest rates; new information regarding existing loans, credit commitments and securities holdings; the lingering effects of the COVID-19 pandemic or other global pandemics; natural disasters and risks related to climate change; 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 elsewhere in this report for further discussion related to our process for determining the appropriate level of the allowance for loancredit losses.
In addition, the adoption of Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” as amended, on January 1, 2020 will impact our methodology for estimating the allowance for loan losses. See Note 20 - Accounting Standards Updates in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this report.
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 99.7% 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 Are Subject To Volatility Risk In Crude Oil Prices
As of December 31, 2019, energy loans comprised approximately 11.2% 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 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. The price per barrel of crude oil was approximately $61 at December 31, 2019 up from $45 at December 31, 2018. 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 increased during 2019, 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 Are Subject to Risk Arising From Conditions In The Commercial Real Estate Market
As of December 31, 2019,2022, commercial real estate mortgage loans comprised approximately 31.1%36.0% of our loan 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. Commercial real estate prices, according to many U.S.particularly impacted by the economic disruption resulting from the COVID-19 pandemic. The COVID-19 pandemic has also been a catalyst for the evolution of various remote work options which could impact the long-term performance of some types of office properties within our commercial real estate indices, are currently above the 2007 peak levels that contributed to the financial crisis.portfolio. Accordingly, the federal banking regulatory agencies have expressed concerns about weaknesses in the current commercial real estate market. Our failure to have adequateFailures in our risk management policies, procedures and controls could adversely affect our ability to increasemanage 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, 2022, we had $925.7 million of energy loans which comprised approximately 5.4% 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. Actions by members of the Organization of Petroleum Exporting Countries (“OPEC”) can impact global crude oil production levels and lead to Risk Arising Fromsignificant volatility in global oil supplies and market oil prices. In recent years, 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
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production levels would rise and, when coupled with the uncertainties of the COVID-19 pandemic, led to a significant decline in market oil prices. As the global economy emerged from pandemic lockdowns in 2021, the demand for oil naturally increased and supply could not keep up with the sudden surge in demand. Consequently, oil prices began to rise. The Soundness Of Other Financial Institutions
Financial services institutions are interrelated as a resultcurrent Russian invasion of trading, clearing, counterparty, or other relationships.Ukraine has also impacted global oil supplies and caused further increases in oil prices. The price per barrel of crude oil was approximately $80 at December 31, 2022 up from $75 at December 31, 2021. We have exposureexperienced increased losses within our energy portfolio in recent years which were impacted by oil price volatility, relative to many different industriesour historical experience. Continued 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 counterparties,our borrowers and routinely execute transactions with counterparties incustomers.
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 financial services industry, including commercial banks, brokersordinary course of business, we foreclose on and dealers, investment banks,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 other institutional clients. Many of these transactions exposeproperty damage. Environmental laws may require us to credit risk inincur substantial expenses and may materially reduce the eventaffected property’s value or limit our ability to use or ability to sell the affected property. Environmental reviews of a default by a counterparty or client. In addition, our credit riskreal property before initiating foreclosure actions may not 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 lossesdetect 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.
We Operate In A Highly Competitive Industry and Market AreaLiquidity Risk
We face substantial competitionAre Subject To Liquidity Risk
We require liquidity to meet our deposit and debt obligations as they come due. Our access to funding sources in all areas ofamounts adequate to finance our operations from a variety of different competitors, many of whichactivities or on terms that are larger and may have more financial resources than us. Such competitors primarily include national, regional, and community banks withinacceptable to us could be impaired by factors that affect us specifically or the various markets where we operate. 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 or economy generally. Factors that could become even more competitive asreduce our access to liquidity sources include a resultdownturn 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 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.our depositors. In particular, the activitya substantial majority of financial technology companies (“fintechs”) has grown significantly over recent yearsour liabilities are demand, savings, interest checking and is expected to continue to grow. Fintechs have and may continue to offer bankmoney market deposits, which are payable on demand or bank-like products andupon several days’ notice, while by comparison, a numbersubstantial portion of fintechs have applied for bankour assets are loans, which cannot be called 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 resultsold 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 andsame time frame. We may have lower cost structures than us. Additionally, due to their size, many competitors maynot be able to achieve economies of scalereplace maturing deposits and advances as necessary in the future, especially if 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 alarge number of factors, including,our depositors sought to withdraw their accounts, regardless of the reason. Our access to deposits may be negatively impacted by, among other things:
The ability to develop, maintain and build long-term customer relationships based on top quality service, high ethical standards and safe, sound assets.
The ability to expand within our marketplace and with our market position.

The scope, relevance and pricingfactors, periods of products and services offered to meet customer needs and demands.
The rate at which we introduce new products and services relative to our competitors.
Customer satisfaction with our level of service.
Industry and general economic trends.
Failure to perform in any of these areas could significantly weaken our competitive position,low interest rates or higher interest rates which could adversely affect our growth and profitability, which, in turn,promote increased competition for deposits, including from new financial technology competitors, or provide customers with alternative investment options. A failure to maintain adequate liquidity could have a material adverse effect on our business, financial condition and results of operations.
We Are Subject To Extensive Government Regulation and Supervision and Related Enforcement Powers and Other Legal Remedies
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 changes to statutes, regulations or regulatory policies or supervisory guidance, including changes in interpretation or implementation of statutes, regulations, policies or supervisory guidance, could affect 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, other sanctions by regulatory agencies, civil money penalties and/or reputational damage. In this regard, government authorities, including the bank regulatory agencies, are pursuing aggressive enforcement actions with respect to compliance and other legal matters involving financial activities, which heightens the risks associated with actual and perceived compliance failures. 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 elsewhere in this report.Operational Risks
Our Accounting Estimates and Risk Management Processes Rely On Analytical and Forecasting Models
The processes we use to estimate our inherent loanexpected 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.implementation, including flaws caused by failures in controls, data management, human error or from the reliance on technology. 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 determiningestimating our probable loanexpected credit losses are inadequate, the allowance for loancredit 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.

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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 preparationTable 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. See Note 20 - Accounting Standards Updates in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this report for further information regarding pending accounting standards updates.Contents
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 offer 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 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 Our Goodwill and Other Intangible Assets May Decline In The Future
As of December 31, 2019,2022, we had $657.4$655.3 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. If we were to conclude that a future write-down of goodwill and other intangible assets is necessary, we would record the appropriate charge, 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, including fraud detection and 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 systemcontrols and procedures are met. Any failure or circumvention of our controls and procedures; failure to comply with regulations related to controls and procedures; andor 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, including subjecting us to litigation, regulatory fines, penalties or other sanctions. Furthermore, notwithstanding the proliferation of technology and technology-based risk and control systems, our businesses ultimately rely on people as our greatest resource, and we are subject to the risk that they make mistakes or engage in violations of applicable policies, laws, rules or procedures that in the past have not, and in the future may not always be prevented by our technological processes or by our controls and other procedures intended to prevent and detect such errors or violations. Human errors, malfeasance and other misconduct, 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 New ProductsServices and ServicesTechnological 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. For instance, we are currently implementing a new residential mortgage product offering. 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, automation 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, and/or 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, or 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 (i) lending practices, (ii) branching strategy, (iii) product and service offerings,
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(iv) corporate governance, (v) regulatory compliance, (vi) mergers and acquisitions, and(vii) disclosure, (viii) sharing or inadequate protection of customer information, (ix) successful or attempted cyber attacks against us, our customers or our third-party partners or vendors and (x) failure to discharge any publicly announced commitments to employees or environmental, social and governance initiatives or to respond adequately to social and sustainability concerns from the viewpoint of our stakeholders from actions taken by government regulators and community organizations in response to thatour conduct. Negative public opinion could also result from adverse news or publicity that impairs the reputation of the financial services industry generally.generally or from the actions of our employees, customers, affiliates or third parties with whom we do business. 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, inflation, taxes 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.creditors and depositors. 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, theft, misuse, loss, release 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. Any failures related to upgrades and maintenance of our technology and information systems could further increase our information and system security risk. Our increased use of cloud and other technologies, such as remote work technologies, also increases our risk of being subject to a cyber attack. 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.
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Our customers, employees and third parties that we do business with 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 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.
Although we make significant efforts to maintain the security and integrity of our information systems and have implemented various measures to manage the risks 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 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. Furthermore, in the event of a cyber attack, we may be delayed in identifying or responding to the attack, which could increase the negative impact of the cyber attack on our business, financial condition and results of operations. 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 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, enforcement actions, 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 failures, 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
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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 or in use by us and we are, and may in the future be, named as defendants in various related legal claims. 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.
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 have and in the future 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 substantially 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 primarily 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, 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, pandemics, natural disasters, climate change, 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 Are Subject to Risk 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
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realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to us. Increased interconnectivity amongst financial institutions also increases the risk of cyber attacks and information system failures for financial institutions. 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 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.
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. In particular, the activity of fintechs/wealthtechs has grown significantly over recent years and is expected to continue to grow. Some fintechs/wealthtechs are not subject to the same regulation as we are, which may allow them to be more competitive. Fintechs/wealthtechs have and may continue to offer bank or bank-like products and a number of such organizations have applied for bank or industrial loan charters while others have partnered with existing banks to allow them to offer deposit products to their customers. Increased competition from fintechs/wealthechs and the growth of digital banking may also lead to pricing pressures as competitors offer more low-fee and no-fee products.
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. In addition, the emergence, adoption and evolution of new technologies that do not require intermediation, including distributed ledgers such as digital assets and blockchain, as well as advances in robotic process automation, could significantly affect the competition for financial services. 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 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, (i) the ability to develop, maintain and build long-term customer relationships based on top quality service, high ethical standards and safe, sound assets; (ii) the ability to expand within our marketplace and with our market position; (iii) the scope, relevance and pricing of products and services offered to meet customer needs and demands; (iv) the rate at which we introduce new products and services relative to our competitors; (v) customer satisfaction with our level of service; 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 Related Enforcement Powers and Other Legal Remedies
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 shareholders. 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. Changes
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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, limit our ability to return capital to shareholders or conduct certain activities, 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, enforcement 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 elsewhere in this report.
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 offer interest on demand deposits to compete for customers. 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 customers, employees and 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 StockholderShareholder 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:
Potentialthings, (i) potential exposure to unknown or contingent liabilities of the target company.
Exposurecompany; (ii) exposure to potential asset quality issues of the target company.
Potentialcompany; (iii) potential disruption to our business.
Potentialbusiness; (iv) potential diversion of our management’s time and attention.
Theattention; (v) the possible loss of key employees and customers of the target company.
Difficultycompany; (vi) difficulty in estimating the value of the target company.
Potentialcompany; 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. Acquisitions may also result in potential dilution to existing shareholders of our earnings per share if we issue common stock in connection with the acquisition. Furthermore, failure to realize the expected revenue
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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 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.
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 many activities engaged in by us is 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.

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. As further discussed below, such customer and company data may be jeopardized from the compromise of customers’ personal electronic devices or as a result of a data security breach in our systems or the systems of third parties. Losses due to unauthorized account activity could harm our reputation and may have adverse effects on our business, financial condition and results of operations.
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.
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. 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' 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. Further, to access our products and services our customers use personal electronic devices that are beyond our security control systems. 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.
Cloud technologies are also critical to the operation of our systems, and our reliance on cloud technologies is growing. Service disruptions in cloud technologies may lead to delays in accessing, or the loss of, data that is important to our businesses and may hinder our clients’ access to our products and services.
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 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.
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. These can include calculation errors, mistakes in addressing emails, errors in software or model development or implementation, or simple errors in judgment, as well as intentional efforts to ignore or circumvent applicable policies, laws, rules or procedures. 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, a material adverse effect on our business, financial condition, results of operations and legal risks.
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.
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 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.
On the other hand, 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, which could also have a material adverse effect on our business, financial condition, results of operations and legal risks.
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.
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 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. 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 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.
Changes In The Federal, State Or Local Tax Laws May Negatively Impact Our Financial Performance
We are subject to changes in tax law that could increase our effective tax rates. These law changes may be retroactive to previous periods and as a result could negatively affect our current and future financial performance. Furthermore, the full impact of the Tax Cuts and Jobs Act, which was enacted on December 22, 2017, on us and our customers remains uncertain, creating uncertainty and risk related to our customers' future demand for credit and our future results. Increased economic activity expected to result from the decrease in federal income tax rates on businesses generally could spur additional economic activity that would encourage additional borrowing. At the same time, some customers may elect to use their additional cash flow from lower taxes to fund their existing levels of activity, decreasing borrowing needs. The elimination of the federal income tax deductibility of business interest expense for a significant number of our customers effectively increases the cost of borrowing and could make equity or hybrid funding relatively more attractive. This could have a long-term negative impact on business customer borrowing. There is no assurance that presently anticipated benefits of federal income tax reform for us will be realized.
We Are Subject To Examinations and Challenges By Tax Authorities
We are subject to federal and applicable state tax regulations. Such tax regulations are often complex and require interpretation and changes in these regulations could negatively impact our results of operations. 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.
Risks Associated With Our Common Stock
Our and Preferred 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.
The issuance by us of additional securities, including common stock and securities that are convertible into or exchangeable for, or that represent the right to receive, common stock.
Sales of a large block of shares of our common stock or similar securities in the market after an equity offering, or the perception that such sales could occur.
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 VolumeVolumes In Our Common Stock Isand Preferred Stock Are Less Than That Of Other Larger Financial Services Companies
Although our common stock isand preferred stock are listed for trading on the New York Stock Exchange (NYSE),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 and preferred 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 volumevolumes of our common stock and preferred stock, significant sales of our common stock or our preferred stock, or the expectation of these sales, could cause our stock priceprices 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 AB Preferred Stock.
An Investment In Our Common Stock or Preferred Stock Is Not An Insured Deposit
Our common stock isand preferred stock are not a bank depositdeposits and, therefore, isare not insured against loss by the Federal Deposit Insurance Corporation (FDIC)(“FDIC”), any other deposit insurance fund or by any other public or private entity. Investment in our common stock or preferred 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 or preferred stock in any company. As a result, if you acquire our common stock or preferred stock, you could lose some or all of your investment.
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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.

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. In addition, financial markets and global supply chains may be adversely affected by the current or anticipated impact of military conflict, including the current Russian invasion of Ukraine, terrorism or other geopolitical events. Current economic conditions are being heavily impacted by elevated levels of inflation and rising interest rates. A prolonged period of inflation may impact our profitability by negatively impacting our fixed costs and expenses. Economic and inflationary pressure on consumers and uncertainty regarding 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. Furthermore, evolving responses from federal and state governments and other regulators, and our customers or our third-party partners or vendors, to new challenges such as climate change have impacted and could continue to impact the economic and political conditions under which we operate which could have a material adverse effect on 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
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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.
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, (i) actual or anticipated variations in quarterly results of operations; (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 issues in the financial services industry; (v) perceptions in the marketplace regarding us and/or our competitors; (vi) new technology used, or services offered, by competitors; (vii) the issuance by us of additional securities, including common stock and 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 market 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 strength 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 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. See Note 20 - Accounting Standards Updates in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this report for 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 many activities engaged in by us is intense including with respect to compensation and emerging workplace practices, accommodations and remote work options, 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.
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Severe Weather, Natural Disasters, Acts Of War Or Terrorism and Other Adverse External Events Could Significantly Impact Our Business and Our Customers
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. Furthermore, 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 financial condition and results of operations.
Climate Change Could Have a Material Negative Impact on Us and Our Customers
Our business, as well as the operations and activities of our customers, could be negatively impacted by climate change. Climate change presents both immediate and long-term risks to us and our customers and these risks are expected to increase over time. Climate changes presents multi-faceted risks, including (i) operational risk from the physical effects of climate events on our facilities and other assets as well as those of our customers; (ii) credit risk from borrowers with significant exposure to climate risk; and (iii) reputational risk from stakeholder concerns about our practices related to climate change, our carbon footprint and our business relationships with customers who operate in carbon-intensive industries. Our business, reputation and ability to attract and retain employees may also be harmed if our response to climate change is perceived to be ineffective or insufficient.
Climate change exposes us to physical risk as its effects may lead to more frequent and more extreme weather events, such as prolonged droughts or flooding, tornados, hurricanes, wildfires and extreme seasonal weather; and longer-term shifts, such as increasing average temperatures, ozone depletion and rising sea levels. Such events and long-term shifts may damage, destroy or otherwise impact the value or productivity of our properties and other assets; reduce the availability of insurance; and/or disrupt our operations and other activities through prolonged outages. Such events and long-term shifts may also have a significant impact on our customers, which could amplify credit risk by diminishing borrowers’ repayment capacity or collateral values, and other businesses and counterparties with whom we transact, which could have a broader impact on the economy, supply chains and distribution networks.
Climate change also exposes us to transition risks associated with the transition to a less carbon-dependent economy. Transition risks may result from changes in policies; laws and regulations; technologies; and/or market preferences to address climate change. Such changes could materially, negatively impact our business, results of operations, financial condition and/or our reputation, in addition to having a similar impact on our customers. We have customers who operate in carbon-intensive industries like oil and gas that are exposed to climate risks, such as those risks related to the transition to a less carbon-dependent economy, as well as customers who operate in low-carbon industries that may be subject to risks associated with new technologies. Federal and state banking regulators and supervisory authorities, investors and other stakeholders have increasingly viewed financial institutions as important in helping to address the risks related to climate change both directly and with respect to their customers, which may result in financial institutions coming under increased pressure regarding the disclosure and management of their climate risks and related lending and investment activities. Given that climate change could impose systemic risks upon the financial sector, either via disruptions in economic activity resulting from the physical impacts of climate change or changes in policies as the economy transitions to a less carbon-intensive environment, we face regulatory risk of increasing focus on our resilience to climate-related risks, including in the context of stress testing for various climate stress scenarios. Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
Our headquarters is located in downtown San Antonio, Texas. These facilities,This facility, which we lease, househouses 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


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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Our Common Stock
Our common stock is traded on the New York Stock Exchange, Inc. (“NYSE”)NYSE under the symbol “CFR”. As of December 31, 2019,2022, there were 62,669,00464,354,695 shares of our common stock outstanding held by 1,1301,020 holders of record. The closing price per share of common stock on December 31, 2019,30, 2022, the last trading day of our fiscal year, was $97.78.$133.70.
Stock-Based Compensation Plans
Information regarding stock-based compensation awards outstanding and available for future grants as of December 31, 2019,2022, 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 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 shareholders1,340,956 (1)$71.27 (2)505,456 
Plans not approved by shareholders— — — 
Total1,340,956 71.27 505,456 
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 shareholders2,654,171
(1) 
$64.60
(2) 
1,105,616
Plans not approved by shareholders
 
 
Total2,654,171
 64.60
 1,105,616


(1)Includes 616,227 shares related to stock options, 465,319 shares related to non-vested stock units, 45,661 shares related to director deferred stock units and 213,749 shares related to performance stock units (assuming attainment of the maximum payout rate as set forth by the performance criteria).
(1)Includes 1,980,866 shares related to stock options, 440,647 shares related to non-vested stock units, 55,370 shares related to director deferred stock units and 177,288 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 July 24, 2019,January 25, 2023, our board of directors authorized a $100.0 million stock repurchase program,plan, allowing us to repurchase shares of our common stock over a one-year period from time to time at various prices in the open market or through private transactions. Under thisa prior stock repurchase plan, we repurchased 202,724177,834 shares at a total cost of $17.2$13.7 million during 2019. Under prior2020. No shares were repurchased under a stock repurchase programs, we repurchased 496,307 shares at a total cost of $50.0 millionplan during 2019, 1,027,292 shares at a total cost of $100.0 million during 2018 and 1,134,966 shares at a total cost of $100.0 million during 2017.2022 or 2021.
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 2019.2022.
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, 2022 to October 31, 202223,892 (1)$142.08 — $100,000 
November 1, 2022 to November 30, 2022— — — 100,000 
December 1, 2022 to December 31, 2022— — — 100,000 
Total23,892 — 
(1)Repurchases made in connection with the vesting of certain share awards.
34

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, 2019 to October 31, 2019 11,680
(1) 
$92.84
 
 $82,809
November 1, 2019 to November 30, 2019 
 
 
 82,809
December 1, 2019 to December 31, 2019 
 
 
 82,809
Total 11,680
   
 

Table of Contents
(1)Repurchases 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, 20142017 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.

chart-cad0ef7f20f35f24b05.jpgcfr-20221231_g1.jpg

201720182019202020212022
Cullen/Frost$100.00 $95.16 $109.05 $100.84 $149.44 $162.32 
S&P 500100.00 95.62 125.72 148.85 191.58 156.88 
S&P 500 Banks100.00 83.56 117.52 101.35 137.28 110.91 

 2014 2015 2016 2017 2018 2019
Cullen/Frost$100.00
 $87.56
 $133.10
 $146.31
 $139.22
 $159.54
S&P 500100.00
 101.38
 113.51
 138.29
 132.23
 173.86
S&P 500 Banks100.00
 100.85
 125.36
 153.64
 128.38
 180.55

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, 2019. 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. Beginning in 2018, a new accounting standard required us to report network costs associated with debit card and ATM transactions netted against the related interchange and debit card fee income from such transactions. Previously, such network costs were reported as a component of other non-interest expense. 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.[RESERVED]
35
 Year Ended December 31,
 2019 2018 2017 2016 2015
Consolidated Statements of Income         
Interest income:         
Loans, including fees$741,747
 $669,002
 $534,804
 $458,094
 $433,872
Securities350,924
 319,728
 315,599
 313,943
 307,394
Interest-bearing deposits35,590
 56,968
 41,608
 16,103
 8,123
Federal funds sold and resell agreements5,524
 5,500
 936
 272
 107
Total interest income1,133,785
 1,051,198
 892,947
 788,412
 749,496
Interest expense:         
Deposits99,742
 75,337
 17,188
 7,248
 9,024
Federal funds purchased and repurchase agreements19,675
 8,021
 1,522
 204
 167
Junior subordinated deferrable interest debentures5,706
 5,291
 3,955
 3,281
 2,725
Subordinated notes payable and other borrowings4,657
 4,657
 3,860
 1,343
 948
Total interest expense129,780
 93,306
 26,525
 12,076
 12,864
Net interest income1,004,005
 957,892
 866,422
 776,336
 736,632
Provision for loan losses33,759
 21,613
 35,460
 51,673
 51,845
Net interest income after provision for loan losses970,246
 936,279
 830,962
 724,663
 684,787
Non-interest income:         
Trust and investment management fees126,722
 119,391
 110,675
 104,240
 105,512
Service charges on deposit accounts88,983
 85,186
 84,182
 81,203
 81,350
Insurance commissions and fees52,345
 48,967
 46,169
 47,154
 48,926
Interchange and debit card transaction fees14,873
 13,877
 23,232
 21,369
 19,666
Other charges, commissions and fees37,123
 37,231
 39,931
 39,623
 37,551
Net gain (loss) on securities transactions293
 (156) (4,941) 14,975
 69
Other43,563
 46,790
 37,222
 41,144
 35,656
Total non-interest income363,902
 351,286
 336,470
 349,708
 328,730
Non-interest expense:         
Salaries and wages375,029
 350,312
 337,068
 318,665
 310,504
Employee benefits86,230
 77,323
 74,575
 72,615
 69,746
Net occupancy89,466
 76,788
 75,971
 71,627
 65,690
Technology, furniture and equipment91,995
 83,102
 74,335
 71,208
 64,373
Deposit insurance10,126
 16,397
 20,128
 17,428
 14,519
Intangible amortization1,168
 1,424
 1,703
 2,429
 3,325
Other180,665
 173,538
 175,289
 178,988
 165,561
Total non-interest expense834,679
 778,884
 759,069
 732,960
 693,718
Income before income taxes499,469
 508,681
 408,363
 341,411
 319,799
Income taxes55,870
 53,763
 44,214
 37,150
 40,471
Net income443,599
 454,918
 364,149
 304,261
 279,328
Preferred stock dividends8,063
 8,063
 8,063
 8,063
 8,063
Net income available to common shareholders$435,536
 $446,855
 $356,086
 $296,198
 $271,265


 As of or for the Year Ended December 31,
 2019 2018 2017 2016 2015
Per Common Share Data         
Net income - basic$6.89
 $6.97
 $5.56
 $4.73
 $4.31
Net income - diluted6.84
 6.90
 5.51
 4.70
 4.28
Cash dividends declared and paid2.80
 2.58
 2.25
 2.15
 2.10
Book value60.11
 51.19
 49.68
 45.03
 44.30
Common Shares Outstanding         
Period-end62,669
 62,986
 63,476
 63,474
 61,982
Weighted-average shares - basic62,742
 63,705
 63,694
 62,376
 62,758
Dilutive effect of stock compensation700
 982
 968
 593
 715
Weighted - average shares - diluted63,442
 64,687
 64,662
 62,969
 63,473
Performance Ratios         
Return on average assets1.36% 1.44% 1.17% 1.03% 0.97%
Return on average common equity12.24
 14.23
 11.76
 10.16
 9.86
Net interest income to average earning assets3.75
 3.64
 3.69
 3.56
 3.45
Dividend pay-out ratio40.64
 37.03
 40.49
 45.54
 48.72
Balance Sheet Data         
Period-end:         
Loans$14,750,332
 $14,099,733
 $13,145,665
 $11,975,392
 $11,486,531
Earning assets31,280,550
 29,894,185
 29,595,375
 28,025,439
 26,431,176
Total assets34,027,428
 32,292,966
 31,747,880
 30,196,319
 28,565,942
Non-interest-bearing demand deposits10,873,629
 10,997,494
 11,197,093
 10,513,369
 10,270,233
Interest-bearing deposits16,765,935
 16,151,710
 15,675,296
 15,298,206
 14,073,362
Total deposits27,639,564
 27,149,204
 26,872,389
 25,811,575
 24,343,595
Long-term debt and other borrowings235,164
 234,950
 234,736
 236,117
 235,939
Shareholders’ equity3,911,668
 3,368,917
 3,297,863
 3,002,528
 2,890,343
Average:         
Loans$14,440,549
 $13,617,940
 $12,460,148
 $11,554,823
 $11,267,402
Earning assets29,600,422
 28,899,578
 28,359,131
 26,717,013
 25,954,510
Total assets32,085,851
 31,029,850
 30,450,207
 28,832,093
 28,060,626
Non-interest-bearing demand deposits10,358,416
 10,756,808
 10,819,426
 10,034,319
 10,179,810
Interest-bearing deposits16,054,861
 15,532,258
 15,085,492
 14,477,525
 13,860,948
Total deposits26,413,277
 26,289,066
 25,904,918
 24,511,844
 24,040,758
Long-term debt and other borrowings235,064
 234,850
 226,194
 236,033
 235,856
Shareholders’ equity3,702,039
 3,284,376
 3,173,264
 3,058,896
 2,895,192
Asset Quality         
Allowance for loan losses$132,167
 $132,132
 $155,364
 $153,045
 $135,859
Allowance for losses to year-end loans0.90% 0.94% 1.18% 1.28% 1.18%
Net loan charge-offs$33,724
 $44,845
 $33,141
 $34,487
 $15,528
Net loan charge-offs to average loans0.23% 0.33% 0.27% 0.30% 0.14%
Non-performing assets$109,485
 $74,914
 $157,292
 $102,591
 $85,722
Non-performing assets to:         
Total loans plus foreclosed assets0.74% 0.53% 1.20% 0.86% 0.75%
Total assets0.32
 0.23
 0.50
 0.34
 0.30
Consolidated Capital Ratios








Common equity tier 1 risk-based ratio12.36% 12.27% 12.42% 12.52% 11.37%
Tier 1 risk-based ratio12.99

12.94

13.16
 13.33
 12.38
Total risk-based ratio14.57

14.64

15.15
 14.93
 13.85
Leverage ratio9.28

9.06

8.46
 8.14
 7.79
Average shareholders’ equity to average total assets11.54
 10.58
 10.42
 10.61
 10.32

The following tables set forth unaudited consolidated selected quarterly statement of operations data for the years ended December 31, 2019 and 2018. Dollar amounts are in thousands, except per share data.
 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
Provision for loan losses8,355
 8,001
 6,400
 11,003
Non-interest income(1)
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
 Year Ended December 31, 2018
 
4th
Quarter
 
3rd
Quarter
 
2nd
Quarter
 
1st
Quarter
Interest income$281,205
 $268,716
 $257,951
 $243,326
Interest expense31,996
 27,051
 20,681
 13,578
Net interest income249,209
 241,665
 237,270
 229,748
Provision for loan losses3,767
 2,650
 8,251
 6,945
Non-interest income(2)
87,118
 87,657
 85,066
 91,445
Non-interest expense199,697
 193,668
 188,908
 196,611
Income before income taxes132,863
 133,004
 125,177
 117,637
Income taxes13,610
 15,160
 13,836
 11,157
Net income119,253
 117,844
 111,341
 106,480
Preferred stock dividends2,016
 2,016
 2,015
 2,016
Net income available to common shareholders$117,237
 $115,828
 $109,326
 $104,464
Net income per common share:       
Basic$1.84
 $1.80
 $1.70
 $1.63
Diluted1.82
 1.78
 1.68
 1.61
(1)Includes net gains on securities transactions of $169 thousand, $96 thousand and $28 thousand during the second, third and fourth quarters of 2019, respectively.
(2)Includes net losses on securities transactions of $19 thousand, $60 thousand, $34 thousand and $43 thousand during the first, second, third and fourth quarters of 2018, respectively.


ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements and Factors that Could Affect Future Results
Certain statements contained in this Annual Report on Form 10-K that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in 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 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:
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.
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 interventionChanges in the U.S. financial system.performance and/or condition of our borrowers.
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 credit loss reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements.
The effects of and changesChanges in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board.our liquidity position.
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, borrowingsborrowing and savingssaving habits.
Changes inGreater than expected costs or difficulties related to the financial performance and/or conditionintegration of our borrowers.new products and lines of business.
Technological changes.
The cost and effects of failure, interruption,cyber incidents or breach ofother failures, interruptions or security breaches of our systems.systems or those of our customers or third-party providers.
Acquisitions and integration of acquired businesses.
Changes in the reliability of our vendors, internal control systems or information systems.
Our ability to increase market share and control expenses.
Our ability to attract and retain qualified employees.
Changes in our organization, compensation and benefit plans.
The soundness of other financial institutions.
Volatility and disruption in national and international financial and commodity markets.
Changes in the competitive environment in our markets and among banking organizations and other financial service providers.
Government intervention in the U.S. financial system.
Political instability.
Acts of God or of war or terrorism.
The potential impact of climate change.
The impact of pandemics, epidemics or any other health-related crisis.
36

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.
The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) and their application with which we and our subsidiaries must comply.
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.
Changes in our organization, compensation and benefit plans.

The costs and effects of legal and regulatory developments, the resolution of legal proceedings or regulatory or other governmental inquiries, the results of regulatory examinations or reviews and the ability to obtain required regulatory approvals.
Greater than expected costs or difficulties related to the integration of new products and lines of business.
Our success at managing the risks involved in the foregoing items.
In addition, financial markets and global supply chains may continue to be adversely affected by the current or anticipated impact of military conflict, including the current Russian invasion of Ukraine, terrorism or other geopolitical events.
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.
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 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.
37

Overview
The following discussion and analysis presents the more significant factors that affected our financial condition as of December 31, 20192022 and 20182021 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 SEC on February 6, 20194, 2021 (the 2021 Form 10-K2018 Form 10-K) for a discussion and analysis of the more significant factors that affected periods prior to 2018.2021.
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. From time to time, we have acquired various small businesses through our insurance subsidiary. None of these acquisitions had a significant impact on our financial 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, thus making tax-exempt yields comparable to

taxable asset yields. Taxable equivalent adjustments were based upon a 21% income tax in 2019 and 2018 and a 35% income tax rate for prior years.rate.
Dollar amounts in tables are stated in thousands, except for per share amounts.
Results of Operations
Net income available to common shareholders totaled $435.5$572.5 million, or $6.84$8.81 diluted per common share, in 20192022 compared to $446.9$435.9 million, or $6.90$6.76 diluted per common share, in 20182021 and $356.1$323.6 million, or $5.51$5.10 diluted per common share, in 2017.2020.
Selected income statement data, returns on average assets and average equity and dividends per share for the comparable periods were as follows:
2019 2018 2017202220212020
Taxable-equivalent net interest income$1,100,586
 $1,052,564
 $1,043,431
Taxable-equivalent net interest income$1,386,981 $1,077,315 $1,070,937 
Taxable-equivalent adjustment96,581
 94,672
 177,009
Taxable-equivalent adjustment95,698 92,448 94,936 
Net interest income1,004,005
 957,892
 866,422
Net interest income1,291,283 984,867 976,001 
Provision for loan losses33,759
 21,613
 35,460
Credit loss expenseCredit loss expense3,000 63 241,230 
Non-interest income363,902
 351,286
 336,470
Non-interest income404,818 386,728 465,454 
Non-interest expense834,679
 778,884
 759,069
Non-interest expense1,024,274 881,994 848,904 
Income before income taxes499,469
 508,681
 408,363
Income before income taxes668,827 489,538 351,321 
Income taxes55,870
 53,763
 44,214
Income tax expenseIncome tax expense89,677 46,459 20,170 
Net income443,599
 454,918
 364,149
Net income579,150 443,079 331,151 
Preferred stock dividends8,063
 8,063
 8,063
Preferred stock dividends6,675 7,157 2,016 
Redemption of preferred stockRedemption of preferred stock— — 5,514 
Net income available to common shareholders$435,536
 $446,855
 $356,086
Net income available to common shareholders$572,475 $435,922 $323,621 
Earnings per common share - basic$6.89
 $6.97
 $5.56
Earnings per common share - basic$8.84 $6.79 $5.11 
Earnings per common share - diluted6.84
 6.90
 5.51
Earnings per common share - diluted8.81 6.76 5.10 
Dividends per common share2.80
 2.58
 2.25
Dividends per common share3.24 2.94 2.85 
Return on average assets1.36% 1.44% 1.17%Return on average assets1.11 %0.95 %0.85 %
Return on average common equity12.24
 14.23
 11.76
Return on average common equity16.86 10.35 8.11 
Average shareholders' equity to average assets11.54
 10.58
 10.42
Average shareholders' equity to average assets6.87 9.48 10.64 
Net income available to common shareholders decreased $11.3increased $136.6 million for 20192022 compared to 2018.2021. The decreaseincrease was primarily the result of a $55.8 million increase in non-interest expense, a $12.1 million increase in the provision for loan losses and a $2.1 million increase in income tax expense partly offset by a $46.1$306.4 million increase in net interest income and a $12.6$18.1 million increase in non-interest income.income partly offset by a $142.3 million increase in non-interest expense and a $43.2 million increase in income tax expense.
Details of the changes in the various components of net income are further discussed below.

38

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 73.4%76.1% of total revenue during 2019.2022. 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 primeAs of December 31, 2022, approximately 42.7% of our loans had a fixed interest rate, began 2017 at 3.75% and increased 75 basis points (25 basis points in each of March, June and December)while the remaining loans had floating interest rates that were primarily tied to end the year at 4.50%. During 2018, the prime interest rate increased 100 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 end the year at 4.75%. Our loan portfolio is also significantly impacted, by changes in(approximately 27.7%) or the London Interbank Offered Rate (LIBOR)(“LIBOR”) (approximately 8.2%). AtWe discontinued originating LIBOR-based loans effective December 31, 2019,2021 and have begun to negotiate loans using our preferred replacement index, the one-month and three-month U.S. dollar LIBOR rates were 1.76% and 1.90%American Interbank Offered Rate (“AMERIBOR”), respectively, while ata benchmark developed by the American Financial Exchange, the Secured Overnight Financing Rate (“SOFR”) or a benchmark developed by Bloomberg Index Services (“BSBY”). As of December 31, 2018,2022, approximately, 21.4% of our loans were tied to one of these three indexes. For our currently outstanding LIBOR-based loans, the one-monthtiming and three-month U.S. dollarmanner in which each customer’s contract transitions from LIBOR to another rate will vary on a case-by-case basis. Our goal is to complete all transitions by the end of first quarter of 2023.
Select average market rates were 2.50%for the periods indicated are presented in the table below.
202220212020
Federal funds target rate upper bound1.87 %0.25 %0.54 %
Effective federal funds rate1.69 0.08 0.37 
Interest on reserve balances1.76 0.13 0.39 
Prime4.86 3.25 3.54 
1-Month LIBOR1.91 0.10 0.52 
3-Month LIBOR2.39 0.16 0.65 
AMERIBOR Term-30(1)
1.79 0.11 0.54 
AMERIBOR Term-90(1)
2.33 0.17 0.68 
1-Month Term SOFR(2)
1.86 0.04 0.35 
3-Month Term SOFR(2)
2.18 0.05 0.34 
Bloomberg 1-Month Short-Term Bank Yield Index1.81 0.07 0.50 
Bloomberg 3-Month Short-Term Bank Yield Index2.29 0.13 0.59 
____________________
(1)AMERIBOR Term-30 and 2.81% respectively,AMERIBOR Term-90 are published by the American Financial Exchange.
(2)1-Month Term SOFR and at3-Month Term SOFR market data are the property of Chicago Mercantile Exchange, Inc. or its licensors as applicable. All rights reserved, or otherwise licensed by Chicago Mercantile Exchange, Inc.
As of December 31, 2017,2022, the one-month and three-month U.S. dollar LIBOR rates were 1.56%

and 1.69% respectively. The effectivetarget range for the federal funds rate which iswas 4.25% to 4.50%. In December 2022, the costFederal Reserve released projections whereby the midpoint of immediately available overnight funds, started 2017 at 0.75% and increased 75 basis points (25 basis points in each of March, June and December) to end the year at 1.50%. During 2018,projected appropriate target range for the effective federal funds rate increased 100 basis points (25 basis pointswould rise to 5.1% by the end of 2023 and subsequently decrease to 4.1% by the end of 2024. While there can be no such assurance that any increases or decreases in each of March, June, September and December) to end the year at 2.50%. During 2019, the effective federal funds rate decreased 50will occur, these projections imply up to a 75 basis pointspoint increase in the federal funds rate during 2023, followed by a 100 basis point decrease in 2024. The target range for the third quarter of 2019 (25 basis points in each of August and September) andfederal funds rate was increased 25 basis points in October 2019 to end the year at 1.75%.4.50% to 4.75% effective February 2, 2023.
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. Federal prohibitions on the payment of interest on demand deposits were repealed in 2011. Nonetheless, we have not experienced any significant additional 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.
39

The following table presents an analysis of net interest income and net interest spread for the periods indicated, including average outstanding balances for each major category of interest-earning assets and interest-bearing liabilities, the interest earned or paid on such amounts, and the average rate earned or paid on such assets or liabilities, respectively. The table also sets forth the net interest margin on average total interest-earning assets for the same periods. 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, (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.
 202220212020
 Average
Balance
Interest
Income/
Expense
Yield
/Cost
Average
Balance
Interest
Income/
Expense
Yield
/Cost
Average
Balance
Interest
Income/
Expense
Yield
/Cost
Assets:      
Interest-bearing deposits$12,783,536 $216,367 1.69 %$13,530,312 $17,878 0.13 %$5,302,616 $12,893 0.24 %
Federal funds sold37,171 948 2.55 14,836 31 0.21 78,817 723 0.92 
Resell agreements17,079 592 3.47 6,611 16 0.24 20,923 172 0.82 
Securities:
Taxable10,719,066 249,797 2.16 4,606,562 89,550 1.97 4,234,318 93,569 2.27 
Tax-exempt7,997,778 327,559 4.08 8,268,416 314,600 4.06 8,447,036 323,928 4.08 
Total securities18,716,844 577,356 2.95 12,874,978 404,150 3.29 12,681,354 417,497 3.46 
Loans, net of unearned discount16,738,780 776,156 4.64 16,769,631 679,142 4.05 17,164,453 684,686 3.99 
Total earning assets and average rate earned48,293,410 1,571,419 3.20 43,196,368 1,101,217 2.58 35,248,163 1,115,971 3.22 
Cash and due from banks646,510 564,564 527,875 
Allowance for credit losses(242,059)(258,668)(232,596)
Premises and equipment, net1,061,937 1,038,034 1,043,789 
Accrued interest receivable and other assets1,753,340 1,442,682 1,373,969 
Total assets$51,513,138 $45,982,980 $37,961,200 
Liabilities:     
Non-interest-bearing demand deposits$18,202,669 $16,670,807 $13,563,696 
Interest-bearing deposits:     
Savings and interest checking12,160,482 12,055 0.10 10,682,149 1,365 0.01 8,283,665 2,467 0.03 
Money market deposit accounts12,727,533 114,797 0.90 9,990,626 9,462 0.09 8,457,263 15,417 0.18 
Time accounts1,480,088 13,624 0.92 1,129,041 3,693 0.33 1,133,648 14,134 1.25 
Total interest-bearing deposits26,368,103 140,476 0.53 21,801,816 14,520 0.07 17,874,576 32,018 0.18 
Total deposits44,570,772 0.32 38,472,623 0.0431,438,272 0.10 
Federal funds purchased35,461 690 1.95 32,177 32 0.10 33,135 100 0.30 
Repurchase agreements2,335,326 34,443 1.47 2,115,276 2,209 0.10 1,436,833 4,382 0.30 
Junior subordinated deferrable interest debentures123,042 4,172 3.39 133,744 2,484 1.86 136,330 3,560 2.61 
Subordinated notes99,262 4,657 4.69 99,105 4,657 4.70 98,948 4,656 4.71 
Federal Home Loan Bank advances— — — — — — 109,290 318 0.29 
Total interest-bearing liabilities and average rate paid28,961,194 184,438 0.64 24,182,118 23,902 0.10 19,689,112 45,034 0.23 
Accrued interest payable and other liabilities807,820 771,392 669,755 
Total liabilities47,971,683 41,624,317 33,922,563 
Shareholders’ equity3,541,455 4,358,663 4,038,637 
Total liabilities and shareholders’ equity$51,513,138 $45,982,980 $37,961,200 
Net interest income$1,386,981 $1,077,315 $1,070,937 
Net interest spread2.56 %2.48 %2.99 %
Net interest income to total average earning assets2.82 %2.53 %3.09 %

40

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 20182021 and 20172020 includes an additional change factor detailingthat shows the effect of the reductiondifference in the U.S. statutory federal income tax rate undernumber of days (due to leap year in 2020) in each period for assets and liabilities that accrue interest based upon the Tax Cuts and Jobs Act, which was enacted on December 22, 2017. See Note 13 - Income Taxesactual number of days in the accompanying notes to consolidated financial statements elsewhere in this report for information regarding the Tax Cuts and Jobs Act. 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.period, as further discussed below.
2019 vs. 2018 2018 vs. 20172022 vs. 20212021 vs. 2020
Increase (Decrease) Due to Change in  
Increase (Decrease)
Due to Change in
  Increase (Decrease) Due to Change inIncrease (Decrease)
Due to Change in
Rate Volume Total Rate Volume Tax Rate TotalRateVolumeTotalRateVolumeDaysTotal
Interest-bearing deposits$7,118
 $(28,496) $(21,378) $23,680
 $(8,320) $
 $15,360
Interest-bearing deposits$199,513 $(1,024)$198,489 $(7,856)$12,876 $(35)$4,985 
Federal funds sold and resell agreements450
 (426) 24
 869
 3,695
 
 4,564
Federal funds soldFederal funds sold808 109 917 (336)(354)(2)(692)
Resell agreementsResell agreements516 60 576 (79)(77)— (156)
Securities:             Securities:
Taxable13,909
 16,803
 30,712
 5,131
 (11,740) 

 (6,609)Taxable9,418 150,829 160,247 (13,040)9,021 — (4,019)
Tax-exempt(3,920) 6,123
 2,203
 (11,283) 28,033
 (85,625) (68,875)Tax-exempt1,607 11,352 12,959 (1,618)(7,710)— (9,328)
Loans, net of unearned discounts30,916
 42,019
 72,935
 81,949
 53,525
 (4,000) 131,474
Loans, net of unearned discounts98,271 (1,257)97,014 11,000 (14,673)(1,871)(5,544)
Total earning assets48,473
 36,023
 84,496
 100,346
 65,193
 (89,625) 75,914
Total earning assets310,133 160,069 470,202 (11,929)(917)(1,908)(14,754)
Savings and interest checking(791) 72
 (719) 4,005
 61
 
 4,066
Savings and interest checking10,528 162 10,690 (1,767)672 (7)(1,102)
Money market deposit accounts11,723
 686
 12,409
 46,205
 249
 
 46,454
Money market deposit accounts102,224 3,111 105,335 (8,389)2,476 (42)(5,955)
Time accounts8,022
 1,835
 9,857
 4,620
 57
 
 4,677
Time accounts8,460 1,471 9,931 (10,344)(58)(39)(10,441)
Public funds1,302
 1,556
 2,858
 2,990
 (38) 
 2,952
Federal funds purchased and repurchase agreements9,602
 2,052
 11,654
 6,367
 132
 
 6,499
Federal funds purchasedFederal funds purchased655 658 (65)(3)— (68)
Repurchase agreementsRepurchase agreements31,991 243 32,234 (3,646)1,485 (12)(2,173)
Junior subordinated deferrable interest debentures413
 2
 415
 1,334
 2
 
 1,336
Junior subordinated deferrable interest debentures1,901 (213)1,688 (1,010)(66)— (1,076)
Subordinated notes payable and other notes(8) 8
 
 408
 389
 
 797
Subordinated notesSubordinated notes(8)— (8)— 
Federal Home Loan Bank advancesFederal Home Loan Bank advances— — — — (318)— (318)
Total interest-bearing liabilities30,263
 6,211
 36,474
 65,929
 852
 
 66,781
Total interest-bearing liabilities155,751 4,785 160,536 (25,229)4,197 (100)(21,132)
Net change$18,210
 $29,812
 $48,022
 $34,417
 $64,341
 $(89,625) $9,133
Net change$154,382 $155,284 $309,666 $13,300 $(5,114)$(1,808)$6,378 
Taxable-equivalent net interest income for 20192022 increased $48.0$309.7 million, or 4.6%28.7%, compared to 2018.The2021. The increase in taxable-equivalent net interest income during 2022 was primarily related to increasesan increase in the average yieldsyield on loans, taxable securities and interest-bearing deposits combined with increases(primarily amounts held in an interest-bearing account at the Federal Reserve); an increase in the average volumesvolume of, loans and bothto a much lesser extent, an increase in the yield on taxable securities; an increase in the average yield on loans; and an increase in the average volume of, and to a lesser extent, an increase in the average taxable-equivalent yield on tax-exempt securities. The impact of these items was partly offset by increasesan increase in the average rates paid on and average volumescost of interest-bearing depositsdeposit accounts (primarily money market deposit accounts) and an increase in the average cost of repurchase agreements, among other borrowed funds,things. As a decreaseresult of the aforementioned fluctuations, the taxable-equivalent net interest margin increased 29 basis points from 2.53% during 2021 to 2.82% during 2022.
The average volume of interest-earning assets for 2022 increased $5.1 billion, or 11.8%, compared to 2021. The increase in the average volume of interest bearinginterest-earning assets during 2022 included a $6.1 billion increase in average taxable securities, a $22.3 million increase in average federal funds sold and a $10.5 million increase in average resell agreements partly offset by a $746.8 million decrease in average interest-bearing deposits (primarily excess reservesamounts held by us in an interest-bearing account at the Federal Reserve) and, a decrease in the average yield on tax-exempt securities.

The average volume of interest-earning assets for 2019 increased $700.8$270.6 million or 2.4%, compared to 2018. The increase in earning assets included an $825.9 million increase in average taxable securities, an $822.6 million increase in average loans and a $406.1 million increasedecrease in average tax-exempt securities, partly offset byand a $1.4 billion$30.9 million decrease in average interest-bearing deposits, federal funds sold and resell agreements.loans (of which approximately $1.7 billion related to PPP loans, as further discussed below).
The taxable-equivalent net interest margin increased 11 basis points from 3.64% during 2018 to 3.75% during 2019. The average yield on interest-earning assets increased 2462 basis points from 3.96%2.58% during 20182021 to 4.20%3.20% during 2019 and2022 while the average rate paid on interest-bearing liabilities increased 1954 basis points from 0.55%0.10% in 20182021 to 0.74%0.64% in 2019.2022. 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.
41

The increaseaverage taxable-equivalent yield on loans increased 59 basis points from 4.05% during 2021 to 4.64% during 2022. The average taxable-equivalent yield on loans during 2022 was positively impacted by recent increases in market interest rates. The average taxable-equivalent yield on loans during 2021 was positively impacted by a higher average proportion of higher-yielding PPP loans to total loans compared to 2022. The average volume of loans decreased $30.9 million, or 0.2%, in 2022 compared to 2021. The average volume of loans during 2022 was impacted by decrease in the taxable-equivalentaverage volume of PPP loans. Excluding PPP loans, average loans would have increased $1.7 billion, or 11.3%, during 2022 compared to 2021. Loans made up approximately 34.7% of average interest-earning assets during 2022 compared to 38.8% during 2021.
During 2022 and 2021, we recognized $2.6 million and $97.3 million, respectively, in PPP loan related deferred processing fees (net of amortization of related deferred origination costs) as a yield adjustment and this amount is included in interest income on loans. As a result of the inclusion of these net fees in interest margin was primarily related to increases inincome, the average yields on loans; taxable securities; interest-bearing deposits;PPP loans were 2.84% and federal funds sold6.26% during 2022 and resell agreements partly offset by increases in2021, respectively, compared to the stated interest rate of 1.0% on these loans.
The average cost of interest-bearing deposits and other borrowed funds and a decrease in the averagetaxable-equivalent yield on tax-exempt securities. The taxable-equivalent net interest marginsecurities was also positively2.95% during 2022, decreasing 34 basis points compared to 3.29% during 2021 and was negatively impacted by a decrease in the relative proportion of higher-yielding tax-exempt securities to total securities. The average yield on taxable securities was 2.16% during 2022 compared to 1.97% during 2021, increasing 19 basis points, while the average yield on tax exempt securities was 4.08% during 2022 compared to 4.06% during 2021, increasing 2 basis points. Tax exempt securities made up approximately 42.7% of total average securities during 2022, compared to 64.2% during 2021. The average volume of total securities increased $5.8 billion, or 45.4%, during 2022 compared to 2021. Securities made up approximately 38.7% of average interest-earning assets invested in lower-yielding interest-bearing2022 compared to 29.8% in 2021. The increase during 2022 was primarily related to the investment of available funds (primarily from growth in customer deposits (primarily excess reservesand reinvestment of amounts held in an interest-bearing account at the Federal Reserve). into taxable securities.
The average taxable-equivalent yield on loans was 5.17%Average interest-bearing deposits (primarily amounts held by us in an interest-bearing account at the Federal Reserve), during 20192022 decreased $746.8 million, or 5.5%, compared to 4.95% during 2018, increasing 22 basis points during 2019 compared to 2018. The average taxable-equivalent yield on loans was positively impacted by higher average market interest rates in 2019 compared to 2018. The average volume of loans increased $822.6 million, or 6.0%, in 2019 compared to 2018. Loans2021. Interest-bearing deposits made up approximately 48.8%26.5% of average interest-earning assets during 2019 compared to 47.1% during 2018.
The average taxable-equivalent yield on securities was 3.40% during 2019 compared to 3.38% during 2018. The average taxable-equivalent yield on securities was positively impacted by increases in the average volume of tax-exempt and taxable securities and an increase in the average yield on taxable securities but was negatively impacted by a decrease in the average yield on tax-exempt securities. The average yield on taxable securities was 2.33% during 2019 compared to 2.03% during 2018 while the average yield on tax exempt securities was 4.06% during 2019 compared to 4.11% during 2018. The average taxable-equivalent yield on tax-exempt securities decreased 5 basis points during 2019 compared to 2018, while the average yield on taxable securities increased 30 basis points during 2019 compared to 2018. Tax exempt securities made up approximately 62.0% of total average securities during 2019, compared to 65.0% during 2018. The average volume of total securities increased $1.2 billion, or 10.2%, during 2019 compared to 2018. Securities made up approximately 44.9% of average interest-earning assets in 2019 compared to 41.7% in 2018.
Average interest-bearing deposits, federal funds sold and resell agreements during 2019 decreased $1.4 billion, or 42.1%, compared to 2018. Interest-bearing deposits, federal funds sold and resell agreements made up approximately 6.3% of average interest-earning assets during 20192022 compared to approximately 11.1%31.3% in 2018.2021. The decrease in the average volume of interest-bearing deposits, federal funds sold and resell agreementsduring 2022 was primarily duerelated to a decrease in the average volumereinvestment of our excess reservesamounts held in an interest-bearing account at the Federal Reserve into taxable securities. The average yield on interest-bearing deposits was 1.69% during 20192022 and 0.13% during 2021. The average yields on interest-bearing deposits during 2022 was impacted by higher interest rates paid on reserves held at the Federal Reserve, compared to 2018 as such2021.
Average federal funds sold and resell agreements during 2022 increased $22.3 million, or 150.5%, and $10.5 million, or 158.3%, respectively, compared to 2021. Federal funds sold and resell agreements were invested in higher yielding loans and securities.not a significant component of interest-earning assets during the comparable periods. The combined average yieldyields on federal funds sold and resell agreements were 2.55% and interest-bearing deposits was 2.21%3.47%, respectively, during 20192022 compared to 0.21% and 1.94%0.24%, respectively, during 2018.2021. The average yields on federal funds sold and resell agreements were positively impacted by higher average market interest rates during 2022 compared to 2021.
The average rate paid on interest-bearing liabilities was 0.74%0.64% during 2019,2022, increasing 1954 basis points from 0.55%0.10% during 2018.2021. Average deposits increased $124.2 million,$6.1 billion, or 0.5%15.9%, in 20192022 compared to 2018.2021. Average interest-bearing deposits increased $522.6 million$4.6 billion in 20192022 compared to 2018,2021, while average non-interest-bearing deposits decreased $398.4 millionincreased $1.5 billion in 20192022 compared to 2018.2021. The ratio of average interest-bearing deposits to total average deposits was 60.8%59.2% in 20192022 compared to 59.1%56.7% in 2018.2021. 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 raterates paid on interest-bearing deposits and total deposits was 0.62%were 0.53% and 0.38%0.32%, respectively, in 20192022 compared to 0.49%0.07% and 0.29%0.04%, respectively, in 2018.2021. The average cost of deposits during 20192022 was impacted by higher averagean increase in the interest rates paidwe pay on most of our interest-bearing deposit products particularly during the first half of 2019, as a result of higher averagethe aforementioned increase in market interest rates and market competition.rates.
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 3.46%2.56% in 20192022 compared to 3.41%2.48% in 2018.2021. 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 elsewhere in this report.
42

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 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 elsewhere in this report.
Provision for Loan LossesCredit Loss Expense
The provision for loan lossesCredit 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.
The provision for loan losses totaled $33.8 million in 2019 compared to $21.6 million in 2018. components of credit loss expense were as follows.
202220212020
Credit loss expense related to:
Loans$(5,279)$(6,097)$237,010 
Off-balance-sheet credit exposures8,279 6,162 4,275 
Securities held to maturity— (2)(55)
Total$3,000 $63 $241,230 
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:
 2019 2018 2017
Trust and investment management fees$126,722
 $119,391
 $110,675
Service charges on deposit accounts88,983
 85,186
 84,182
Insurance commissions and fees52,345
 48,967
 46,169
Interchange and debit card transaction fees14,873
 13,877
 23,232
Other charges, commissions and fees37,123
 37,231
 39,931
Net gain (loss) on securities transactions293
 (156) (4,941)
Other43,563
 46,790
 37,222
Total$363,902
 $351,286
 $336,470
Total non-interest income for 20192022 increased $12.6$18.1 million, or 3.6%4.7%, compared to 2018.2021. 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 20192022 increased $7.3$5.7 million, or 6.1%3.8%, compared to 2018.2021. Investment management fees are the most significant component of trust and investment management fees, making up approximately 82%77.1% and 83%82.3% of total trust and investment management fees in 20192022 and 2018,2021, respectively. The increase in trust and investment management fees during 2022 was primarily due to increases in oil and gas fees (up $6.1 million), real estate fees (up $2.0 million) and estate fees (up $976 thousand) partly offset by a decrease in investment management fees (down $3.4 million). Oil and gas fees during 2022 were impacted by increases in oil and gas prices. The increases in real estate fees and estate fees were primarily related to increased transaction volumes and transaction fees. Investment and other custodial accountmanagement fees are generally based on the market value of assets within a trust account. Volatilityan account and are thus impacted by volatility in the equity and bond markets impacts the market value of trust assets and the related investment fees.markets. The increasedecrease in trust and investment management fees during 2019 compared to 20182022 was primarily the result of an increase in trust investment fees (up $5.7 million) duerelated to higherlower average equity valuations, and an increase in the number of accounts. The increase was also partlypart related to increasesthe sharp decline in estate fees (up $740 thousand) and oil and gas fees (up $711 thousand).equity valuations during 2022.
At December 31, 2019,2022, trust assets, including both managed assets and custody assets, were primarily composed of equity securities (50.7%(40.2% of trust assets), fixed income securities (35.0%(33.8% of trust assets), alternative investments (8.7% of assets) and cash equivalents (8.9%(10.2% of trust assets). The estimated fair value of trust assets was $37.8$43.6 billion (including managed assets of $16.4$21.4 billion and custody assets of $21.4$22.2 billion) at December 31, 20192022 compared to $33.3$43.3 billion (including managed assets of $14.7$19.1 billion and custody assets of $18.7$24.2 billion) at December 31, 2018.2021.
Service Charges on Deposit Accounts. Service charges on deposit accounts for 20192022 increased $3.8$8.6 million, or 4.5%10.3%, compared to 2018.2021. The increase was primarily related to increases in overdraft/insufficient fundsoverdraft charges on consumer and commercial accounts (up $3.3$5.3 million and $551 thousand,$2.3 million, respectively) and to a lesser extent, commercialconsumer service charges (up $354 thousand) partly offset$1.0 million).
Overdraft charges totaled $38.3 million ($29.2 million consumer and $9.1 million commercial) during 2022 compared to $30.7 million ($23.9 million consumer and $6.8 million commercial) during 2021. The increase in overdraft charges during 2022 was impacted by a decreaseincreases in the volume of fee assessed overdrafts relative to 2021, in part due to growth in the number of accounts. The increase in consumer service charges (down $421 thousand). Overdraft/insufficient funds charges totaled $42.3 million during 2019 compared to $38.4 million during 2018. Overdraft/insufficient funds charges included $33.1 million and $29.8 million2022 was partly related to consumer accounts during 2019 and 2018, respectively, and $9.2 million and $8.7 million related to commercial accounts during 2019 and 2018, respectively.

The increases in overdraft/insufficient funds charges were partly due to increases in the number ofoverall deposit accounts and transaction volumes. Overdraft/insufficient funds
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In April 2021, we implemented a new overdraft grace feature for certain consumer demand deposit accounts whereby no fees would be assessed on overdrafts of $100 or less, subject to certain qualifying conditions such as a minimum direct deposit. This new feature reduced overdraft charges wereon consumer accounts by approximately $3.2 million during 2021. In June 2022, we expanded the overdraft grace feature first implemented in April 2021. This feature, which was previously only available to certain consumer demand deposit accounts, is now available to all of our consumer demand deposit accounts, regardless of direct deposit status. With this feature, no fees will be assessed on overdrafts of $100 or less. Additionally, we also partly impactedeliminated fees on non-sufficient and returned items for all consumer deposit accounts. We expect these changes will impact revenue by a change in the fee schedule during the second quarter of 2019.as much as $3.5 million on an annual basis.
Insurance Commissions and Fees. Insurance commissions and fees for 20192022 increased $3.4$1.7 million, or 6.9%3.2%, compared to 2018.2021. The increase was related tothe result of an increase in commission income (up $3.6$2.7 million) partly offset by a decrease in contingent income (down $200 thousand)$1.0 million). The increase in commission income was primarily related to increases in commissions on commercial and, to a lesser extent, personal lines property and casualty policies, benefit plan commissionscommissions. These increases were related to increased business volumes and life insurance commissions.increased market rates. The increases in property and casualty commissions and benefit plan commissions were related to increased business volumes and market rates. The increasepartly offset by a decreases in life insurance commissions was relatedand benefit plan commissions. These decreases were primarily due to increaseddecreased business volumes. The decrease in benefit plan commissions was partly offset by the impact of an increase in market rates.
Contingent income totaled $4.1$3.5 million in 20192022 and $4.3$4.5 million in 2018.2021. Contingent income primarily consists of amounts received from various property and casualty insurance carriers related to the loss performance of insurance policies previously placed. These performance related contingent payments are seasonal in nature and are mostly received during the first quarter of each year. This performance related contingent income totaled $3.0$1.9 million in 20192022 and $3.2 million in 2018.2021. The decrease in performance related contingent income during 20192022 was related to lowerlow growth within the portfolio partly offset by the impact of improvementand a deterioration in the loss performance of insurance policies previously placed. This deterioration was impacted by a severe weather event in Texas during the first quarter of 2021 that resulted in a significant increase in property and casualty claims and losses. Contingent income also includes amounts received from various benefit plan insurance companies related to the volume of business generated and/or the subsequent retention of such business. This benefit plan related contingent income totaled $1.2$1.6 million in both 20192022 and 2018.$1.3 million in 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 debitcard transaction fees are reported net of related network costs.
Net revenues from interchange and card transaction fees for 2019 and 2018 are reported on a net basis and totaled $14.9 million and $13.9 million, respectively. The2022 increased $770 thousand, or 4.4%, compared to 2021 primarily due to increased transaction volumes as well as the impact of new card products partly offset by an increase in interchange and debit card transaction fees during 2019, on a net basis, was primarily related to increases in the number of accounts and transaction volumes. Prior to 2018, interchange and debit card transaction fees were reported on a gross basis.network costs. A comparison of gross and net interchange and debit card transaction fees for the reported periods is presented in the table below:below.
202220212020
Income from debit card transactions$32,457 $29,122 $23,763 
ATM service fees3,313 3,298 3,342 
Gross interchange and debit card transaction fees35,770 32,420 27,105 
Network costs17,539 14,959 13,635 
Net interchange and debit card transaction fees$18,231 $17,461 $13,470 
Federal Reserve rules applicable to financial institutions that have assets of $10 billion or more provide that the maximum permissible interchange fee for an electronic debit transaction is the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction. An upward adjustment of no more than 1 cent to an issuer's debit card interchange fee is allowed if the card issuer develops and implements policies and procedures reasonably designed to achieve certain fraud-prevention standards. The Federal Reserve also has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product.

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 2019 2018 2017
Income from debit card transactions$23,665
 $21,844
 $19,440
ATM service fees4,131
 3,925
 3,792
Gross interchange and debit card transaction fees27,796
 25,769
 23,232
Network costs12,923
 11,892
 11,943
Net interchange and debit card transaction fees$14,873
 $13,877
 $11,289
Table of Contents
Other Charges, Commissions and Fees. Other charges, commissions and fees for 2019 decreased $108 thousand,2022 increased $4.8 million, or 0.3%12.9%, compared to 2018.2021. The decrease increasewas primarily related to decreases in processing fees (down $688 thousand), brokerage commissions (down $424 thousand), income from the sale of annuities and mutual funds (down $356 thousand and $190 thousand, respectively) and income from capital markets advisory services (down $323 thousand), among other things, mostly offset by increases in income from the saleplacement of money market fundsaccounts (up $1.4$4.0 million), merchant services rebates/bonuses (up $1.3 million) and letter of credit fees (up $541 thousand)$1.1 million), among other things, partly offset by a decrease in income from the sale of mutual funds (down $1.7 million), among other things.
Net Gain/Loss on Securities Transactions. There were no sales of securities during 2022. During 2019 and 20182021, we sold certain available-for-sale U.S Treasury securities with amortized costs totaling $17.8$2.0 billion and $16.8 billion, respectively. We realized a net gain of $127 thousand on the 2019 sales and a net loss of $156 thousand on the 2018 sales. The$69 thousand. These sales were primarily related to securities purchased during 2021 and subsequently sold in the same period of their purchase 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.
Additionally, during the second quarter of 2019, we sold certain available-for-sale U.S. Treasury securities with an amortized cost totaling $548.9 million and certain available-for-sale municipal securities with an amortized cost totaling $310.7 million. We realized a net gain of $166 thousand on those sales. The proceeds from the sales provided short-term liquidity and were subsequently reinvested in other higher yielding securities.

Other Non-Interest Income. Other non-interest income for 20192022 decreased $3.2$3.3 million, or 6.9%6.8%, compared to 2018.2021. The decrease was primarily related to decreasesa decrease in gains on the sale/exchange of assets (down $11.7 million) and, to a lesser extent, a decrease in income from customer derivative and securities trading transactions (down $2.3 million), among other things. These items were partly offset by increases in sundry and other miscellaneous income (down $3.4(up $9.2 million); income from derivative and trading activities, primarily customer-related, (down $1.8 million); and gains on the sale of foreclosed and other assets (down $624 thousand) partly offset by an increase in, public finance underwriting fees (up $1.9$1.7 million) and income from customer foreign exchange transactions (up $1.4 million), among other things. Gains on the sale/exchange of assets in 2021 included $9.7 million related to an exchange of a branch facility and $1.8 million related to the sale of certain parking lots in downtown San Antonio. The decrease in income from customer derivative transactions was primarily due to a decrease in transaction volume. Sundry income during 20192022 included $2.6$6.3 million in VISA check card incentives related to business volumes, $1.7incentives/rebates, $5.1 million related to settlements, $1.7a partnership interest and $1.4 million related to the recovery of prior write-offs, and $278 thousand related to distributions from a private equity investment, among other things, while sundry and other miscellaneous income for 2018during 2021 included $4.5$3.4 million in card related to the recoveryincentives/rebates and $519 thousand in recoveries of prior write-offs, $2.1 million in VISA check card incentives, $1.7 million related to a distribution from a private equity investment and $997 thousand related to the settlement of an insurance claim, among other things. The fluctuationsincreases in public finance underwriting fees and income from customer derivative and trading activities during 2019foreign exchange transactions were primarily related to changesincreases in businesstransaction volumes. Other non-interest income also included gains on the sale of various branch and operational facilities totaling $6.7 million during 2019 and $7.0 million during 2018.
Non-Interest Expense
The components of non-interest expense were as follows:
 2019 2018 2017
Salaries and wages$375,029
 $350,312
 $337,068
Employee benefits86,230
 77,323
 74,575
Net occupancy89,466
 76,788
 75,971
Technology, furniture and equipment91,995
 83,102
 74,335
Deposit insurance10,126
 16,397
 20,128
Intangible amortization1,168
 1,424
 1,703
Other180,665
 173,538
 175,289
Total$834,679
 $778,884
 $759,069
Total non-interest expense for 20192022 increased $55.8$142.3 million, or 7.2%16.1%, compared to 2018.2021. Changes in the various components of non-interest expense are discussed below.
Salaries and Wages. Salaries and wages increased $24.7$96.6 million, or 7.1%24.4%, in 20192022 compared to 2018.2021. The increase in salaries and wages was primarily related to an increaseincreases in salaries due to annual merit and market increases as well as the implementation of a $20 per hour minimum wage in December, 2021. We are also experiencing a competitive labor market which has resulted in and could continue to result in an increase in our staffing costs. Salaries and wages were also impacted by an increase in the number of employees, increases in incentive and normal annual meritstock-based compensation and market increasescommissions and to a lesser extent, andecrease in salary costs deferred in connection with loan originations as the first quarter of 2021 was impacted by the high volume of PPP loan originations. The increase in stock compensation.the number of employees was partly related to our investments in organic expansion in the Houston and Dallas markets as well as preparations for our mortgage loan product offering.
Employee Benefits. Employee benefits expense for 20192022 increased $8.9$6.6 million, or 11.5%8.0%, compared to 2018.2021. The increase was primarily duerelated to increases in expensespayroll taxes, medical benefits expense, 401(k) plan expense and other employee benefits, among other things, partly offset by an increase in the net periodic benefits related to our defined benefit retirement plans (up $2.3 million), expenses related to our 401(k) plan (up $2.3 million), medicalplan. Employee benefits expense (up $2.2 million)was impacted by the aforementioned higher salary costs and payroll taxes (up $1.4 million).increase in the number of employees.
Our defined benefit retirement and restoration plans were frozen effective as of December 31,in 2001 and were replaced by a profit sharing plan (which was merged with and into our 401(k) plan during 2019). Management believes these actions helpwhich has helped to reduce the volatility in retirement plan expense. However, weWe nonetheless still have funding obligations related to the defined benefit and restorationthese plans and could recognize retirementadditional 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 expense of $1.3 million related to our defined benefit retirement and restoration plans in 2019 compared to a combined net periodic pension benefit of $1.0 million in 2018. Future expense/benefits related to these plans is dependent upon a variety of factors, including the actual return on plan assets. ForSee Note 12 - Defined Benefit Plans for additional information related to our employee benefit plans, see Note 11 - Employee Benefit Plans in the accompanying notes to consolidated financial statements elsewhere in this report.net periodic pension benefit/cost.
Net Occupancy. Net occupancy expense for 20192022 increased $12.7$5.2 million, or 16.5%4.8%, compared to 2018.2021. The increase was primarily related to increases in repairs and maintenance/service contracts expense (up $2.0 million), lease expense (up $11.6$1.8 million), depreciation on buildings and leasehold improvements (together up $1.3 million) and depreciation on leasehold improvementsinsurance expense (up $2.0 million)$609 thousand), among other things, partly offset by a decrease in property taxes (down $2.1
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$1.6 million). The increaseincreases in leasethe aforementioned components of net occupancy expense was primarily related to the commencement of the lease of our new corporate headquarters building in San Antonio and the renewal of the lease associated with our downtown Austin location. The increase was also partly related to renewals of other leases related to existing facilities and new locations,were driven, in part, related toby our expansion within the Houston and Dallas market area. The increase in depreciation on leasehold improvements was primarily related to the new headquarters location

in San Antonio and, to a lesser extent, other new locations. The decrease in property taxes was mostly related to our former headquarters location in downtown San Antonio.
Fluctuations in the foregoing categories of net occupancy expense were primarily related to the commencement of the lease of our new corporate headquarters building in San Antonio and other leases related to existing facilities and our expansion within the Houston market area.areas.
Technology, Furniture and Equipment. Technology, furniture and equipment expense for 20192022 increased $8.9$8.0 million, or 10.7%7.1%, compared to 2018.2021. The increase was primarily related to increases in cloud services expense (up $3.9 million), service contracts expense (up $1.4 million), software maintenance (up $1.3 million) and depreciation of furniture and equipment (up $989 thousand), among other things.
Deposit Insurance. Deposit insurance expense totaled $15.6 million in 2022 compared to $12.2 million in 2021. The increase was primarily related to an increase in software maintenance/cloud services expense (up $9.3 million) due to new and renewed software and an increase in volume-based service payments.
Deposit Insurance. Deposit insurance expense totaled $10.1 million in 2019 compared to $16.4 million in 2018. The decrease was primarily related to the termination of the quarterly Deposit Insurance Fund surcharge in the fourth quarter of 2018.total assets. In August 2016,October 2022, the Federal Deposit Insurance Corporation (“FDIC”) announced thatadopted a final rule to increase the Deposit Insurance Fund reserve ratio had surpassed 1.15% asinitial base deposit insurance assessment rate schedules uniformly by 2 basis points beginning with the first quarterly assessment period 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 was terminated in the fourth quarter of 2018 as the Deposit Insurance Fund reserve ratio as of September 30, 2018 exceeded the statutory minimum of 1.35% required by the Dodd-Frank Act.
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 $1.2 million in 2019 compared to $1.4 million in 2018. The decrease 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 Note 5 - Goodwill and Other Intangible Assets in the accompanying notes to consolidated financial statements elsewhere in this report.2023.
Other Non-Interest Expense. Other non-interest expense for 20192022 increased $7.1$22.8 million, or 4.1%13.3%, compared to 2018.2021. The increase included among other things, increases in professional services expense (up $6.2 million); advertising/promotions expense partly related to new sponsorship arrangements (up $5.5 million); professional servicestravel, meals and entertainment (up $5.4 million); fraud losses (up $5.0 million); business development expense (up $3.3$1.3 million); sundry and platform fees related to investment servicesother miscellaneous expense (up $2.7$1.1 million).; and stationery, printing and supplies expense (up $1.0 million), among other things. Other non-interest expense during 2022 was also impacted by a decrease in costs deferred as loan origination costs (down $1.3 million) as the first quarter of 2021 was impacted by a large volume of PPP loan originations. The increase from theseimpact of the aforementioned items was partly offset by a decrease in donations expense (down $9.0 million), which was impacted by $8.8 million in contributions to the Frost Charitable Foundation during 2021, among other things. Sundry and other miscellaneous expense in 2022 included accruals totaling $5.9 million, which included $4.0 million related to a significant contributionlicense negotiation and $1.9 million related to our charitable foundationother matters. Sundry and other miscellaneous expense in 2018 (down $4.0 million).2021 included $4.7 million related to the write-off of certain assets.
Results of Segment Operations
Our operationsWe are managed alongunder a matrix organizational structure whereby our two primary operating segments:segments, Banking and Frost Wealth Advisors.Advisors, overlap a regional reporting structure. 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. 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 elsewhere in this report. Net income (loss) by operating segment is presented below:
 2019 2018 2017
Banking$436,416
 $445,531
 $347,034
Frost Wealth Advisors19,975
 22,090
 24,395
Non-Banks(12,792) (12,703) (7,280)
Consolidated net income$443,599
 $454,918
 $364,149
Banking
Net income for 2019 decreased $9.12022 increased $136.5 million, or 2.0%32.9%, compared to 2018.2021. The decreaseincrease was primarily the result of a $45.7 million increase in non-interest expense, a $12.1 million increase in the provision for loan losses and a $2.6 million increase in income tax expense partly offset by a $46.6$305.6 million increase in net interest income and a $4.7$10.2 million increase in non-interest income.income partly offset by a $132.7 million increase in non-interest expense, a $43.6 million increase in income tax expense and a $2.9 million increase in credit loss expense.
Net interest income for 20192022 increased $46.6$305.6 million, or 4.8%30.9%, compared to 2018.2021. The increase was primarily related to increasesan increase in the average yieldsyield on loans, taxable securities and interest-bearing deposits combined with increases(primarily amounts held in an interest-bearing account at the Federal Reserve); an increase in the average volumesvolume of, loans and bothto a lesser extent, an increase in the yield on taxable securities; an increase in the average yield on loans; and an increase in the average volume of, and to a lesser extent, an increase in the average taxable-equivalent yield on tax-exempt securities. The impact of these items was partly offset by increasesan increase in the average rates paid on and average volumescost of interest-bearing depositsdeposit accounts (primarily money market deposit accounts) and other borrowed funds, a decreasean increase in the average volumecost of interest bearing deposits (primarily excess reserves held in an interest-bearing

account at the Federal Reserve) and a decrease in the average yield on tax-exempt securities.repurchase agreements, among other things. See the analysis of net interest income included in the section captioned “Net Interest Income” elsewhere in this discussion.
The provisionCredit loss expense for loan losses for 20192022 totaled $33.8$3.0 million compared to $21.6 million$54 thousand in 2018.2021. See the analysis of the provision for loan losses included in the sectionsections captioned “Credit Loss Expense” and “Allowance for LoanCredit Losses” elsewhere in this discussion.discussion for further analysis of credit loss expense related to loans and off-balance-sheet commitments.
Non-interest income for 20192022 increased $4.7$10.2 million, or 2.2%4.6%, compared to 2018.2021. The increase was primarily duerelated to increases in service charges on deposit accounts,accounts; other charges commission and fees; and insurance commissions and fees and interchange and debit card transactions fees partly offset by decreasesa decrease in other non-interest income and other charges, commissions and fees.income. The increase in service charges on deposit accounts was primarily related to increases in overdraft/insufficient fundsoverdraft charges on consumer and commercial accounts and consumer service charges. The increase in overdraft charges during 2022 was impacted by increases in the volume
46

of fee assessed overdrafts relative to a lesser extent, commercial service charges partly offset by a decrease2021, in part due to growth in the number of accounts. The increase in consumer service charges.charges during 2022 was partly related to increases in overall deposit accounts and volumes. The increase in other charges commission and fees was primarily related to increases in merchant services rebates/bonuses and letter of credit fees, among other things. The increase in insurance commissions and fees was primarily related to increased business volumes and market ratesthe result of an increase in commission income partly offset by a decrease in contingent income. The increaseincome which is further discussed below in interchange and debit card transaction fees was primarily relatedrelation to increased transaction volumes.Frost Insurance Agency. The decrease in other non-interest income was primarily related to decreasesa decrease gains on the sale/exchange of assets and, to a lesser extent, a decrease in income from customer derivative and securities trading transactions, among other things. These items were partly offset by increases in sundry and other miscellaneous incomeincome; public finance underwriting fees; and income from derivativecustomer foreign exchange transactions, among other things. Gains on the sale/exchange of assets in 2021 included $9.7 million related to an exchange of a branch facility and trading activities, primarily customer$1.8 million related and a decrease on gains onto the sale of foreclosedcertain parking lots in downtown San Antonio. Sundry and other assets partly offset by an increasemiscellaneous income during 2022 included $6.3 million in public finance underwriting fees,card related incentives/rebates, $5.1 million related to a partnership interest, $1.4 million related to the recovery of prior write-offs and $458 thousand related to a contract fee, among other things, while sundry and other miscellaneous income during 2021 included $3.4 million in card related incentives/rebates and $519 thousand in recoveries of prior write-offs, among other things. The decreasefluctuations in other charges, commissionsincome from public finance underwriting fees; customer derivative and fees wassecurities trading transactions and customer foreign exchange transactions were primarily related to decreasesfluctuations in processing fees and income from capital markets advisory services, among other things, partly offset by an increase in letter of credit fees, among other things.transaction volumes. 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 20192022 increased $45.7$132.7 million, or 6.9%17.6%, compared to 2018.2021. The increase was primarily relateddue to increases in salaries and wages; other non-interest expense; technology, furniture and equipment expense; employee benefits;benefit expense; net occupancy expense;expense and other non-interest expense partly offset by a decrease in deposit insurance expense.
The increase in salaries and wages was primarily related to an increase in in salaries due to annual merit and market increases as well as the implementation of a $20 per hour minimum wage in December, 2021. Salaries and wages were also impacted by an increase in the number of employees, increases in incentive and normal annual meritstock-based compensation and market increasescommissions and to a lesser extent, andecrease in salary costs deferred in connection with loan originations as the first quarter of 2021 was impacted by the high volume of PPP loan originations. The increase in stock compensation.other non-interest expense was primarily due to increases in professional services expense; advertising/promotions expense; travel, meals and entertainment; fraud losses; business development expense; sundry and other miscellaneous expense; and stationery, printing and supplies expense, among other things. Other non-interest expense during 2022 was also impacted by a decrease in costs deferred as loan origination costs as the first quarter of 2021 was impacted by a large volume of PPP loan originations. The impact of the aforementioned items was partly offset by a decrease in donations expense, which was impacted by $8.8 million in contributions to the Frost Charitable Foundation during 2021, among other things. The increase in technology, furniture and equipment expense was primarily related to an increaseincreases in software maintenance/cloud services expense.expense, service contracts expense, software maintenance and depreciation of furniture and equipment, among other things. The increase in employee benefitsbenefit expense was primarily related to increases in expensespayroll taxes, medical benefits expense, 401(k) plan expense and other employee benefits, among other things, partly offset by an increase in the net periodic benefits related to our defined benefit retirement plans, expenses related to our 401(k) plan, medical benefits expense and payroll taxes.plan. The increase in net occupancy expense was primarily related to increases in repairs and maintenance/service contracts expense, lease expense, and depreciation on buildings and leasehold improvements partly offset by decreases in property taxes and utilities expense. The increase in other non-interestinsurance expense, included increases in advertising/promotions expense; professional services expense; and travel, meals and entertainment; among other things, partly offset by decreases in donations expense; sundry and other miscellaneous expense; and losses on the sale of foreclosed and other assets; among other things. Thea decrease in property taxes. The increases in the aforementioned components of net occupancy expense were impacted, in part, by our expansion within the Houston and Dallas market areas. The increase in deposit insurance expense was primarily related to the termination of the quarterly Deposit Insurance Fund surchargean increase in the fourth quarter of 2018.total assets. See the analysis of these categories of non-interest expense included in the section captioned “Non-Interest Expense” included elsewhere in this discussion.
Income tax expense for 20192022 increased $2.6$43.6 million, or 4.9%105.2%, compared to 2018.2021. See the section captioned “Income Taxes” elsewhere in this discussion.
Frost Insurance Agency, which is included in the Banking operating segment, had gross commission revenues of $53.1$54.2 million during 20192022 compared to $49.6$52.5 million during 2018.2021. The increase in gross commission revenues was the result of an increase in commission income partly offset by a decrease in contingent income. The increase in gross commission income was primarily related to increases in commissions on commercial and, to a lesser extent, personal lines property and casualty policies; benefit plan commissions;commissions, due to increases in business volumes and life insurance commissions.market rates. The increases in property and casualty commissions were partly offset by decreases in life insurance commissions and benefit plan commissions, wereprimarily due to decreased business volume. The decrease in contingent income was primarily related to increased business volumesa decrease in performance related contingent payments due to low growth within the portfolio and market rates. Thea deterioration
47

in the loss performance of insurance policies previously placed. This decrease was partly offset by an increase in lifecontingent commissions received from various benefit plan insurance commissions was related to increased business volumes.companies. See the analysis of insurance commissions and fees included in the section captioned “Non-Interest Income” included elsewhere in this discussion.
Frost Wealth Advisors
Net income for 2019 decreased $2.12022 increased $1.5 million, or 9.6%4.1%, compared to 2018.2021. The decreaseincrease was primarily due to an $8.4 million increase in non-interest income and a $10.5$2.5 million increase in net interest income partly offset by a $9.0 million increase in non-interest expense partly offset byand a $7.9 million$401 thousand increase in non-interest income.income tax expense.
Net interest income for 2022 increased $2.5 million, or 117.3%, compared to 2021. This increase was primarily due to an increase in the average volume of funds provided by Frost Wealth Advisors and an increase in the average funds transfer price allocated to such funds. See the analysis of net interest income included in the section captioned “Net Interest Income” included elsewhere in this discussion.
Non-interest income for 20192022 increased $7.9$8.4 million, or 5.7%5.0%, compared to 2018.2021. The increase was primarily related to an increaseincreases in trust and investment management fees, and to a lesser extent, an increase infees; other charges, commissions and fees.fees; and other non-interest income. 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 82%77.1% and 83%82.3% of total trust and investment management fees for 20192022 and 2018. 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.2021, respectively. The increase in trust and investment management fees during 2019 was primarily the result ofdue to increases in trustoil and gas fees, real estate fees and estate fees partly offset by a decrease in investment management fees. Oil and gas fees dueduring 2022 were impacted by increases in oil and gas prices. The increases in real estate fees and estate fees were primarily related to higherincreased transaction volumes and transaction fees. The decrease in investment management fees during 2022 was primarily related to lower average equity valuations, and an increase in the number of accounts. The increase was also partlypart related to increasesthe sharp decline in estate fees and oil and gas fees.equity valuations during 2022. The increase in other charges, commissions and fees was primarily related to an increase in income related tofrom the saleplacement of money market fundsaccounts, among other things, partly offset by decreasesa decrease in brokerage commissions and income from the sale of annuitiesmutual funds, among other things. The increase in other non-interest income was primarily related to an increase in income from customer securities trading transactions partly offset by a decrease in sundry and mutual funds.other miscellaneous income. See the analysis of trust and investment management fees and other charges, commissions and fees included in the section captioned “Non-Interest Income” included elsewhere in this discussion.
Non-interest expense for 20192022 increased $10.5$9.0 million, or 9.2%7.3%, compared to 2018.2021. The increase was primarily relateddue to increases in net occupancy expense,salaries and wages and other non-interest expense, and salariesto a lesser extent, increase in employee benefit expense and wages.technology, furniture and equipment expense. The increase in net occupancy expensesalaries and wages was partly relatedprimarily due to increases in lease overhead allocations.salaries, due to annual merit and market increases, as well as increases in commissions and incentive compensation. The increase in other non-interest expense was primarily due to increasesan increase in sundry and other miscellaneous expense, which was primarily due to the write-off of certain assets; research and platform fees related to investment services; professional service expense;fees; and travel, meals and entertainment expense,entertainment; among other things. The increase in salariesemployee benefits was primarily due to increases in 401(k) plan expense, medical expense and wagespayroll taxes. The increase in technology, furniture and equipment expense was primarily due to an increase in the number of employees and normal annual merit and market increases, as well as increases in incentive compensation.cloud service expense.
Non-Banks
The Non-Banks operating segment had a net loss of $12.8$11.0 million for 20192022 compared to a net loss of $12.7$9.0 million in 2018.2021. The increased net loss was primarily due to an increase in net interest expense, due to increasesa decrease in the interest rate paid on our long-term borrowingsother non-interest income and an increase in other non-interest expense partly offset by decreasesan increase in salariesincome tax benefit. The increase in net interest expense was primarily related to an increase in the average rate paid on our long-term borrowings partly offset by the impact of the redemption, during the fourth quarter of 2021, of $13.4 million of junior subordinated deferrable interest debentures issued to WNB Capital Trust I. The decrease in other non-interest income was primarily due to a decrease in mineral interest income as the related mineral interest assets were donated to the Frost Charitable Foundation during the third quarter of 2021. The increase in other non-interest expense was primarily due to an increase in travel, meals and wages.entertainment expense, among other things.

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Income Taxes
We recognized income tax expense of $55.9$89.7 million, for an effective tax rate of 11.2%13.4%, in 20192022 compared to $53.8$46.5 million, for an effective tax rate of 10.6%9.5%, in 2018.2021. The effective income tax rates differed from the U.S. statutory federal income tax rate of 21% during 20192022 and 20182021 primarily due to the effect of tax-exempt income from loans, securities and life insurance policies and certain non-deductible expenses as well as the discreteincome tax effecteffects associated with stock-based compensation.compensation, among other things, and their relative proportion to total pre-tax net income. The increase in the effective tax rate during 2019 compared to 20182022 was partlyprimarily related to an increase in the level of non-deductible compensationpre-tax net income, and, to a lesser extent, a decrease in the netdiscrete tax benefits associated with stock-based compensation. See Note 13 - Income Taxes in the accompanying notes to consolidated financial statements elsewhere in this report.

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 $32.1$51.5 billion in 20192022 compared to $31.0$46.0 billion in 2018.2021.
2019 2018 2017202220212020
Sources of Funds:     Sources of Funds:
Deposits:     Deposits:
Non-interest-bearing32.3% 34.7% 35.5%Non-interest-bearing35.3 %36.2 %35.7 %
Interest-bearing50.1
 50.1
 49.6
Interest-bearing51.2 47.4 47.1 
Federal funds purchased and repurchase agreements4.0
 3.4
 3.2
Federal funds purchasedFederal funds purchased0.1 0.1 0.1 
Repurchase agreementsRepurchase agreements4.5 4.6 3.8 
Long-term debt and other borrowings0.7
 0.8
 0.8
Long-term debt and other borrowings0.4 0.5 0.9 
Other non-interest-bearing liabilities1.4
 0.5
 0.5
Other non-interest-bearing liabilities1.6 1.7 1.8 
Equity capital11.5
 10.5
 10.4
Equity capital6.9 9.5 10.6 
Total100.0% 100.0% 100.0%Total100.0 %100.0 %100.0 %
Uses of Funds:     Uses of Funds:
Loans45.0% 43.9% 40.9%Loans32.5 %36.5 %45.2 %
Securities41.4
 38.9
 40.2
Securities36.3 28.0 33.4 
Federal funds sold, resell agreements and interest-bearing deposits5.8
 10.3
 12.0
Interest-bearing depositsInterest-bearing deposits24.8 29.4 14.0 
Federal funds soldFederal funds sold0.1 — 0.2 
Resell agreementsResell agreements— — 0.1 
Other non-interest-earning assets7.8
 6.9
 6.9
Other non-interest-earning assets6.3 6.1 7.1 
Total100.0% 100.0% 100.0%Total100.0 %100.0 %100.0 %
Deposits continue to be our primary source of funding. Average deposits increased $124.2 million,$6.1 billion, or 0.5%15.9%, in 20192022 compared to 2018.2021. 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 39.2%40.8% of total average deposits in 20192022 compared to 40.9%43.3% in 2018. Federal prohibitions on the payment of interest on demand deposits were repealed in 2011. Nonetheless, we have not experienced any significant additional costs as a result. Should the market dictate, we may increase the interest rates we pay on some or all of our various interest-bearing deposit products. This could lead to a decrease in the relative proportion of non-interest-bearing deposits to total deposits.2021.
We primarily invest funds in loans, and securities. Average securities increased $1.2 billion, or 10.2%, in 2019 compared to 2018 while average loans increased $822.6 million, or 6.0%, in 2019 compared to 2018. Average federal funds sold and resell agreements and interest-bearing deposits (primarily amounts held by us in an interest-bearing account at the Federal Reserve). Average loans decreased $1.4$30.9 million, or 0.2%, (increased $1.7 billion, or 42.1%11.3% excluding PPP loans) in 2022 compared to 2021 while average securities increased $5.8 billion, or 45.4%, in 20192022 compared to 2018.2021. Average interest-bearing deposits (primarily amounts held by us in an interest-bearing account at the Federal Reserve) decreased $746.8 million, or 5.5%, in 2022 compared to 2021, primarily related to the reinvestment of a portion of these funds into taxable securities.

Loans
Year-end loans, including leases net of unearned discounts, consisted of the following:

2019
Percentage
of Total

2018
2017
2016
2015
Commercial and industrial$5,187,466
 35.2% $5,111,957
 $4,792,388
 $4,344,000
 $4,120,522
Energy:           
Production1,348,900
 9.2
 1,309,314
 1,182,326
 971,767
 1,249,678
Service192,996
 1.3
 168,775
 171,795
 221,213
 272,934
Other110,986
 0.7
 124,509
 144,972
 193,081
 235,583
Total energy1,652,882
 11.2
 1,602,598
 1,499,093
 1,386,061
 1,758,195
Commercial real estate:           
Commercial mortgages4,594,113
 31.1
 4,121,966
 3,887,742
 3,481,157
 3,285,041
Construction1,312,659
 8.9
 1,267,717
 1,066,696
 1,043,261
 720,695
Land289,467
 2.0
 306,755
 331,986
 311,030
 286,991
Total commercial real estate6,196,239
 42.0
 5,696,438
 5,286,424
 4,835,448
 4,292,727
Consumer real estate:           
Home equity loans375,596
 2.6
 353,924
 355,342
 345,130
 340,528
Home equity lines of credit354,671
 2.4
 337,168
 291,950
 264,862
 233,525
Other464,146
 3.1
 427,898
 376,002
 326,793
 306,696
Total consumer real estate1,194,413
 8.1
 1,118,990
 1,023,294
 936,785
 880,749
Total real estate7,390,652
 50.1
 6,815,428
 6,309,718
 5,772,233
 5,173,476
Consumer and other519,332
 3.5
 569,750
 544,466
 473,098
 434,338
Total loans$14,750,332
 100.0% $14,099,733
 $13,145,665
 $11,975,392
 $11,486,531
Overview. Details of our loan portfolio are presented in Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report. Year-end total loans increased $650.6$818.6 million, or 4.6%5.0%, during 20192022 compared to 2018.2021 ($1.2 billion, or 7.6% excluding PPP loans). 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 35.2%33.1% and 36.3%32.9% (33.1% and 33.7% excluding PPP loans) of total loans at December 31, 20192022 and 20182021 while energy loans made up 11.2%5.4% and 11.4%6.6% (5.4% and 6.8% excluding PPP loans) of total loans at both December 31, 20192022 and 20182021 and real estate loans made up 50.1%58.4% and 48.3%55.0% (58.6% and 56.5% excluding PPP loans) of total loans at December 31, 20192022 and 2018.2021. Energy loans include commercial and industrial loans, leases and real estate
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loans to borrowers in the energy industry. Real estate loans include both commercial and consumer balances.
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. We have begun to explore the credit and reputational risks associated with climate change and their potential impact on the foregoing and are also closely monitoring regulatory developments on climate risk. This includes, among other things, researching and developing a formalized approach to considering climate change related risks in our underwriting processes. This approach will be impacted, in part, by the accessibility and reliability of both customer climate risk data and climate risk data in general. One of the objectives of these efforts is to enable us to better understand the climate change related risks associated with our customers' business activities and to be able to monitor their response to those risks and their ultimate impact on our customers.
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 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 for these types of loans are typically 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 value is calculated at least semi-annually using third partythird-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 certain 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%. We generally require production borrowers to maintain an active hedging program to manage risk and to have at least 50% of their production hedged for two years.
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
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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.
Although no balances were outstanding at December 31, 2019 and 2018, in prior years, we have had a small portfolio of loans to refiners where our credit involvement with these customers was 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 and any outstanding balances are expected to only reflect the 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
PPP loans, which were originated in 2020 and early 2021, 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 new customer origination process for this segmentcollateral 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 outstanding balances are expectedaccrued interest, subject to only reflectcertain requirements including that no more than 40% of the needsloan 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 these existing relationships.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.location. 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, 2019,2022, approximately 43%49.6% 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, loan-to-value limitations, collection remedies, the number of such loans a borrower can have at one time and documentation requirements.
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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.
Commercial and Industrial. Commercial and industrial loans increased $75.5$309.8 million, or 1.5%5.8%, during 20192022 compared to 2018.2021. 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 $50.3decreased $152.1 million, or 3.1%14.1%, during 20192022 compared to 2018.2021. 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.

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. We funded approximately $1.4 billion and $3.3 billion of SBA-approved PPP loans during 2021 and 2020, respectively. During 2022 and 2021, we recognized approximately $2.6 million and $97.3 million in PPP loan related deferred processing fees (net of amortization of related deferred origination costs), respectively, as yield adjustments and these amounts are included in interest income on loans. As a result of the inclusion of these net fees in interest income, the average yields on PPP loans were 2.84% during 2022 and 6.26% during 2021, compared to the stated interest rate of 1.0% on these loans.
Industry Concentrations. As of December 31, 20192022 and 2018, other than energy loans,2021, there were no concentrations of loans withinrelated to any single industry, in excess of 10% of total loans, as segregated by Standard Industrial Classification code (“SIC code”)., in excess of 10% of total loans. 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,code, stated as a percentage of year-end total loans as of December 31, 20192022 and 2018, are presented below:2021.
20222021
Industry Concentrations
Energy5.4 %6.6 %
Automobile dealers5.4 4.1 
Public finance4.6 4.9 
Medical services3.9 3.7 
Building materials and contractors3.8 3.7 
General and specific trade contractors3.6 3.2 
Manufacturing, other3.4 2.8 
Investor2.8 2.7 
Services2.3 2.4 
Religion1.8 2.0 
Paycheck Protection Program0.2 2.6 
All other62.8 61.3 
Total loans100.0 %100.0 %

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 2019 2018
Industry concentrations:   
Energy11.2% 11.4%
Public finance5.1
 5.4
Medical services3.9
 4.0
Automobile dealers3.8
 2.9
General and specific trade contractors3.4
 3.4
Manufacturing, other3.1
 2.9
Building materials and contractors3.1
 3.2
Services2.3
 2.1
Religion2.3
 2.5
Investor2.2
 2.1
Financial services, consumer credit2.0
 2.3
All other57.6
 57.8
Total loans100.0% 100.0%
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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$50.0 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$50.0 million. In addition to our normal policies and procedures related to the origination of large credits, one of our Regional Credit 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 $30.0 million. The Regional and Central Credit Committees meet regularly to review large credit relationship activity and discuss the current pipeline, among other things.
The following table provides additional information on our large credit relationships outstanding atwith committed amounts in excess of $50.0 million as of year-end.
 2019 2018
Number of
Relationships
 Period-End Balances 
Number of
Relationships
 Period-End Balances
Committed Outstanding Committed Outstanding
Committed amount:           
$20.0 million and greater261 $11,855,203
 $6,657,382
 247 $10,815,882
 $6,236,133
$10.0 million to $19.9 million179 2,451,804
 1,451,453
 165 2,296,908
 1,395,082
Average amount:           
$20.0 million and greater  45,422
 25,507
   43,789
 25,248
$10.0 million to $19.9 million  13,697
 8,109
   13,921
 8,455
20222021
Number of
Relationships
Period-End BalancesNumber of
Relationships
Period-End Balances
CommittedOutstandingCommittedOutstanding
Amount outstanding103$9,710,866 $5,030,717 87$7,578,271 $4,300,304 
Average94,280 48,842 87,107 49,429 
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 $948.8$790.5 million at December 31, 20192022 increasing $191.3$92.1 million, or 25.2%13.2%, from $757.5$698.4 million at December 31, 2018.2021. At December 31, 2019, 45.6% of outstanding purchased SNCs were related to the energy industry, 17.7%2022, 32.8% of outstanding purchased SNCs were related to the construction industry, and 10.5% of outstanding purchased SNCs22.7% were related to the energy industry, 11.9% were related to the financial services industry and 11.4% were related to the real estate management 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 with committed amounts in excess of $50.0 million as of year-end.
 2019 2018
Number of
Relationships
 Period-End Balances 
Number of
Relationships
 Period-End Balances
Committed Outstanding Committed Outstanding
Committed amount:           
$20.0 million and greater43 $1,619,398
 $804,608
 38 $1,431,117
 $605,402
$10.0 million to $19.9 million19 269,974
 136,541
 18 268,974
 149,233
Average amount:           
$20.0 million and greater  37,660
 18,712
   37,661
 15,932
$10.0 million to $19.9 million  14,209
 7,186
   14,943
 8,291
20222021
Number of
Relationships
Period-End BalancesNumber of
Relationships
Period-End Balances
CommittedOutstandingCommittedOutstanding
Amount outstanding13$855,331 $354,097 10$630,575 $224,939 
Average65,795 27,238 63,058 22,494 
Real Estate Loans. Real estate loans increased $575.2 million,$1.0 billion, or 8.4%11.6%, during 20192022 compared to 2018.2021. Real estate loans include both commercial and consumer balances. Commercial real estate loans totaled $6.2$8.2 billion, or 83.8%81.6% of total real estate loans, at December 31, 20192022 and $5.7$7.6 billion, or 83.6%84.3% of total real estate loans, at December 31, 2018.2021. The majority of this portfolio consists of commercial real estate mortgages, which includes both permanent and intermediate term loans. Loans secured by owner-occupied properties make up a significant portion of our commercial real estate 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.
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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, 20192022 and 2018:2021:
20222021
Property type:
Office building22.4 %24.0 %
Office/warehouse19.1 18.4 
Retail11.2 10.2 
Multifamily6.5 6.6 
Dealerships6.3 5.1 
Medical offices and services4.2 3.7 
1-4 family construction4.1 3.7 
Non-farm/non-residential3.9 4.8 
Hotel3.3 3.8 
Religious3.0 3.3 
Raw land2.4 2.2 
Land in development2.1 1.6 
Land developed2.0 1.6 
Restaurant1.9 2.0 
Strip centers1.5 2.3 
All other6.1 6.7 
Total commercial real estate loans100.0 %100.0 %
 2019 2018
Property type:   
Office building21.0% 20.9%
Office/warehouse17.2
 16.1
Multifamily9.9
 9.2
Retail8.1
 8.4
Non-farm/non-residential6.5
 5.8
Dealerships5.3
 4.9
Medical offices and services4.8
 4.7
Religious3.5
 4.0
Hotel3.4
 2.6
Strip centers3.3
 3.4
1-4 family construction2.6
 3.2
All other14.4
 16.8
Total commercial real estate loans100.0% 100.0%

2019 201820222021
Geographic region:   Geographic region:
San Antonio27.8% 26.2%San Antonio25.7 %26.6 %
Houston24.1
 23.8
Houston24.9 23.5 
DallasDallas16.0 15.6 
Fort Worth16.3
 16.1
Fort Worth14.4 16.4 
Dallas14.0
 15.4
Austin9.8
 9.1
Austin12.4 11.0 
Rio Grande Valley3.6
 4.8
Rio Grande Valley3.0 3.1 
Permian Basin2.7
 2.7
Permian Basin1.9 1.8 
Corpus Christi1.7
 1.9
Corpus Christi1.7 2.0 
Total commercial real estate loans100.0% 100.0%Total commercial real estate loans100.0 %100.0 %
Consumer Loans. The consumer loan portfolio at December 31, 20192022 increased $25.0$448.1 million, or 1.5%23.7%, from December 31, 2018.2021. As the following table illustrates, the consumer loan portfolio has two distinct segments, including consumer real estate and consumer and other.
2019 201820222021
Consumer real estate:   Consumer real estate:
Home equity lines of creditHome equity lines of credit$691,841 $519,098 
Home equity loans$375,596
 $353,924
Home equity loans449,507 324,157 
Home equity lines of credit354,671
 337,168
Home improvementHome improvement577,377 428,069 
Other464,146
 427,898
Other124,814 139,466 
Total consumer real estate1,194,413
 1,118,990
Total consumer real estate1,843,539 1,410,790 
Consumer and other519,332
 569,750
Consumer and other492,726 477,369 
Total consumer loans$1,713,745
 $1,688,740
Total consumer loans$2,336,265 $1,888,159 
Consumer real estate loans at December 31, 20192022 increased $75.4$432.7 million, or 6.7%30.7%, from December 31, 2018.2021. Combined, home equity loans and lines of credit made up 61.1%61.9% and 61.8%59.8% of the consumer real estate loan total at December 31, 20192022 and 2018,2021, 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 doWe have not originategenerally originated 1-4 family mortgage loans;loans since 2000; however, from time to time, we may investinvested in such loans to
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meet the needs of our customers. Under the Tax Cuts and Jobs Act enacted on December 22, 2017, interest on home equitycustomers or for other regulatory compliance purposes. Nonetheless, we expect to begin regular production of 1-4 family mortgage 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 creditfor portfolio investment purposes in the future.2023. The consumer and other loan portfolio at December 31, 2019 decreased $50.42022 increased $15.4 million, or 8.8%3.2%, from December 31, 2018.2021. 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, 20192022 or 2018.2021.

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 and commercial real estate loansloan portfolio at December 31, 2019.2022. 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.index.
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$2,066,527
 $2,240,596
 $880,343
 $5,187,466
Commercial and industrial$2,066,713 $2,548,938 $921,961 $137,186 $5,674,798 
Energy995,548
 643,061
 14,273
 1,652,882
Energy424,917 464,368 35,841 603 925,729 
Paycheck Protection ProgramPaycheck Protection Program3,707 31,145 — — 34,852 
Commercial real estateCommercial real estate
Buildings, land and otherBuildings, land and other867,013 2,745,770 2,936,721 156,574 6,706,078 
ConstructionConstruction341,466 735,979 355,595 44,207 1,477,247 
Consumer Real EstateConsumer Real Estate8,839 17,755 609,145 1,207,800 1,843,539 
Consumer and OtherConsumer and Other246,590 228,177 17,959 — 492,726 
TotalTotal$3,959,245 $6,772,132 $4,877,222 $1,546,370 $17,154,969 
Loans with fixed interest rates:Loans with fixed interest rates:
Commercial and industrialCommercial and industrial$285,755 $1,032,431 $624,191 $109,795 $2,052,172 
EnergyEnergy17,944 51,884 35,585 603 106,016 
Paycheck Protection ProgramPaycheck Protection Program3,707 31,145 — — 34,852 
Commercial real estate:       Commercial real estate:
Buildings, land and other507,956
 2,311,538
 2,064,086
 4,883,580
Buildings, land and other147,080 1,252,698 2,257,057 49,318 3,706,153 
Construction351,449
 817,411
 143,799
 1,312,659
Construction1,065 52,910 138,924 679 193,578 
Consumer Real EstateConsumer Real Estate8,023 16,043 536,339 591,066 1,151,471 
Consumer and OtherConsumer and Other22,517 42,402 13,630 — 78,549 
Total$3,921,480
 $6,012,606
 $3,102,501
 $13,036,587
Total$486,091 $2,479,513 $3,605,726 $751,461 $7,322,791 
       
Loans with fixed interest rates$427,676
 $1,830,400
 $1,767,077
 $4,025,153
Loans with floating interest rates3,493,804
 4,182,206
 1,335,424
 9,011,434
Loans with floating interest rates:Loans with floating interest rates:
Commercial and industrialCommercial and industrial$1,780,958 $1,516,507 $297,770 $27,391 $3,622,626 
EnergyEnergy406,973 412,484 256 — 819,713 
Paycheck Protection ProgramPaycheck Protection Program— — — — — 
Commercial real estate:Commercial real estate:
Buildings, land and otherBuildings, land and other719,933 1,493,072 679,664 107,256 2,999,925 
ConstructionConstruction340,401 683,069 216,671 43,528 1,283,669 
Consumer Real EstateConsumer Real Estate816 1,712 72,806 616,734 692,068 
Consumer and OtherConsumer and Other224,073 185,775 4,329 — 414,177 
Total$3,921,480
 $6,012,606
 $3,102,501
 $13,036,587
Total$3,473,154 $4,292,619 $1,271,496 $794,909 $9,832,178 
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 and without any contractual obligation on our part, 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
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could obtain similar financing from another financial institution. In connection with each renewal, extension or refinancing, we may require a principal reduction, adjust the rate of interest and/or modify the structure and other terms to reflect the current market pricing/structuring for such loans or to maintain competitiveness with other financial institutions. In such cases, 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.Accruing Past Due Loans. Year-end non-performing assets and accruingAccruing past due loans were as follows:are presented in the following table. Also see Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.
Accruing Loans
30-89 Days Past Due
Accruing Loans
90 or More Days
Past Due
Total Accruing
Past Due Loans
Total
Loans
AmountPercent of Loans in CategoryAmountPercent of Loans in CategoryAmountPercent of Loans in Category
December 31, 2022
Commercial and industrial$5,674,798 $30,769 0.54 %$5,560 0.10 %$36,329 0.64 %
Energy925,729 1,472 0.16 — — 1,472 0.16 
Paycheck Protection Program34,852 5,321 15.27 13,867 39.79 19,188 55.06 
Commercial real estate:
Buildings, land and other6,706,078 23,561 0.35 5,664 0.08 29,225 0.43 
Construction1,477,247 — — — — — — 
Consumer real estate1,843,539 7,856 0.43 2,398 0.13 10,254 0.56 
Consumer and other492,726 5,155 1.05 311 0.06 5,466 1.11 
Total$17,154,969 $74,134 0.43 $27,800 0.16 $101,934 0.59 
Excluding PPP loans$17,120,117 $68,813 0.40 $13,933 0.08 $82,746 0.48 
December 31, 2021
Commercial and industrial$5,364,954 $29,491 0.55 %$7,802 0.15 %$37,293 0.70 %
Energy1,077,792 1,353 0.13 215 0.02 1,568 0.15 
Paycheck Protection Program428,882 4,979 1.16 18,766 4.38 23,745 5.54 
Commercial real estate:
Buildings, land and other6,272,339 37,033 0.59 8,687 0.14 45,720 0.73 
Construction1,304,271 188 0.01 — — 188 0.01 
Consumer real estate1,410,790 4,866 0.34 2,177 0.15 7,043 0.49 
Consumer and other477,369 4,185 0.88 1,076 0.23 5,261 1.11 
Total$16,336,397 $82,095 0.50 $38,723 0.24 $120,818 0.74 
Excluding PPP loans$15,907,515 $77,116 0.48 $19,957 0.13 $97,073 0.61 

2019
2018
2017
2016
2015
Non-accrual loans:         
Commercial and industrial$26,038
 $9,239
 $46,186
 $31,475
 $25,111
Energy65,761
 46,932
 94,302
 57,571
 21,180
Commercial real estate9,577
 15,268
 7,589
 8,550
 35,088
Consumer real estate922
 892
 2,109
 2,130
 1,862
Consumer and other5
 1,408
 128
 425
 226
Total non-accrual loans102,303
 73,739
 150,314
 100,151
 83,467
Restructured loans6,098
 
 4,862
 
 
Foreclosed assets:         
Real estate1,084
 1,175
 2,116
 2,440
 2,255
Other
 
 
 
 
Total foreclosed assets1,084
 1,175
 2,116
 2,440
 2,255
Total non-performing assets$109,485
 $74,914
 $157,292
 $102,591
 $85,722
Ratio of non-performing assets to:         
Total loans and foreclosed assets0.74% 0.53% 1.20% 0.86% 0.75%
Total assets0.32
 0.23
 0.50
 0.34
 0.30
Accruing past due loans:         
30 to 89 days past due$50,784
 $59,595
 $93,428
 $55,456
 $59,480
90 or more days past due7,421
 20,468
 14,432
 24,864
 8,108
Total accruing past due loans$58,205
 $80,063
 $107,860
 $80,320
 $67,588
Ratio of accruing past due loans to total loans:         
30 to 89 days past due0.34% 0.42% 0.71% 0.46% 0.52%
90 or more days past due0.05
 0.15
 0.11
 0.21
 0.07
Total accruing past due loans0.39% 0.57% 0.82% 0.67% 0.59%
Non-performing assets include non-accrualAccruing past due loans restructured loans and foreclosed assets. Non-performing assets at December 31, 2019 increased $34.62022 decreased $18.9 million compared to December 31, 2018 reflecting increases2021. The decrease was primarily due to decreases in non-accrualpast due non-construction related commercial real estate loans (down $16.5 million), past due PPP loans (down $4.6 million) and past due commercial and industrial loans and non-accrual energy loans and restructured loans(down $1.0 million) partly offset by a decreasean increase in past due consumer real estate loans (up $3.2 million). PPP loans are fully guaranteed by the SBA and we expect to collect all amounts due related to these loans. Excluding PPP loans, accruing past due loans decreased $14.3 million.
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Non-Accrual Loans. Non-accrual loans are presented in the tables below. Also see Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.
December 31, 2022December 31, 2021
Non-Accrual LoansNon-Accrual Loans
Total
Loans
AmountPercent of Loans in CategoryTotal
Loans
AmountPercent of Loans in Category
Commercial and industrial$5,674,798 $18,130 0.32 %$5,364,954 $22,582 0.42 %
Energy925,729 15,224 1.64 1,077,792 14,433 1.34 
Paycheck Protection Program34,852 — — 428,882 — — 
Commercial real estate:
Buildings, land and other6,706,078 3,552 0.05 6,272,339 15,297 0.24 
Construction1,477,247 — — 1,304,271 948 0.07 
Consumer real estate1,843,539 927 0.05 1,410,790 440 0.03 
Consumer and other492,726 — — 477,369 13 — 
Total$17,154,969 $37,833 0.22 $16,336,397 $53,713 0.33 
Excluding PPP loans$17,120,117 $37,833 0.22 $15,907,515 $53,713 0.34 
Allowance for credit losses on loans$227,621 $248,666 
Ratio of allowance for credit losses on loans to non-accrual loans601.65 %462.95 %
Non-accrual loans at December 31, 2022 decreased $15.9 million from December 31, 2021 primarily due to decreases in non-accrual commercial real estate loans. Non-accrualloans and commercial and industrial loans included one credit relationship in excess of $5.0 million totaling $8.4 million at December 31, 2019. This credit relationship was first reported as a potential problem loan during the third quarter of 2019. Thereloans. The decreases were no non-accrual commercial and industrial loans in excess of $5.0 million at December 31, 2018. Non-accrual energy loans included two credit relationships in excess of $5 million totaling $61.7 million at December 31, 2019. This included a single credit relationship totaling $34.0 million that was classified as non-accrual during the third quarter of 2019. The other credit relationship, which totaled $27.7 million at December 31, 2019, was previously reported as non-accrual with an aggregate balance of $37.6 million at December 31, 2018. We charged off $7.5 millionprimarily related to this credit relationship during 2019. Non-accrual energyprincipal payments, loans at December 31, 2018 included one other credit relationship in excess of $5 million totaling $6.4 million. Non-accrual real estate loans primarily consist of land development, 1-4 family residential construction credit relationshipsreturning to accrual status 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, 2019. Non-accrual commercial real estate loans included one relationship in excess of $5.0 million totaling $12.2 million at December 31, 2018. This credit relationship was sold during the second quarter of 2019.charge-offs.
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.

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. 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. There were no write-downsnon-accrual commercial and industrial loans in excess of foreclosed assets$5.0 million at December 31, 2022 or December 31, 2021. Non-accrual energy loans included two credit relationship in 2019 while write-downs totaled $473 thousandexcess of $5 million totaling $11.1 million at December 31, 2022. One of these relationships was previously reported as non-accrual with an aggregate balance of $9.6 million at December 31, 2021. The aggregate balance of this credit relationship decreased $3.6 million in 2022 as a result of principal payments made by the borrower. Non-accrual real estate loans primarily consist of land development, 1-4 family residential construction credit relationships and $16 thousand during 2018loans secured by office buildings and 2017, respectively.religious facilities. 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, 2019 decreased $21.9 million compared to December 31, 2018. The decrease was primarily related to decreases in past duenon-accrual commercial real estate loans (down $9.8 million)in excess of $5.0 million at December 31, 2022 or December 31, 2021.
Allowance For Credit Losses
As discussed in Note 1 - Summary of Significant Accounting Policies in the accompanying notes to consolidated financial statements, our policies and past due commercial and industrial loans (down $7.7 million).
Potential problem loans consistprocedures related to accounting for credit losses changed on January 1, 2020 in connection with the adoption of loans that are performinga new accounting standard update as codified in Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses. 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 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 contractual terms but for which management has concerns about the ability of an obligor to continue to comply with repayment terms becauseterm of the obligor’s potential operatinginstrument. 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 financial difficulties. Management monitors these loans closelyother relevant factors. While management utilizes its best judgment and reviews their performance on a regular basis. At December 31, 2019 and 2018, we had $46.8 million and $63.4 million in loansinformation
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available, the non-accrual, restructured or 90 days past due loan categories. At December 31, 2019, potential problem loans consisted of ten credit relationships. Of the total outstanding balance at December 31, 2019, 23.8% was related to the restaurant industry, 23.2% was related to the energy industry, 15.4% was related to the real estate industry and 12.9% was related to building contractors. Weakness in these organizations’ operating performance and financial condition, 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, 2019 were graded as “substandard - accrual” (risk grade 11). Potential problem loans impact the allocationultimate adequacy of our allowance for loan losses asaccounts is dependent upon a resultvariety of factors beyond our control, including the performance of our risk grade based allocation methodology. Seeportfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. For additional information regarding our accounting policies related to credit losses, refer to Note 1 - Summary of Significant Accounting Policies and Note 3 - Loans in the accompanying consolidated financial statements for details regarding our allowance allocation methodology.
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 losses consists of: (i) specific valuation allowances determined in accordance with ASC Topic 310, “Receivables,” based on probable losses on specific loans; (ii) historical valuation allowances determined in accordance with ASC Topic 450, “Contingencies,” 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 upon management's assessment of current and expected economic conditions, trends and other quantitative and qualitative portfolio risk factors that are external to us or that are not otherwise captured in our allowance modeling process but could impact the credit risk or inherent losses within our loan portfolio segments.
Our model for the determination of the allowance for loan losses is largely prescriptive, based on policy, and calculated using quantitative data related to our loan portfolio. This calculation yields the minimum level of allowance required (“minimum calculated need”). In that the model is constructed to address aspects of the loan portfolio quantitatively as they move over time (both good and bad), the model output of the minimum calculated need will move directionally with the overall health of the portfolio and inherent losses in the portfolio at any period end. While the model inherently captures loan portfolio characteristics and actions such as risk grade migration, required specific reserves, net charge-offs, among other things, the model contains a degree of imprecision arising from various items and portfolio risk factors that are not and cannot be incorporated in to the model but nonetheless have an impact on the overall level of allowance deemed appropriate by management. To adequately address this imprecision, our methodology to determine the allowance for loan losses provides for additional reserves in excess of the minimum calculated need. This process entails the application of management judgment related to various non-model items and portfolio risk factors not addressed by the quantitative model but reflective of inherent losses in the portfolio. These additional reserves, which are reported as a component of our macroeconomic valuation allowances, are determined at the portfolio level and allocated as reserves for general economic risk to our various portfolio segments based upon management judgment.

On January 1, 2020, we adopted a new accounting standard which replaces the “incurred loss” model for measuring credit losses discussed above with a new “expected loss” model. See Note 20 - Accounting Standard Updates in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this reportstatements.
Allowance for additional details.
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. Seesegments.
Amount of Allowance AllocatedPercent of Loans in Each Category to Total LoansTotal
Loans
Ratio of Allowance Allocated to Loans in Each Category
December 31, 2022
Commercial and industrial$104,237 33.1 %$5,674,798 1.84 %
Energy18,062 5.4 925,729 1.95 
Paycheck Protection Program— 0.2 34,852 — 
Commercial real estate90,301 47.7 8,183,325 1.10 
Consumer real estate8,004 10.7 1,843,539 0.43 
Consumer and other7,017 2.9 492,726 1.42 
Total$227,621 100.0 %$17,154,969 1.33 
Excluding PPP loans$227,621 $17,120,117 1.33 
December 31, 2021
Commercial and industrial$72,091 32.9 %$5,364,954 1.34 %
Energy17,217 6.6 1,077,792 1.60 
Paycheck Protection Program— 2.6 428,882 — 
Commercial real estate144,936 46.4 7,576,610 1.91 
Consumer real estate6,585 8.6 1,410,790 0.47 
Consumer and other7,837 2.9 477,369 1.64 
Total$248,666 100.0 %$16,336,397 1.52 
Excluding PPP loans$248,666 $15,907,515 1.56 
The allowance allocated to commercial and industrial loans totaled $104.2 million, or 1.84% of total commercial and industrial loans, at December 31, 2022 increasing $32.1 million, or 44.6%, compared to $72.1 million, or 1.34% of total commercial and industrial loans at December 31, 2021. Modeled expected credit losses increased $15.0 million while qualitative factor (“Q-Factor”) and other qualitative adjustments related to commercial and industrial loans increased $21.6 million. Specific allocations for commercial and industrial loans that were evaluated for expected credit losses on an individual basis decreased $4.5 million, or 42.3%, from $10.5 million at December 31, 2021 to $6.1 million at December 31, 2022. The decrease in specific allocations for commercial and industrial loans was primarily related to principal payments received and the recognition of charge-offs.
The allowance allocated to energy loans totaled $18.1 million, or 1.95% of total energy loans, at December 31, 2022 decreasing $845 thousand, or 4.9%, compared to $17.2 million, or 1.60% of total energy loans at December 31, 2021. Modeled expected credit losses related to energy loans increased $2.2 million while Q-Factor and other qualitative adjustments related to energy loans decreased $226 thousand. Specific allocations for energy loans that were evaluated for expected credit losses on an individual basis totaled $4.4 million at December 31, 2022 decreasing $1.1 million, or 20.0%, compared to $5.5 million at December 31, 2021.
The allowance allocated to commercial real estate loans totaled $90.3 million, or 1.10% of total commercial real estate loans, at December 31, 2022 decreasing $54.6 million, or 37.7%, compared to $144.9 million, or 1.91% of total commercial real estate loans at December 31, 2021. Modeled expected credit losses related to commercial real estate loans increased $10.3 million while Q-Factor and other qualitative adjustments related to commercial real estate loans decreased $66.3 million. Specific allocations for commercial real estate loans that were evaluated for expected credit losses on an individual basis increased from $400 thousand at December 31, 2021 to $1.7 million at December 31, 2022.
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The allowance allocated to consumer real estate loans totaled $8.0 million, or 0.43% of total consumer real estate loans, at December 31, 2022 increasing $1.4 million, or 21.5%, compared to $6.6 million, or 0.47% of total consumer real estate loans at December 31, 2021 primarily due to modeled expected credit losses which increased $1.4 million.
The allowance allocated to consumer loans totaled $7.0 million, or 1.42% of total consumer loans, at December 31, 2022 decreasing $820 thousand, or 10.5%, compared to $7.8 million, or 1.64% of total consumer loans at December 31, 2021. Modeled expected credit losses related to consumer loans decreased $1.4 million while Q-Factor and other qualitative adjustments related to consumer loans increased $594 thousand.
As more fully described in Note 3 - Loans in the accompanying notes to consolidated financial statements, elsewherewe 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, 2022, we utilized the Moody’s Analytics December 2022 Baseline Scenario (the “December 2022 Baseline Scenario”) to forecast the macroeconomic variables used in this report for further details regarding our methodology for estimatingmodels. The December 2022 Baseline Scenario was based on the appropriate levelreview of a variety of surveys of baseline forecasts of the allowance for loan lossesU.S. economy. The December 2022 Baseline Scenario projections included, among other things, (i) U.S. Nominal Gross Domestic Product annualized quarterly growth rate of 2.65% in the first quarter of 2023, followed by annualized quarterly growth rates in the range of 3.62% to 4.50% during the remainder of 2023 and an average annualized growth rate of 4.79% through the amounts allocated to specific portfolio segments.
 2019 2018 2017 2016 2015
 
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$51,593
 35.2% $48,580
 36.3% $59,614
 36.4% $52,915
 36.3% $42,993
 35.9%
Energy37,382
 11.2
 29,052
 11.4
 51,528
 11.4
 60,653
 11.6
 54,696
 15.3
Commercial real estate31,037
 42.0
 38,777
 40.4
 30,948
 40.2
 30,213
 40.4
 24,313
 37.4
Consumer real estate4,113
 8.1
 6,103
 7.9
 5,657
 7.8
 4,238
 7.8
 4,659
 7.6
Consumer and other8,042
 3.5
 9,620
 4.0
 7,617
 4.2
 5,026
 3.9
 9,198
 3.8
Total$132,167
 100.0% $132,132
 100.0% $155,364
 100.0% $153,045
 100.0% $135,859
 100.0%
Allocationend of the Allowance for Loan Losses atforecast period in the fourth quarter of 2024; (ii) U.S. unemployment rate of 3.80% in the first quarter of 2023 and an average quarterly U.S. unemployment rate of 4.06% through the end of the forecast period in the fourth quarter of 2024; (iii) Texas unemployment rate of 4.10% in the first quarter of 2023 and an average quarterly Texas unemployment rate of 4.04% through the end of the forecast period in the fourth quarter of 2024; (iv) projected average 10 year Treasury rate of 4.03% in the first quarter of 2023 and average projected rates of 4.25% during the remainder of 2023 and 3.96% in 2024; and (v) average oil price of $93 per barrel in the first quarter of 2023 decreasing to $67 per barrel by the end of the forecast period in the fourth quarter of 2024.
In estimating expected credit losses as of December 31, 2019 vs.2021, we utilized the Moody’s Analytics December 2021 Consensus Scenario (the “December 2021 Consensus Scenario”) to forecast the macroeconomic variables used in our models. The December 2021 Consensus Scenario was based on the review of a variety of surveys of baseline forecasts of the U.S. economy. The December 2021 Consensus Scenario projections included, among other things, (i) U.S. Nominal Gross Domestic Product annualized quarterly growth rate of 6.40% in the first quarter of 2022, followed by annualized quarterly growth rates in the range of 3.83% to 5.35% during the remainder of 2022 and an average annualized growth rate of 4.76% through the end of the forecast period in the fourth quarter of 2023; (ii) U.S. unemployment rate of 4.33% in the first quarter of 2022 improving to 3.69% by the end of the forecast period in the fourth quarter of 2023 with Texas unemployment rates slightly higher at those dates; (iii) projected average 10 year Treasury rate of 1.59% in the first quarter of 2022, increasing to average projected rates of 1.75% during the remainder of 2022 and 2.10% in 2023; and (iv) average oil price in the range of approximately $62 to $66 per barrel through the end of the forecast period in the fourth quarter of 2023.
The overall loan portfolio, excluding PPP loans which are fully guaranteed by the SBA, as of December 31, 2018
The reserve allocated2022 increased $1.2 billion, or 7.6%, compared to December 31, 2021. This increase included a $606.7 million, or 8.0%, increase in commercial real estate loans, a $309.8 million, or 5.8%, increase in commercial and industrial loans at December 31, 2019 increased $3.0and a $432.7 million, compared to December 31, 2018. Theor 30.7%, increase was primarily due to increases in specific valuation allowancesconsumer real estate loans and historical valuation allowancesa $15.4 million, or 3.2%, increase in consumer and other loans partly offset by a $152.1 million, or 14.1%, decrease in macroeconomic valuation allowances. Specific valuation allowancesenergy loans. The weighted average risk grade for commercial and industrial loans increased $5.3 million from $2.6 millionto 6.39 at December 31, 20182022 compared to $7.8 million6.22 at December 31, 2019. The increase included new specific valuation allowances totaling $5.6 million on three credit relationships which had an aggregate outstanding balance totaling $14.0 million at December 31, 2019. Historical valuation allowances increased $3.7 million from $25.4 million at December 31, 2018 to $29.0 million at December 31, 2019. The increase was primarily related to an increase in the volume of non-classified2021. Commercial and industrial loans graded "watch"“watch” and “special mention” (risk grade 9).grades 9 and 10) decreased $63.2 million during 2022 while classified commercial and industrial loans increased $993 thousand. Classified loans consist of loans having a risk grade of 11, 12 or 13. Classified commercial and industrial loans totaled $79.9 million at December 31, 2019 compared to $78.9 million at December 31, 2018. The weighted-average risk grade for energy loans decreased to 5.67 at December 31, 2022 from 6.06 at December 31, 2021. The decrease in the weighted average risk grade was impacted by a decrease in the weighted-average risk grade of pass grade energy loans from 5.78 at December 31, 2021 to 5.44 at December 31, 2022. Additionally, energy loans graded “watch” and “special mention” (risk grades 9 and 10) decreased $26.6 million while classified energy loans decreased $4.2 million. The weighted average risk grade for commercial real estate loans decreased from 7.19 at December 31, 2021 to 7.10 at
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December 31, 2022. Pass grade commercial real estate loans increased $932.9 million while commercial real estate loans graded as “watch” and “special mention” decreased $315.3 million and classified commercial real estate loans decreased $10.9 million.
As noted above our credit loss models utilized the economic forecasts in the Moody’s Baseline Scenario for December 2022 for our estimated expected credit losses as of December 31, 2022 and the Moody’s Consensus Scenario for December 2021 for our estimate of expected credit losses as of December 31, 2021. We qualitatively adjusted the model results based on these scenarios 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 and other qualitative adjustments are discussed below.
Q-Factor adjustments are based upon management judgment and current assessment as to the impact of risks related to 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 this assessment as of December 31, 2022, modeled expected credit losses were adjusted upwards by a weighted-average Q-Factor adjustment of approximately 2.2%, resulting in a $2.3 million total adjustment, up from approximately 2.3% at December 31, 2021, which resulted in a $1.8 million total adjustment. The weighted-average Q-Factor adjustment at December 31, 2022 was based on a limited negative expected impact on our non-owner occupied and construction commercial real estate loan portfolios related to changes in loan portfolio concentrations (no expected impact related to our commercial and industrial loans was 6.44portfolio); a limited negative expected impact on all of our loan portfolios related to changes in the volumes and severity of loan delinquencies, changes in risk grades and adverse classifications; a limited negative expected impact on our commercial and consumer real estate portfolios related to the potential deterioration of collateral values (no expected impact related to our commercial and industrial and consumer portfolios); a negative expected impact associated with national, regional and local economic and business conditions and developments that affect the collectability of loans; a severely negative expected impact from other risk factors associated with our commercial real estate construction and land loan portfolios, particularly the risks related to expected extensions; and limited negative impact to our commercial real estate construction and non-owner occupied loan portfolios, as well as a negative impact to our consumer loan portfolio related to changes in lending policies, procedures, underwriting standards and loan portfolio attributes, among other things. The weighted-average Q-Factor adjustment at December 31, 2019 compared2021 was based on a limited negative expected impact on our commercial loan portfolios related to 6.30 atchanges in lending policies procedures and underwriting standards and changes in loan portfolio concentrations; a negative expected impact associated with national, regional and local economic and business conditions and developments that affect the collectability of loans; a severely negative expected impact from other risk factors associated with our commercial real estate construction and land loan portfolios, particularly the risks related to expected extensions; and no impact to changes in loan portfolio attributes, changes in risk grades, changes in the volumes and severity of loan delinquencies and adverse classifications and potential deterioration of collateral values.
We have also provided additional qualitative adjustments, or management overlays, as of December 31, 2018. Commercial2022 as management believes there are still significant risks impacting certain categories of our loan net charge-offs totaled $10.1 million during 2019 comparedportfolio. Q-Factor and other qualitative adjustments as of December 31, 2022 are detailed in the table below.
Q-Factor AdjustmentModel OverlaysOffice Building OverlaysDown-Side Scenario OverlayCredit Concentration OverlaysConsumer OverlayTotal
Commercial and industrial$929 $— $— $29,632 $5,676 $— $36,237 
Energy128 — — — 5,020 — 5,148 
Commercial real estate:
Owner occupied318 19,708 — — 1,718 — 21,744 
Non-owner occupied95 10,472 16,557 — 487 — 27,611 
Construction660 7,905 3,122 — 530 — 12,217 
Consumer real estate157 — — — — — 157 
Consumer and other34 — — — — 2,000 2,034 
Total$2,321 $38,085 $19,679 $29,632 $13,431 $2,000 $105,148 
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Model overlays are qualitative adjustments to $22.4 million during 2018. Charge-offs in 2018 included $15.3 million relatedaddress the effect of risks not captured within our commercial real estate credit loss models. These adjustments are determined based upon minimum reserve ratios for our commercial real estate - owner occupied, commercial real estate - non-owner occupied and commercial real estate - construction loan portfolios.
Office building overlays are qualitative adjustments to four credit relationships. Macroeconomic valuation allowancesaddress longer-term concerns over the utilization of commercial office space which could impact the long-term performance and collateral valuations of some types of office properties within our commercial real estate loan portfolio. These adjustments are determined based upon minimum reserve ratios for loans within our commercial real estate - non-owner occupied and commercial real estate - construction loan portfolios that have risk grades of 8 or worse.
The down-side scenario overlay is a qualitative adjustment for our commercial and industrial loans decreased $5.7 million from $10.6 million atloan portfolio to address the significant risk of economic recession as a result of inflation; rising interest rates; labor shortages; disruption in financial markets and global supply chains; further oil price volatility; and the current or anticipated impact of military conflict, including the current war between Russia and Ukraine, terrorism or other geopolitical events. Factors such as these are outside of our control but nonetheless affect customer income levels and could alter anticipated customer behavior, including borrowing, repayment, investment and deposit practices. To determine this qualitative adjustment, we use an alternative, more pessimistic economic scenario to forecast the macroeconomic variables used in our models. As of December 31, 20182022, we used the Moody’s Analytics November 2022 S3 Alternative Scenario Downside - 90th Percentile (the “November 2022 S3 Scenario”). In modeling expected credit losses using this scenario, we also assume each loan within our modeled loan pools is downgraded by one risk grade level. The qualitative adjustment is based upon the amount by which the alternative scenario modeling results exceed those of the primary scenario used in estimating credit loss expense, adjusted based upon management's assessment of the probability that this more pessimistic economic scenario will occur.
Credit concentration overlays are qualitative adjustments based upon statistical analysis to $4.9 million ataddress relationship exposure concentrations within our loan portfolio. Variations in loan portfolio concentrations over time cause expected credit losses within our existing portfolio to differ from historical loss experience. Given that the allowance for credit losses on loans reflects expected credit losses within our loan portfolio and the fact that these expected credit losses are uncertain as to nature, timing and amount, management believes that segments with higher concentration risk are more likely to experience a high loss event. Due to the fact that a significant portion of our loan portfolio is concentrated in large credit relationships and because of large, concentrated credit losses in recent years, management made the qualitative adjustments detailed in the table above to address the risk associated with such a relationship deteriorating to a loss event.
The consumer overlay is a qualitative adjustment for our consumer and other loan portfolio to address the risk associated with the level of unsecured loans within this portfolio and other risk factors. Unsecured consumer loans have an elevated risk of loss in times of economic stress as these loans lack a secondary source of repayment in the form of hard collateral. This adjustment was determined by analyzing our consumer loan charge-off trends as well as those of the general banking industry. Management deemed it appropriate to consider an additional overlay to the modeled forecasted losses for the unsecured consumer portfolio.
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As of December 31, 2019. 2021, we provided qualitative adjustments, as detailed in the table below. Further information regarding these qualitative adjustments is provided in our 2021 Form 10-K.
Q-Factor AdjustmentModel OverlaysOffice Building OverlaysSmall Business OverlayCOVID-19 Related OverlaysCredit Concentration OverlaysConsumer OverlayTotal
Commercial and industrial$939 $— $— $3,956 $4,715 $4,999 $— $14,609 
Energy127 — — — — 5,247 — 5,374 
Commercial real estate:
Owner occupied198 31,806 — — 7,397 1,320 — 40,721 
Non-owner occupied45 7,762 27,860 — 30,940 731 — 67,338 
Construction383 11,212 5,544 — 2,151 511 — 19,801 
Consumer real estate65 — — — — — — 65 
Consumer and other— — — — — 1,432 1,440 
Total$1,765 $50,780 $33,404 $3,956 $45,203 $12,808 $1,432 $149,348 
Additional information related to credit loss expense and net (charge-offs) recoveries is presented in the tables below. Also see Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.
Credit Loss Expense (Benefit)Net
(Charge-Offs)
Recoveries
Average
Loans
Ratio of Annualized Net (Charge-Offs)
Recoveries to Average Loans
2022
Commercial and industrial$34,479 $(2,333)$5,526,484 (0.04)%
Energy(313)1,158 992,051 0.12 
Paycheck Protection Program— — 139,126 — 
Commercial real estate(54,775)140 8,004,345 — 
Consumer real estate1,813 (394)1,584,435 (0.02)
Consumer and other13,517 (14,337)492,339 (2.91)
Total$(5,279)$(15,766)$16,738,780 (0.09)
Excluding PPP loans$(5,279)$(15,766)$16,599,654 (0.09)
2021
Commercial and industrial$(2,160)$408 $4,854,465 0.01 %
Energy(19,207)(3,129)1,049,540 (0.30)
Paycheck Protection Program— — 1,851,765 — 
Commercial real estate8,101 1,943 7,189,325 0.03 
Consumer real estate(3,061)1,720 1,350,554 0.13 
Consumer and other10,230 (9,356)473,982 (1.97)
Total$(6,097)$(8,414)$16,769,631 (0.05)
Excluding PPP loans$(6,097)$(8,414)$14,917,866 (0.06)
2020
Commercial and industrial$15,156 $(14,169)$5,068,730 (0.28)%
Energy85,889 (73,265)1,459,450 (5.02)
Paycheck Protection Program— — 2,158,477 — 
Commercial real estate124,427 (7,053)6,705,206 (0.11)
Consumer real estate1,906 (485)1,260,556 (0.04)
Consumer and other9,632 (8,463)512,034 (1.65)
Total$237,010 $(103,435)$17,164,453 (0.60)
Excluding PPP loans$237,010 $(103,435)$15,005,976 (0.69)
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We recorded a net credit loss benefit related to loans totaling $5.3 million in 2022 and $6.1 million in 2021 and a net credit loss expense related to loans totaling $237.0 million in 2020. Net credit loss expense/benefit for each portfolio segment reflects the amount needed to adjust the allowance for credit losses allocated to that segment to the level of expected credit losses determined under our allowance methodology after net charge-offs have been recognized.
The net credit loss benefit related to loans during 2022 primarily reflects a decrease wasin expected credit losses associated with commercial real estate loans, primarily related to a decrease in the general macroeconomic risk allocation (down $5.3 million), as further discussed below,expected credit losses related to certain pandemic impacted industries and a decreasereduction in the environmental risk adjustment (down $454 thousand) as a resultminimum reserve ratio for our commercial real estate - owner occupied portfolio. The impact of athis decrease in the environmental adjustment factor.
The reserve allocated to energy loans at December 31, 2019 increased $8.3 million compared to December 31, 2018. As a result, reserves allocated to energy loans as a percentage of total energy loans totaled 2.26% at December 31, 2019 compared to 1.81% at December 31, 2018. This increase was primarily related to increases in specific valuation allowances and, to a lesser extent, macroeconomic valuation allowances, partly offset by decreases in historical valuation allowances and general valuation allowances. Specific valuation allowances for energy loans totaled $20.2 million at December 31, 2019 and related to three credit relationships totaling $62.5 million while specific valuation allowances for energy loans totaled $9.7 million at December 31, 2018 and related to four credit relationships totaling $39.9 million. Macroeconomic valuation allowances related to energy loans increased $397 thousand from $3.7 million at December 31, 2018 to $4.1 million at December 31, 2019, primarily due to an increase in the general macroeconomic risk allocation (up $1.0 million), as further discussed below, partly offset by a decrease in the environmental risk

adjustment (down $590 thousand) as a result of decreases in the environmental adjustment factor and the historical loss valuation allowances to which the environmental risk adjustment factor is applied. Historical valuation allowances decreased $1.8 million from $9.7 million at December 31, 2018 to $7.9 million at December 31, 2019. The decrease was partly related to decreases in the historical loss allocation factors for both non-classified energy loans and classified energy loans. The decrease was also partly related to decreases in the volume of classified energy loans graded as "substandard - accrual" (risk grade 11) (down $10.7 million) and non-classified energy loans graded as "watch" (risk grade 9) (down $3.4 million) partly offset by increases in the volume of non-classified energy loans graded as "pass"(risk grades below 9) (up $36.6 million) and "special mention" (risk grade 10) (up $8.9 million). Total classified energy loans increased $8.2 million from $72.4 million at December 31, 2018 to $80.5 million at December 31, 2019. The weighted-average risk grade of energy loans increased to 6.39 at December 31, 2019 from to 6.22 at December 31, 2018. Energy loan net charge-offs totaled $6.1 million during 2019 compared to net charge-offs of $13.1 million during 2018. Charge-offs in 2019 included $7.5 million related to a single credit relationship. We also charged-off $6.0 million related to this credit relationship in 2018 as well as $7.3 million related to two other credit relationships. General valuation allowances decreased $818 thousand from $6.0 million at December 31, 2018 $5.2 million at December 31, 2019. The decrease was primarily related to a decrease in the allocation for highly-leveraged transactions and an increase in the adjustment for recoveries partly offset by an increase in expected credit losses associated with commercial and industrial loans, primarily related to the allocationdown-side scenario overlay discussed above, and increases in modeled losses for excess concentrations.
The reserve allocated toour commercial and industrial, energy, commercial real estate loans at December 31, 2019 decreased $7.7 million compared to December 31, 2018.and consumer real estate portfolios. The decrease was primarilynet credit loss benefit related to decreasesloans during 2021 primarily reflects improvements in macroeconomic valuation allowancesforecasted economic conditions and specific valuation allowances partly offset by an increaseoil price trends relative to the prevailing conditions in historical valuation allowances. Macroeconomic valuation allowances decreased $6.5 million from $11.0 million at December 31, 2018 to $4.5 million at December 31, 2019. The decrease was primarily related to2020 as well as a decrease in the general macroeconomic risk allocation (down $5.7 million), as further discussed below, and a decrease in the environmental risk adjustment (down $796 thousand), primarily resulting from a decrease in the environmental risk adjustment factor. Specific valuation allowances for commercial real estate loans totaled $383 thousand at December 31, 2019 decreasing $2.2 million from $2.6 million at December 31, 2018. Specific valuation allowances for commercial real estate loans at December 31, 2019net charge-offs. Credit loss expense related to two credit relationships totaling $2.4 million. Specific valuation allowances at December 31, 2018 primarily related to a single credit relationship totaling $12.2 million. This relationship was soldloans during 2020 reflected the second quarter of 2019. We recognized net charge-offs totaling $266 thousand in connectionuncertain future impacts associated with the sale. Historical valuation allowances related to commercial real estate loans increased $1.1 million from $20.8 million at December 31, 2018 to $21.9 million at December 31, 2019. Non-classified commercial real estate loans increased $523.3 million from $5.6 billion at December 31, 2018 to $6.1 billion at December 31, 2019 while classified commercial real estate loans decreased $23.5 million from $118.3 million at December 31, 2018 to $94.8 million at December 31, 2019. The weighted-average risk grade of commercial real estate loans was 7.07 at December 31, 2019COVID-19 pandemic and 7.05 at December 31, 2018. General valuation allowances for commercial real estate loans decreased $165 thousand from $4.4 million at December 31, 2018 to $4.2 million at December 31, 2019.
The reserve allocated to consumer real estate loans at December 31, 2019 decreased $2.0 million compared to December 31, 2018. This decrease was primarily due to a $1.1 million decreasethe significant volatility in the general macroeconomic risk allocation,oil prices as further discussed below, and a $767 thousand decrease in general valuation allowances, which was primarily related to an increase in the adjustment for recoveries combined with a decrease in the allocation for loans not reviewed by concurrence.
The reserve allocated to consumer and other loans at December 31, 2019 decreased $1.6 million compared to December 31, 2018. The decrease was primarily related to decreases in specific valuation allowances (down $1.4 million), macroeconomic valuation allowances (down $497 thousand) and general valuation allowances (down $396 thousand) partly offset by an increase in historical valuation allowances (up $717 thousand). Specific allocations at December 31, 2018 included $1.4 million related to a single credit relationship of the same amount. The decrease in macroeconomic valuation allowances was primarily related to a decrease in the general macroeconomic risk allocation,well as further discussed below, and a decrease in the environmental risk adjustment due to a decrease in the environmental risk adjustment factor. The decrease in general valuation allowances was primarily related to an increase in the adjustment for recoveries combined with a decrease in the allocation for loans not reviewed by concurrence. The increase in historical valuation allowances was primarily due to an increase in the historical loss allocation factor combined with an increase in the volume of consumer loans.
As discussed above, under our allowance methodology, we allocate additional reserves for general macroeconomic risk in excess of our minimum calculated need calculated using our allowance model. These additional reserves are based upon management's assessment of current and expected economic conditions, trends and other quantitative and

qualitative portfolio risk factors that are external to us or that are not otherwise captured in our allowance modeling process but impact the credit risk or inherent losses within our loan portfolio segments. These additional reserves are allocated to our various portfolio segments based upon management judgment.
Activity in the allowance for loan losses is presented in the following table.
 2019 2018 2017 2016 2015
Balance of allowance for loan losses at beginning of year$132,132
 $155,364
 $153,045
 $135,859
 $99,542
Provision for loan losses33,759
 21,613
 35,460
 51,673
 51,845
Charge-offs:         
Commercial and industrial(14,117) (26,076) (20,619) (15,910) (11,092)
Energy(7,500) (13,940) (10,595) (18,644) (6,000)
Commercial real estate(1,025) (619) (86) (82) (657)
Consumer real estate(3,665) (2,143) (925) (814) (577)
Consumer and other(24,725) (17,197) (15,579) (12,878) (11,246)
Total charge-offs(51,032) (59,975) (47,804) (48,328) (29,572)
Recoveries:         
Commercial and industrial3,986
 3,688
 3,166
 3,651
 4,557
Energy1,442
 819
 586
 56
 3
Commercial real estate219
 369
 832
 918
 989
Consumer real estate1,208
 605
 419
 557
 486
Consumer and other10,453
 9,649
 9,660
 8,659
 8,009
Total recoveries17,308
 15,130
 14,663
 13,841
 14,044
Net charge-offs(33,724) (44,845) (33,141) (34,487) (15,528)
Balance at end of year$132,167
 $132,132
 $155,364
 $153,045
 $135,859
Net loan charge-offs to average loans0.23% 0.33% 0.27% 0.30% 0.14%
Allowance for loan losses to year-end loans0.90
 0.94
 1.18
 1.28
 1.18
Allowance for loan losses to year-end non-accrual loans129.19
 179.19
 103.36
 152.81
 162.77
Average loans$14,440,549
 $13,617,940
 $12,460,148
 $11,554,823
 $11,267,402
Year-end loans14,750,332
 14,099,733
 13,145,665
 11,975,392
 11,486,531
Year-end non-accrual loans102,303
 73,739
 150,314
 100,151
 83,467
The provision for loan losses reflects loan quality trends, including the levels of and trends related to non-accrual loans, past due loans, potential problem loans, classified and criticized loans and net charge-offs or recoveries, among other factors. The provision for loan losses also reflects the totality of actions taken on all loans for a particular period. In other words, the amount of the provision reflects not only the necessary increases in the allowance for loan losses related to newly identified criticized loans, but it also reflects actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans or loan pools.
The provision for loan losses increased $12.1 million, or 56.2%, in 2019 compared to 2018. The provision for loan losses during 2019 primarily reflects the level of net charge-offs, the expected deterioration in credit quality and specific valuation allowances as well as the impact of the overall growth inother changes within the loan portfolio since December 31, 2018. Net charge-offs totaled $33.7 million during 2019 compared to $44.8 million during 2018. Specific valuation allowances totaled $28.5 million at December 31, 2019 compared to $16.2 million at December 31, 2018. Classified energy, commercial and industrial and commercial real estate loans totaled $255.2 million at December 31, 2019 compared to $269.6 million at December 31, 2018. The overall weighted-average risk grade of our energy, commercial and industrial and commercial real estate loan portfolios was 6.73 at December 31, 2019 compared to 6.63 at December 31, 2018.
portfolio. The ratio of the allowance for loancredit losses on loans to total loans was 0.90%1.33% (also 1.33% excluding PPP loans) at December 31, 20192022 compared to 0.94%1.52% (1.56% excluding PPP loans) at December 31, 2018.2021. 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 losses

making this estimate change, our estimate of probable loancurrent expect credit losses could also change, which could affect the level of future provisionscredit loss expense related to loans.
Allowance for Credit Losses - Off-Balance-Sheet Credit Exposures. The allowance for credit losses on off-balance-sheet credit exposures totaled $58.6 million and $50.3 million at December 31, 2022 and December 31, 2020, respectively. The level of the allowance for credit losses on off-balance-sheet credit exposures depends upon the volume of outstanding commitments, underlying risk grades, the expected utilization of available funds and forecasted economic conditions impacting our loan losses.portfolio. Credit loss expense related to off-balance-sheet credit exposures totaled $8.3 million during 2022 compared to $6.2 million during 2021 and $4.3 million during 2020. The increase in credit loss expense during the comparable periods primarily reflects increases in overall off-balance-sheet credit exposures. Credit loss expense for off-balance-sheet credit exposures in 2021 was also partly impacted by the down-grade of a large credit commitment within our SNC portfolio. Further information regarding our policies and methodology used to estimate the allowance for credit losses on off-balance-sheet credit exposures is presented in Note 8 - Off-Balance-Sheet Arrangements, Commitments, Guarantees and Contingencies in the accompanying notes to consolidated financial statements.
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Securities
Year-end securities were as follows:
 2019 2018 2017
 Amount 
Percentage
of Total
 Amount 
Percentage
of Total
 Amount 
Percentage
of Total
Held to maturity:           
Residential mortgage-backed securities$530,861
 4.0% $2,737
 % $3,610
 %
States and political subdivisions1,497,644
 11.2
 1,101,820
 8.8
 1,428,488
 12.0
Other1,500
 
 1,500
 
 
 
Total2,030,005
 15.2
 1,106,057
 8.8
 1,432,098
 12.0
Available for sale:           
U.S. Treasury1,948,133
 14.6
 3,427,689
 27.4
 3,445,153
 28.8
Residential mortgage-backed securities2,207,594
 16.6
 829,740
 6.6
 665,086
 5.6
States and political subdivisions7,070,997
 53.1
 7,087,202
 56.6
 6,336,209
 53.1
Other42,867
 0.3
 42,690
 0.4
 42,561
 0.3
Total11,269,591
 84.6
 11,387,321
 91.0
 10,489,009
 87.8
Trading:           
U.S. Treasury24,298
 0.2
 21,928
 0.2
 19,210
 0.2
States and political subdivisions
 
 2,158
 
 1,888
 
Total24,298
 0.2
 24,086
 0.2
 21,098
 0.2
Total securities$13,323,894
 100.0% $12,517,464
 100.0% $11,942,205
 100.0%
The following tables summarize the maturity distribution schedule with corresponding weighted-average yields of securities held to maturity and securities available for sale as of December 31, 2019.2022. Weighted-average yields have been computed on a fully taxable-equivalent basis using a tax rate of 21%. Mortgage-backed securities are included in maturity categories based on their stated maturity date. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Other securities classified as available for sale include stock in the Federal Reserve Bank and the Federal Home Loan Bank, which have no maturity date. These securities have been included in the total column only.
 Within 1 Year 1-5 Years 5-10 Years After 10 Years Total
 Amount
Weighted
Average
Yield
 Amount
Weighted
Average
Yield
 Amount
Weighted
Average
Yield
 Amount
Weighted
Average
Yield
 Amount
Weighted
Average
Yield
Held to maturity:                   
Residential mortgage- backed securities$
 % $386
 3.58% $517,112
 2.28% $13,363
 2.68% $530,861
 2.29%
States and political subdivisions11,273
 4.23
 165,519
 3.33
 527,907
 3.14
 792,945
 3.57
 1,497,644
 3.40
Other1,500
 2.57
 
 
 
 
 
 
 1,500
 2.57
Total$12,773
 4.04
 $165,905
 3.33
 $1,045,019
 2.71
 $806,308
 3.55
 $2,030,005
 3.11
Available for sale:                   
U.S. Treasury$348,885
 1.53% $1,102,170
 2.26% $
 % $497,078
 2.27% $1,948,133
 2.13%
Residential mortgage- backed securities385
 5.23
 77,332
 2.37
 11,791
 4.06
 2,118,086
 3.11
 2,207,594
 3.09
States and political subdivisions160,519
 3.01
 241,865
 3.20
 478,800
 3.52
 6,189,813
 3.74
 7,070,997
 3.69
Other
 
 
 
 
 
 
 
 42,867
 
Total$509,789
 2.00
 $1,421,367
 2.43
 $490,591
 3.53
 $8,804,977
 3.51
 $11,269,591
 3.29
Securities Held-to-maturity securities are classified as held to maturity and carriedpresented at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as availablebefore any allowance for sale when they might be sold beforecredit losses.

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 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.
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$— — %$— — %$514,059 2.28 %$12,063 2.60 %$526,122 2.28 %
States and political subdivisions123,591 3.55 24,339 4.67 8,297 2.92 1,955,392 4.70 2,111,619 4.63 
Other— — 1,500 1.97 — — — — 1,500 1.97 
Total$123,591 3.55 $25,839 4.51 $522,356 2.29 $1,967,455 4.69 $2,639,241 4.16 
Available for sale:
U.S. Treasury$240,361 1.01 %$3,424,023 2.17 %$1,244,812 1.52 %$142,391 2.15 %$5,051,587 1.95 %
Residential mortgage- backed securities2.49 7,527 3.24 15,892 4.51 6,352,809 2.90 6,376,236 2.90 
States and political subdivisions261,888 4.32 1,470,098 3.78 918,563 3.35 4,122,806 3.44 6,773,355 3.53 
Other— — — — — — — — 42,427 — 
Total$502,257 2.70 $4,901,648 2.64 $2,179,267 2.26 $10,618,006 3.09 $18,243,605 2.86 
All mortgage-backed securities included in the above tables were issued by U.S. government agencies and corporations. At December 31, 2019, approximately 99.7%2022, 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 69.1%75.6% 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, 2019, we held general obligation bonds issued by the State of Texas with an aggregate amortized cost of $998.4 million and an aggregate fair value of $1.1 billion. Such amounts were in excess of 10% of our shareholders’ equity at December 31, 2019. At such date, all of these securities were considered "high grade" or better by various credit rating agencies. At December 31, 2019, 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 3.40%2.95% in 20192022 compared to 3.38%3.29% in 2018.2021. Tax-exempt municipal securities totaled 62.0%42.7% of average securities in 20192022 compared to 65.0%64.2% in 2018.2021. The average yield on taxable securities was 2.33%2.16% in 20192022 compared to 2.03%1.97% in 2018,2021, while the average taxable-equivalent yield on tax-exempt securities was 4.08% in 2022 compared to 4.06% in 2019 compared to 4.11% in 2018.2021. See the section captioned “Net Interest Income” elsewhere in this discussion. The overall growth in the securities portfolio in 2019 was primarily funded by the reinvestment of excess reserves held in an interest-bearing account at the Federal Reserve.
Deposits
The table below presents the daily average balances of deposits by type and weighted-average rates paid thereon during the years presented:
 2019 2018 2017
 
Average
Balance
 
Average
Rate Paid
 
Average
Balance
 
Average
Rate Paid
 
Average
Balance
 
Average
Rate Paid
Non-interest-bearing demand deposits:           
Commercial and individual$9,829,635
   $10,164,396
   $10,155,502
  
Correspondent banks213,442
   205,727
   245,759
  
Public funds315,339
   386,685
   418,165
  
Total10,358,416
   10,756,808
   10,819,426
  
Interest-bearing deposits:           
Private accounts:           
Savings and interest checking6,777,473
 0.07% 6,667,695
 0.08% 6,376,855
 0.02%
Money market accounts7,738,654
 0.93
 7,645,624
 0.77
 7,502,494
 0.17
Time accounts of $100,000 or more647,215
 1.73
 474,472
 0.87
 446,695
 0.26
Time accounts under $100,000342,692
 1.49
 325,624
 0.71
 329,245
 0.18
Public funds548,827
 1.31
 418,843
 1.04
 430,203
 0.33
Total16,054,861
 0.62
 15,532,258
 0.49
 15,085,492
 0.11
Total deposits$26,413,277
 0.38
 $26,289,066
 0.29
 $25,904,918
 0.07
202220212020
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
Non-interest-bearing demand deposits$18,202,669 $16,670,807 $13,563,696 
Interest-bearing deposits:
Savings and interest checking12,160,482 0.10 %10,682,149 0.01 %8,283,665 0.03 %
Money market accounts12,727,533 0.90 9,990,626 0.09 8,457,263 0.18 
Time accounts1,480,088 0.92 1,129,041 0.33 1,133,648 1.25 
Total interest-bearing deposits26,368,103 0.53 21,801,816 0.07 17,874,576 0.18 
Total deposits$44,570,772 0.32 $38,472,623 0.04 $31,438,272 0.10 
Average deposits increased $124.2 million,$6.1 billion, or 0.5%15.9%, in 20192022 compared to 2018.2021. The most significant volume growth during 20192022 compared to 20182021 was in time, interest-bearing public funds,money market deposits; non-interest bearing deposits; and savings and interest checking and money market deposits. This growth was mostly offset by decreases in the volume of non-interest bearing commercial and individual deposits as well as non-interest bearing public funds deposits. The ratio of average interest-bearing deposits to total average deposits was 60.8%59.2% in 2019 2022
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compared to 59.1%56.7% in 2018.2021. The average cost ofrates paid on interest-bearing deposits and total deposits was 0.62%were 0.53% and 0.38%0.32%, respectively, during 20192022 compared to 0.49%0.07% and 0.29%0.04%, respectively, during 2018.2021. The average rate paid on interest-bearing deposits during 2022 was impacted by an increase in the average cost of interest-bearing deposits in 2019 as compared to 2018 was related to higher average interest rates paidwe pay on most of our interest-bearing deposit products particularly during the first half of 2019, as a result of higher averageincreases in market interest rates.

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:
 2019 2018 2017
Commercial and individual94.9% 94.5% 93.8%
Correspondent banks2.1
 1.9
 2.3
Public funds3.0
 3.6
 3.9
Total100.0% 100.0% 100.0%
Average non-interest-bearing deposits decreased $398.4 million, or 3.7%, in 2019 compared to 2018. The decrease was primarily due to a $334.8 million, or 3.3%, decrease in average commercial and individual deposits and a $71.3 million, or 18.5%, decrease in average public fund deposits partly offset by a $7.7 million, or 3.8%, 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:
 2019 2018 2017
Private accounts:     
Savings and interest checking42.2% 42.9% 42.3%
Money market accounts48.2
 49.2
 49.7
Time accounts of $100,000 or more4.1
 3.1
 2.9
Time accounts under $100,0002.1
 2.1
 2.2
Public funds3.4
 2.7
 2.9
Total100.0% 100.0% 100.0%
Total average interest-bearing deposits increased $522.6 million, or 3.4%, in 2019 compared to 2018 primarily due to a $189.8 million, or 23.7%, increase in average time deposits, a $130.0 million, or 31.0%, increase in average public funds deposits, a $109.8 million, or 1.6%, increase in average savings and interest checking deposits and a $93.0 million, or 1.2%, increase in average money market 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”). Brokered deposits were not significant during 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.
  Percent   Percent   PercentPercentPercentPercent
2019 of Total 2018 of Total 2017 of Total2022of Total2021of Total2020of Total
San Antonio$7,981,160
 30.2% $7,846,388
 29.9% $7,890,139
 30.5%San Antonio$13,402,978 30.1 %$11,140,600 29.0 %$9,147,078 29.1 %
HoustonHouston8,317,538 18.7 7,360,930 19.1 5,715,514 18.2 
Fort Worth4,699,142
 17.8
 4,813,424
 18.3
 4,784,241
 18.5
Fort Worth7,498,616 16.8 6,650,164 17.3 5,615,584 17.9 
Houston4,467,132
 16.9
 4,578,782
 17.4
 4,544,448
 17.5
Austin3,285,637
 12.5
 3,175,030
 12.1
 3,089,645
 11.9
Austin5,752,901 12.9 4,931,275 12.8 3,882,661 12.3 
Dallas2,160,684
 8.2
 2,157,648
 8.2
 2,048,712
 7.9
Dallas3,678,111 8.3 3,181,252 8.3 2,553,571 8.1 
Corpus Christi1,465,586
 5.6
 1,483,365
 5.6
 1,458,044
 5.6
Corpus Christi2,152,544 4.8 1,965,158 5.1 1,655,395 5.3 
Permian Basin1,326,517
 5.0
 1,232,892
 4.7
 1,218,402
 4.7
Permian Basin2,043,713 4.6 1,694,366 4.4 1,518,781 4.8 
Rio Grande Valley747,713
 2.8
 744,952
 2.8
 775,646
 3.0
Rio Grande Valley1,198,377 2.7 1,055,427 2.7 895,653 2.8 
Statewide279,706
 1.0
 256,585
 1.0
 95,641
 0.4
Statewide525,994 1.1 493,451 1.3 454,035 1.5 
Total$26,413,277
 100.0% $26,289,066
 100.0% $25,904,918
 100.0%Total$44,570,772 100.0 %$38,472,623 100.0 %$31,438,272 100.0 %
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 $774.0 million in 2019 and $737.6 million in 2018.

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 $1.7 billion, $1.4 billion and $1.1 billion at December 31, 2019, 2018 and 2017. The maximum amount of these borrowings outstanding at any month-end was $1.7 billion in 2019, $1.4 billion in 2018 and $1.1 billion in 2017. The weighted-average interest rate on federal funds purchased2022 and repurchase agreements was 0.81% at December 31, 2019, 1.33% at December 31, 2018 and 0.23% at December 31, 2017.$933.3 million in 2021.
The following table presents our average net funding positionBrokered 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”). Brokered deposits were not significant during the years indicated:
 2019 2018 2017
 
Average
Balance
 
Average
Rate
 
Average
Balance
 
Average
Rate
 
Average
Balance
 
Average
Rate
Federal funds sold and resell agreements$245,613
 2.25% $265,085
 2.07% $73,140
 1.28%
Federal funds purchased and repurchase agreements(1,283,381) 1.53
 (1,054,915) 0.76
 (978,571) 0.16
Net funds position$(1,037,768)   $(789,830)   $(905,431)  
The net funds purchased position increased $247.9 million in 2019 compared to 2018. Average interest-bearing deposits (primarily excess reserves held in an interest-bearing account at the Federal Reserve) totaled $1.6 billion in 2019 compared to $3.0 billion in 2018 and $3.6 billion in 2017. During the reported periods, we have maintained excess liquid funds in interest-bearing deposits with the Federal Reserve rather than federal funds sold in order to capitalize on higher available yields.
Off Balance Sheet Arrangements, Commitments, Guarantees, and Contractual Obligations
The following table summarizes our contractual obligations and other commitments to make future payments as of December 31, 2019. Payments for borrowings do not include interest. Payments related to leases are based on actual payments specified in the underlying contracts. Loan commitments and standby letters of credit are presented at contractual amounts; however, since many of these commitments are expected to expire unused or only partially used, the total amounts of these commitments do not necessarily reflect future cash requirements.
 Payments Due by Period
 Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Total
Contractual obligations:         
Subordinated notes payable$
 $
 $
 $100,000
 $100,000
Junior subordinated deferrable interest debentures
 
 
 137,115
 137,115
Operating leases28,225
 58,988
 51,893
 283,300
 422,406
Deposits with stated maturity dates891,005
 217,591
 
 
 1,108,596
 919,230
 276,579
 51,893
 520,415
 1,768,117
Other commitments:         
Commitments to extend credit3,641,886
 3,490,284
 1,044,979
 1,128,894
 9,306,043
Standby letters of credit187,176
 67,559
 5,008
 844
 260,587
 3,829,062
 3,557,843
 1,049,987
 1,129,738
 9,566,630
Total contractual obligations and other commitments$4,748,292
 $3,834,422
 $1,101,880
 $1,650,153
 $11,334,747

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.periods.
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, 2019 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, 2019 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 $37.8 billion (including managed assets of $16.4 billion and custody assets of $21.4 billion) at December 31, 2019. These assets were primarily composed of equity securities (50.7% of trust assets), fixed income securities (35.0% of trust assets) and cash equivalents (8.9% of trust assets).
Capital and Liquidity
Capital. Shareholders’ equity totaled $3.9$3.1 billion at December 31, 20192022 and $3.4$4.4 billion at December 31, 2018.2021. In addition to net income of $443.6$579.2 million, other sources of capital during 20192022 included other comprehensive income, net of tax, of $331.0 million, $20.8$16.7 million in proceeds from stock option exercises and $15.9$18.3 million related to stock-based compensation. Uses of capital during 20192022 included $185.1an other comprehensive loss, net of tax, of $1.7 billion, $216.5 million of dividends paid on preferred and common stock $68.8and $4.4 million of treasury stock purchases and $14.7 million related to the cumulative effect of a new accounting principle adopted during the first quarter of 2019. See Note 1 - Summary of Significant Accounting Policies.purchases.
The accumulated other comprehensive income/loss component of shareholders’ equity totaled a net, after-tax, unrealized gainloss of $267.4 million$1.3 billion at December 31, 20192022 compared to a net, after-tax, unrealized lossgain of $63.6$347.3 million at December 31, 2018.2021. The changedecrease was primarily due to a $329.4 million$1.7 billion net, after-tax, changedecrease in the net unrealized gain/loss onfair value of securities available for sale and securities transferred to held to maturity.sale.
Under 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 elsewhere in this report.
We paid quarterly dividends of $0.67, $0.71, $0.71$0.75, $0.75, $0.87 and $0.71$0.87 per common share during the first, second, third and fourth quarters of 2019,2022, respectively, and quarterly dividends of $0.57, $0.67, $0.67$0.72, $0.72, $0.75 and $0.67$0.75 per common share during the first, second, third and fourth quarters of 2018,2021, respectively. This equates to a dividend payout ratio
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of 36.6% in 20192022 and 37.0%43.3% in 2018. Under2021. The amount of dividend, if any, we may pay may be limited as more fully discussed in Note 9 - Capital and Regulatory Matters in the terms of the junior subordinated deferrable interest debentures that Cullen/Frost has issuedaccompanying notes to Cullen/Frost Capital Trust II and WNB Capital Trust I,consolidated financial statements elsewhere in this report.
Preferred Stock. On March 16, 2020, 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,redeemed all 6,000,000 shares of our capital stock5.375% 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. 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 subject to certain restrictions during any such extension period. Under the termsrepresented by 40 depositary shares, each representing a 1/40th ownership interest in a share of the Series AB Preferred Stock (equivalent to a liquidation preference of $25 per share). Additional details about our ability to declare or pay dividends on, or purchase,

redeem or otherwise acquire, shares of our commonpreferred stock or any of our securities that rank junior to the Series A Preferred Stock is subject to certain restrictionsare included in 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 July 24, 2019,January 25, 2023, our board of directors authorized a $100.0 million stock repurchase program,plan, allowing us to repurchase shares of our common stock over a one-year period from time to time at various prices in the open market or through private transactions. No shares were repurchased under a stock repurchase plan during 2022 or 2021. Under thisa prior stock repurchase plan, we repurchased 202,724177,834 shares at a total cost of $17.2$13.7 million during 2019. Under prior stock repurchase programs, we repurchased 496,307 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 2018. See Part II, Item 5 - Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, elsewhere in this report.2020.
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, 2019,2022, we had approximately $11.1 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, 2022, based upon available, pledgeable collateral, our total borrowing capacity with the FHLB was approximately $3.4 billion. Furthermore, at December 31, 2022, we had approximately $12.7 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, 2022, 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.
In the ordinary course of business we have entered into contractual obligations and have made other commitments to make future payments. Refer to the accompanying notes to consolidated financial statements elsewhere in this report for the expected timing of such payments as of December 31, 2022. These include payments related to
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(i) long-term borrowings (Note 7 - Borrowed Funds), (ii) operating leases (Note 4 - Premises and Equipment and Lease Commitments), (iii) time deposits with stated maturity dates (Note 6 - Deposits) and (iv) commitments to extend credit and standby letters of credit (Note 8 - Off-Balance-Sheet Arrangements, Commitments, Guarantees and Contingencies).
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 elsewhere in this report regarding such dividends. At December 31, 2019,2022, Cullen/Frost had liquid assets, including cash and resell agreements, totaling $267.1$311.9 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. 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 our future business and earnings.
Accounting Standards Updates
See Note 20 - Accounting Standards Updates in the accompanying notes to consolidated financial statements elsewhere in this report for details of recently issued accounting pronouncements and their expected impact on our financial statements.

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
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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, 2019,2022, 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%0.2% and 2.6%, respectively, relative to the flat-rate case over the next 12 months, while 100 and 175 basis point ratable decreases in interest rates would result in negative variances in net interest income of 1.9% and 6.4%, respectively, relative to the flat-rate case over the next 12 months. The December 31, 2019 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 2020, as further discussed below. As of December 31, 2018, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of 0.3% and 1.5%1.4%, respectively, relative to the flat-rate case over the next 12 months, while 100 and 200 basis point ratable decreases in interest rates would result in a negative variancesvariance in net interest income of 2.7%0.2% and 7.5%1.4%, respectively, relative to the flat-rate case over the next 12 months. TheFor modeling purposes, as of December 31, 20182021, the model simulations for increasedprojected that 100 and 200 basis point ratable increases in interest rates were impacted bywould result in positive variances in net interest income of 2.8% and 7.1%, respectively, relative to the assumption, for modeling purposes, that weflat-rate case over the next 12 months, while a 25 basis point ratable decrease in interest rates would beginresult in a negative variance in net interest income of 3.0% relative to pay interest on commercial demand deposits (those not already receiving an earnings credit rate) in the first quarter of 2019, as further discussed below.flat-rate case over the next 12 months. The likelihood of a decrease in interest rates beyond 17525 basis points as of December 31, 20192021 was considered to be remote given prevailing interest rate levels.
The model simulations as of December 31, 2019 indicate that our projected balance sheet is more asset sensitive in comparison to our balance sheet as of December 31, 2018. The shift to a more asset sensitive position was primarily due to a decrease in the assumed interest rate paid on projected commercial demand deposits (those not already receiving an earnings credit rate), as further discussed below. The impact of this change in assumptions was partly offset by the effect of a decrease in the relative proportion of interest-bearing deposits and federal funds sold to projected average interest-earning assets. Interest-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. 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. Our December 31, 2022 model simulations do not assume any payment of interest on commercial demand deposits (those not already receiving an earnings credit) while our modeling simulationsimulations as of December 31, 20192021 assumed a moderate pricing structure with regards towe would make interest payments on commercial demand deposits (those not already receiving an earnings credit) with interestsuch payments assumed to begin in the first quarter of 2020.2022. This moderate pricing structure on commercial demand deposits assumesassumed 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 market rates. Our modeling simulationAs of December 31, 2022, management believes, based on our experience during the last interest rate cycle, that it is less likely we will pay interest on these deposits as rates increase.
The model simulations as of December 31, 2018 assumed2022 indicate that our projected balance sheet is less asset sensitive in comparison to our balance sheet as of December 31, 2021. The decreased asset sensitivity was partly due to a much more aggressive pricing structure with regards to interest payments for commercial demand deposits (those not already receiving and earnings credit) with interest payments assumed to begindecrease in the first quarterrelative proportion of 2019. We modifiedinterest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and federal funds sold to projected average interest-earning assets combined with an increase in the relative proportion of fixed-rate taxable securities to projected average interest-earning assets. Interest-bearing deposits and federal funds sold are more immediately impacted by changes in interest rates in comparison to our assumed pricing structure during 2019 compared to 2018 based upon our market observations during the most recent interest rate cycle.other categories of earning assets.
As of December 31, 2019,2022, the effects of a 200 basis point increase and a 175200 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.

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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, Incorporated

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, 20192022 and 2018,2021, 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, 2019,2022, 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 financial position of the Company at December 31, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2022, 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, 2019,2022, 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 4, 20203, 2023 expressed an unqualified opinion thereon.
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 accountaccounts or disclosures to which it relates.
Allowance
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Allowances for LoanCredit Losses
Description of the Matter
The Company’s loan portfolio totaled $14.8$17.2 billion as of December 31, 20192022 and the associated allowance for credit losses on loans was $227.6 million. The Company’s unfunded loan commitments totaled $12.5 billion, with an associated allowance for credit loss of $58.6 million. Together these amounts represent the allowances for credit losses (ALL) was $132.2 million.(“ACL”). As discussed in Notes 1, and 3 to the consolidated financial statements, in the ALLcases of loans, the allowance for credit losses is establisheda contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to absorb inherentpresent 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 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”). Modeled 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 have been incurredestimates 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 existing portfolio of loans. Management’s estimate of inherentmodeling processes but were nonetheless relevant in assessing the expected credit losses within the loan portfolio is established using quantitative, as well aspools. These qualitative considerations. The Company’s methodology to determinefactor adjustments modified management’s estimate of expected credit losses by a calculated percentage or amount based upon the ALL considers quantitative calculations including: specific valuation allowances determined in accordance with ASC Topic 310 based on probable losses on

specific loans, 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 impactestimated level of current conditions, and general valuation allowances determined in accordance with ASC Topic 450 based on various risk factors that are internal to the Company. The Company’s ALL methodology also includes qualitative amounts that include macroeconomic valuation allowances based on general economic conditions and other risk factors to the Company. The Company’s methodology for determining the appropriate ALL considers the imprecision inherent in the application of quantitative portions of the ALL. The components of the macroeconomic valuation allowances include an environmental risk adjustment factor, consideration for distressed industries, and current economic trends and other factors.risk.
Auditing management’s estimate of the ALLACL involved a high degree of subjectivity due to the nature of the macroeconomic valuation allowancesqualitative factor adjustments included in the ALL.allowances for credit losses and complexity due to the utilization of the PD, PA, LGD, and EAD models (the “Models”). Management’s identification and measurement of the macroeconomic valuation allowancesqualitative factor adjustments is highly judgmental and could have a significant effect on the ALL.ACL.
How We Addressed the Matter in Our Audit
We obtained an understanding of the Company’s process for establishing the ALL,ACL, including the macroeconomic valuation allowancesutilization of Models and the qualitative factor adjustments of the ALL.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 ALL,ACL, the accuracy of the calculation of the ALL,ACL, management’s review and approval of methodologies used to establish the ALL,ACL, validation procedures over the Models, analysis of changes in various components of the ALLACL relative to changes in the Company’s loan portfolio and economy and evaluation of the overall reasonableness and appropriateness of the ALL.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 macroeconomic valuation allowancesqualitative factor adjustments which is meant to measure inherent loanexpected credit losses associated with factors not captured fully in the other components of the ALL.ACL.
To test the reasonableness of the macroeconomic valuation allowances,qualitative factor adjustments, we performed audit procedures that included, among others testing the appropriateness of the methodologies used by the Company to estimate the ALL,ACL, testing the completeness and accuracy of data and information used by the Company in estimating the components of the ALL,ACL, assessing the reasonableness of the Models, evaluating the appropriateness of assumptions used in estimating the macroeconomic valuation allowances,qualitative factor adjustments, analyzing the changes in assumptions and various components of the ALL ACL
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relative to changes in the Company’s loan portfolio and the economy and evaluating the appropriateness and level of the macroeconomic valuation allowances.qualitative factor adjustments. For example, specific to the macroeconomic valuation allowances, we 1) evaluated the inherent limitations of the Company’s quantitativemodeled components of the ALLACL and hence the need for and levels of the macroeconomic valuation allowances;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 adjustmentsmodifications made to the macroeconomic valuation allowances;qualitative factor adjustments; and 3)4) evaluated the appropriateness and completeness of risk factors used in determining the amount of the macroeconomic valuation allowances.qualitative factor adjustments. We also evaluated the data and information utilized by management to estimate the macroeconomic valuation allowancesqualitative 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 ALL amount,ACL amounts, inclusive of the adjustments for the macroeconomic valuation allowances,qualitative factor adjustments, and whether the amount appropriately reflects losses incurredexpected in the loan portfolio as of the consolidated balance sheet date by comparing the overall ALLACL 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-20221231_g2.jpg
We have served as the Company’s auditor since 1969.
San Antonio, Texas
February 4, 20203, 2023
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Cullen/Frost Bankers, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts) 
December 31, December 31,
2019 2018 20222021
Assets:   Assets:
Cash and due from banks$581,857
 $678,791
Cash and due from banks$691,553 $555,778 
Interest-bearing deposits2,849,950
 2,641,971
Interest-bearing deposits11,128,902 15,985,244 
Federal funds sold and resell agreements356,374
 635,017
Federal funds soldFederal funds sold120,527 34,075 
Resell agreementsResell agreements87,150 7,903 
Total cash and cash equivalents3,788,181
 3,955,779
Total cash and cash equivalents12,028,132 16,583,000 
Securities held to maturity, at amortized cost2,030,005
 1,106,057
Securities held to maturity, net of allowance for credit losses of $158 in 2022 and $158 in 2021Securities held to maturity, net of allowance for credit losses of $158 in 2022 and $158 in 20212,639,083 1,749,179 
Securities available for sale, at estimated fair value11,269,591
 11,387,321
Securities available for sale, at estimated fair value18,243,605 13,924,628 
Trading account securities24,298
 24,086
Trading account securities28,045 25,162 
Loans, net of unearned discounts14,750,332
 14,099,733
Loans, net of unearned discounts17,154,969 16,336,397 
Less: Allowance for loan losses(132,167) (132,132)
Less: Allowance for credit losses on loansLess: Allowance for credit losses on loans(227,621)(248,666)
Net loans14,618,165
 13,967,601
Net loans16,927,348 16,087,731 
Premises and equipment, net1,011,947
 552,330
Premises and equipment, net1,102,695 1,050,331 
Goodwill654,952
 654,952
Goodwill654,952 654,952 
Other intangible assets, net2,481
 3,649
Other intangible assets, net386 866 
Cash surrender value of life insurance policies187,156
 183,473
Cash surrender value of life insurance policies190,188 190,139 
Accrued interest receivable and other assets440,652
 457,718
Accrued interest receivable and other assets1,077,942 612,502 
Total assets$34,027,428
 $32,292,966
Total assets$52,892,376 $50,878,490 
   
Liabilities:   Liabilities:
Deposits:   Deposits:
Non-interest-bearing demand deposits$10,873,629
 $10,997,494
Non-interest-bearing demand deposits$17,598,234 $18,423,018 
Interest-bearing deposits16,765,935
 16,151,710
Interest-bearing deposits26,355,962 24,272,678 
Total deposits27,639,564
 27,149,204
Total deposits43,954,196 42,695,696 
Federal funds purchased and repurchase agreements1,695,342
 1,367,548
Federal funds purchasedFederal funds purchased51,650 25,925 
Repurchase agreementsRepurchase agreements4,660,641 2,740,799 
Junior subordinated deferrable interest debentures, net of unamortized issuance costs136,299
 136,242
Junior subordinated deferrable interest debentures, net of unamortized issuance costs123,069 123,011 
Subordinated notes, net of unamortized issuance costs98,865
 98,708
Subordinated notes, net of unamortized issuance costs99,335 99,178 
Accrued interest payable and other liabilities545,690
 172,347
Accrued interest payable and other liabilities866,257 754,326 
Total liabilities30,115,760
 28,924,049
Total liabilities49,755,148 46,438,935 
   
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 2019 and 2018144,486
 144,486
Common stock, par value $0.01 per share; 210,000,000 shares authorized;64,236,306 shares issued in both 2019 and 2018642
 642
Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; 150,000 Series B shares ($1,000 liquidation preference) issued in 2022 and 2021Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; 150,000 Series B shares ($1,000 liquidation preference) issued in 2022 and 2021145,452 145,452 
Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,354,695 shares issued in 2022 and 64,236,306 shares issued in 2021Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,354,695 shares issued in 2022 and 64,236,306 shares issued in 2021643 642 
Additional paid-in capital983,250
 967,304
Additional paid-in capital1,029,756 1,009,921 
Retained earnings2,667,534
 2,440,002
Retained earnings3,309,671 2,956,966 
Accumulated other comprehensive income, net of tax267,370
 (63,600)Accumulated other comprehensive income, net of tax(1,348,294)347,318 
Treasury stock, at cost; 1,567,302 shares in 2019 and 1,250,464 in 2018.(151,614) (119,917)
Treasury stock, at cost; 250,070 shares in 2021Treasury stock, at cost; 250,070 shares in 2021— (20,744)
Total shareholders’ equity3,911,668
 3,368,917
Total shareholders’ equity3,137,228 4,439,555 
Total liabilities and shareholders’ equity$34,027,428
 $32,292,966
Total liabilities and shareholders’ equity$52,892,376 $50,878,490 
See accompanying Notes to Consolidated Financial Statements.

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Cullen/Frost Bankers, Inc.
Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
Year Ended December 31, Year Ended December 31,
2019 2018 2017 202220212020
Interest income:     Interest income:   
Loans, including fees$741,747
 $669,002
 $534,804
Loans, including fees$770,391 $674,611 $680,064 
Securities:     Securities:   
Taxable117,082
 86,370
 92,979
Taxable249,797 89,550 93,569 
Tax-exempt233,842
 233,358
 222,620
Tax-exempt237,626 226,683 233,614 
Interest-bearing deposits35,590
 56,968
 41,608
Interest-bearing deposits216,367 17,878 12,893 
Federal funds sold and resell agreements5,524
 5,500
 936
Federal funds soldFederal funds sold948 31 723 
Resell agreementsResell agreements592 16 172 
Total interest income1,133,785
 1,051,198
 892,947
Total interest income1,475,721 1,008,769 1,021,035 
Interest expense:     Interest expense:   
Deposits99,742
 75,337
 17,188
Deposits140,476 14,520 32,018 
Federal funds purchased and repurchase agreements19,675
 8,021
 1,522
Federal funds purchasedFederal funds purchased690 32 100 
Repurchase agreementsRepurchase agreements34,443 2,209 4,382 
Junior subordinated deferrable interest debentures5,706
 5,291
 3,955
Junior subordinated deferrable interest debentures4,172 2,484 3,560 
Other long-term borrowings4,657
 4,657
 3,860
Subordinated notesSubordinated notes4,657 4,657 4,656 
Federal Home Loan Bank advancesFederal Home Loan Bank advances— — 318 
Total interest expense129,780
 93,306
 26,525
Total interest expense184,438 23,902 45,034 
Net interest income1,004,005
 957,892
 866,422
Net interest income1,291,283 984,867 976,001 
Provision for loan losses33,759
 21,613
 35,460
Net interest income after provision for loan losses970,246
 936,279
 830,962
Credit loss expenseCredit loss expense3,000 63 241,230 
Net interest income after credit loss expenseNet interest income after credit loss expense1,288,283 984,804 734,771 
Non-interest income:     Non-interest income:
Trust and investment management fees126,722
 119,391
 110,675
Trust and investment management fees154,679 148,994 129,272 
Service charges on deposit accounts88,983
 85,186
 84,182
Service charges on deposit accounts91,891 83,292 80,873 
Insurance commissions and fees52,345
 48,967
 46,169
Insurance commissions and fees53,210 51,548 50,313 
Interchange and debit card transaction fees14,873
 13,877
 23,232
Interchange and card transaction feesInterchange and card transaction fees18,231 17,461 13,470 
Other charges, commissions and fees37,123
 37,231
 39,931
Other charges, commissions and fees41,590 36,836 34,825 
Net gain (loss) on securities transactions293
 (156) (4,941)Net gain (loss) on securities transactions— 69 108,989 
Other43,563
 46,790
 37,222
Other45,217 48,528 47,712 
Total non-interest income363,902
 351,286
 336,470
Total non-interest income404,818 386,728 465,454 
Non-interest expense:     Non-interest expense:
Salaries and wages375,029
 350,312
 337,068
Salaries and wages492,096 395,497 387,328 
Employee benefits86,230
 77,323
 74,575
Employee benefits88,608 82,029 75,676 
Net occupancy89,466
 76,788
 75,971
Net occupancy112,495 107,344 102,938 
Technology, furniture and equipment91,995
 83,102
 74,335
Technology, furniture and equipment120,771 112,738 105,232 
Deposit insurance10,126
 16,397
 20,128
Deposit insurance15,603 12,232 10,502 
Intangible amortization1,168
 1,424
 1,703
Intangible amortization480 697 918 
Other180,665
 173,538
 175,289
Other194,221 171,457 166,310 
Total non-interest expense834,679
 778,884
 759,069
Total non-interest expense1,024,274 881,994 848,904 
Income before income taxes499,469
 508,681
 408,363
Income before income taxes668,827 489,538 351,321 
Income taxes55,870
 53,763
 44,214
Income taxes89,677 46,459 20,170 
Net income443,599
 454,918
 364,149
Net income579,150 443,079 331,151 
Preferred stock dividends8,063
 8,063
 8,063
Preferred stock dividends6,675 7,157 2,016 
Redemption of preferred stockRedemption of preferred stock— — 5,514 
Net income available to common shareholders$435,536
 $446,855
 $356,086
Net income available to common shareholders$572,475 $435,922 $323,621 
     
Earnings per common share:     Earnings per common share:
Basic$6.89
 $6.97
 $5.56
Basic$8.84 $6.79 $5.11 
Diluted6.84
 6.90
 5.51
Diluted8.81 6.76 5.10 
See accompanying Notes to Consolidated Financial Statements.

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Table of Contents
Cullen/Frost Bankers, Inc.
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Year Ended December 31, Year Ended December 31,
2019 2018 2017 202220212020
Net income$443,599
 $454,918
 $364,149
Net income$579,150 $443,079 $331,151 
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 period418,556
 (182,340) 157,016
Change in net unrealized gain/loss during the period(2,143,567)(231,355)427,331 
Change in net unrealized gain on securities transferred to held to maturity(1,292) (8,818) (16,193)Change in net unrealized gain on securities transferred to held to maturity(737)(971)(1,256)
Reclassification adjustment for net (gains) losses included in net income(293) 156
 4,941
Reclassification adjustment for net (gains) losses included in net income— (69)(108,989)
Total securities available for sale and transferred securities416,971
 (191,002) 145,764
Total securities available for sale and transferred securities(2,144,304)(232,395)317,086 
Defined-benefit post-retirement benefit plans:     Defined-benefit post-retirement benefit plans:   
Change in the net actuarial gain/loss(3,644) (7,225) (597)Change in the net actuarial gain/loss(5,005)16,593 (11,518)
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)5,623
 5,002
 5,429
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)2,964 6,116 5,319 
Total defined-benefit post-retirement benefit plans1,979
 (2,223) 4,832
Total defined-benefit post-retirement benefit plans(2,041)22,709 (6,199)
Other comprehensive income (loss), before tax418,950
 (193,225) 150,596
Other comprehensive income (loss), before tax(2,146,345)(209,686)310,887 
Deferred tax expense (benefit)87,980
 (40,578) 46,461
Deferred tax expense (benefit)(450,733)(44,034)65,287 
Other comprehensive income (loss), net of tax330,970
 (152,647) 104,135
Other comprehensive income (loss), net of tax(1,695,612)(165,652)245,600 
Comprehensive income$774,569
 $302,271
 $468,284
Comprehensive income$(1,116,462)$277,427 $576,751 
See accompanying Notes to Consolidated Financial Statements.

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Table of Contents
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, 2017$144,486
 $637
 $906,732
 $1,985,569
 $(24,623) $(10,273) $3,002,528
Net income
 
 
 364,149
 
 
 364,149
Other comprehensive income, 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, 2017144,486
 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 (399,244 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, 2019$144,486
 $642
 $983,250
 $2,667,534
 $267,370
 $(151,614) $3,911,668
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, 2020$144,486 $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 - 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, 2020145,452 642 997,168 2,750,723 512,970 (113,939)4,293,016 
Net income— — — 443,079 — — 443,079 
Other comprehensive income, net of tax— — — — (165,652)— (165,652)
Stock option exercises/stock unit conversions (987,758 shares)— — — (40,836)— 95,253 54,417 
Stock-based compensation expense recognized in earnings— — 12,753 — — — 12,753 
Purchase of treasury stock (31,317 shares)— — — — — (3,864)(3,864)
Treasury stock issued to the 401(k) stock purchase plan (18,555 shares)— — — (57)— 1,806 1,749 
Cash dividends – Series B preferred stock (approximately $47.71 per share which is equivalent to approximately $1.19 per depositary share)— — — (7,157)— — (7,157)
Cash dividends – common stock ($2.94 per share)— — — (188,786)— — (188,786)
Balance at December 31, 2021145,452 642 1,009,921 2,956,966 347,318 (20,744)4,439,555 
Net income— — — 579,150 — — 579,150 
Other comprehensive income, net of tax— — — — (1,695,612)— (1,695,612)
Stock option exercises/stock unit conversions (399,810 shares)— 1,513 (9,990)— 25,135 16,659 
Stock-based compensation expense recognized in earnings— — 18,322 — — — 18,322 
Purchase of treasury stock (31,351 shares)— — — — — (4,391)(4,391)
Cash dividends – Series B preferred stock (approximately $44.50 per share which is equivalent to approximately $1.11 per depositary share)— — — (6,675)— — (6,675)
Cash dividends – common stock ($3.24 per share)— — — (209,780)— — (209,780)
Balance at December 31, 2022$145,452 $643 $1,029,756 $3,309,671 $(1,348,294)$— $3,137,228 
See accompanying Notes to Consolidated Financial Statements

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Cullen/Frost Bankers, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Year Ended December 31,Year Ended December 31,
2019 2018 2017202220212020
Operating Activities:     Operating Activities:
Net income$443,599
 $454,918
 $364,149
Net income$579,150 $443,079 $331,151 
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 losses33,759
 21,613
 35,460
Credit loss expenseCredit loss expense3,000 63 241,230 
Deferred tax expense (benefit)7,614
 52,923
 (14,493)Deferred tax expense (benefit)(4,918)7,784 (15,832)
Accretion of loan discounts(15,197) (14,341) (16,062)Accretion of loan discounts(12,921)(12,890)(15,692)
Securities premium amortization (discount accretion), net115,558
 100,528
 89,933
Securities premium amortization (discount accretion), net97,400 119,242 123,785 
Net (gain) loss on securities transactions(293) 156
 4,941
Net (gain) loss on securities transactions— (69)(108,989)
Depreciation and amortization54,091
 50,172
 47,812
Depreciation and amortization71,344 69,289 64,370 
Net (gain) loss on sale/write-down of assets/foreclosed assets(5,712) (5,272) (4,697)
Net (gain) loss on sale/exchange/write-down of assets/foreclosed assetsNet (gain) loss on sale/exchange/write-down of assets/foreclosed assets109 (11,578)524 
Stock-based compensation15,946
 13,943
 13,013
Stock-based compensation18,322 12,753 13,918 
Net tax benefit from stock-based compensation2,447
 3,865
 9,062
Net tax benefit from stock-based compensation4,602 7,877 852 
Earnings on life insurance policies(3,683) (3,380) (3,190)Earnings on life insurance policies(2,096)(2,462)(3,731)
Net change in:     Net change in:
Trading account securities(212) (2,658) (3,842)Trading account securities(716)(560)(158)
Lease right-of-use assets20,124
 
 
Lease right-of-use assets24,409 23,504 23,933 
Accrued interest receivable and other assets(15,570) (85,898) (55,179)Accrued interest receivable and other assets(116,243)(46,560)(158,264)
Accrued interest payable and other liabilities(18,381) (24,181) 71,172
Accrued interest payable and other liabilities61,140 38,821 27,146 
Net cash from operating activities634,090
 562,388
 538,079
Net cash from operating activities722,582 648,293 524,243 
Investing Activities:     Investing Activities:
Securities held to maturity:     Securities held to maturity:
Purchases(649,326) (1,500) 
Purchases(1,424,105)— (1,500)
Maturities, calls and principal repayments81,762
 300,632
 783,176
Maturities, calls and principal repayments561,388 177,593 63,577 
Securities available for sale:     Securities available for sale:
Purchases(23,306,694) (18,191,057) (13,529,192)Purchases(22,178,248)(24,217,841)(20,841,622)
Sales18,660,147
 16,806,062
 11,963,359
Sales— 1,999,891 1,162,352 
Maturities, calls and principal repayments4,694,927
 221,906
 1,328,143
Maturities, calls and principal repayments15,683,097 18,425,108 20,893,464 
Proceeds from sale of loans24,036
 21,318
 
Proceeds from sale of loans2,365 — 37,535 
Net change in loans(693,587) (1,008,789) (1,187,631)Net change in loans(824,021)1,145,924 (2,856,395)
Benefits received on life insurance policies
 384
 597
Benefits received on life insurance policies2,047 2,307 903 
Proceeds from sales of premises and equipment8,038
 13,628
 4,525
Proceeds from sales of premises and equipment63 7,044 5,988 
Purchases of premises and equipment(206,716) (79,270) (34,089)Purchases of premises and equipment(102,501)(65,850)(95,422)
Proceeds from sales of repossessed properties663
 3,366
 517
Proceeds from sales of repossessed properties2,585 809 73 
Net cash from investing activities(1,386,750) (1,913,320) (670,595)Net cash from investing activities(8,277,330)(2,525,015)(1,631,047)
Financing Activities:     Financing Activities:
Net change in deposits490,360
 276,815
 1,060,814
Net change in deposits1,258,500 7,679,935 7,376,197 
Net change in short-term borrowings327,794
 219,724
 170,832
Net change in short-term borrowings1,945,567 649,727 421,655 
Proceeds from issuance of subordinated notes
 
 98,434
Principal payments on subordinated notes
 
 (100,000)
Proceeds from Federal Home Loan Bank advancesProceeds from Federal Home Loan Bank advances— — 1,250,000 
Principal payments on Federal Home Loan Bank advancesPrincipal payments on Federal Home Loan Bank advances— — (1,250,000)
Principal payments on long-term borrowingsPrincipal payments on long-term borrowings— (13,403)— 
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 stock— — 145,452 
Proceeds from stock option exercises20,770
 31,647
 67,746
Proceeds from stock option exercises16,659 54,417 12,557 
Purchase of treasury stock(68,793) (101,010) (101,473)Purchase of treasury stock(4,391)(3,864)(15,785)
Cash dividends paid on preferred stock(8,063) (8,063) (8,063)Cash dividends paid on preferred stock(6,675)(7,157)(2,016)
Cash dividends paid on common stock(177,006) (165,449) (144,172)Cash dividends paid on common stock(209,780)(188,786)(180,584)
Net cash from financing activities585,062
 253,664
 1,044,118
Net cash from financing activities2,999,880 8,170,869 7,607,476 
Net change in cash and cash equivalents(167,598) (1,097,268) 911,602
Net change in cash and cash equivalents(4,554,868)6,294,147 6,500,672 
Cash and cash equivalents at beginning of year3,955,779
 5,053,047
 4,141,445
Cash and cash equivalents at beginning of year16,583,000 10,288,853 3,788,181 
Cash and cash equivalents at end of year$3,788,181
 $3,955,779
 $5,053,047
Cash and cash equivalents at end of year$12,028,132 $16,583,000 $10,288,853 
See accompanying Notes to Consolidated Financial Statements.

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Table of Contents
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 subsidiarieswholly-owned subsidiary, Cullen/Frost Capital Trust II, and WNB Capital Trust I are VIEsis a VIE for which we are not the primary beneficiary. Accordingly, thebeneficiary and, as such, its 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.
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 $918.0 million and $447.9 million of cash on hand or on deposit with the Federal Reserve Bank to meet regulatory reserve and clearing requirements at December 31, 2019 and 2018. Additionally, asAs of December 31, 20192022 and 2018,2021, we had $37.5$3.2 million and $10.0$110.3 million in cash collateral on deposit with other financial institution counterparties to interest rate swap transactions.

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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,
 2019 2018 2017
Cash paid for interest$124,781
 $89,270
 $24,371
Cash paid for income tax45,352
 5,112
 56,359
Significant non-cash transactions:     
Transfer of securities from available for sale to held to maturity377,812
 
 
Unsettled purchases/sales of securities
 330
 37,481
Loans foreclosed and transferred to other real estate owned and foreclosed assets1,348
 2,899
 279
Loans to facilitate the sale of other real estate owned847
 
 
Lease right-of-use assets obtained in exchange for lessee operating lease liabilities319,286
 
 

Year Ended December 31,
202220212020
Cash paid for interest$169,020 $29,003 $49,300 
Cash paid for income tax100,000 39,852 44,140 
Significant non-cash transactions:
Exchange of real estate— 11,036 — 
Unsettled securities transactions94,884 27,032 57,783 
Loans foreclosed and transferred to other real estate owned and foreclosed assets239 3,464 140 
Right-of-use lease assets obtained in exchange for lessee operating lease liabilities31,787 12,854 18,284 
Treasury stock issued to 401(k) stock purchase plan— 1,749 10,307 
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 remains 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.
Interest income on securities includes amortization of purchase premiums and discounts. Premiums and discounts on securities are generally amortized using the interest method with a constant effective yield without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Premiums on callable securities are amortized to their earliest call date. Prior toA 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 interest is not expected. Interest accrued but not received for a security placed on non-accrual status is reversed against interest income. Gains and losses on sales are recorded on 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.
Realized gainstrade date and losses are derived from the amortized cost of the security sold. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer and (iii) the intent and 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.
Allowance for Loan LossesCredit 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 inherent in the loan portfolio. The allowance for loan losses includes allowance allocations calculated in

accordance with Financial As further discussed below, we adopted Accounting Standards BoardUpdate (“FASB”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 310, “Receivables”326 (“ASC 326”) replaced the previous “incurred loss” model for measuring credit losses, which encompassed allowances for current known and inherent losses within the portfolio, with an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. The new current expected credit loss (“CECL”) model requires the measurement of all expected credit losses for financial assets measured at amortized cost and certain off-balance-
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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 allocationsfor credit losses on held-to-maturity securities is a contra-asset valuation account, calculated in accordance with ASC Topic 450, “Contingencies.”326, that is deducted from the amortized cost basis of held-to-maturity securities to present management's best estimate of the net amount expected to be collected. Held-to-maturity securities are charged-off against the allowance when deemed uncollectible by management. Adjustments to the allowance are reported in our income statement as a component 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 loancredit 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 (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 other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be 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.
Prior 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 were deemed to be 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 length of time and the extent to which the fair value had 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.
Allowance 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 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.
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 credit
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losses on off-balance-sheet credit exposures is presented in Note 8 - 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, forFor 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 afterWrite-downs occurring at acquisition are generally expensed.charged against the allowance for credit losses on loans. Foreclosed assets are included in other assets in the accompanying consolidated balance sheets and totaled $964 thousand and $3.4 million at December 31, 2022 and 2021. 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. If the fair value of the asset declines, a write-down is recorded through expense.other non-interest expense along with other expenses related to maintaining the properties. 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 otherThere were no write-downs of foreclosed assets in 2022, while write-downs of foreclosed assets totaled $14 thousand in 2021 and $231 thousand in 2020. There were no significant concentrations of any properties, to which the accompanying consolidated balance sheets and totaled $1.1 million and $1.2 million at December 31, 2019 and 2018.aforementioned write-downs relate, in any single geographic region.
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.
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.
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Revenue Recognition. In general, for revenue not associated with financial instruments, guarantees and lease 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 satisfied. 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 products/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 satisfaction of performance obligations, revenue recognition is deferred until such time as the performance 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 and brokerage commissions and fees derived from our customers' use of 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. 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).Taxes.
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.
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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.
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.
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Accounting Changes, Reclassifications and Restatements. Certain items in prior financial statements have been reclassified to conform to the current presentation.
OnAs discussed above, on January 1, 2019,2020 we adopted certain accounting standard updates related to accountingthe provisions of ASC 326 using the modified retrospective method for leases, primarily Accounting Standards Update (“ASU”) 2016-02 “Leases (Topic 842)”all financial assets measured at amortized cost 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 any short-term leases. See Note 4 - Premises and Equipment and Lease Commitments.
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.off-balance-sheet credit exposures. Upon adoption, using a modified retrospective transition adoption approach, we recognized aan after-tax cumulative effect reduction to retained earnings totaling $14.7 million. Premium amortization expense$29.3 million, as detailed in the table below.
The following table details the impact of the adoption of ASC 326 on the allowance for 2019 was approximately $5.2 million higher than what would have been the case had we continued to amortize the affected securities to their respective maturity dates.
Oncredit losses as of 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 (see Note 13 - Income Taxes), 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.2020.
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. Additionally, based on our underlying contracts, ASU 2014-09 requires us to report network costs associated with debit card and ATM transactions netted against the related fee income from such transactions. Previously, such network costs were reported as a component of other non-interest expense. For 2019 and 2018, gross interchange and debit card transaction fees totaled $27.8 million and $25.8 million, respectively, while related network costs totaled $12.9 million and $11.9 million, respectively. On a net basis, we reported $14.9 million and $13.9 million as interchange and debit card transaction fees in the accompanying Consolidated Statement of Income for 2019 and 2018, respectively. For 2017, we reported interchange and debit card transaction fees totaling $23.2 million on a gross basis in the accompanying Consolidated Statement of Income while related network cost totaling $11.9 million was reported as a component of other non-interest expense. ASU 2014-09 also required us to change the way we recognize certain recurring revenue streams reported as components of trust and investment management fees, insurance commissions and fees and other categories of non-interest income, however, such changes were not significant to our financial statements.
January 1, 2020
Pre-Adoption AllowanceImpact of AdoptionPost-Adoption AllowanceCumulative Effect on Retained Earnings
Securities held to maturity:
U.S. Treasury$— $— $— $— 
Residential mortgage-backed securities— — — — 
States and political subdivisions— 215 215 (170)
Other— — — — 
Total$— $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)

Note 2 - Securities
Securities.Securities - Held to Maturity. Year-endA summary of the amortized cost, fair value and allowance for credit losses related to securities held to maturity as of December 31, 2022 and 2021 is presented below.
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Allowance
for Credit
Losses
Net
Carrying
Amount
December 31, 2022
Residential mortgage-backed securities$526,122 $— $65,322 $460,800 $— $526,122 
States and political subdivisions2,111,619 13,048 119,033 2,005,634 (158)2,111,461 
Other1,500 — 69 1,431 — 1,500 
Total$2,639,241 $13,048 $184,424 $2,467,865 $(158)$2,639,083 
December 31, 2021
Residential mortgage-backed securities$527,264 $18,766 $— $546,030 $— $527,264 
States and political subdivisions1,220,573 41,141 101 1,261,613 (158)1,220,415 
Other1,500 — — 1,500 — 1,500 
Total$1,749,337 $59,907 $101 $1,809,143 $(158)$1,749,179 
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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 $256.3 million and $642.3 million at December 31, 2022 and 2021, respectively. Accrued interest receivable on held-to-maturity securities totaled $30.2 million and $18.4 million at December 31, 2022 and 2021, 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. The net unamortized, unrealized gain remaining on securities transferred in years prior to 2020 included in accumulated other comprehensive income in the accompanying balance sheet totaled $1.8 million ($1.4 million, net of tax) at December 31, 2022 and $2.5 million ($2.0 million, net of tax) at December 31, 2021. This amount will be amortized out of accumulated other comprehensive income over the remaining life of the following: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, 2022:
States and Political Subdivisions
Not Guaranteed or Pre-RefundedGuaranteed by the Texas PSFPre-RefundedTotalOther
Securities
Aaa/AAA$273,201 $1,422,442 $121,961 $1,817,604 $— 
Aa/AA294,015 — — 294,015 — 
Not rated— — — — 1,500 
Total$567,216 $1,422,442 $121,961 $2,111,619 $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, 2022, there were no 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, no allowance for credit losses has been recorded for securities guaranteed by the PSF as there is no 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, no allowance for credit losses has been recorded for securities that have been defeased as there is no current expectation of credit losses related to these securities.
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The following table details activity in the allowance for credit losses on held-to-maturity securities.
202220212020
Beginning balance$158 $160 $— 
Impact of adopting ASC 326— — 215 
Credit loss expense (benefit)— (2)(55)
Ending balance$158 $158 $160 
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, 2022 and 2021 is presented below.
 2019 2018
 
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:               
Residential mortgage-backed securities$530,861
 $22
 $9,365
 $521,518
 $2,737
 $8
 $85
 $2,660
States and political subdivisions1,497,644
 28,909
 896
 1,525,657
 1,101,820
 11,525
 552
 1,112,793
Other1,500
 
 
 1,500
 1,500
 
 
 1,500
Total$2,030,005
 $28,931
 $10,261
 $2,048,675
 $1,106,057
 $11,533
 $637
 $1,116,953
Available for Sale:               
U.S. Treasury$1,941,283
 $18,934
 $12,084
 $1,948,133
 $3,455,417
 $1,772
 $29,500
 $3,427,689
Residential mortgage-backed securities2,176,275
 32,608
 1,289
 2,207,594
 823,208
 13,079
 6,547
 829,740
States and political subdivisions6,717,344
 353,857
 204
 7,070,997
 7,089,132
 70,760
 72,690
 7,087,202
Other42,867
 
 
 42,867
 42,690
 
 
 42,690
Total$10,877,769
 $405,399
 $13,577
 $11,269,591
 $11,410,447
 $85,611
 $108,737
 $11,387,321

Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance
for Credit
Losses
Estimated
Fair Value
December 31, 2022
U.S. Treasury$5,450,546 $— $398,959 $— $5,051,587 
Residential mortgage-backed securities7,316,824 8,050 948,638 — 6,376,236 
States and political subdivisions7,098,635 9,108 334,388 — 6,773,355 
Other42,427 — — — 42,427 
Total$19,908,432 $17,158 $1,681,985 $— $18,243,605 
December 31, 2021
U.S. Treasury$2,165,702 $23,333 $9,602 $— $2,179,433 
Residential mortgage-backed securities4,059,692 31,662 25,089 — 4,066,265 
States and political subdivisions7,178,135 463,810 5,374 — 7,636,571 
Other42,359 — — — 42,359 
Total$13,445,888 $518,805 $40,065 $— $13,924,628 
All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. At December 31, 2019, approximately 99.7%2022 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 69.1%75.9% 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 $3.9$8.0 billion and $5.8 billion at December 31, 20192022 and $3.8 billion2021, respectively. Accrued interest receivable on available-for-sale securities totaled $140.6 million and $120.5 million at December 31, 2018.2022 and 2021, respectively, and is included in accrued interest receivable and other assets in the accompanying consolidated balance sheets.
From time to time, we have reclassified certainThe table below summarizes, as of December 31, 2022, securities from available for sale to held to maturity. During 2019, we reclassifiedin 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
U.S. Treasury$2,012,129 $63,515 $3,039,458 $335,444 $5,051,587 $398,959 
Residential mortgage-backed securities3,265,658 345,307 2,495,906 603,331 5,761,564 948,638 
States and political subdivisions3,923,159 136,957 681,677 197,431 4,604,836 334,388 
Total$9,200,946 $545,779 $6,217,041 $1,136,206 $15,417,987 $1,681,985 
As of December 31, 2022, no allowance for credit losses has been recognized on available for sale securities within 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 dateloss position as management does not believe any of the 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 $4.8 million ($3.8 million, netare impaired due to reasons of tax) at December 31, 2019 and $2.7 million ($2.2 million, net of tax) at December 31, 2018.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
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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
2019           
Held to Maturity:           
Residential mortgage-backed securities$519,099
 $9,361
 $408
 $4
 $519,507
 $9,365
States and political subdivisions371,434
 896
 
 
 371,434
 896
Total$890,533
 $10,257
 $408
 $4
 $890,941
 $10,261
Available for Sale:           
U.S. Treasury$636,999
 $12,070
 $199,980
 $14
 $836,979
 $12,084
Residential mortgage-backed securities276,249
 782
 31,456
 507
 307,705
 1,289
States and political subdivisions59,678
 204
 
 
 59,678
 204
Total$972,926
 $13,056
 $231,436
 $521
 $1,204,362
 $13,577


 Less than 12 Months More than 12 Months Total
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
2018           
Held to Maturity:           
Residential mortgage-backed securities$
 $
 $2,034
 $85
 $2,034
 $85
States and political subdivisions205,686
 541
 5,952
 11
 211,638
 552
Total$205,686
 $541
 $7,986
 $96
 $213,672
 $637
Available for Sale:           
U.S. Treasury$
 $
 $3,139,639
 $29,500
 $3,139,639
 $29,500
Residential mortgage-backed securities152,682
 205
 213,982
 6,342
 366,664
 6,547
States and political subdivisions1,136,322
 7,026
 2,058,048
 65,664
 3,194,370
 72,690
Total$1,289,004
 $7,231
 $5,411,669
 $101,506
 $6,700,673
 $108,737

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, 2019, 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 of the securities are impaired due to reasons of credit quality. Accordingly, as of December 31, 2019, management believes the impairments detailed in the table above are temporary and 0 impairment loss has been realized in our consolidated income statement.
Contractual Maturities. The amortized cost and estimated fair valuefollowing table summarizes the maturity distribution schedule of securities excluding tradingheld to maturity and securities at available for sale as of December 31, 20192022. Mortgage-backed securities are presented below by contractual maturity.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. 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.
 Held to Maturity Available for Sale
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less$12,773
 $12,847
 $508,575
 $509,404
Due after one year through five years165,519
 169,970
 1,317,774
 1,344,035
Due after five years through ten years527,907
 541,249
 451,885
 478,800
Due after ten years792,945
 803,091
 6,380,393
 6,686,891
Residential mortgage-backed securities530,861
 521,518
 2,176,275
 2,207,594
Equity securities
 
 42,867
 42,867
Total$2,030,005
 $2,048,675
 $10,877,769
 $11,269,591


Within 1 Year1 - 5 Years5 - 10 YearsAfter 10 YearsTotal
Held To Maturity
Amortized Cost
Residential mortgage-backed securities$— $— $514,059 $12,063 $526,122 
States and political subdivisions123,591 24,339 8,297 1,955,392 2,111,619 
Other— 1,500 — — 1,500 
Total$123,591 $25,839 $522,356 $1,967,455 $2,639,241 
Estimated Fair Value
Residential mortgage-backed securities$— $— $450,961 $9,839 $460,800 
States and political subdivisions123,505 24,292 8,286 1,849,551 2,005,634 
Other— 1,431 — — 1,431 
Total$123,505 $25,723 $459,247 $1,859,390 $2,467,865 
Available For Sale
Amortized Cost
U. S. Treasury$249,363 $3,574,630 $1,434,504 $192,049 $5,450,546 
Residential mortgage-backed securities7,729 16,025 7,293,062 7,316,824 
States and political subdivisions261,477 1,464,493 937,127 4,435,538 7,098,635 
Other— — — — 42,427 
Total$510,848 $5,046,852 $2,387,656 $11,920,649 $19,908,432 
Estimated Fair Value
U. S. Treasury$240,361 $3,424,023 $1,244,812 $142,391 $5,051,587 
Residential mortgage-backed securities7,527 15,892 6,352,809 6,376,236 
States and political subdivisions261,888 1,470,098 918,563 4,122,806 6,773,355 
Other— — — — 42,427 
Total$502,257 $4,901,648 $2,179,267 $10,618,006 $18,243,605 
Sales of Securities. Sales of securities available for sale were as follows:
202220212020
Proceeds from sales$— $1,999,891 $1,162,352 
Gross realized gains— 69 108,989 
Gross realized losses— — — 
Tax benefit (expense) related to securities gains/losses— (14)(22,888)
 2019 2018 2017
Proceeds from sales$18,660,147
 $16,806,062
 $11,963,359
Gross realized gains930
 3
 1
Gross realized losses(637) (159) (4,942)
Tax benefit (expense) related to securities gains/losses(62) 33
 1,729
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Premiums and Discounts. Premium amortization and discount accretion included in interest income on securities was as follows:
 2019 2018 2017
Premium amortization$(120,785) $(108,483) $(97,841)
Discount accretion5,227
 7,955
 7,908
Net (premium amortization) discount accretion$(115,558) $(100,528) $(89,933)

202220212020
Premium amortization$(110,997)$(121,994)$(126,210)
Discount accretion13,597 2,752 2,425 
Net (premium amortization) discount accretion$(97,400)$(119,242)$(123,785)
Trading Account Securities. Year-end trading account securities, at estimated fair value, were as follows:
 2019 2018
U.S. Treasury$24,298
 $21,928
States and political subdivisions
 2,158
Total$24,298
 $24,086

20222021
U.S. Treasury$25,879 $24,237 
States and political subdivisions2,166 925 
Total$28,045 $25,162 
Net gains and losses on trading account securities were as follows:

2019
2018
2017
Net gain on sales transactions$2,173

$1,816

$1,408
Net mark-to-market gains (losses)(176)
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(43)
Net gain on trading account securities$1,997

$1,921

$1,365

202220212020
Net gain on sales transactions$3,129 $1,014 $1,102 
Net mark-to-market gains (losses)(230)(75)85 
Net gain on trading account securities$2,899 $939 $1,187 

Note 3 - Loans
Year-end loans, including leases net of unearned discounts, consisted of the following:
 2019 2018
Commercial and industrial$5,187,466
 $5,111,957
Energy:   
Production1,348,900
 1,309,314
Service192,996
 168,775
Other110,986
 124,509
Total energy1,652,882
 1,602,598
Commercial real estate:   
Commercial mortgages4,594,113
 4,121,966
Construction1,312,659
 1,267,717
Land289,467
 306,755
Total commercial real estate6,196,239
 5,696,438
Consumer real estate:   
Home equity loans375,596
 353,924
Home equity lines of credit354,671
 337,168
Other464,146
 427,898
Total consumer real estate1,194,413
 1,118,990
Total real estate7,390,652
 6,815,428
Consumer and other519,332
 569,750
Total loans$14,750,332
 $14,099,733

20222021
Commercial and industrial$5,674,798 $5,364,954 
Energy:
Production696,570 878,436 
Service133,542 105,901 
Other95,617 93,455 
Total energy925,729 1,077,792 
Paycheck Protection Program34,852 428,882 
Commercial real estate:
Commercial mortgages6,168,910 5,867,062 
Construction1,477,247 1,304,271 
Land537,168 405,277 
Total commercial real estate8,183,325 7,576,610 
Consumer real estate:
Home equity lines of credit691,841 519,098 
Home equity loans449,507 324,157 
Home improvement loans577,377 428,069 
Other124,814 139,466 
Total consumer real estate1,843,539 1,410,790 
Total real estate10,026,864 8,987,400 
Consumer and other492,726 477,369 
Total loans$17,154,969 $16,336,397 
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, 20192022 and 2018,2021, there were 0no concentrations of loans related to any single industry in excess of 10% of total loans other thanloans. At such dates, the largest industry concentration was related to the energy loans,industry, which totaled 11.2% and 11.4%5.4% of total loans at such dates, respectively.December 31, 2022 and 6.6% of total loans at December 31, 2021. Unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled $1.2 billion$997.1 million and $75.5$103.4 million, respectively, as of December 31, 2019.2022.
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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, 20192022 or 2018.2021.
Overdrafts. Deposit account overdrafts reported as loans totaled $9.0$10.3 million and $8.5$7.8 million at December 31, 20192022 and 2018.2021.
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 20192022 is presented in the following table. Other changes were primarily related to changes in related-party status.
Balance outstanding at December 31, 2021$350,538 
Principal additions337,700 
Principal payments(294,857)
Other changes(2,126)
Balance outstanding at December 31, 2022$391,255 
Balance outstanding at December 31, 2018$256,056
Principal additions304,407
Principal reductions(257,687)
Other changes(4,248)
Balance outstanding at December 31, 2019$298,528

Accrued Interest Receivable.
Accrued interest receivable on loans totaled $68.7 million and $40.0 million at December 31, 2022 and 2021, respectively and is included in accrued interest receivable and other assets in the accompany consolidated balance sheets.
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, 2022December 31, 2021
Total Non-AccrualNon-Accrual with No Credit Loss AllowanceTotal Non-AccrualNon-Accrual with No Credit Loss Allowance
Commercial and industrial$18,130 $8,514 $22,582 $4,701 
Energy15,224 7,139 14,433 8,533 
Commercial real estate:
Buildings, land and other3,552 1,991 15,297 13,817 
Construction— — 948 — 
Consumer real estate927 927 440 138 
Consumer and other— — 13 13 
Total$37,833 $18,571 $53,713 $27,202 
 2019 2018
Commercial and industrial$26,038
 $9,239
Energy65,761
 46,932
Commercial real estate:   
Buildings, land and other8,912
 15,268
Construction665
 
Consumer real estate922
 892
Consumer and other5
 1,408
Total$102,303
 $73,739
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The following tables present non-accrual loans as of December 31, 2022 and December 31, 2021 by class and year of origination.
December 31, 2022
20222021202020192018PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial and industrial$— $1,252 $1,089 $3,242 $1,197 $191 $2,973 $8,186 $18,130 
Energy4,657 — 72 1,386 10 — 7,631 1,468 15,224 
Commercial real estate:
Buildings, land and other1,644 — — 217 266 1,425 — — 3,552 
Construction— — — — — — — — — 
Consumer real estate— 258 — — — 84 — 585 927 
Consumer and other— — — — — — — — — 
Total$6,301 $1,510 $1,161 $4,845 $1,473 $1,700 $10,604 $10,239 $37,833 
December 31, 2021
20212020201920182017PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial and industrial$636 $3,856 $5,047 $1,820 $765 $353 $4,635 $5,470 $22,582 
Energy— — 5,358 1,325 — — 6,931 819 14,433 
Commercial real estate:
Buildings, land and other6,038 307 3,446 814 2,030 2,662 — — 15,297 
Construction— 948 — — — — — — 948 
Consumer real estate— — — — — 408 — 32 440 
Consumer and other13 — — — — — — — 13 
Total$6,687 $5,111 $13,851 $3,959 $2,795 $3,423 $11,566 $6,321 $53,713 
In the tables above, loans reported as 2022 originations as of December 31, 2022 and loans reported as 2021 originations as of December 31, 2021 were, for the most part, first originated in various years prior to 2022 and 2021, respectively, but were renewed in the respective 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 $3.9$1.7 million in 2019, $5.22022, $1.8 million in 20182021 and $3.7$2.9 million in 2017.2020.
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An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of December 31, 2019 was as follows:
 
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$25,474
 $21,268
 $46,742
 $5,140,724
 $5,187,466
 $3,430
Energy6,136
 62,566
 68,702
 1,584,180
 1,652,882
 85
Commercial real estate:           
Buildings, land and other12,384
 2,725
 15,109
 4,868,471
 4,883,580
 967
Construction195
 1,066
 1,261
 1,311,398
 1,312,659
 402
Consumer real estate7,442
 2,129
 9,571
 1,184,842
 1,194,413
 1,425
Consumer and other4,476
 1,112
 5,588
 513,744
 519,332
 1,112
Total$56,107
 $90,866
 $146,973
 $14,603,359
 $14,750,332
 $7,421

Impaired Loans. Loans are considered impaired when, based on current information and events, it2022 is probable we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectibility of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
Regulatory guidelines require us to reevaluate 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-end impaired loans are set forthpresented in the following table. NaN interest income was recognized on impairedDespite their past due status, Paycheck Protection Plan loans subsequent to their classification as impaired.are fully guaranteed by the SBA.
 
Unpaid
Contractual
Principal
Balance
 
Recorded
Investment
With No
Allowance
 
Recorded
Investment
With
Allowance
 
Total
Recorded
Investment
 
Related
Allowance
 
Average
Recorded
Investment
2019           
Commercial and industrial$30,909
 $11,588
 $12,772
 $24,360
 $7,849
 $14,913
Energy87,103
 2,764
 62,480
 65,244
 20,246
 53,563
Commercial real estate:           
Buildings, land and other9,252
 6,255
 2,354
 8,609
 383
 13,690
Construction697
 665
 
 665
 
 354
Consumer real estate570
 570
 
 570
 
 547
Consumer and other5
 
 5
 5
 5
 1,285
Total$128,536
 $21,842
 $77,611
 $99,453
 $28,483
 $84,352
2018           
Commercial and industrial$9,094
 $2,842
 $4,287
 $7,129
 $2,558
 $18,246
Energy67,900
 6,817
 39,890
 46,707
 9,671
 75,453
Commercial real estate:           
Buildings, land and other15,774
 2,168
 12,517
 14,685
 2,599
 12,799
Construction
 
 
 
 
 
Consumer real estate293
 293
 
 293
 
 704
Consumer and other1,475
 
 1,407
 1,407
 1,407
 925
Total$94,536
 $12,120
 $58,101
 $70,221
 $16,235
 $108,127
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

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$36,167 $12,853 $49,020 $5,625,778 $5,674,798 $5,560 
Energy2,880 7,680 10,560 915,169 925,729 — 
Paycheck Protection Program5,321 13,867 19,188 15,664 34,852 13,867 
Commercial real estate:
Buildings, land and other23,561 5,869 29,430 6,676,648 6,706,078 5,664 
Construction— — — 1,477,247 1,477,247 — 
Consumer real estate7,856 2,690 10,546 1,832,993 1,843,539 2,398 
Consumer and other5,155 311 5,466 487,260 492,726 311 
Total$80,940 $43,270 $124,210 $17,030,759 $17,154,969 $27,800 
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 2019, 20182022, 2021 and 20172020 are set forth in the following table.
 2019 2018 2017
Balance at
Restructure
 
Balance at
Year-end
 
Balance at
Restructure
 
Balance at
Year-end
 
Balance at
Restructure
 
Balance at
Year-end
Commercial and industrial$3,845
 $2,161
 $2,203
 $
 $4,026
 $3,766
Energy
 
 13,708
 
 56,096
 54,330
Commercial real estate:           
Buildings, land and other9,457
 9,393
 
 
 
 
Construction
 
 
 
 388
 388
Consumer real estate124
 120
 
 
 
 
 $13,426
 $11,674
 $15,911
 $
 $60,510
 $58,484


202220212020
Balance at
Restructure
Balance at
Year-end
Balance at
Restructure
Balance at
Year-end
Balance at
Restructure
Balance at
Year-end
Commercial and industrial$— $— $1,312 $1,162 $3,661 $192 
Energy— — 3,817 721 2,432 2,421 
Commercial real estate:
Buildings, land and other1,155 1,051 1,888 1,862 9,310 4,922 
Construction— — — — 1,017 1,017 
Consumer real estate— — — — — — 
Consumer and other— — — — 1,104 — 
$1,155 $1,051 $7,017 $3,745 $17,524 $8,552 
Loan modifications are typically related to extending amortization periods, converting loans to interest only for a limited period of time, deferral of interest payments, waiver of certain covenants, consolidating notes and/or reducing collateral or interest rates. The modifications during the reported periods did not significantly impact our determination of the allowance for loan losses.credit losses on loans.
Additional information related to restructured loans was as follows:
202220212020
Restructured loans past due in excess of 90 days at period-end:
Number of loans— 
Dollar amount of loans$— $1,027 $2,008 
Restructured loans on non-accrual status at period end1,051 3,439 8,552 
Charge-offs of restructured loans:
Recognized in connection with restructuring— — 337 
Recognized on previously restructured loans723 4,278 3,894 
Proceeds from sale of restructured loans1,070 — — 
 2019 2018 2017
Restructured loans past due in excess of 90 days at period-end:     
Number of loans4
 
 1
Dollar amount of loans$3,340
 $
 $43,137
Restructured loans on non-accrual status at period end5,576
 
 53,622
Charge-offs of restructured loans:     
Recognized in connection with restructuring
 
 
Recognized on previously restructured loans1,500
 7,650
 9,951
Proceeds from sale of restructured loans
 15,750
 
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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.
- 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 reassess the risk grade on at least an annual basis. When a loan has a 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 risk grade of 10 or higher, a special assets officer monitors the loan on an on-going basis.
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The following tables present weighted averageweighted-average risk grades for all commercial loans, by class.class and year of origination/renewal as of December 31, 2022 and 2021. Paycheck Protection Program (“PPP”) loans are excluded as such loans are fully guaranteed by the Small Business Administration (“SBA”).
December 31, 2022
20222021202020192018PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial and industrial
Risk grades 1-8$1,667,274 $618,756 $485,908 $226,835 $123,768 $192,791 $2,068,891 $51,694 $5,435,917 
Risk grade 931,275 34,950 3,651 5,400 11,006 1,014 54,856 4,040 146,192 
Risk grade 102,294 724 845 4,713 1,341 114 23,880 3,685 37,596 
Risk grade 112,342 1,357 6,720 1,807 1,229 1,644 19,582 2,282 36,963 
Risk grade 12— 1,052 866 2,972 1,177 191 673 5,590 12,521 
Risk grade 13— 200 223 270 20 — 2,300 2,596 5,609 
$1,703,185 $657,039 $498,213 $241,997 $138,541 $195,754 $2,170,182 $69,887 $5,674,798 
W/A risk grade6.37 7.05 6.01 6.59 6.87 5.55 6.26 7.68 6.39 
Energy
Risk grades 1-8$338,050 $99,089 $4,917 $3,138 $2,020 $2,850 $393,957 $43,161 $887,182 
Risk grade 91,561 1,611 166 562 748 — 6,434 30 11,112 
Risk grade 10— — — 428 214 — — — 642 
Risk grade 117,956 162 157 3,145 86 63 — — 11,569 
Risk grade 123,995 — 72 1,386 10 — 4,571 806 10,840 
Risk grade 13662 — — — — — 3,060 662 4,384 
$352,224 $100,862 $5,312 $8,659 $3,078 $2,913 $408,022 $44,659 $925,729 
W/A risk grade6.09 5.65 7.65 9.64 8.02 6.59 5.18 5.69 5.67 
Commercial real estate:
Buildings, land, other
Risk grades 1-8$1,811,069 $1,484,811 $956,567 $708,942 $360,154 $800,944 $111,778 $105,763 $6,340,028 
Risk grade 952,288 13,139 36,264 22,086 17,699 45,590 652 2,210 189,928 
Risk grade 1026,688 11,150 3,735 9,008 29,683 5,221 5,535 — 91,020 
Risk grade 1110,199 19,073 12,631 4,778 2,525 28,841 2,993 510 81,550 
Risk grade 121,049 — — 217 266 1,425 — — 2,957 
Risk grade 13595 — — — — — — — 595 
$1,901,888 $1,528,173 $1,009,197 $745,031 $410,327 $882,021 $120,958 $108,483 $6,706,078 
W/A risk grade7.01 7.26 7.14 7.01 7.33 6.94 7.38 6.43 7.09 
Construction
Risk grades 1-8$640,948 $489,391 $128,788 $2,236 $486 $1,726 $163,293 $3,144 $1,430,012 
Risk grade 912,865 2,100 2,100 — — — 17,887 — 34,952 
Risk grade 10859 72 — — — — — — 931 
Risk grade 1111,352 — — — — — — — 11,352 
Risk grade 12— — — — — — — — — 
Risk grade 13— — — — — — — — — 
$666,024 $491,563 $130,888 $2,236 $486 $1,726 $181,180 $3,144 $1,477,247 
W/A risk grade7.29 7.03 6.43 7.04 6.00 6.76 7.23 5.03 7.12 
Total commercial real estate$2,567,912 $2,019,736 $1,140,085 $747,267 $410,813 $883,747 $302,138 $111,627 $8,183,325 
W/A risk grade7.08 7.20 7.06 7.01 7.33 6.94 7.29 6.39 7.10 
 December 31, 2019 December 31, 2018
 Weighted
Average
Risk Grade
 Loans Weighted
Average
Risk Grade
 Loans
Commercial and industrial       
Risk grades 1-86.17
 $4,788,857
 6.12
 $4,862,275
Risk grade 99.00
 247,212
 9.00
 112,431
Risk grade 1010.00
 71,472
 10.00
 58,328
Risk grade 1111.00
 53,887
 11.00
 69,684
Risk grade 1212.00
 18,189
 12.00
 6,681
Risk grade 1313.00
 7,849
 13.00
 2,558
Total6.44
 $5,187,466
 6.30
 $5,111,957
Energy       
Risk grades 1-85.90
 $1,488,301
 5.76
 $1,451,673
Risk grade 99.00
 32,163
 9.00
 35,565
Risk grade 1010.00
 51,898
 10.00
 43,001
Risk grade 1111.00
 14,760
 11.00
 25,427
Risk grade 1212.00
 45,514
 12.00
 37,261
Risk grade 1313.00
 20,246
 13.00
 9,671
Total6.39
 $1,652,882
 6.22
 $1,602,598
Commercial real estate:       
Buildings, land and other       
Risk grades 1-86.78
 $4,523,271
 6.76
 $4,143,264
Risk grade 99.00
 163,714
 9.00
 109,660
Risk grade 1010.00
 103,626
 10.00
 62,353
Risk grade 1111.00
 84,057
 11.00
 98,176
Risk grade 1212.00
 8,529
 12.00
 12,669
Risk grade 1313.00
 383
 13.00
 2,599
Total7.01
 $4,883,580
 6.98
 $4,428,721
Construction       
Risk grades 1-87.25
 $1,274,098
 7.13
 $1,177,260
Risk grade 99.00
 21,509
 9.00
 60,754
Risk grade 1010.00
 15,243
 10.00
 24,877
Risk grade 1111.00
 1,144
 11.00
 4,826
Risk grade 1212.00
 665
 12.00
 
Risk grade 1313.00
 
 13.00
 
Total7.31
 $1,312,659
 7.29
 $1,267,717


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We
December 31, 2021
20212020201920182017PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial and industrial
Risk grades 1-8$1,567,883 $657,529 $350,563 $179,209 $146,064 $131,201 $1,987,061 $44,337 $5,063,847 
Risk grade 932,866 21,094 24,683 26,327 612 11,419 65,131 5,738 187,870 
Risk grade 1027,961 6,273 4,047 4,357 1,021 98 14,091 1,289 59,137 
Risk grade 111,178 4,572 8,068 2,450 2,460 221 4,714 7,855 31,518 
Risk grade 12456 2,495 3,828 1,756 347 353 613 2,687 12,535 
Risk grade 13180 1,361 1,219 64 418 — 4,022 2,783 10,047 
$1,630,524 $693,324 $392,408 $214,163 $150,922 $143,292 $2,075,632 $64,689 $5,364,954 
W/A risk grade5.91 6.30 6.89 7.06 5.91 5.80 6.21 8.04 6.22 
Energy
Risk grades 1-8$445,489 $8,075 $9,259 $6,441 $3,110 $4,368 $464,454 $67,174 $1,008,370 
Risk grade 919,274 611 1,775 187 — 724 11,635 2,416 36,622 
Risk grade 10— 101 631 511 — — — 530 1,773 
Risk grade 1110,260 752 3,968 1,016 — 546 — 52 16,594 
Risk grade 12— — 3,888 246 — — 4,000 819 8,953 
Risk grade 13— — 1,470 1,079 — — 2,931 — 5,480 
$475,023 $9,539 $20,991 $9,480 $3,110 $5,638 $483,020 $70,991 $1,077,792 
W/A risk grade6.21 7.81 9.34 8.60 7.12 7.63 5.61 6.46 6.06 
Commercial real estate:
Buildings, land, other
Risk grades 1-8$1,707,550 $1,096,274 $874,130 $533,362 $492,492 $713,268 $52,150 $105,696 $5,574,922 
Risk grade 916,302 145,340 52,427 43,806 27,188 27,767 4,445 4,258 321,533 
Risk grade 1028,209 13,813 69,643 46,250 64,950 46,582 — — 269,447 
Risk grade 113,455 1,321 8,720 7,788 26,107 34,970 3,000 5,779 91,140 
Risk grade 125,838 307 3,446 814 2,030 2,662 — — 15,097 
Risk grade 13200 — — — — — — — 200 
$1,761,554 $1,257,055 $1,008,366 $632,020 $612,767 $825,249 $59,595 $115,733 $6,272,339 
W/A risk grade7.19 7.18 7.35 7.39 7.34 7.01 7.06 7.02 7.22 
Construction
Risk grades 1-8$657,471 $262,176 $178,226 $2,339 $38 $1,930 $160,020 $— $1,262,200 
Risk grade 935,721 4,956 — — 446 — — — 41,123 
Risk grade 10— — — — — — — — — 
Risk grade 11— — — — — — — — — 
Risk grade 12— 748 — — — — — — 748 
Risk grade 13— 200 — — — — — — 200 
$693,192 $268,080 $178,226 $2,339 $484 $1,930 $160,020 $— $1,304,271 
W/A risk grade7.17 6.56 7.60 7.51 8.92 6.73 6.79 — 7.06 
Total commercial real estate$2,454,746 $1,525,135 $1,186,592 $634,359 $613,251 $827,179 $219,615 $115,733 $7,576,610 
W/A risk grade7.18 7.07 7.39 7.39 7.34 7.00 6.86 7.02 7.19 
At December 31, 2022 and 2021, the weighted-average risk grades for “pass grade” (risk grades 1-8) loans were 6.24 and 6.01, respectively, for commercial and industrial; 5.44 and 5.78, respectively, for energy; 6.94 and 6.91, respectively, for commercial real estate - buildings, land and other; and 7.04 and 6.99, respectively, for commercial real estate - construction. Furthermore, in the tables above, there are loans reported as 2022 originations as of December 31, 2022 and 2021 originations as of December 31, 2021 that have established maximumrisk grades of 11 or higher. These loans were, for the most part, first originated in various years prior to 2022 and 2021, respectively, but were renewed in the respective year.
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Information about the payment status of consumer loans, segregated by portfolio segment and year of origination, as of December 31, 2022 and December 31, 2021 was as follows:
December 31, 2022
20222021202020192018PriorRevolving LoansRevolving Loans Converted to TermTotal
Consumer real estate:
Past due 30-89 days$793 $1,125 $645 $936 $503 $2,087 $565 $1,202 $7,856 
Past due 90 or more days95 258 28 — 129 919 347 914 2,690 
Total past due888 1,383 673 936 632 3,006 912 2,116 10,546 
Current loans403,587 313,222 194,900 70,723 38,904 122,585 678,418 10,654 1,832,993 
Total$404,475 $314,605 $195,573 $71,659 $39,536 $125,591 $679,330 $12,770 $1,843,539 
Consumer and other:
Past due 30-89 days$2,673 $511 $128 $51 $$31 $314 $1,443 $5,155 
Past due 90 or more days77 — 13 — — 25 194 311 
Total past due2,750 513 128 64 31 339 1,637 5,466 
Current loans59,886 20,887 6,475 2,897 1,271 1,632 372,117 22,095 487,260 
Total$62,636 $21,400 $6,603 $2,961 $1,275 $1,663 $372,456 $23,732 $492,726 
December 31, 2021
20212020201920182017PriorRevolving LoansRevolving Loans Converted to TermTotal
Consumer real estate:
Past due 30-89 days$280 $204 $406 $489 $296 $1,344 $126 $1,732 $4,877 
Past due 90 or more days— — — 154 355 828 991 185 2,513 
Total past due280 204 406 643 651 2,172 1,117 1,917 7,390 
Current loans319,042 251,160 95,900 55,893 48,841 116,423 505,333 10,808 1,403,400 
Total$319,322 $251,364 $96,306 $56,536 $49,492 $118,595 $506,450 $12,725 $1,410,790 
Consumer and other:
Past due 30-89 days$1,600 $91 $120 $38 $51 $17 $325 $1,943 $4,185 
Past due 90 or more days548 — 45 — — — 34 449 1,076 
Total past due2,148 91 165 38 51 17 359 2,392 5,261 
Current loans46,708 17,843 6,215 2,684 1,708 1,158 371,866 23,926 472,108 
Total$48,856 $17,934 $6,380 $2,722 $1,759 $1,175 $372,225 $26,318 $477,369 
Revolving loans that converted to term during 2022 and 2021 were as follows:
20222021
Commercial and industrial$34,247 $40,099 
Energy3,295 54,996 
Commercial real estate:
Buildings, land and other12,174 68,337 
Construction3,144 — 
Consumer real estate5,381 1,156 
Consumer and other9,200 8,367 
Total$67,441 $172,955 
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
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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 129.7 at December 31, 2022 and 135.7 at December 31, 2021. A lower TLI value implies less favorable economic conditions.
Allowance 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 present the net amount expected to be collected. The amount of the allowance 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 loan to an individual borrower that is experiencing financial difficulty will be modified 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 standardsof 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 applied duringallocated for specific credits; however, the origination processentire 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
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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.
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”) and other qualitative 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 and other qualitative 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 impaired and 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
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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 become impaired andcollateral 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.
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, 2022 and 2021, calculated in accordance with the CECL methodology described above. No 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
December 31, 2022
Modeled expected credit losses$61,918 $8,531 $27,013 $7,847 $4,983 $110,292 
Q-Factor and other qualitative adjustments36,237 5,148 61,572 157 2,034 105,148 
Specific allocations6,082 4,383 1,716 — — 12,181 
Total$104,237 $18,062 $90,301 $8,004 $7,017 $227,621 
December 31, 2021
Modeled expected credit losses$46,946 $6,363 $16,676 $6,484 $6,397 $82,866 
Q-Factor and other qualitative adjustments14,609 5,374 127,860 65 1,440 149,348 
Specific allocations10,536 5,480 400 36 — 16,452 
Total$72,091 $17,217 $144,936 $6,585 $7,837 $248,666 
The following table details activity in the allowance for credit losses on loans by portfolio segment for 2022, 2021 and 2020. 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. No 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
2022
Beginning balance$72,091 $17,217 $144,936 $6,585 $7,837 $248,666 
Credit loss expense (benefit)34,479 (313)(54,775)1,813 13,517 (5,279)
Charge-offs(6,575)(371)(702)(912)(24,388)(32,948)
Recoveries4,242 1,529 842 518 10,051 17,182 
Net (charge-offs) recoveries(2,333)1,158 140 (394)(14,337)(15,766)
Ending balance$104,237 $18,062 $90,301 $8,004 $7,017 $227,621 
2021
Beginning balance$73,843 $39,553 $134,892 $7,926 $6,963 $263,177 
Credit loss expense (benefit)(2,160)(19,207)8,101 (3,061)10,230 (6,097)
Charge-offs(5,513)(5,331)(399)(829)(18,614)(30,686)
Recoveries5,921 2,202 2,342 2,549 9,258 22,272 
Net (charge-offs) recoveries408 (3,129)1,943 1,720 (9,356)(8,414)
Ending balance$72,091 $17,217 $144,936 $6,585 $7,837 $248,666 
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 expense (benefit)15,156 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) recoveries(14,169)(73,265)(7,053)(485)(8,463)(103,435)
Ending balance$73,843 $39,553 $134,892 $7,926 $6,963 $263,177 
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Generally, a commercial loan, or a portion thereof, is charged-off immediately when it is determined, through the analysis of any available current financial information with regards to the borrower, that the borrower is incapable of servicing unsecured debt, there is little or no prospect for near term improvement and no realistic strengthening action of significance is pending or, in the case of secured debt, when it is determined, through analysis of current information with regards to our collateral position, that amounts due from the borrower are in excess of the calculated current fair value of the collateral. Notwithstanding the foregoing, generally, commercial loans that become past due 180 cumulative days are charged-off. Generally, a consumer loan, or a portion thereof, is charged-off in accordance with regulatory guidelines which provide that such loans be charged-off when we become aware of the loss, such as from a triggering event that may include new information about a borrower’s intent/ability to repay the loan, bankruptcy, fraud or death, among other things, but in any event the charge-off must be taken within specified delinquency time frames. Such delinquency time frames state that closed-end retail loans (loans with pre-defined maturity dates, such as real estate mortgages, home equity loans and consumer installment loans) that become past due 120 cumulative days and open-end retail loans (loans that roll-over at the end of each term, such as home equity lines of credit) that become past due 180 cumulative days should be classified as a loss and charged-off.
Net (charge-offs)/recoveries, segregated by class of loan,The following table presents loans that were as follows:
 2019 2018 2017
Commercial and industrial$(10,131) $(22,388) $(17,453)
Energy(6,058) (13,121) (10,009)
Commercial real estate:     
Buildings, land and other(830) (263) 735
Construction24
 13
 11
Consumer real estate(2,457) (1,538) (506)
Consumer and other(14,272) (7,548) (5,919)
Total$(33,724) $(44,845) $(33,141)

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 128.8 at November 30, 2019 (most recent date available) and 126.4 at December 31, 2018. 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.

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.as of December 31, 2022 and December 31, 2021.
The components 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.
December 31, 2022December 31, 2021
Loan
Balance
Specific AllocationsLoan
Balance
Specific Allocations
Commercial and industrial$18,980 $6,082 $24,523 $10,536 
Energy15,058 4,383 16,393 5,480 
Paycheck Protection Program— — — — 
Commercial real estate:
Buildings, land and other17,711 1,716 24,670 200 
Construction— — 948 200 
Consumer real estate827 — 303 36 
Consumer and other— — — — 
Total$52,576 $12,181 $66,837 $16,452 
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 macroeconomic 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 as well as individual borrower financial information.
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.

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 portfolio risk factors that are external to us or that are not otherwise captured in our allowance modeling process but could impact the credit risk or inherent losses within 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, 2019           
Historical valuation allowances$29,015
 $7,873
 $21,947
 $2,690
 $7,562
 $69,087
Specific valuation allowances7,849
 20,246
 383
 
 5
 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
December 31, 2018           
Historical valuation allowances$25,351
 $9,697
 $20,817
 $2,688
 $6,845
 $65,398
Specific valuation allowances2,558
 9,671
 2,599
 
 1,407
 16,235
General valuation allowances10,062
 6,014
 4,366
 1,671
 (13) 22,100
Macroeconomic valuation allowances10,609
 3,670
 10,995
 1,744
 1,381
 28,399
Total$48,580
 $29,052
 $38,777
 $6,103
 $9,620
 $132,132

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.
Our 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 we used was as follows:
 
Commercial
and
Industrial
 Energy 
Commercial
Real Estate
 
Consumer
Real Estate
 
Consumer
and Other
 Total
December 31, 2019           
Individually evaluated$24,360
 $65,244
 $9,274
 $570
 $5
 $99,453
Collectively evaluated5,163,106
 1,587,638
 6,186,965
 1,193,843
 519,327
 14,650,879
Total$5,187,466
 $1,652,882
 $6,196,239
 $1,194,413
 $519,332
 $14,750,332
December 31, 2018           
Individually evaluated$7,129
 $46,707
 $14,685
 $293
 $1,407
 $70,221
Collectively evaluated5,104,828
 1,555,891
 5,681,753
 1,118,697
 568,343
 14,029,512
Total$5,111,957
 $1,602,598
 $5,696,438
 $1,118,990
 $569,750
 $14,099,733


The following table details activity in the allowance for loan losses by portfolio segment for 2019, 2018 and 2017. 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
2019           
Beginning balance$48,580
 $29,052
 $38,777
 $6,103
 $9,620
 $132,132
Provision for loan losses13,144
 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
Allocated to loans:           
Individually evaluated for impairment$7,849
 $20,246
 $383
 $
 $5
 $28,483
Collectively evaluated for impairment43,744
 17,136
 30,654
 4,113
 8,037
 103,684
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
Provision for loan losses11,354
 (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
Allocated to loans:           
Individually evaluated for impairment$2,558
 $9,671
 $2,599
 $
 $1,407
 $16,235
Collectively evaluated for impairment46,022
 19,381
 36,178
 6,103
 8,213
 115,897
Ending balance$48,580
 $29,052
 $38,777
 $6,103
 $9,620
 $132,132
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


Note 4 - Premises and Equipment and Lease Commitments
Year-end premises and equipment were as follows:
 2019 2018
Land$112,818
 $104,045
Buildings441,404
 373,276
Technology, furniture and equipment226,925
 196,871
Leasehold improvements156,144
 83,320
Construction and projects in progress44,251
 45,456
Lease right-of-use assets297,736
 
 1,279,278
 802,968
Less accumulated depreciation and amortization(267,331) (250,638)
Total premises and equipment, net$1,011,947
 $552,330

20222021
Land$170,938 $152,219 
Buildings521,280 495,903 
Technology, furniture and equipment236,440 256,323 
Leasehold improvements209,398 192,207 
Construction and projects in progress39,506 14,513 
Lease right-of-use assets288,816 281,438 
1,466,378 1,392,603 
Less accumulated depreciation and amortization(363,683)(342,272)
Total premises and equipment, net$1,102,695 $1,050,331 
Depreciation of premises and equipment totaled $41.0$57.4 million in 2019, $37.22022, $55.1 million 20182021 and $36.3$49.9 million in 2017. Amortization of lease right of use-assets totaled $27.6 million in 2019.2020.
Lease Commitments.Commitments. We lease certain office facilities and office equipment under operating leases. Rent expense for all operating leases totaled $42.1$47.7 million in 2019, $31.12022, $45.6 million in 20182021 and $30.5$46.0 million in 2017. On January 1, 2019, we adopted2020.
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The components of total lease expense in 2022 and 2021 were as follows:
20222021
Amortization of lease right-of-use assets$33,285 $32,811 
Short-term lease expense2,208 1,595 
Non-lease components (including taxes, insurance, common maintenance, etc.)12,172 11,203 
Total$47,665 $45,609 
Right-of-use lease assets totaled $288.8 million and $281.4 million at December 31, 2022 and 2021, respectively, and are reported as 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) andequipment on our accompanying consolidated balance sheets. The related lease liabilities (reportedtotaled $321.9 million and $313.4 million at December 31, 2022 and 2021, respectively, and are reported as a component of accrued interest payable and other liabilities). See Note 1 - Summary of Significant Accounting Policies. Rent expense includes amounts related to items that are not includedliabilities in the determination of lease right-of-use assets including expenses related to short-term leases totaling $4.6 million in 2019 and non-lease components such as taxes, insurance, and common area maintenance costs totaling $9.9 million in 2019.
accompanying consolidated balance sheets. Lease payments under operating leases that were applied to our operating lease liability totaled $27.5$32.9 million during 2019.2022 and $32.1 million during 2021. 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, 2019:2022:
Future lease payments 
2020$28,225
202130,813
202228,175
202326,661
202425,232
Thereafter283,300
Total undiscounted operating lease liability422,406
Imputed interest98,718
Total operating lease liability included in the accompanying balance sheet$323,688
Weighted-average lease term in years16.49
Weighted-average discount rate3.17%

Future lease payments
2023$33,685 
202433,651 
202533,990 
202633,600 
202732,023 
Thereafter232,905 
Total undiscounted operating lease liability399,854 
Imputed interest77,909 
Total operating lease liability included in the accompanying balance sheet$321,945 
Weighted-average lease term in years13.62
Weighted-average discount rate3.13%
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 $5.9$327 thousand in 2022, $322 thousand in 2021 and $9.8 million in 2019, $464 thousand in 2018 and $1.4 million in 2017.2020. The increasedecrease in these lease payments during 20192021 compared to 20182020 was primarily related to the commencementresult of the lease of our new headquarters building during the second quarter of 2019. We recognized a right-of-use asset totaling $121.7 milliondirector who did not stand for re-election and who has a related lease liability totaling $121.7 million in connection with this lease. The lease was a separate agreement under a comprehensive development agreement between us, the City of San Antonio and a third party controlled by one of our directors. We sold our old headquarters building to the City of San Antonio in 2016 and leased it back during the construction period of our new headquarters building. A portion of the gain from the sale of our old headquarters building was deferred and amortized to income over the term of the lease, which endedcontrolling interest in the second quarter of 2019. Amortization of the deferred gain totaled $1.4 million in 2019, $2.8 million in 2018 and $2.9 million in 2017.entity from which we lease our headquarters building.

Note 5 - Goodwill and Other Intangible Assets
Goodwill. Year-end goodwill was as follows:
 2019 2018
Goodwill$654,952
 $654,952

20222021
Goodwill$654,952 $654,952 
Other Intangible Assets. Year-end other intangible assets were as follows:
Gross
Intangible
Assets
Accumulated
Amortization
Net
Intangible
Assets
2022
Core deposits$9,300 $(8,990)$310 
Customer relationships1,521 (1,445)76 
$10,821 $(10,435)$386 
2021
Core deposits$9,300 $(8,582)$718 
Customer relationships2,385 (2,237)148 
$11,685 $(10,819)$866 
 
Gross
Intangible
Assets
 
Accumulated
Amortization
 
Net
Intangible
Assets
2019     
Core deposits$9,300
 $(7,257) $2,043
Customer relationships3,388
 (2,950) 438
 $12,688
 $(10,207) $2,481
2018     
Core deposits$9,300
 $(6,341) $2,959
Customer relationships4,206
 (3,534) 672
Non-compete agreements74
 (56) 18
 $13,580
 $(9,931) $3,649
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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 $1.2 million$480 thousand in 2019, $1.4 million2022, $697 thousand in 2018,2021, and $1.7 million$918 thousand in 2017.2020. The estimated aggregate future amortization expense for intangible assets remaining as of December 31, 20192022 is as follows:
2020$918
2021697
2022481
2023282
202487
Thereafter16
 $2,481

2023$283 
202487 
202511 
2026
$386 

Note 6 - Deposits
Year-end deposits were as follows:
 2019 2018
Non-interest-bearing demand deposits:   
Commercial and individual$10,212,265
 $10,305,850
Correspondent banks246,181
 235,748
Public funds415,183
 455,896
Total non-interest-bearing demand deposits10,873,629
 10,997,494
Interest-bearing deposits:   
Private accounts:   
Savings and interest checking7,147,327
 6,977,813
Money market accounts7,888,433
 7,777,470
Time accounts of $100,000 or more736,481
 526,789
Time accounts under $100,000347,418
 331,511
Total private accounts16,119,659
 15,613,583
Public funds:   
Savings and interest checking548,399
 473,754
Money market accounts73,180
 59,953
Time accounts of $100,000 or more24,672
 4,332
Time accounts under $100,00025
 88
Total public funds646,276
 538,127
Total interest-bearing deposits16,765,935
 16,151,710
Total deposits$27,639,564
 $27,149,204

20222021
Non-interest-bearing demand deposits$17,598,234 $18,423,018 
Interest-bearing deposits:
Savings and interest checking12,333,675 11,930,959 
Money market accounts12,227,247 11,228,815 
Time accounts1,795,040 1,112,904 
Total interest-bearing deposits26,355,962 24,272,678 
Total deposits$43,954,196 $42,695,696 
The following table presents additional information about our year-end deposits:
 2019 2018
Deposits from the Certificate of Deposit Account Registry Service (CDARS)$361
 $
Deposits from foreign sources (primarily Mexico)805,828
 752,658
Deposits not covered by deposit insurance13,115,796
 13,111,210
Deposits from certain directors, executive officers and their affiliates197,919
 199,321

20222021
Deposits from foreign sources (primarily Mexico)$1,048,943 $993,479 
Non-interest-bearing public funds deposits788,040 1,235,026 
Interest-bearing public funds deposits758,761 810,863 
Total deposits not covered by deposit insurance23,839,797 24,125,359 
Time deposits not covered by deposit insurance430,128 238,608 
Deposits from certain directors, executive officers and their affiliates153,083 276,556 
Scheduled maturities of time deposits including both private and public funds, at December 31, 20192022 were as follows:
2020$891,005
2021217,591
 $1,108,596

2023$1,381,519 
2024413,521 
$1,795,040 
Scheduled maturities of time deposits in amounts of $100,000 or more, including both private and public funds,not covered by deposit insurance at December 31, 2019,2022, were as follows:
Due within 3 months or less$87,254 
Due after 3 months and within 6 months87,035 
Due after 6 months and within 12 months131,503 
Due after 12 months124,336 
$430,128 
Due within 3 months or less$191,563
Due after 3 months and within 6 months140,654
Due after 6 months and within 12 months271,209
Due after 12 months157,727
 $761,153


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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 $27.2$51.7 million and $7.3$25.9 million at December 31, 20192022 and 2018.2021. 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 $1.7$4.7 billion and $1.4$2.7 billion at December 31, 20192022 and 2018.2021.
Subordinated Notes Payable.Notes. In March 2017, we issued $100 million of 4.50% subordinated notes that mature on March 17, 2027.2027. 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 $1.1 million$665 thousand and $1.3 million$822 thousand December 31, 20192022 and 2018.2021. 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, 20192022 and 2018,2021, 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 $816$643 thousand and $873$701 thousand at December 31, 20192022 and 2018. At December 31, 2019 and 2018,2021. In October 2021, we also hadredeemed $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 areis a variable interest entitiesentity for which we are not the primary beneficiary. Asbeneficiary and, as such, theits accounts of Trust II and WNB Trust are not included in our consolidated financial statements. This was also the case with WNB Trust prior to its dissolution in 2021. 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 $120.0 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 3.46%6.31% and 4.29%1.72% at December 31, 20192022 and 2018)2021) 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 4.28% and 4.83% at December 31, 2019 and 2018) 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.
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,indenture, the trust agreementsagreement establishing the trusts,trust, the guaranteesguarantee and the agreementsagreement 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, 2019 and 2018.purposes. See Note 9 - Capital and Regulatory Matters.
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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 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 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 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 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 are presented in the following table. 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.
20222021
Commitments to extend credit$12,137,957 $10,420,142 
Standby letters of credit383,851 238,690 
Deferred standby letter of credit fees2,236 2,072 
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 as follows:funded.
The following table details activity in the allowance for credit losses on off-balance-sheet credit exposures.
202220212020
Beginning balance$50,314 $44,152 $500 
Impact of adopting ASC 326— — 39,377 
Credit loss expense8,279 6,162 4,275 
Ending balance$58,593 $50,314 $44,152 
 2019 2018
Commitments to extend credit$9,306,043
 $8,369,721
Standby letters of credit260,587
 271,575
Deferred standby letter of credit fees1,276
 2,069
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Credit Card Guarantees. We guarantee the credit card debt of certain customers to the merchant bank that issues the cards. At December 31, 20192022 and 2018,2021, the guarantees totaled approximately $8.5$8.0 million and $8.1$8.6 million, of which amounts, $1.3 million$897 thousand and $1.4 million$962 thousand were fully collateralized.
Change in Control AgreementsTrust Accounts. We havehold 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. The estimated fair value of trust assets was approximately $43.6 billion and $43.3 billion at December 31, 2022 and 2021, respectively. These assets are primarily composed of equity securities, fixed income securities, alternative investments and cash equivalents, among other things.
Executive Change-In-Control Severance Plan. We maintain a change-in-control agreements withseverance plan for the benefit of certain executive officers. Under these agreements,this plan, 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.
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 to delay, for a five-year transitional period, the effects of credit loss accounting under CECL from Common Equity Tier 1, as further discussed below. Common Equity Tier 1 for both Cullen/Frost and Frost Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities, 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”).
Tier 1 capital includes Common Equity Tier 1 capital and Additionaladditional Tier 1 capital. For Cullen/Frost, Additionaladditional Tier 1 capital at December 31, 20192022 and 20182021 included $144.5$145.5 million of 5.375%4.450% non-cumulative perpetual preferred stock.stock, the details of which is are further discussed below. Frost Bank did not have any Additionaladditional Tier 1 capital beyond Common Equity Tier 1 at December 31, 20192022 or 2018.2021.
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, 2019 and 2018, Cullen/Frost's Tier 2 capital included $133.0$120.0 million of trust preferred securities. Atsecurities at both December 31, 20192022 and 2018,2021. Cullen/Frost's Tier 2 Capital for Cullen/Frost also included $80.0 million at December 31, 2022 and $100.0 million at December 31, 2021 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.
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
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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.
Fully phased in on January 1, 2019, theThe Basel III Capital Rules 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, effectively resulting in a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of at least 7.0%), (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, effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (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, effectively resulting in a minimum total capital ratio of 10.5%) 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 was phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reached 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 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, CECL transitional amounts have been added back to CET1 totaling $46.2 million and $61.6 million at December 31, 2022 and 2021, respectively.
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, 2022 and 2021 as we did not utilize the PPP Facility for funding purposes.
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The following table presents actual and required capital ratios as of December 31, 20192022 and December 31, 20182021 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, 2019 and December 31, 2018 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 Plus Capital
Conservation Buffer
Required to be
Considered Well
Capitalized(1)
Capital
Amount
RatioCapital
Amount
RatioCapital
Amount
Ratio
2022
Common Equity Tier 1 to Risk-Weighted Assets
Cullen/Frost$3,751,200 12.85 %$2,042,876 7.00 %N/AN/A
Frost Bank3,789,056 13.00 2,040,388 7.00 $1,894,646 6.50 %
Tier 1 Capital to Risk-Weighted Assets
Cullen/Frost3,896,652 13.35 2,480,635 8.50 1,751,036 6.00 
Frost Bank3,789,056 13.00 2,477,614 8.50 2,331,872 8.00 
Total Capital to Risk-Weighted Assets
Cullen/Frost4,330,982 14.84 3,064,313 10.50 2,918,394 10.00 
Frost Bank4,023,386 13.80 3,060,583 10.50 2,914,841 10.00 
Leverage Ratio
Cullen/Frost3,896,652 7.29 2,136,680 4.00 N/AN/A
Frost Bank3,789,056 7.09 2,136,316 4.00 2,670,395 5.00 
2021
Common Equity Tier 1 to Risk-Weighted Assets
Cullen/Frost$3,371,043 13.13 %$1,796,549 7.00 %N/AN/A
Frost Bank3,261,532 12.72 1,795,221 7.00 $1,666,991 6.50 %
Tier 1 Capital to Risk-Weighted Assets
Cullen/Frost3,516,495 13.70 2,181,523 8.50 1,539,899 6.00 
Frost Bank3,261,532 12.72 2,179,911 8.50 2,051,681 8.00 
Total Capital to Risk-Weighted Assets
Cullen/Frost3,966,244 15.45 2,694,823 10.50 2,566,498 10.00 
Frost Bank3,491,281 13.61 2,692,831 10.50 2,564,601 10.00 
Leverage Ratio
Cullen/Frost3,516,495 7.34 1,917,533 4.00 N/AN/A
Frost Bank3,261,532 6.80 1,917,679 4.00 2,397,099 5.00 
 Actual Minimum Capital Required - Basel III Fully Phased-In 
Required to be
Considered Well
Capitalized
 
Capital
Amount
 Ratio 
Capital
Amount
 Ratio 
Capital
Amount
 Ratio
2019           
Common Equity Tier 1 to Risk-Weighted Assets           
Cullen/Frost$2,857,250
 12.36% $1,617,886
 7.00% $1,502,323
 6.50%
Frost Bank2,958,326
 12.82
 1,615,206
 7.00
 1,499,834
 6.50
Tier 1 Capital to Risk-Weighted Assets           
Cullen/Frost3,001,736
 12.99
 1,964,576
 8.50
 1,849,013
 8.00
Frost Bank2,958,326
 12.82
 1,961,322
 8.50
 1,845,950
 8.00
Total Capital to Risk-Weighted Assets           
Cullen/Frost3,367,403
 14.57
 2,426,829
 10.50
 2,311,266
 10.00
Frost Bank3,090,993
 13.40
 2,422,809
 10.50
 2,307,438
 10.00
Leverage Ratio           
Cullen/Frost3,001,736
 9.28
 1,293,188
 4.00
 1,616,485
 5.00
Frost Bank2,958,326
 9.15
 1,292,743
 4.00
 1,615,929
 5.00
____________________
(1)“Well-capitalized” minimum Common Equity Tier 1 to Risk-Weighted Assets and Leverage Ratio are not formally defined under applicable banking regulations for bank holding companies.
 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
2018               
Common Equity Tier 1 to Risk-Weighted Assets               
Cullen/Frost$2,642,475
 12.27% $1,372,573
 6.375% $1,507,139
 7.00% $1,399,486
 6.50%
Frost Bank2,743,973
 12.78
 1,368,701
 6.375
 1,502,887
 7.00
 1,395,538
 6.50
Tier 1 Capital to Risk-Weighted Assets               
Cullen/Frost2,786,961
 12.94
 1,695,532
 7.875
 1,830,098
 8.50
 1,722,445
 8.00
Frost Bank2,743,973
 12.78
 1,690,748
 7.875
 1,824,934
 8.50
 1,717,585
 8.00
Total Capital to Risk-Weighted Assets               
Cullen/Frost3,152,593
 14.64
 2,126,143
 9.875
 2,260,709
 10.50
 2,153,056
 10.00
Frost Bank2,876,605
 13.40
 2,120,144
 9.875
 2,254,331
 10.50
 2,146,982
 10.00
Leverage Ratio               
Cullen/Frost2,786,961
 9.06
 1,231,028
 4.00
 1,231,028
 4.00
 1,538,785
 5.00
Frost Bank2,743,973
 8.93
 1,229,650
 4.00
 1,229,650
 4.00
 1,537,062
 5.00
Management believes that,As of December 31, 2022, 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, 2019,2022 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, 2019,2022, that Cullen/Frost and Frost Bank meet all capital adequacy requirements to which they are subject.
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
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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 July 24, 2019,January 25, 2023, our board of directors authorized a $100.0 million stock repurchase program,plan, allowing us to repurchase shares of our common stock over a one-yearone-year period from time to time at various prices in the open market or through private transactions. No shares were repurchased under a stock repurchase plan during 2022 or 2021. Under thisa prior stock repurchase plan, we repurchased, 202,724177,834 shares at a total cost of $17.2$13.7 million during 2019. Under a2020.
In July 2019, the federal bank regulators adopted final rules (the “Capital Simplifications Rules”) that, among other things, eliminated the standalone prior stock repurchase programs, we repurchased 496,307 shares at a total cost of $50.0 million during 2019, 1,027,292 shares at a total cost of $100.0 million during 2018 and 1,134,966 shares at a total cost of $100.0 million during 2017. Underapproval requirement in the Basel III Capital Rules for any repurchase of common stock. In certain circumstances, Cullen/Frost may not repurchaseFrost’s repurchases of its common stock (ormay be subject to a prior approval or notice requirement under other regulations, policies or supervisory expectations of the Federal Reserve Board. Any redemption or repurchase or redeem any of its preferred stock or subordinated notes) withoutdebt remains subject to the prior approval of the Federal Reserve Board.
In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted. Among other things, the IRA imposes a new 1% excise tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S. corporations. With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.
Dividend Restrictions. In the ordinary course of business, Cullen/Frost is dependent upon dividends from Frost Bank to provide funds for the payment of dividends to shareholders and to provide for other cash requirements, including to repurchase its common stock. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of Frost Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years. Under the foregoing dividend
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restrictions and while maintaining its “well capitalized” status, at December 31, 2019,2022, Frost Bank could pay aggregate dividends of up to $682.9$813.6 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.
202220212020
Net Income$579,150 $443,079 $331,151 
Less: Preferred stock dividends6,675 7,157 2,016 
Redemption of preferred stock— — 5,514 
Net income available to common shareholders572,475 435,922 323,621 
Less: Earnings allocated to participating securities5,210 3,881 3,136 
Net earnings allocated to common stock$567,265 $432,041 $320,485 
Distributed earnings allocated to common stock$207,924 $187,202 $178,863 
Undistributed earnings allocated to common stock359,341 244,839 141,622 
Net earnings allocated to common stock$567,265 $432,041 $320,485 
Weighted-average shares outstanding for basic earnings per common share64,156,870 63,612,658 62,727,053 
Dilutive effect of stock compensation363,648 489,462 276,784 
Weighted-average shares outstanding for diluted earnings per common share64,520,518 64,102,120 63,003,837 
 2019 2018 2017
Net Income$443,599
 $454,918
 $364,149
Less: Preferred stock dividends8,063
 8,063
 8,063
Net income available to common shareholders435,536
 446,855
 356,086
Less: Earnings allocated to participating securities3,687
 3,169
 2,016
Net earnings allocated to common stock$431,849
 $443,686
 $354,070
      
Distributed earnings allocated to common stock$175,540
 $164,268
 $143,356
Undistributed earnings allocated to common stock256,309
 279,418
 210,714
Net earnings allocated to common stock$431,849
 $443,686
 $354,070
      
Weighted-average shares outstanding for basic earnings per common share62,741,769
 63,704,508
 63,693,927
Dilutive effect of stock compensation700,101
 982,208
 968,161
Weighted-average shares outstanding for diluted earnings per common share63,441,870
 64,686,716
 64,662,088

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Note 11 - Employee Benefit Plans
Retirement Plans
Profit Sharing Plans. Prior to 2019, we maintained a qualified defined contribution profit sharing plan that covered employees who had completed at least one year of service and were age 21 or older. The Plan was merged with and into our 401(k) plan effective January 1, 2019, as further discussed below. Expense related to this plan totaled $11.9 million in 2018 and $11.6 million in 2017.
We continue to maintain a separate non-qualified profit sharing plan for certain employees whose participation in the qualified profit sharing plan was limited. The plan offers such employees an alternative means of receiving comparable benefits. Expense related to this plan totaled $930 thousand in 2019, $568 thousand in 2018 and $1.1 million in 2017.
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:
 2019 2018 2017
Change in plan assets:     
Fair value of plan assets at beginning of year$152,820
 $168,450
 $157,214
Actual return on plan assets29,945
 (7,739) 23,518
Employer contributions1,163
 1,077
 1,049
Benefits paid(9,755) (8,968) (13,331)
Fair value of plan assets at end of year174,173
 152,820
 168,450
Change in benefit obligation:     
Benefit obligation at beginning of year167,107
 182,607
 176,751
Interest cost6,472
 5,898
 6,189
Actuarial (gain) loss22,817
 (12,430) 12,998
Benefits paid(9,755) (8,968) (13,331)
Benefit obligation at end of year186,641
 167,107
 182,607
Funded status of the plan at end of year and accrued benefit (liability) recognized$(12,468) $(14,287) $(14,157)
Accumulated benefit obligation at end of year$186,641
 $167,107
 $182,607

202220212020
Change in plan assets:
Fair value of plan assets at beginning of year$197,747 $182,088 $174,173 
Actual return on plan assets(26,108)24,908 16,599 
Employer contributions1,114 1,236 1,201 
Benefits paid(10,930)(10,485)(9,885)
Fair value of plan assets at end of year161,823 197,747 182,088 
Change in benefit obligation:
Benefit obligation at beginning of year185,925 197,593 186,641 
Interest cost4,017 3,341 5,010 
Actuarial (gain) loss(35,068)(4,524)15,827 
Benefits paid(10,930)(10,485)(9,885)
Benefit obligation at end of year143,944 185,925 197,593 
Funded status of the plan at end of year and accrued benefit (liability) recognized$17,879 $11,822 $(15,505)
Accumulated benefit obligation at end of year$143,944 $185,925 $197,593 
Certain disaggregated information related to our defined benefit pension plans as of year-end was as follows:
 Retirement Plan Restoration Plan
 2019 2018 2019 2018
Projected benefit obligation$170,541
 $152,035
 $16,100
 $15,072
Accumulated benefit obligation170,541
 152,035
 16,100
 15,072
Fair value of plan assets174,173
 152,820
 
 
Funded status of the plan at end of year and accrued benefit (liability) recognized3,632
 785
 (16,100) (15,072)

Retirement PlanRestoration Plan
2022202120222021
Projected benefit obligation$131,648 $170,389 $12,296 $15,536 
Accumulated benefit obligation131,648 170,389 12,296 15,536 
Fair value of plan assets161,823 197,747 — — 
Funded status of the plan at end of year and accrued benefit (liability) recognized30,175 27,358 (12,296)(15,536)
The components of the combined net periodic cost (benefit) for our defined benefit pension plans are presented in the table below.
202220212020
Expected return on plan assets, net of expenses$(13,966)$(12,839)$(12,289)
Interest cost on projected benefit obligation4,017 3,341 5,010 
Net amortization and deferral2,964 6,116 5,319 
Net periodic expense (benefit)$(6,985)$(3,382)$(1,960)
 2019 2018 2017
Expected return on plan assets, net of expenses$(10,772) $(11,916) $(11,117)
Interest cost on projected benefit obligation6,472
 5,898
 6,189
Net amortization and deferral5,623
 5,002
 5,429
Net periodic expense (benefit)$1,323
 $(1,016) $501
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Amounts related to our defined benefit pension plans recognized as a component of other comprehensive income were as follows:
 2019 2018 2017
Net actuarial gain (loss)$1,979
 $(2,223) $4,832
Deferred tax (expense) benefit(416) 466
 (1,774)
Other comprehensive income (loss), net of tax$1,563
 $(1,757) $3,058

202220212020
Net actuarial gain (loss)$(2,041)$22,709 $(6,199)
Deferred tax (expense) benefit429 (4,769)1,302 
Other comprehensive income (loss), net of tax$(1,612)$17,940 $(4,897)
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 $5.3 million of the net actuarial loss reported in the following table as of December 31, 2019 as a component of net periodic benefit cost during 2020.
 2019 2018
Net actuarial loss$(57,964) $(60,123)
Deferred tax benefit12,210
 12,626
Amounts included in accumulated other comprehensive income/loss, net of tax(45,934) (47,497)


20222021
Net actuarial loss$(43,675)$(41,634)
Deferred tax benefit9,172 8,743 
Amounts included in accumulated other comprehensive income/loss, net of tax(34,503)(32,891)
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.
 2019 2018 2017
Benefit obligations:     
Discount rate3.20% 4.36% 3.68%
Net periodic benefit cost:     
Discount rate4.36% 3.68% 4.24%
Expected return on plan assets7.25
 7.25
 7.25

202220212020
Benefit obligations:
Discount rate5.14 %2.79 %2.43 %
Net periodic benefit cost:
Discount rate2.79 %2.43 %3.20 %
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, 2019,2022, 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 64% invested in equity securities, approximately 32%31% invested in fixed income debt securities with any remainder invested in cash or short-term cash equivalents. The asset allocation optimization process provides portfolio allocations which best represent the potential risk associated with a given asset allocation over a full market cycle. This is used to help management determine an appropriate mix of assets in order to achieve the plan's long term investment 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.
 2019 2018
Level 1:   
Mutual funds$172,773
 $152,477
Cash and cash equivalents1,400
 343
Total fair value of plan assets$174,173
 $152,820

20222021
Level 1:
Mutual funds$154,391 $195,452 
Cash and cash equivalents7,432 2,295 
Total fair value of plan assets$161,823 $197,747 
Mutual funds include various equity, fixed-income and blended funds with varying investment strategies. Approximately 68%67% of mutual fund investments consist of equity investments as of December 31, 2019.2022. 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.
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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 2019.2022. 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, 2019,2022, expected future benefit payments related to our defined benefit plans were as follows:
2020$10,662
202110,968
202211,177
202311,423
202411,578
2025 through 202957,122
 $112,930

2023$11,864 
202412,128 
202512,059 
202611,995 
202711,848 
2028 through 203255,245 
$115,139 
We expect to contribute $1.2 million to the defined benefit plans during 2020.2023.
Savings Plans
401(k) Stock Purchase Plan and Thrift Incentive Plan.Other Plans. We maintain a 401(k) stock purchase plan that permits each participant to make before-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 30 days of service in order to enroll and vest in our matching contributions immediately. Our matching contribution is initially invested in the Cullen/Frost common stock fund. However, employeesof Cullen/Frost. 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 qualifiedWe may also make discretionary profit sharing plan with and into the 401(k) plan. contributions to eligible participants.
All profit sharing contributions to the plan are made at our discretion and may be made without regard to current or accumulated profits. Contributions are generally allocated to eligible participants uniformly, based upon compensation, age andand/or 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 $28.9 million ($16.3 million matching contributions and $12.6 million profit sharing) in 2019, $15.0$28.0 million in 2018, and $14.32022, $23.8 million in 2017.2021 and $17.9 million in 2020.
We maintain a thrift incentive stock purchase plan and a separate non-qualified profit sharing 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 planthese plans was not significant during 2019, 20182022, 2021 and 2017.2020.
Stock Compensation Plans
We have 3three 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
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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 2019, 20182022, 2021 and 20172020 was 34,317, 30,46635,015, 30,723 and 24,162,48,409, respectively. As of December 31, 2019,2022, there were 1,105,616505,456 shares remaining available for grant for future awards.
  
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, 2017 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
 36,246
 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
 80,106
 79.91
 2,917,142
 63.34
Authorized 
 
 
 
 
 
 
 
Granted 6,576
 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, 2018 48,910
 71.14
 383,797
 85.59
 125,809
 82.55
 2,352,008
 63.55
Authorized 
 
 
 
 
 
 
 
Granted 7,592
 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, 2019 55,370
 $74.76
 440,647
 $90.22
 177,288
 $83.48
 1,980,866
 $64.60

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, 202055,370 $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 
Granted5,940 117.90 95,258 130.36 46,086 121.46 — — 
Exercised/vested(2,499)92.03 (88,250)98.90 (35,131)92.27 (861,878)63.14 
Forfeited/expired— — (28,030)87.08 (9,752)75.70 — — 
December 31, 202156,301 79.21 449,337 93.05 202,460 84.71 877,681 69.02 
Granted5,382 133.67 119,176 142.56 52,527 133.40 — — 
Exercised/vested(16,022)74.89 (97,154)94.81 (25,180)87.18 (261,454)63.72 
Forfeited/expired— — (6,040)93.28 (16,058)87.18 — — 
December 31, 202245,661 87.15 465,319 105.36 213,749 96.20 616,227 71.27 
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-cliffthree-year-cliff vesting period.period for awards granted in 2022 and 2021 and a four-year-cliff vesting period for awards granted prior to 2021. 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.
Performance stock units represent shares potentially issuable in the future. IssuanceFor performance stock units granted in 2022 and 2021, issuance is based upon the measure of our achievement of growth in adjusted net revenue, averaged over the three-year performance period, compared to the 2022 and 2021 base-year amounts, respectively. Adjusted net revenue for each three-year performance period is calculated as the sum of taxable-equivalent net interest income (excluding the effects of PPP lending) and non-interest income, reduced by non-interest expense (excluding the effects of PPP lending) and net charge-offs. The 2022 and 2021 base-year adjusted net revenue amounts of approximately $713.8 million and $415.9 million, respectively, were calculated as the sum of taxable-equivalent net interest income (excluding the effects of PPP lending) and non-interest income, reduced by non-interest expense (excluding the effects of PPP lending) and the product of average total loans (excluding PPP loans) and 0.30%. 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 amount by which adjusted net revenue, averaged over a three-year performance period, exceeds the 2022 and 2021 base-year amounts, as applicable, stated as an average growth percentage. The award payout percentages by level of achievement for
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both the 2022 and 2021 awards are as follows: (i) less than 13% average growth pays out at 0% of target, (ii) 13% average growth pays out at 50% of target, (iii) 19% average growth pays out at 100% of target and (iv) 25% average growth or more pays out at 150% of target. Achievement between the aforementioned average growth percentages will result in an award payout percentage determined based on straight-line interpolation between the percentages.
For performance stock units granted prior to 2021, 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, 20192022 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
 238,055
 $48.00
 1.82 238,055
 $48.00
50.01
 to 55.00
 464,009
 53.75
 2.04 464,009
 53.75
65.01
 to 70.00
 526,096
 65.11
 5.67 526,096
 65.11
70.01
 to 75.00
 275,654
 71.39
 3.80 275,654
 71.39
75.01
 to 80.00
 477,052
 78.95
 4.71 477,052
 78.95
 Total 1,980,866
 64.60
 3.87 1,980,866
 64.60
 Total intrinsic value $65,725
     $65,725
  

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
$65.01 to$70.00 277,131 $65.11 2.82277,131 $65.11 
70.01 to75.00 117,686 71.39 0.83117,686 71.39 
75.01 to80.00 221,410 78.92 1.83221,410 78.92 
Total616,227 71.27 2.08616,227 71.27 
Total intrinsic value$38,470 $38,470 
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:
 2019 2018 2017
New shares issued from available authorized shares
 
 603,842
Issued from available treasury stock399,224
 548,238
 547,078
Total399,224
 548,238
 1,150,920
Proceeds from stock option exercises$20,770
 $31,647
 $67,746
Intrinsic value of stock options exercised13,713
 23,292
 38,275
Fair value of stock awards/units vested5,192
 4,212
 4,578

202220212020
New shares issued from available authorized shares118,389 — — 
Shares issued from available treasury stock281,421 987,758 408,563 
Total399,810 987,758 408,563 
Proceeds from stock option exercises$16,659 $54,417 $12,557 
Intrinsic value of stock options exercised19,616 43,904 5,365 
Fair value of stock awards/units vested19,308 15,751 12,773 
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.
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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.
 2019 2018 2017
Stock options$1,185
 $3,652
 $6,230
Non-vested stock awards/stock units9,339
 6,983
 4,992
Deferred stock-units780
 721
 519
Performance stock units4,642
 2,587
 1,272
Total$15,946
 $13,943
 $13,013
Income tax benefit$2,359
 $2,831
 $4,555

202220212020
Non-vested stock awards/stock units$13,162 $9,977 $10,240 
Deferred stock-units720 700 770 
Performance stock units4,440 2,076 2,908 
Total$18,322 $12,753 $13,918 
Income tax benefit$2,969 $1,713 $2,142 

Unrecognized stock-based compensation expense and the weighted-average period over which the expense is expected to be recognized at December 31, 20192022 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 Expense Weighted-Average Number of Years for Expense Recognition
Non-vested stock awards/stock units$18,882
 2.81
Performance stock units6,299
 2.11
Total$25,181
  

Unrecognized ExpenseWeighted-Average Number of Years for Expense Recognition
Non-vested stock awards/stock units$21,770 2.15
Performance stock units11,078 1.80
Total$32,848 
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 $0.71, $0.67$0.87, $0.75 and $0.57$0.72 in 2019, 2018,2022, 2021 and 20172020, respectively, discounted at a weighted-average risk-free rate of 1.65%4.45%, 2.95%0.77% and 1.73%0.19% in 2019, 2018,2022, 2021 and 20172020, 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. NaNNo stock options have been granted since 2015.
Note 12 - Other Non-Interest Income and Expense
Other non-interest income and expense totals are presented in the following tables.table. 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.
 2019 2018 2017
Other non-interest income:     
Other$43,563
 $46,790
 $37,222
Total$43,563
 $46,790
 $37,222
Other non-interest expense:     
Professional services$39,238
 $35,941
 $27,968
Advertising, promotions and public relations38,001
 32,514
 29,337
Travel/meals and entertainment16,459
 15,030
 15,066
Check card expense5,947
 4,744
 16,501
Other81,020
 85,309
 86,417
Total$180,665
 $173,538
 $175,289

As discussed in Note 1 - Summary of Significant Accounting Policies, a new accounting standard adopted in 2018 requires us to report network costs associated with debit card and ATM transactions netted against the related fee income from such transactions. Previously, such network costs were reported as a component of check card expense and included in other non-interest expense. In 2019 and 2018, network costs totaling $12.9 million and $11.9 million are reported as a component of interchange and debit card transaction fees in the accompanying Consolidated Statement of Income rather than as a component of check card expense in the table above. For 2017, network costs totaling $11.9 million were reported as a component of check card expense in the table above.
202220212020
Other non-interest income:
Other$45,217 $48,528 $47,712 
Total$45,217 $48,528 $47,712 
Other non-interest expense:
Professional services$40,908 $34,747 $37,253 
Advertising, promotions and public relations39,994 34,539 34,390 
Other113,319 102,171 94,667 
Total$194,221 $171,457 $166,310 
In the ordinary course of business, we transact with certain directors and/or their affiliates. Payments for services provided totaled $567$545 thousand in 2019, $5682022, $257 thousand in 20182021 and $833$551 thousand in 2017.2020.

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Note 13 - Income Taxes
Tax Cuts and Jobs Act. The Tax Cuts and Jobs Act was enacted on December 22, 2017. Among other things, the new law (i) established a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminated the corporate alternative minimum tax and allowed the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limited the deduction for net interest expense incurred by U.S. corporations, (iv) allowed businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminated or reduced certain deductions related to meals and entertainment expenses, (vi) modified the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarified the definition of a covered employee and (vii) limited 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.
Income Taxes.Income tax expense was as follows:
 2019 2018 2017
Current income tax expense$48,256
 $840
 $58,707
Deferred income tax expense (benefit)7,614
 52,923
 (14,493)
Income tax expense, as reported$55,870
 $53,763
 $44,214
      
Effective tax rate11.2% 10.6% 10.8%

202220212020
Current income tax expense$94,595 $38,675 $36,002 
Deferred income tax expense (benefit)(4,918)7,784 (15,832)
Income tax expense, as reported$89,677 $46,459 $20,170 
Effective tax rate13.4 %9.5 %5.7 %
A reconciliation between reported income tax expense and the amounts computed by applying the U.S. federal statutory income tax rate of 21% in 2019 and 2018 and 35% in 2017 to income before income taxes is presented in the following table.
 2019 2018 2017
Income tax expense computed at the statutory rate$104,888
 $106,823
 $142,927
Effect of tax-exempt interest(49,166) (49,700) (81,034)
Tax benefit on dividends paid in our 401k plan(1,743) (1,551) (2,372)
Bank owned life insurance income(774) (710) (1,116)
Non-deductible compensation1,708
 210
 158
Non-deductible FDIC premiums1,267
 1,771
 
Non-deductible meals and entertainment1,299
 1,193
 983
Net tax benefit from stock-based compensation(2,447) (3,865) (9,062)
Deferred tax adjustment related to reduction in U.S. federal statutory income tax rate
 (231) (4,047)
Correction for prior year tax-exempt interest
 
 (2,906)
Other838
 (177) 683
Income tax expense, as reported$55,870
 $53,763
 $44,214

202220212020
Income tax expense computed at the statutory rate$140,454 $102,803 $73,777 
Effect of tax-exempt interest(50,602)(50,740)(51,624)
Net tax benefit from stock-based compensation(4,602)(7,877)(852)
Tax benefit on dividends paid in our 401k plan(1,854)(1,764)(1,851)
Bank owned life insurance income(440)(517)(783)
Non-deductible FDIC premiums3,277 2,629 1,790 
Non-deductible compensation2,250 1,773 1,123 
Non-deductible meals and entertainment683 625 786 
Asset contribution to a charitable trust— — (2,556)
Tax basis adjustment of premises and equipment— (1,026)— 
Other511 553 360 
Income tax expense, as reported$89,677 $46,459 $20,170 
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. As a result of the new law, and as detailed in the table above, we recognized a provisional net tax benefit totaling $4.0 million in 2017 and an additional net tax benefit resulting from a finalization of those calculations totaling $231 thousand in 2018. 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 of $2.9 million in 2017 related to the 2013 through 2016 tax years, as detailed in the table above. There were 0no 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. Deferred taxes are based on the U.S. statutory federal income tax rate of 21%.
20222021
Deferred tax assets:
Lease liabilities under operating leases$67,608 $65,815 
Net unrealized loss on securities available for sale and transferred securities349,237 — 
Allowance for credit losses60,137 62,819 
Net actuarial loss on defined benefit post-retirement benefit plans9,172 8,743 
Stock-based compensation6,622 6,989 
Bonus accrual11,204 7,506 
Deferred loan and lease origination fees3,675 3,118 
Other6,109 3,834 
Total gross deferred tax assets513,764 158,824 
Deferred tax liabilities:
Net unrealized gain on securities available for sale and transferred securities— (101,067)
Right-of-use assets under operating leases(60,651)(59,415)
Premises and equipment(45,647)(49,645)
Intangible assets(17,732)(16,595)
Defined benefit post-retirement benefit plans(12,730)(11,027)
Other(2,601)(2,323)
Total gross deferred tax liabilities(139,361)(240,072)
Net deferred tax asset (liability)$374,403 $(81,248)
 2019 2018
Deferred tax assets:   
Lease liabilities under operating leases$67,975
 $
Allowance for loan losses27,755
 27,748
Net actuarial loss on defined benefit post-retirement benefit plans12,210
 12,626
Stock-based compensation11,211
 10,622
Bonus accrual5,055
 4,586
Net unrealized loss on securities available for sale and transferred securities
 4,283
Deferred loan and lease origination fees2,254
 2,153
Other2,163
 4,761
Total gross deferred tax assets128,623
 66,779
Deferred tax liabilities:   
Net unrealized gain on securities available for sale and transferred securities(83,281) 
Right-of-use assets under operating leases(63,463) 
Premises and equipment(29,730) (23,859)
Intangible assets(12,642) (10,726)
Defined benefit post-retirement benefit plans(9,419) (9,452)
Partnership interests(2,894) 
Leases(1,572) (1,709)
Other(1,440) (1,257)
Total gross deferred tax liabilities(204,441) (47,003)
Net deferred tax asset (liability)$(75,818) $19,776
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NaNNo valuation allowance for deferred tax assets was recorded at December 31, 20192022 and 20182021 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 0no 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 2016.2019.

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
2022
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period$(2,143,567)$(450,149)$(1,693,418)
Change in net unrealized gain on securities transferred to held to maturity(737)(155)(582)
Reclassification adjustment for net (gains) losses included in net income— — — 
Total securities available for sale and transferred securities(2,144,304)(450,304)(1,694,000)
Defined-benefit post-retirement benefit plans:
Change in the net actuarial gain/loss(5,005)(1,051)(3,954)
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)2,964 622 2,342 
Total defined-benefit post-retirement benefit plans(2,041)(429)(1,612)
Total other comprehensive income (loss)$(2,146,345)$(450,733)$(1,695,612)
2021
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period$(231,355)$(48,585)$(182,770)
Change in net unrealized gain on securities transferred to held to maturity(971)(204)(767)
Reclassification adjustment for net (gains) losses included in net income(69)(14)(55)
Total securities available for sale and transferred securities(232,395)(48,803)(183,592)
Defined-benefit post-retirement benefit plans:
Change in the net actuarial gain/loss16,593 3,485 13,108 
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)6,116 1,284 4,832 
Total defined-benefit post-retirement benefit plans22,709 4,769 17,940 
Total other comprehensive income (loss)$(209,686)$(44,034)$(165,652)
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 
115

 
Before Tax
Amount
 
Tax Expense,
(Benefit)
 
Net of Tax
Amount
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)
      
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
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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, 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)
      
Balance January 1, 2017$16,153
 $(40,776) $(24,623)
Other comprehensive income (loss) before reclassification97,865
 (471) 97,394
Reclassification of amounts included in net income3,212
 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

Securities
Available
For Sale
Defined
Benefit
Plans
Accumulated
Other
Comprehensive
Income
Balance January 1, 2022$380,209 $(32,891)$347,318 
Other comprehensive income (loss) before reclassification(1,694,000)(3,954)(1,697,954)
Reclassification of amounts included in net income— 2,342 2,342 
Net other comprehensive income (loss) during period(1,694,000)(1,612)(1,695,612)
Balance December 31, 2022$(1,313,791)$(34,503)$(1,348,294)
Balance January 1, 2021$563,801 $(50,831)$512,970 
Other comprehensive income (loss) before reclassification(183,537)13,108 (170,429)
Reclassification of amounts included in net income(55)4,832 4,777 
Net other comprehensive income (loss) during period(183,592)17,940 (165,652)
Balance December 31, 2021$380,209 $(32,891)$347,318 
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 
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.

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The notional amounts and estimated fair values of interest rate derivative contracts outstanding at December 31, 20192022 and 20182021 are presented in the following table. The fair values of interest rate derivative contracts are estimated utilizing internal valuation modelsmethods with observable market data inputs, or as determined by the Chicago Mercantile Exchange (“CME”) for centrally cleared derivative contracts. 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 0zero as of December 31, 20192022 and 2018.2021.
 December 31, 2019 December 31, 2018
 
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
 $6
 $10,941
 $207
Loan/lease interest rate swaps - liabilities6,000
 (138) 3,885
 (199)
Non-hedging interest rate derivatives:       
Financial institution counterparties:       
Loan/lease interest rate swaps - assets122,788
 67
 496,887
 2,384
Loan/lease interest rate swaps - liabilities1,002,860
 (19,483) 691,143
 (8,921)
Loan/lease interest rate caps - assets107,835
 266
 122,791
 509
Customer counterparties:       
Loan/lease interest rate swaps - assets1,002,860
 43,857
 691,143
 16,706
Loan/lease interest rate swaps - liabilities122,788
 (310) 496,887
 (8,891)
Loan/lease interest rate caps - liabilities107,835
 (266) 122,791
 (509)

 December 31, 2022December 31, 2021
 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$1,614 $19 $— $— 
Loan/lease interest rate swaps - liabilities— — 2,426 (34)
Non-hedging interest rate derivatives:
Financial institution counterparties:
Loan/lease interest rate swaps - assets1,165,812 70,416 247,592 1,207 
Loan/lease interest rate swaps - liabilities78,798 (1,102)928,756 (19,142)
Loan/lease interest rate caps - assets246,442 15,256 270,431 3,239 
Customer counterparties:
Loan/lease interest rate swaps - assets53,570 1,102 928,756 39,864 
Loan/lease interest rate swaps - liabilities1,175,563 (79,175)247,592 (2,846)
Loan/lease interest rate caps - liabilities246,442 (15,256)270,431 (3,239)
The weighted-average rates paid and received for interest rate swaps outstanding at December 31, 20192022 were as follows:
 Weighted-Average
 
Interest
Rate
Paid
 
Interest
Rate
Received
Interest rate swaps:   
Fair value hedge loan/lease interest rate swaps2.66% 1.75%
Non-hedging interest rate swaps - financial institution counterparties4.12
 3.45
Non-hedging interest rate swaps - customer counterparties3.45
 4.12

Weighted-Average
Interest
Rate
Paid
Interest
Rate
Received
Interest rate swaps:  
Fair value hedge loan/lease interest rate swaps1.58 %4.12 %
Non-hedging interest rate swaps - financial institution counterparties3.73 5.29 
Non-hedging interest rate swaps - customer counterparties5.28 3.72 
The weighted-average strike rate for outstanding interest rate caps was 3.14%3.26% at December 31, 20192022.
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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 partythird-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 modelsmethods with observable market data inputs to value our commodity derivative positions.
  December 31, 2019 December 31, 2018
 
Notional
Units
 
Notional
Amount
 
Estimated
Fair Value
 
Notional
Amount
 
Estimated
Fair Value
Financial institution counterparties:         
Oil - assetsBarrels 1,214
 $2,796
 2,416
 $24,332
Oil - liabilitiesBarrels 2,148
 (6,916) 415
 (646)
Natural gas - assetsMMBTUs 8,295
 2,131
 5,745
 417
Natural gas - liabilitiesMMBTUs 2,689
 (70) 9,314
 (1,272)
Customer counterparties:         
Oil - assetsBarrels 2,172
 7,208
 415
 646
Oil - liabilitiesBarrels 1,190
 (2,652) 2,416
 (24,009)
Natural gas - assetsMMBTUs 2,689
 83
 10,236
 1,373
Natural gas - liabilitiesMMBTUs 8,295
 (2,039) 4,823
 (393)

December 31, 2022December 31, 2021
Notional
Units
Notional
Amount
Estimated
Fair Value
Notional
Amount
Estimated
Fair Value
Financial institution counterparties:
Oil - assetsBarrels4,024 $27,082 4,809 $14,721 
Oil - liabilitiesBarrels6,068 (53,579)7,032 (73,594)
Natural gas - assetsMMBTUs16,539 6,220 15,947 4,143 
Natural gas - liabilitiesMMBTUs15,682 (19,138)29,446 (21,249)
Customer counterparties:
Oil - assetsBarrels6,068 54,219 7,046 74,437 
Oil - liabilitiesBarrels4,024 (26,551)4,796 (14,294)
Natural gas - assetsMMBTUs15,682 19,164 29,446 21,456 
Natural gas - liabilitiesMMBTUs16,539 (6,124)15,947 (4,124)
Foreign Currency Derivatives. We enter into foreign currency forward and option 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 partythird-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, 2019 December 31, 2018
 
Notional
Currency
 
Notional
Amount
 
Estimated
Fair Value
 
Notional
Amount
 
Estimated
Fair Value
Financial institution counterparties:         
Forward contracts - liabilitiesCAD 4,593
 $(33) 11,003
 $(13)
Forward contracts - liabilitiesGBP 
 
 142
 (2)
Forward contracts - liabilitiesMXN 
 
 3,015
 (132)
Customer counterparties:         
Forward contracts - assetsCAD 4,583
 45
 10,979
 40
Forward contracts - assetsGBP 
 
 145
 4
Forward contracts - assetsMXN 
 
 3,000
 149


December 31, 2022December 31, 2021
Notional
Currency
Notional
Amount
Estimated
Fair Value
Notional
Amount
Estimated
Fair Value
Financial institution counterparties:
Forward/option contracts - assetsEUR875$1,900$29 
Forward/option contracts - assetsCAD— 658— 
Forward/option contracts - liabilitiesEUR875(10)— 
Customer counterparties:
Forward/option contracts - assetsEUR87510 — 
Forward/option contracts - assetsCAD— 658
Forward/option contracts - liabilitiesEUR875(1)1,900(55)
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.
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Amounts included in the consolidated statements of income related to interest rate derivatives designated as hedges of fair value were as follows:
 2019 2018 2017
Commercial loan/lease interest rate swaps:     
Amount of gain (loss) included in interest income on loans$86
 $25
 $(726)
Amount of (gain) loss included in other non-interest expense
 (1) (14)

202220212020
Commercial loan/lease interest rate swaps:
Amount of gain (loss) included in interest income on loans$(7)$(91)$(111)
Amount of (gain) loss included in other non-interest expense10 
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 partythird-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, foreign currency and other derivative instruments are presented in the table below.
202220212020
Non-hedging interest rate derivatives:
Other non-interest income$1,742 $4,285 $3,413 
Other non-interest expense— (1)
Non-hedging commodity derivatives:
Other non-interest income2,297 4,052 1,768 
Non-hedging foreign currency derivatives:
Other non-interest income63 39 28 
Non-hedging other derivatives:
Other non-interest income— — 5,992 
 2019 2018 2017
Non-hedging interest rate derivatives:     
Other non-interest income$2,005
 $4,112
 $3,123
Other non-interest expense(1) 
 1
Non-hedging commodity derivatives:     
Other non-interest income503
 795
 440
Non-hedging foreign currency derivatives:     
Other non-interest income51
 246
 300
Non-hedging other derivatives:     
Other non-interest income750
 
 

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. 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 forwardderivative 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 $47.1$43.6 million at December 31, 2019.2022. 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 $16.1$2.9 million at December 31, 2019.2022. 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. At December 31, 20192022, the aggregate fair value of securities we posted as collateral related to derivative contracts totaled $8.5 million. We also had $37.5$3.2 million in cash collateral related to derivative contracts on deposit with other financial institution counterparties.counterparties at December 31, 2022.

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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, 20192022 is presented in the following tables.
Gross Amount
Recognized
Gross Amount
Offset
Net Amount
Recognized
December 31, 2022
Financial assets:
Derivatives:
Loan/lease interest rate swaps and caps$85,691 $— $85,691 
Commodity swaps and options33,302 — 33,302 
Foreign currency forward/option contracts— 
Total derivatives118,994 — 118,994 
Resell agreements87,150 — 87,150 
Total$206,144 $— $206,144 
Financial liabilities:
Derivatives:
Loan/lease interest rate swaps$1,102 $— $1,102 
Commodity swaps and options72,717 — 72,717 
Foreign currency forward/option contracts10 — 10 
Total derivatives73,829 — 73,829 
Repurchase agreements4,660,641 — 4,660,641 
Total$4,734,470 $— $4,734,470 
 
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
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   Gross Amounts Not Offset  
 
Net Amount
Recognized
 
Financial
Instruments
 Collateral 
Net
Amount
December 31, 2019       
Financial assets:       
Derivatives:       
Counterparty A$39
 $(39) $
 $
Counterparty B1,650
 (1,650) 
 
Counterparty C1
 (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) $


Gross Amounts Not Offset
Net Amount
Recognized
Financial
Instruments
CollateralNet
Amount
December 31, 2022
Financial assets:
Derivatives:
Counterparty B$39,370 $(24,500)$(14,870)$— 
Counterparty E14,430 (47)(14,131)252 
Counterparty F17,297 (17,297)— — 
Counterparty G10,660 — (10,660)— 
Other counterparties37,237 (20,684)(16,307)246 
Total derivatives118,994 (62,528)(55,968)498 
Resell agreements87,150 — (87,150)— 
Total$206,144 $(62,528)$(143,118)$498 
Financial liabilities:
Derivatives:
Counterparty B$24,500 $(24,500)$— $— 
Counterparty E47 (47)— — 
Counterparty F27,747 (17,297)(8,479)1,971 
Counterparty G— — — — 
Other counterparties21,535 (20,684)(851)— 
Total derivatives73,829 (62,528)(9,330)1,971 
Repurchase agreements4,660,641 — (4,660,641)— 
Total$4,734,470 $(62,528)$(4,669,971)$1,971 
Information about financial instruments that are eligible for offset in the consolidated balance sheet as of December 31, 20182021 is presented in the following tables.
 
Gross Amount
Recognized
 
Gross Amount
Offset
 
Net Amount
Recognized
December 31, 2018     
Financial assets:     
Derivatives:     
Loan/lease interest rate swaps and caps$3,100
 $
 $3,100
Commodity swaps and options24,749
 
 24,749
Total derivatives27,849
 
 27,849
Resell agreements11,642
 
 11,642
Total$39,491
 $
 $39,491
Financial liabilities:     
Derivatives:     
Loan/lease interest rate swaps$9,120
 $
 $9,120
Commodity swaps and options1,918
 
 1,918
Foreign currency forward contracts147
 
 147
Total derivatives11,185
 
 11,185
Repurchase agreements1,360,298
 
 1,360,298
Total$1,371,483
 $
 $1,371,483

Gross Amount
Recognized
Gross Amount
Offset
Net Amount
Recognized
December 31, 2021
Financial assets:
Derivatives:
Loan/lease interest rate swaps and caps$4,446 $— $4,446 
Commodity swaps and options18,864 — 18,864 
Foreign currency forward/option contracts29 — 29 
Total derivatives23,339 — 23,339 
Resell agreements7,903 — 7,903 
Total$31,242 $— $31,242 
Financial liabilities:
Derivatives:
Loan/lease interest rate swaps$19,176 $— $19,176 
Commodity swaps and options94,843 — 94,843 
Total derivatives114,019 — 114,019 
Repurchase agreements2,740,799 — 2,740,799 
Total$2,854,818 $— $2,854,818 
   Gross Amounts Not Offset  
 
Net Amount
Recognized
 
Financial
Instruments
 Collateral 
Net
Amount
December 31, 2018       
Financial assets:       
Derivatives:       
Counterparty A$598
 $(598) $
 $
Counterparty B7,255
 (3,380) (3,875) 
Counterparty C81
 (81) 
 
Other counterparties19,915
 (2,084) (17,776) 55
Total derivatives27,849
 (6,143) (21,651) 55
Resell agreements11,642
 
 (11,642) 
Total$39,491
 $(6,143) $(33,293) $55
Financial liabilities:       
Derivatives:       
Counterparty A$4,293
 $(598) $(3,651) $44
Counterparty B3,380
 (3,380) 
 
Counterparty C326
 (81) (245) 
Other counterparties3,186
 (2,084) (725) 377
Total derivatives11,185
 (6,143) (4,621) 421
Repurchase agreements1,360,298
 
 (1,360,298) 
Total$1,371,483
 $(6,143) $(1,364,919) $421
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Gross Amounts Not Offset
Net Amount
Recognized
Financial
Instruments
CollateralNet
Amount
December 31, 2021
Financial assets:
Derivatives:
Counterparty B$7,655 $(7,655)$— $— 
Counterparty E411 (411)— — 
Counterparty F12,078 (12,078)— — 
Counterparty G1,783 (1,783)— — 
Other counterparties1,412 (1,412)— — 
Total derivatives23,339 (23,339)— — 
Resell agreements7,903 — (7,903)— 
Total$31,242 $(23,339)$(7,903)$— 
Financial liabilities:
Derivatives:
Counterparty B$28,130 $(7,655)$(20,475)$— 
Counterparty E601 (411)(190)— 
Counterparty F20,813 (12,078)(8,735)— 
Counterparty G1,789 (1,783)(6)— 
Other counterparties62,686 (1,412)(61,167)107 
Total derivatives114,019 (23,339)(90,573)107 
Repurchase agreements2,740,799 — (2,740,799)— 
Total$2,854,818 $(23,339)$(2,831,372)$107 
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, 20192022 and December 31, 20182021 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, 2022
Repurchase agreements:
U.S. Treasury$3,735,061 $— $— $— $3,735,061 
Residential mortgage-backed securities925,580 — — — 925,580 
Total borrowings$4,660,641 $— $— $— $4,660,641 
Gross amount of recognized liabilities for repurchase agreements$4,660,641 
Amounts related to agreements not included in offsetting disclosures above$— 
December 31, 2021
Repurchase agreements:
U.S. Treasury$1,342,591 $— $— $— $1,342,591 
Residential mortgage-backed securities1,398,208 — — — 1,398,208 
Total borrowings$2,740,799 $— $— $— $2,740,799 
Gross amount of recognized liabilities for repurchase agreements$2,740,799 
Amounts related to agreements not included in offsetting disclosures above$— 
 Remaining Contractual Maturity of the Agreements
 Overnight and Continuous Up to 30 Days 30-90 Days Greater than 90 Days Total
December 31, 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 $
          
December 31, 2018         
Repurchase agreements:         
U.S. Treasury$1,334,063
 $
 $
 $
 $1,334,063
Residential mortgage-backed securities26,235
 
 
 
 26,235
Total borrowings$1,360,298
 $
 $
 $
 $1,360,298
Gross amount of recognized liabilities for repurchase agreements $1,360,298
Amounts related to agreements not included in offsetting disclosures above $
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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.
- Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These

adjustments may include amounts to reflect counterparty credit quality and 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.
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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 modelsmethods 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 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, 20192022 and 2018,2021, 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
2022
Securities available for sale:
U.S. Treasury$5,051,587 $— $— $5,051,587 
Residential mortgage-backed securities— 6,376,236 — 6,376,236 
States and political subdivisions— 6,773,355 — 6,773,355 
Other— 42,427 — 42,427 
Trading account securities:
U.S. Treasury25,879 — — 25,879 
States and political subdivisions— 2,166 — 2,166 
Derivative assets:
Interest rate swaps, caps and floors— 86,793 — 86,793 
Commodity swaps and options— 106,685 — 106,685 
Foreign currency forward/option contracts11 — — 11 
Derivative liabilities:
Interest rate swaps, caps and floors— 95,533 — 95,533 
Commodity swaps and options— 105,392 — 105,392 
Foreign currency forward/option contracts11 — — 11 
 
Level 1
Inputs
 
Level 2
Inputs
 
Level 3
Inputs
 
Total
Fair Value
2019       
Securities available for sale:       
U.S. Treasury$1,948,133
 $
 $
 $1,948,133
Residential mortgage-backed securities
 2,207,594
 
 2,207,594
States and political subdivisions
 7,070,997
 
 7,070,997
Other
 42,867
 
 42,867
Trading account securities:       
U.S. Treasury24,298
 
 
 24,298
Derivative assets:       
Interest rate swaps, caps and floors
 44,196
 
 44,196
Commodity swaps and options
 12,218
 
 12,218
Foreign currency forward contracts45
 
 
 45
Derivative liabilities:       
Interest rate swaps, caps and floors
 20,197
 
 20,197
Commodity swaps and options
 11,677
 
 11,677
Foreign currency forward contracts33
 
 
 33
2018       
Securities available for sale:       
U.S. Treasury$3,427,689
 $
 $
 $3,427,689
Residential mortgage-backed securities
 829,740
 
 829,740
States and political subdivisions
 7,087,202
 
 7,087,202
Other
 42,690
 
 42,690
Trading account securities:       
U.S. Treasury21,928
 
 
 21,928
States and political subdivisions
 2,158
 
 2,158
Derivative assets:       
Interest rate swaps, caps and floors
 19,806
 
 19,806
Commodity swaps and options
 26,768
 
 26,768
Foreign currency forward contracts193
 
 
 193
Derivative liabilities:       
Interest rate swaps, caps and floors
 18,520
 
 18,520
Commodity swaps and options
 26,320
 
 26,320
Foreign currency forward contracts147
 
 
 147
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Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
2021
Securities available for sale:
U.S. Treasury$2,179,433 $— $— $2,179,433 
Residential mortgage-backed securities— 4,066,265 — 4,066,265 
States and political subdivisions— 7,636,571 — 7,636,571 
Other— 42,359 — 42,359 
Trading account securities:
U.S. Treasury24,237 — — 24,237 
States and political subdivisions— 925 — 925 
Derivative assets:
Interest rate swaps, caps and floors— 44,310 — 44,310 
Commodity swaps and options— 114,757 — 114,757 
Foreign currency forward contracts33 — — 33 
Derivative liabilities:
Interest rate swaps, caps and floors— 25,261 — 25,261 
Commodity swaps and options— 113,261 — 113,261 
Foreign currency forward contracts55 — — 55 
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.

The following table presents impairedcollateral dependent 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:
 2019 2018 2017
Level 2     
Carrying value of impaired loans before allocations$2,354
 $12,517
 $
Specific valuation allowance allocations(383) (2,599) 
Fair value$1,971
 $9,918
 $
Level 3     
Carrying value of impaired loans before allocations$65,176
 $22,688
 $75,435
Specific valuation allowance allocations(18,019) 9,260
 (19,533)
Fair value$47,157
 $31,948
 $55,902

202220212020
Level 2
Carrying value before allocations$6,237 $1,333 $1,559 
Specific (allocations) reversals of prior allocations(1,480)214 (450)
Fair value$4,757 $1,547 $1,109 
Level 3
Carrying value before allocations$8,156 $16,074 $34,302 
Specific (allocations) reversals of prior allocations625 (5,178)(11,151)
Fair value$8,781 $10,896 $23,151 
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. CertainFrom time to time, 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 periodsmay include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for loan losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other non-interest expense. The fair value of a foreclosed asset is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria. During the reported periods, allSuch fair value measurements for foreclosed assets utilized Level 2 inputs.
The following table presents foreclosed assets that were remeasured andnot significant during the reported at fair value:
 2019 2018 2017
Foreclosed assets remeasured at initial recognition:     
Carrying value of foreclosed assets prior to remeasurement$1,348
 $2,899
 $279
Charge-offs recognized in the allowance for loan losses(76) 
 
Fair value$1,272
 $2,899
 $279
Foreclosed assets remeasured subsequent to initial recognition:     
Carrying value of foreclosed assets prior to remeasurement$
 $1,823
 $89
Write-downs included in other non-interest expense
 (473) (16)
Fair value$
 $1,350
 $73

periods. 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.
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
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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, 2019 December 31, 2018
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
Financial assets:       
Level 2 inputs:       
Cash and cash equivalents$3,788,181
 $3,788,181
 $3,955,779
 $3,955,779
Securities held to maturity2,030,005
 2,048,675
 1,106,057
 1,116,953
Cash surrender value of life insurance policies187,156
 187,156
 183,473
 183,473
Accrued interest receivable183,850
 183,850
 188,989
 188,989
Level 3 inputs:       
Loans, net14,618,165
 14,654,615
 13,967,601
 13,933,239
Financial liabilities:       
Level 2 inputs:       
Deposits27,639,564
 27,641,255
 27,149,204
 27,143,572
Federal funds purchased and repurchase agreements1,695,342
 1,695,342
 1,367,548
 1,367,548
Junior subordinated deferrable interest debentures136,299
 137,115
 136,242
 137,115
Subordinated notes payable and other borrowings98,865
 89,077
 98,708
 98,458
Accrued interest payable12,393
 12,393
 7,394
 7,394

December 31, 2022December 31, 2021
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Financial assets:
Level 2 inputs:
Cash and cash equivalents$12,028,132 $12,028,132 $16,583,000 $16,583,000 
Securities held to maturity2,639,083 2,467,865 1,749,179 1,809,143 
Cash surrender value of life insurance policies190,188 190,188 190,139 190,139 
Accrued interest receivable243,682 243,682 179,111 179,111 
Level 3 inputs:
Loans, net16,927,348 16,343,417 16,087,731 16,079,454 
Financial liabilities:
Level 2 inputs:
Deposits43,954,196 43,920,741 42,695,696 41,343,426 
Federal funds purchased51,650 51,650 25,925��25,925 
Repurchase agreements4,660,641 4,660,641 2,740,799 2,740,799 
Junior subordinated deferrable interest debentures123,069 123,712 123,011 123,712 
Subordinated notes99,335 97,014 99,178 111,430 
Accrued interest payable18,444 18,444 3,026 3,026 
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 0no financial instruments measured at fair value under the fair value measurement option.

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Note 18 - Operating Segments
We are managed under a matrix organizational structure whereby our 2two 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. 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. 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 $37.8$43.6 billion, $33.3$43.3 billion and $32.8$38.6 billion at December 31, 2019, 20182022, 2021 and 2017.2020.
BankingFrost
Wealth
Advisors
Non-BanksConsolidated
2022
Net interest income (expense)$1,295,467 $4,645 $(8,829)$1,291,283 
Credit loss expense3,000 — — 3,000 
Non-interest income230,876 175,874 (1,932)404,818 
Non-interest expense886,421 132,009 5,844 1,024,274 
Income (loss) before income taxes636,922 48,510 (16,605)668,827 
Income tax expense (benefit)85,127 10,187 (5,637)89,677 
Net income (loss)551,795 38,323 (10,968)579,150 
Preferred stock dividends— — 6,675 6,675 
Net income (loss) available to common shareholders$551,795 $38,323 $(17,643)$572,475 
Revenues from (expenses to) external customers$1,526,343 $180,519 $(10,761)$1,696,101 
Average assets (in millions)$51,448 $57 $$51,513 
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BankingFrost
Wealth
Advisors
Non-BanksConsolidated
Banking 
Frost
Wealth
Advisors
 Non-Banks Consolidated
2019       
20212021
Net interest income (expense)$1,010,368
 $4,001
 $(10,364) $1,004,005
Net interest income (expense)$989,870 $2,138 $(7,141)$984,867 
Provision for loan losses33,758
 1
 
 33,759
Credit loss expenseCredit loss expense54 — 63 
Non-interest income218,447
 145,905
 (450) 363,902
Non-interest income220,662 167,442 (1,376)386,728 
Non-interest expense703,121
 124,622
 6,936
 834,679
Non-interest expense753,719 122,972 5,303 881,994 
Income (loss) before income taxes491,936
 25,283
 (17,750) 499,469
Income (loss) before income taxes456,759 46,599 (13,820)489,538 
Income tax expense (benefit)55,520
 5,308
 (4,958) 55,870
Income tax expense (benefit)41,483 9,786 (4,810)46,459 
Net income (loss)436,416
 19,975
 (12,792) 443,599
Net income (loss)415,276 36,813 (9,010)443,079 
Preferred stock dividends
 
 8,063
 8,063
Preferred stock dividends— — 7,157 7,157 
Net income (loss) available to common shareholders$436,416
 $19,975
 $(20,855) $435,536
Net income (loss) available to common shareholders$415,276 $36,813 $(16,167)$435,922 
Revenues from (expenses to) external customers$1,228,815
 $149,906
 $(10,814) $1,367,907
Revenues from (expenses to) external customers$1,210,532 $169,580 $(8,517)$1,371,595 
Average assets (in millions)$32,019
 $56
 $11
 $32,086
Average assets (in millions)$45,903 $70 $10 $45,983 
20202020
Net interest income (expense)Net interest income (expense)$981,441 $2,776 $(8,216)$976,001 
Credit loss expenseCredit loss expense241,230 — — 241,230 
Non-interest incomeNon-interest income321,136 145,268 (950)465,454 
Non-interest expenseNon-interest expense718,519 123,630 6,755 848,904 
Income (loss) before income taxesIncome (loss) before income taxes342,828 24,414 (15,921)351,321 
Income tax expense (benefit)Income tax expense (benefit)20,347 5,127 (5,304)20,170 
Net income (loss)Net income (loss)322,481 19,287 (10,617)331,151 
Preferred stock dividendsPreferred stock dividends— — 2,016 2,016 
Redemption of preferred stockRedemption of preferred stock— — 5,514 5,514 
Net income (loss) available to common shareholdersNet income (loss) available to common shareholders$322,481 $19,287 $(18,147)$323,621 
Revenues from (expenses to) external customersRevenues from (expenses to) external customers$1,302,577 $148,044 $(9,166)$1,441,455 
Average assets (in millions)Average assets (in millions)$37,892 $59 $10 $37,961 

 Banking 
Frost
Wealth
Advisors
 Non-Banks Consolidated
2018       
Net interest income (expense)$963,757
 $4,083
 $(9,948) $957,892
Provision for loan losses21,613
 
 
 21,613
Non-interest income213,763
 138,045
 (522) 351,286
Non-interest expense657,448
 114,166
 7,270
 778,884
Income (loss) before income taxes498,459
 27,962
 (17,740) 508,681
Income tax expense (benefit)52,928
 5,872
 (5,037) 53,763
Net income (loss)445,531
 22,090
 (12,703) 454,918
Preferred stock dividends
 
 8,063
 8,063
Net income (loss) available to common shareholders$445,531
 $22,090
 $(20,766) $446,855
Revenues from (expenses to) external customers$1,177,520
 $142,128
 $(10,470) $1,309,178
Average assets (in millions)$30,964
 $54
 $12
 $31,030
2017       
Net interest income (expense)$856,593
 $17,644
 $(7,815) $866,422
Provision for loan losses35,460
 
 
 35,460
Non-interest income207,810
 128,819
 (159) 336,470
Non-interest expense644,072
 108,931
 6,066
 759,069
Income (loss) before income taxes384,871
 37,532
 (14,040) 408,363
Income tax expense (benefit)37,837
 13,137
 (6,760) 44,214
Net income (loss)347,034
 24,395
 (7,280) 364,149
Preferred stock dividends
 
 8,063
 8,063
Net income (loss) available to common shareholders$347,034
 $24,395
 $(15,343) $356,086
Revenues from (expenses to) external customers$1,064,403
 $146,463
 $(7,974) $1,202,892
Average assets (in millions)$30,391
 $43
 $16
 $30,450

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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,
 2019 2018
Assets:   
Cash$9,116
 $11,397
Resell agreements258,000
 225,000
Total cash and cash equivalents267,116
 236,397
Investment in subsidiaries3,896,962
 3,362,474
Accrued interest receivable and other assets2,545
 9,122
Total assets$4,166,623
 $3,607,993
Liabilities:   
Junior subordinated deferrable interest debentures, net of unamortized issuance costs$136,299
 $136,242
Subordinated notes, net of unamortized issuance costs98,865
 98,708
Accrued interest payable and other liabilities19,791
 4,126
Total liabilities254,955
 239,076
Shareholders’ Equity3,911,668
 3,368,917
Total liabilities and shareholders’ equity$4,166,623
 $3,607,993


December 31,
20222021
Assets:
Cash$311,944 $471,875 
Total cash and cash equivalents311,944 471,875 
Investment in subsidiaries3,065,114 4,222,288 
Accrued interest receivable and other assets1,142 2,228 
Total assets$3,378,200 $4,696,391 
Liabilities:
Junior subordinated deferrable interest debentures, net of unamortized issuance costs$123,069 $123,011 
Subordinated notes, net of unamortized issuance costs99,335 99,178 
Accrued interest payable and other liabilities18,568 34,647 
Total liabilities240,972 256,836 
Shareholders’ Equity3,137,228 4,439,555 
Total liabilities and shareholders’ equity$3,378,200 $4,696,391 
Condensed Statements of Income
Year Ended December 31,
202220212020
Income:
Dividend income paid by Frost Bank$51,711 $219,386 $298,884 
Dividend income paid by non-banks109 473 736 
Interest and other income— 101 446 
Total income51,820 219,960 300,066 
Expenses:
Interest expense8,829 7,141 8,216 
Salaries and employee benefits1,605 1,499 1,581 
Other6,316 5,867 6,833 
Total expenses16,750 14,507 16,630 
Income before income taxes and equity in undistributed earnings of subsidiaries35,070 205,453 283,436 
Income tax benefit5,641 4,899 5,406 
Equity in undistributed earnings of subsidiaries538,439 232,727 42,309 
Net income579,150 443,079 331,151 
Preferred stock dividends6,675 7,157 2,016 
Redemption of preferred stock— — 5,514 
Net income available to common shareholders$572,475 $435,922 $323,621 
 Year Ended December 31,
 2019 2018 2017
Income:     
Dividend income paid by Frost Bank$234,531
 $223,371
 $149,671
Dividend income paid by non-banks1,822
 953
 915
Interest and other income2,868
 1,828
��421
Total income239,221
 226,152
 151,007
Expenses:     
Interest expense10,363
 9,948
 7,815
Salaries and employee benefits1,551
 1,973
 1,202
Other7,033
 7,016
 6,373
Total expenses18,947
 18,937
 15,390
Income before income taxes and equity in undistributed earnings of subsidiaries220,274
 207,215
 135,617
Income tax benefit5,135
 5,218
 7,092
Equity in undistributed earnings of subsidiaries218,190
 242,485
 221,440
Net income443,599
 454,918
 364,149
Preferred stock dividends8,063
 8,063
 8,063
Net income available to common shareholders$435,536
 $446,855
 $356,086
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Condensed Statements of Cash Flows
 Year Ended December 31,
 2019 2018 2017
Operating Activities:     
Net income$443,599
 $454,918
 $364,149
Adjustments to reconcile net income to net cash provided by operating activities:     
Equity in undistributed earnings of subsidiaries(218,190) (242,485) (221,440)
Stock-based compensation780
 721
 519
Net tax benefit from stock-based compensation240
 304
 318
Net change in other assets and other liabilities22,216
 (12,709) 7,665
Net cash from operating activities248,645
 200,749
 151,211
      
Investing Activities:     
Net cash from investing activities
 
 
      
Financing Activities:     
Proceeds from issuance of subordinated notes
 
 98,434
Principal payments on subordinated notes
 
 (100,000)
Proceeds from stock option exercises20,770
 31,647
 67,746
Proceeds from stock-based compensation activities of subsidiaries15,166
 13,222
 12,494
Purchase of treasury stock(68,793) (101,010) (101,473)
Cash dividends paid on preferred stock(8,063) (8,063) (8,063)
Cash dividends paid on common stock(177,006) (165,449) (144,172)
Net cash from financing activities(217,926) (229,653) (175,034)
Net change in cash and cash equivalents30,719
 (28,904) (23,823)
Cash and cash equivalents at beginning of year236,397
 265,301
 289,124
Cash and cash equivalents at end of year$267,116
 $236,397
 $265,301

Year Ended December 31,
202220212020
Operating Activities:
Net income$579,150 $443,079 $331,151 
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries(538,439)(232,727)(42,309)
Stock-based compensation720 700 770 
Net tax benefit from stock-based compensation472 278 370 
Net change in other assets and other liabilities(15,249)23,890 (8,937)
Net cash from operating activities26,654 235,220 281,045 
Investing Activities:
Redemption of investment in non-bank subsidiary— 406 — 
Net cash from investing activities— 406 — 
Financing Activities:
Principal payments on long-term borrowings— (13,403)— 
Redemption of Series A preferred stock— — (150,000)
Proceeds from issuance of Series B preferred stock— — 145,452 
Proceeds from stock option exercises16,659 54,417 12,557 
Proceeds from stock-based compensation activities of subsidiaries17,602 12,053 13,148 
Purchase of treasury stock(4,391)(3,864)(15,785)
Treasury stock issued to 401(k) stock purchase plan— 1,749 10,307 
Cash dividends paid on preferred stock(6,675)(7,157)(2,016)
Cash dividends paid on common stock(209,780)(188,786)(180,584)
Net cash from financing activities(186,585)(144,991)(166,921)
Net change in cash and cash equivalents(159,931)90,635 114,124 
Cash and cash equivalents at beginning of year471,875 381,240 267,116 
Cash and cash equivalents at end of year$311,944 $471,875 $381,240 

Note 20 - Accounting Standards Updates
Accounting Standards Update (“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. We adopted ASU 2014-09 effective January 1, 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 became effective for us on January 1, 2018 and did not have a significant impact on our financial statements.
ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 among other things, requires 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, along with several other subsequent codification updates related to lease accounting, as of January 1, 2019. See Note 1 - Summary of Significant Accounting Policies for additional information.
ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”ASU 2016-13 along with several other subsequent codification updates related to accounting for credit losses, 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. We currently expect the adoption of ASU 2016-13 will result in a combined 20.0% to 35.0% increase in our allowance for loan losses and our reserves for unfunded commitments. As we are currently finalizing the execution of our implementation controls and processes, the ultimate impact of the adoption of ASU 2016-13codification improvements, as of January 1, 2020 could differ from our current expectation. The expected increase isand recognized a resultcumulative effect adjustment reducing retained earnings by $29.3 million. See Note 1 - Summary of changing from an “incurred loss” model, which encompasses allowancesSignificant Accounting Policies 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 for certain debt securities and other financial assets; however, we do not expect these allowances to be significant. The adoption of ASU 2016-13 is not expected to have a significant impact on our regulatory capital ratios.
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 became effective for us on January 1, 2018 and did not 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 became effective for us on January 1, 2018 and did not have a significant impact on our financial statements.
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 became effective for us on January 1, 2018 and did not 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 became effective for us on January 1, 2018 and did not have a significant impact on our financial statements.additional information.
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 is 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 became effective for us on January 1, 2018 and did not have a significant impact on our financial statements.
ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities.”
130

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 poolsTable 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 effective January 1, 2019 and recognized a cumulative effect adjustment reducing retained earnings by $14.7 million. See Note 1 - Summary of Significant Accounting Policies for additional information.Contents
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 became effective for us on January 1, 2018 and did not 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.

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 will bebecame effective for us on January 1, 2020 with early adoption permitted, and isdid not expected to 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 bebecame effective for us on January 1, 2021, with early adoption permitted,the year ended December 31, 2020 and isdid 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 will bebecame effective for us on January 1, 2020 with early adoption permitted, and is not expected to have a significant impact on our financial statements.
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 was 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 became effective for us on January 1, 2021 and did not have a significant impact on our financial statements.
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, based upon the amendments provided in ASU 2022-06 discussed below, can generally be applied through December 31, 2024. 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 became effective for us on January 1, 2021 and did not 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 became effective for us on January 4, 2021, concurrent with the effective date of the SEC release, and did not have a significant impact on our financial statements.

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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, based upon the amendments provided in ASU 2022-06 discussed below, can generally be applied through December 31, 2024. The adoption of ASU 2021-01 did not significantly impact our financial statements.
ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method.” Under prior guidance, entities can apply the last-of-layer hedging method to hedge the exposure of a closed portfolio of prepayable financial assets to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 expands the last-of-layer method, which permits only one hedge layer, to allow multiple hedged layers of a single closed portfolio. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. ASU 2022-01 also (i) expands the scope of the portfolio layer method to include non-prepayable financial assets, (ii) specifies eligible hedging instruments in a single-layer hedge, (iii) provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method and (iv) specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. ASU 2022-01 will be effective for us on January 1, 2021, with early2023. The adoption permitted, andof ASU 2022-01 is not expected to have a significant impact on our financial statements.

ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in Accounting Standards Codification (“ASC”) Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, ASU 2022-02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 3126-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. ASU 2022-02 will be effective for us on January 1, 2023. The adoption of ASU 2022-02 is not expected to have a significant impact on our financial statements.

ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. ASU 2022-03 also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires certain new disclosures for equity securities subject to contractual sale restrictions. ASU 2022-03 will be effective for us on January 1, 2024 though early adoption is permitted. The adoption of ASU 2022-03 is not expected to have a significant impact on our financial statements.
Cullen/Frost Bankers, Inc.
Consolidated Average Balance Sheets
(DollarsASU No. 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” ASU 2022-06 extends the period of time preparers can utilize the reference rate reform relief guidance provided by ASU 2020-04 and ASU 2021-01, which are discussed above. ASU 2022-06, which was effective upon issuance, defers the sunset date of this prior guidance from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief guidance in thousands - tax-equivalent basis)
Topic 848. The following unaudited schedule is presented for additional information and analysis.adoption of ASU 2022-06 did not significantly impact our financial statements.
132
 Year Ended December 31,
   2019     2018  
 
Average
Balance
 
Interest
Income/
Expense
 
Yield
/Cost
 
Average
Balance
 
Interest
Income/
Expense
 
Yield
/Cost
Assets:           
Interest-bearing deposits$1,616,896
 $35,590
 2.20% $2,951,128
 $56,968
 1.93%
Federal funds sold and resell agreements245,613
 5,524
 2.25
 265,085
 5,500
 2.07
Securities:           
Taxable5,048,552
 117,082
 2.33
 4,222,688
 86,370
 2.03
Tax-exempt8,248,812
 325,058
 4.06
 7,842,737
 322,855
 4.11
Total securities13,297,364
 442,140
 3.40
 12,065,425
 409,225
 3.38
Loans, net of unearned discount14,440,549
 747,112
 5.17
 13,617,940
 674,177
 4.95
Total earning assets and average rate earned29,600,422
 1,230,366
 4.20
 28,899,578
 1,145,870
 3.96
Cash and due from banks503,929
     496,418
    
Allowance for loan losses(135,928)     (149,315)    
Premises and equipment, net876,442
     536,056
    
Accrued interest receivable and other assets1,240,986
     1,247,113
    
Total assets$32,085,851
     $31,029,850
    
Liabilities:           
Non-interest-bearing demand deposits:           
Commercial and individual$9,829,635
     $10,164,396
    
Correspondent banks213,442
     205,727
    
Public funds315,339
     386,685
    
Total non-interest-bearing demand deposits10,358,416
     10,756,808
    
Interest-bearing deposits:           
Private accounts:           
Savings and interest checking6,777,473
 4,650
 0.07
 6,667,695
 5,369
 0.08
Money market deposit accounts7,738,654
 71,584
 0.93
 7,645,624
 59,175
 0.77
Time accounts989,907
 16,298
 1.65
 800,096
 6,441
 0.81
Public funds548,827
 7,210
 1.31
 418,843
 4,352
 1.04
Total interest-bearing deposits16,054,861
 99,742
 0.62
 15,532,258
 75,337
 0.49
Total deposits26,413,277
     26,289,066
    
Federal funds purchased and repurchase agreements1,283,381
 19,675
 1.53
 1,054,915
 8,021
 0.76
Junior subordinated deferrable interest debentures136,272
 5,706
 4.19
 136,215
 5,291
 3.88
Subordinated notes payable and other notes98,792
 4,657
 4.71
 98,635
 4,657
 4.72
Total interest-bearing liabilities and average rate paid17,573,306
 129,780
 0.74
 16,822,023
 93,306
 0.55
Accrued interest payable and other liabilities452,090
     166,643
    
Total liabilities28,383,812
     27,745,474
    
Shareholders’ equity3,702,039
     3,284,376
    
Total liabilities and shareholders’ equity$32,085,851
     $31,029,850
    
Net interest income  $1,100,586
     $1,052,564
  
Net interest spread    3.46%     3.41%
Net interest income to total average earning assets    3.75%     3.64%
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 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.


Table of Contents
Year Ended December 31,
2017 2016 2015 2014
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
                       
$3,579,737
 $41,608
 1.16% $3,062,189
 $16,103
 0.53% $3,047,515
 $8,123
 0.27% $4,189,110
 $10,725
 0.26%
73,140
 936
 1.28
 42,361
 272
 0.64
 24,695
 107
 0.43
 19,683
 83
 0.42
 
  
    
  
    
  
  
  
  
  
4,892,827
 92,979
 1.92
 5,251,192
 103,025
 2.01
 5,438,973
 112,601
 2.11
 4,439,993
 93,087
 2.14
7,353,279
 391,730
 5.37
 6,806,448
 369,335
 5.57
 6,175,925
 340,417
 5.59
 4,929,665
 271,543
 5.58
12,246,106
 484,709
 3.99
 12,057,640
 472,360
 4.02
 11,614,898
 453,018
 3.97
 9,369,658
 364,630
 3.96
12,460,148
 542,703
 4.36
 11,554,823
 463,299
 4.01
 11,267,402
 439,651
 3.90
 10,299,025
 447,036
 4.34
28,359,131
 1,069,956
 3.79
 26,717,013
 952,034
 3.60
 25,954,510
 900,899
 3.50
 23,877,476
 822,474
 3.47
505,611
     513,441
     531,534
     554,439
    
(153,505)     (151,901)     (107,799)     (97,932)    
522,625
     562,875
     513,624
     363,790
    
1,216,345
     1,190,665
     1,168,757
     1,068,528
    
$30,450,207
     $28,832,093
     $28,060,626
     $25,766,301
    
                       
                       
$10,155,502
     $9,215,962
     $9,334,604
     $8,384,376
    
245,759
     310,445
     353,766
     351,803
    
418,165
     507,912
     491,440
     388,851
    
10,819,426
     10,034,319
     10,179,810
     9,125,030
    
       
  
    
  
  
  
  
  
       
  
    
  
  
  
  
  
6,376,855
 1,303
 0.02
 5,745,385
 1,054
 0.02
 4,831,927
 996
 0.02
 4,211,336
 924
 0.02
7,502,494
 12,721
 0.17
 7,466,252
 4,673
 0.06
 7,715,890
 6,418
 0.08
 7,342,967
 7,852
 0.11
775,940
 1,764
 0.23
 811,102
 1,331
 0.16
 874,368
 1,473
 0.17
 966,420
 2,053
 0.21
430,203
 1,400
 0.33
 454,786
 190
 0.04
 438,763
 137
 0.03
 407,006
 193
 0.05
15,085,492
 17,188
 0.11
 14,477,525
 7,248
 0.05
 13,860,948
 9,024
 0.07
 12,927,729
 11,022
 0.09
25,904,918
     24,511,844
     24,040,758
     22,052,759
    
978,571
 1,522
 0.16
 770,942
 204
 0.03
 648,851
 167
 0.03
 560,841
 134
 0.02
136,157
 3,955
 2.90
 136,100
 3,281
 2.41
 136,042
 2,725
 2.00
 130,477
 2,488
 1.89
90,037
 3,860
 4.29
 99,933
 1,343
 1.34
 99,814
 948
 0.95
 99,693
 893
 0.89
16,290,257
 26,525
 0.16
 15,484,500
 12,076
 0.08
 14,745,655
 12,864
 0.09
 13,718,740
 14,537
 0.11
167,260
     254,378
     239,969
     210,305
    
27,276,943
     25,773,197
     25,165,434
     23,054,075
    
3,173,264
     3,058,896
     2,895,192
     2,712,226
    
$30,450,207
     $28,832,093
     $28,060,626
     $25,766,301
    
  $1,043,431
     $939,958
     $888,035
     $807,937
  
    3.63%     3.52%     3.41%     3.36%
    3.69%     3.56%     3.45%     3.41%

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, 2019,2022, 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, 2019,2022, based on those criteria.
Ernst & Young LLP, San Antonio, Texas, (U.S. PCAOB Auditor Firm I.D.: 42), 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, 2019.2022. The report, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2019,2022, 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, IncorporatedInc.
Opinion on Internal Control over Financial Reporting
We have audited Cullen/Frost Bankers, Inc.’s internal control over financial reporting as of December 31, 2019,2022, 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, 2019,2022, based on the COSO criteria.
We also have 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, 20192022 and 2018,2021, 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, 2019,2022, and the related notes and our report dated February 4, 20203, 2023 expressed an unqualified opinion thereon.

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Table of Contents
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-20221231_g2.jpg
San Antonio, Texas
February 4, 20203, 2023
ITEM 9B. OTHER INFORMATION
None

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None
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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 20202023 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 20202023 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 20202023 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 20202023 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end.
ITEM 14. PRINCIPAL ACCOUNTINGACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated herein by reference to our Proxy Statement (Schedule 14A) for our 20202023 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end.

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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.
   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-K001-1322110.1 2/6/2019
10.2(2)
10-K001-1322110.2 2/6/2019
10.3(2)
10-K001-1322110.3 2/6/2019
10.4(2)
10-K001-1322110.7 2/6/2019
10.5(2)
10-K001-1322110.8 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 7/28/2022
10.11(2)
10-Q001-1322110.2 7/28/2022
10.12(2)
10-Q001-1322110.3 7/28/2022
10.13(2)
10-Q001-1322110.4 7/28/2022
10.14(2)
10-Q001-1322110.5 7/28/2022
10.15(2)
10-Q001-1322110.6 7/28/2022
10.16(2)
10-Q001-1322110.7 7/28/2022
10.17(2)
X
10.18(2)
10-Q001-1322110.8 7/28/2022
10.19(2)
10-Q001-1322110.1 10/28/2021
21.1X
23.1X
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(a)The following documents are filed as part of this Annual Report on Form 10-K:Incorporated by Reference
Exhibit
Number
Exhibit DescriptionFiled
Herewith
FormFile No.ExhibitFiling
Date
1.24.1
Consolidated Financial Statements. Reference is made to Part II, Item 8,Power of this Annual Report on Form 10-K.Attorney
X
2.31.1
X
3.31.2
Exhibits. The exhibits to this Annual Report on Form 10-K listed below have been included only withRule 13a-14(a) Certification of the copy of this report filed with the Securities and Exchange Commission.Chief Financial Officer
      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
4.1  X        
4.2P(1)
 Instruments Defining the Rights of Holders of Long-Term Debt          
10.1(2)
    10-K 001-3221 10.1
 2/6/2019
10.2(2)
    10-K 001-3221 10.2
 2/6/2019
10.3(2)
    10-K 001-3221 10.3
 2/6/2019
10.4(2)
    10-K 001-3221 10.7
 2/6/2019
10.5(2)
    10-K 001-3221 10.8
 2/6/2019
10.6(2)
   DEF 14A001-13221 Annex A
 3/20/2013
10.7(2)
    S-8 333-143397 4.4
 5/31/2007
10.8(2)
   DEF 14A001-13221 Annex A
 3/23/2015
10.9(2)
    10-K 001-13221 10.12
 2/3/2017
10.10(2)
  X        
10.11(2)
    10-K 001-13221 10.4
 2/6/2019
10.12(2)
  X        
10.13(2)
  X        
21.1  X      
  
23.1  X      
  
24.1  X      
  
31.1  X      
  
31.2  X      
  
32.1(3)
  X      
  
32.2(3)
  X      
  
101.INS(4)
 Inline XBRL Instance Document X      
  
101.SCH Inline XBRL Taxonomy Extension Schema Document X        
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X        
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X        
101.LAB InlineXBRL Taxonomy Extension Label Linkbase Document X        
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X        
104(5)
 Cover Page Interactive Data File          
_________________________
X
(1)
32.1(3)
We agree to furnish to
X
(2)
32.2(3)
Management contract or compensatory plan or arrangement.
X
(3)
101.INS(4)
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.
Inline XBRL Instance DocumentX
(4)101.SCH
The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.Taxonomy Extension Schema Document
X
(5)101.CALFormatted as Inline XBRL and contained within the Inline XBRL InstanceTaxonomy Extension Calculation Linkbase Document in Exhibit 101.
X
(b)101.DEFExhibits - See exhibit index included in Item 15(a)3 of this Annual Report on Form 10-K.
Inline XBRL Taxonomy Extension Definition Linkbase DocumentX
(c)101.LABFinancial Statement Schedules - See Item 15(a)2 of this Annual Report on Form 10-K.Inline XBRL Taxonomy Extension Label Linkbase DocumentX
101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentX
104(5)
Cover Page Interactive Data File

_________________________
(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.
ITEM 16. FORM 10-K SUMMARY
None

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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 3, 2023CULLEN/FROST BANKERS, INC.
(Registrant)
Date:February 4, 2020CULLEN/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 4, 20203, 2023
Phillip D. Green
/s/  JERRY SALINASGroup Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)February 4, 20203, 2023
Jerry Salinas
/s/  CARLOS ALVAREZ*DirectorFebruary 4, 2020
Carlos Alvarez
/s/  CHRIS AVERY*DirectorFebruary 4, 2020
Chris Avery
/s/ CYNTHIA COMPARIN*DirectorFebruary 4, 2020
Cynthia Comparin
/s/ SAM DAWSON*DirectorFebruary 4, 2020
Sam Dawson
/s/ CRAWFORD H. EDWARDS*DirectorFebruary 4, 2020
Crawford H. Edwards
/s/  PATRICK B. FROST*Director and President of Frost BankFebruary 4, 2020
Patrick B. Frost
/s/  DAVID J. HAEMISEGGER*DirectorFebruary 4, 2020
David J. Haemisegger
/s/  KAREN E. JENNINGS*DirectorFebruary 4, 2020
Karen E. Jennings
/s/  RICHARD M. KLEBERG, III*DirectorFebruary 4, 2020
Richard M. Kleberg, III
/s/  CHARLES W. MATTHEWS*DirectorFebruary 4, 2020
Charles W. Matthews
/s/  IDA CLEMENT STEEN*DirectorFebruary 4, 2020
Ida Clement Steen
/s/  GRAHAM WESTON*DirectorFebruary 4, 2020
Graham Weston
/s/  HORACE WILKINS, JR.*DirectorFebruary 4, 2020
Horace Wilkins, Jr.
/s/  CARLOS ALVAREZ*DirectorFebruary 3, 2023
Carlos Alvarez
/s/  CHRIS M. AVERY*DirectorFebruary 3, 2023
Chris M. Avery
/s/  ANTHONY R. CHASE*DirectorFebruary 3, 2023
Anthony R. Chase
/s/  CYNTHIA J. COMPARIN*DirectorFebruary 3, 2023
Cynthia J. Comparin
/s/  SAMUEL G. DAWSON*DirectorFebruary 3, 2023
Samuel G. Dawson
/s/  CRAWFORD H. EDWARDS*DirectorFebruary 3, 2023
Crawford H. Edwards
/s/  PATRICK B. FROST*Director and President of Frost BankFebruary 3, 2023
Patrick B. Frost
/s/  DAVID J. HAEMISEGGER*DirectorFebruary 3, 2023
David J. Haemisegger
/s/  CHARLES W. MATTHEWS*DirectorFebruary 3, 2023
Charles W. Matthews
/s/  JOSEPH A. PIERCE*DirectorFebruary 3, 2023
Joseph A. Pierce
/s/  LINDA B. RUTHERFORD*DirectorFebruary 3, 2023
Linda B. Rutherford
/s/  JACK WILLOME*DirectorFebruary 3, 2023
Jack Willome
*By: /s/  JERRY SALINASGroup Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)February 4, 20203, 2023
Jerry Salinas
As attorney-in-fact for the persons indicated

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