Table of Contents

United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
ý ☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended:September 30, 20172023
Or
¨ ☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ________________ to ________________
Commission file number: 001-13221
Cullen/Frost Bankers, Inc.
(Exact name of registrant as specified in its charter)
Texas74-1751768
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
100111 W. Houston Street,San Antonio, TexasTexas78205
(Address of principal executive offices)(Zip code)
(210)
(210)220-4011
(Registrant's telephone number, including area code)
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report
N/ASecurities registered pursuant to Section 12(b) of the Act:
(Former name, former address and former fiscal year, if changed since last report)
Title of each classTrading Symbol(s)Name of each exchange on
which registered
Common Stock, $.01 Par ValueCFRNew York Stock Exchange
Depositary Shares, each representing a 1/40th interest in a share of 4.450% Non-Cumulative Perpetual Preferred Stock, Series BCFR.PrBNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ý☒    No  ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý☒    No  ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 filerý☒Accelerated filer¨☐
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
☐		Smaller reporting company¨☐
Emerging growth company¨☐
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨☐    No  ý☒
As of October 19, 201720, 2023, there were 63,164,49164,047,190 shares of the registrant’s Common Stock, $.01 par value, outstanding.



Cullen/Frost Bankers, Inc.
Quarterly Report on Form 10-Q
September 30, 20172023
Table of Contents
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Item 1.
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4
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6
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Item 2.
3539
Item 3.
5765
Item 4.
5865
Item 1.
5966
Item 1A.
5966
Item 2.
Unregistered Sales of Equity Securities and, Use of Proceeds, and Issuer Purchases of Equity Securities
5966
Item 3.
5966
Item 4.
5966
Item 5.
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Item 6.
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2
Table of Contents
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Cullen/Frost Bankers, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
September 30,
2017		 December 31,
2016		September 30,
2023		December 31,
2022
Assets:   Assets:
Cash and due from banks$503,961
 $561,838
Cash and due from banks$574,654 $691,553 
Interest-bearing deposits4,538,300
 3,560,865
Interest-bearing deposits6,955,779 11,128,902 
Federal funds sold and resell agreements49,642
 18,742
Federal funds soldFederal funds sold3,000 120,527 
Resell agreementsResell agreements84,650 87,150 
Total cash and cash equivalents5,091,903
 4,141,445
Total cash and cash equivalents7,618,083 12,028,132 
Securities held to maturity, at amortized cost1,442,222
 2,250,460
Securities held to maturity, net of allowance for credit losses of $310 at September 30, 2023 and $158 at December 31, 2022Securities held to maturity, net of allowance for credit losses of $310 at September 30, 2023 and $158 at December 31, 20223,628,123 2,639,083 
Securities available for sale, at estimated fair value10,185,100
 10,203,277
Securities available for sale, at estimated fair value16,117,089 18,243,605 
Trading account securities19,721
 16,703
Trading account securities29,341 28,045 
Loans, net of unearned discounts12,706,304
 11,975,392
Loans, net of unearned discounts18,399,259 17,154,969 
Less: Allowance for loan losses(154,303) (153,045)
Less: Allowance for credit losses on loansLess: Allowance for credit losses on loans(242,235)(227,621)
Net loans12,552,001
 11,822,347
Net loans18,157,024 16,927,348 
Premises and equipment, net520,639
 525,821
Premises and equipment, net1,166,544 1,102,695 
Goodwill654,952
 654,952
Other intangible assets, net5,475
 6,776
Cash surrender value of life insurance policies179,789
 177,884
Accrued interest receivable and other assets338,170
 396,654
Accrued interest receivable and other assets2,030,818 1,923,468 
Total assets$30,989,972
 $30,196,319
Total assets$48,747,022 $52,892,376 
   
Liabilities:   Liabilities:
Deposits:   Deposits:
Non-interest-bearing demand deposits$11,174,251
 $10,513,369
Non-interest-bearing demand deposits$14,631,456 $17,598,234 
Interest-bearing deposits15,229,018
 15,298,206
Interest-bearing deposits26,360,779 26,355,962 
Total deposits26,403,269
 25,811,575
Total deposits40,992,235 43,954,196 
Federal funds purchased and repurchase agreements997,919
 976,992
Federal funds purchasedFederal funds purchased25,950 51,650 
Repurchase agreementsRepurchase agreements3,722,245 4,660,641 
Junior subordinated deferrable interest debentures, net of unamortized issuance costs136,170
 136,127
Junior subordinated deferrable interest debentures, net of unamortized issuance costs123,112 123,069 
Subordinated notes, net of unamortized issuance costs98,512
 99,990
Subordinated notes, net of unamortized issuance costs99,452 99,335 
Accrued interest payable and other liabilities165,059
 169,107
Accrued interest payable and other liabilities784,277 866,257 
Total liabilities27,800,929
 27,193,791
Total liabilities45,747,271 49,755,148 
   
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 at September 30, 2017 and December 31, 2016144,486
 144,486
Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,236,306 shares issued at September 30, 2017 and 63,632,464 shares issued at December 31, 2016642
 637
Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; 150,000 Series B shares ($1,000 liquidation preference) issued at September 30, 2023 and December 31, 2022Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; 150,000 Series B shares ($1,000 liquidation preference) issued at September 30, 2023 and December 31, 2022145,452 145,452 
Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,404,582 shares issued at September 30, 2023 and 64,354,695 at December 31, 2022Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,404,582 shares issued at September 30, 2023 and 64,354,695 at December 31, 2022644 643 
Additional paid-in capital951,893
 906,732
Additional paid-in capital1,043,865 1,029,756 
Retained earnings2,133,259
 1,985,569
Retained earnings3,626,799 3,309,671 
Accumulated other comprehensive income, net of tax57,675
 (24,623)
Treasury stock, at cost; 1,122,721 shares at September 30, 2017 and 158,243 shares at December 31, 2016(98,912) (10,273)
Accumulated other comprehensive income (loss), net of taxAccumulated other comprehensive income (loss), net of tax(1,778,827)(1,348,294)
Treasury stock, at cost; 387,679 shares at September 30, 2023Treasury stock, at cost; 387,679 shares at September 30, 2023(38,182)— 
Total shareholders’ equity3,189,043
 3,002,528
Total shareholders’ equity2,999,751 3,137,228 
Total liabilities and shareholders’ equity$30,989,972
 $30,196,319
Total liabilities and shareholders’ equity$48,747,022 $52,892,376 
See accompanying Notes to Consolidated Financial Statements.



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Table of Contents
Cullen/Frost Bankers, Inc.
Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,		Three Months Ended
September 30,		Nine Months Ended
September 30,
2017 2016 2017 20162023202220232022
Interest income:       Interest income:
Loans, including fees$138,400
 $114,368
 $392,073
 $340,303
Loans, including fees$307,035 $205,932 $867,302 $522,588 
Securities:       Securities:
Taxable23,203
 25,897
 72,032
 77,402
Taxable103,875 68,311 303,610 167,734 
Tax-exempt54,939
 53,065
 167,321
 154,308
Tax-exempt56,918 59,450 184,189 173,394 
Interest-bearing deposits10,800
 4,111
 26,712
 11,366
Interest-bearing deposits91,904 74,257 278,897 106,971 
Federal funds sold and resell agreements244
 48
 514
 165
Federal funds soldFederal funds sold183 316 1,246 428 
Resell agreementsResell agreements1,197 64 3,391 78 
Total interest income227,586
 197,489
 658,652
 583,544
Total interest income561,112 408,330 1,638,635 971,193 
Interest expense:       Interest expense:
Deposits5,668
 1,749
 9,709
 5,309
Deposits138,779 42,682 357,034 62,187 
Federal funds purchased and repurchase agreements523
 44
 849
 152
Federal funds purchasedFederal funds purchased288 249 1,283 336 
Repurchase agreementsRepurchase agreements33,195 7,529 99,960 9,837 
Junior subordinated deferrable interest debentures1,020
 839
 2,890
 2,392
Junior subordinated deferrable interest debentures2,260 1,159 6,354 2,515 
Other long-term borrowings1,164
 350
 2,696
 958
Subordinated notesSubordinated notes1,164 1,164 3,492 3,492 
Total interest expense8,375
 2,982
 16,144
 8,811
Total interest expense175,686 52,783 468,123 78,367 
Net interest income219,211
 194,507
 642,508
 574,733
Net interest income385,426 355,547 1,170,512 892,826 
Provision for loan losses10,980
 5,045
 27,358
 42,734
Net interest income after provision for loan losses208,231
 189,462
 615,150
 531,999
Credit loss expenseCredit loss expense11,185 — 30,190 — 
Net interest income after credit loss expenseNet interest income after credit loss expense374,241 355,547 1,140,322 892,826 
Non-interest income:       Non-interest income:
Trust and investment management fees27,493
 26,451
 81,690
 77,806
Trust and investment management fees37,616 38,552 113,152 114,984 
Service charges on deposit accounts20,967
 20,540
 62,934
 60,769
Service charges on deposit accounts23,603 22,960 68,969 69,570 
Insurance commissions and fees10,892
 11,029
 34,441
 35,812
Insurance commissions and fees13,636 13,152 45,528 41,536 
Interchange and debit card transaction fees5,884
 5,435
 17,150
 15,838
Other charges, commissions and fees10,493
 10,703
 29,983
 29,825
Interchange and card transaction feesInterchange and card transaction fees4,672 4,614 14,811 13,751 
Other charges, commissions, and feesOther charges, commissions, and fees13,128 11,095 36,922 30,609 
Net gain (loss) on securities transactions(4,867) (37) (4,917) 14,866
Net gain (loss) on securities transactions12 — 66 — 
Other10,753
 7,993
 25,114
 21,358
Other13,331 9,448 35,343 28,688 
Total non-interest income81,615
 82,114
 246,395
 256,274
Total non-interest income105,998 99,821 314,791 299,138 
Non-interest expense:       Non-interest expense:
Salaries and wages84,388
 79,411
 247,895
 236,814
Salaries and wages137,562 127,189 401,102 355,399 
Employee benefits17,730
 17,844
 57,553
 55,861
Employee benefits26,527 21,680 87,241 66,633 
Net occupancy19,391
 18,202
 57,781
 53,631
Net occupancy31,581 28,133 93,644 83,923 
Furniture and equipment18,743
 17,979
 54,983
 53,474
Technology, furniture, and equipmentTechnology, furniture, and equipment35,278 30,781 100,802 89,859 
Deposit insurance4,862
 4,558
 15,347
 12,412
Deposit insurance6,033 4,279 18,480 11,636 
Intangible amortization405
 586
 1,301
 1,869
Other41,304
 41,925
 127,929
 125,048
Other56,275 45,836 162,171 135,527 
Total non-interest expense186,823
 180,505
 562,789
 539,109
Total non-interest expense293,256 257,898 863,440 742,977 
Income before income taxes103,023
 91,071
 298,756
 249,164
Income before income taxes186,983 197,470 591,673 448,987 
Income taxes9,892
 10,852
 35,131
 28,622
Income taxes31,332 27,710 96,251 61,011 
Net income93,131
 80,219
 263,625
 220,542
Net income155,651 169,760 495,422 387,976 
Preferred stock dividends2,016
 2,016
 6,047
 6,047
Preferred stock dividends1,668 1,668 5,006 5,006 
Net income available to common shareholders$91,115
 $78,203
 $257,578
 $214,495
Net income available to common shareholders$153,983 $168,092 $490,416 $382,970 
       
Earnings per common share:       Earnings per common share:
Basic$1.43
 $1.24
 $4.02
 $3.44
Basic$2.38 $2.60 $7.56 $5.92 
Diluted1.41
 1.24
 3.98
 3.42
Diluted2.38 2.59 7.54 5.90 
See accompanying Notes to Consolidated Financial Statements.

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Table of Contents
Cullen/Frost Bankers, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in thousands)
Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,		Three Months Ended
September 30,		Nine Months Ended
September 30,
2017 2016 2017 20162023202220232022
Net income$93,131
 $80,219
 $263,625
 $220,542
Net income$155,651 $169,760 $495,422 $387,976 
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 period7,082
 (95,641) 131,283
 191,865
Change in net unrealized gain/loss during the period(600,441)(829,324)(547,035)(2,376,642)
Change in net unrealized gain on securities transferred to held to maturity(3,514) (7,278) (13,660) (24,629)Change in net unrealized gain on securities transferred to held to maturity(164)(174)(486)(572)
Reclassification adjustment for net (gains) losses included in net income4,867
 37
 4,917
 (14,866)Reclassification adjustment for net (gains) losses included in net income(12)— (66)— 
Total securities available for sale and transferred securities8,435
 (102,882) 122,540
 152,370
Total securities available for sale and transferred securities(600,617)(829,498)(547,587)(2,377,214)
Defined-benefit post-retirement benefit plans:       Defined-benefit post-retirement benefit plans:
Change in the net actuarial gain/loss—
 —
 —
 (862)
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)1,357
 1,585
 4,072
 4,878
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)869 741 2,609 2,223 
Total defined-benefit post-retirement benefit plans1,357
 1,585
 4,072
 4,016
Total defined-benefit post-retirement benefit plans869 741 2,609 2,223 
Other comprehensive income (loss), before tax9,792
 (101,297) 126,612
 156,386
Other comprehensive income (loss), before tax(599,748)(828,757)(544,978)(2,374,991)
Deferred tax expense (benefit) related to other comprehensive income3,427
 (35,453) 44,314
 54,736
Deferred tax expense (benefit)Deferred tax expense (benefit)(125,948)(174,038)(114,445)(498,748)
Other comprehensive income (loss), net of tax6,365
 (65,844) 82,298
 101,650
Other comprehensive income (loss), net of tax(473,800)(654,719)(430,533)(1,876,243)
Comprehensive income (loss)$99,496
 $14,375
 $345,923
 $322,192
Comprehensive income (loss)$(318,149)$(484,959)$64,889 $(1,488,267)
See accompanying Notes to Consolidated Financial Statements.

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Table of Contents
Cullen/Frost Bankers, Inc.
Consolidated Statements 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
Three months ended:
September 30, 2023
Balance at beginning of period$145,452 $644 $1,040,754 $3,532,542 $(1,305,027)$(27,623)$3,386,742 
Net income— — — 155,651 — — 155,651 
Other comprehensive income (loss), net of tax— — — — (473,800)— (473,800)
Stock option exercises/stock unit conversions (8,483 shares)— — — (217)— 813 596 
Stock-based compensation expense recognized in earnings— — 3,111 — — — 3,111 
Purchase of treasury stock (111,956 shares)— — — — — (11,372)(11,372)
Cash dividends – Series B preferred stock (approximately $11.13 per share which is equivalent to approximately $0.28 per depositary share)— — — (1,668)— — (1,668)
Cash dividends – common stock ($0.92 per share)— — — (59,509)— — (59,509)
Balance at end of period$145,452 $644 $1,043,865 $3,626,799 $(1,778,827)$(38,182)$2,999,751 
September 30, 2022
Balance at beginning of period$145,452 $642 $1,015,451 $3,070,109 $(874,206)$(10,473)$3,346,975 
Net income— — — 169,760 — — 169,760 
Other comprehensive income (loss), net of tax— — — — (654,719)— (654,719)
Stock option exercises/stock unit conversions (88,350 shares)— — — (1,918)— 7,188 5,270 
Stock-based compensation expense recognized in earnings— — 3,173 — — 3,173 
Cash dividends – Series B preferred stock (approximately $11.13 per share which is equivalent to approximately $0.28 per depositary share)— — — (1,668)— — (1,668)
Cash dividends – common stock ($0.87 per share)— — — (56,319)— — (56,319)
Balance at end of period$145,452 $642 $1,018,624 $3,179,964 $(1,528,925)$(3,285)$2,812,472 
See accompanying Notes to Consolidated Financial Statements

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Table of Contents
Cullen/Frost Bankers, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
(Dollars in thousands, except per share amounts)
 Nine Months Ended 
 September 30,
 2017 2016
Total shareholders’ equity at beginning of period$3,002,528
 $2,890,343
Net income263,625
 220,542
Other comprehensive income (loss)82,298
 101,650
Stock option exercises/stock unit conversions (774,799 shares in 2017 and 908,921 shares in 2016)45,422
 47,873
Stock compensation expense recognized in earnings9,013
 7,998
Purchase of treasury stock (1,135,435 shares in 2017)(100,042) —
Cash dividends – preferred stock (approximately $1.01 per share in both 2017 and in 2016)(6,047) (6,047)
Cash dividends – common stock ($1.68 per share in 2017 and $1.61 per share in 2016)(107,754) (100,563)
Total shareholders’ equity at end of period$3,189,043
 $3,161,796
Preferred
Stock		Common
Stock		Additional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax		Treasury
Stock		Total
Nine months ended:
September 30, 2023
Balance at beginning of period$145,452 $643 $1,029,756 $3,309,671 $(1,348,294)$— $3,137,228 
Net income— — — 495,422 — — 495,422 
Other comprehensive income (loss), net of tax— — — — (430,533)— (430,533)
Stock option exercises/stock unit conversions (72,496 shares)— 1 1,463 (736)— 2,314 3,042 
Stock-based compensation expense recognized in earnings— — 12,646 — — — 12,646 
Purchase of treasury stock (410,288 shares)— — — — — (40,496)(40,496)
Cash dividends – Series B preferred stock (approximately $33.38 per share which is equivalent to approximately $0.83 per depositary share)— — — (5,006)— — (5,006)
Cash dividends – common stock ($2.66 per share)— — — (172,552)— — (172,552)
Balance at end of period$145,452 $644 $1,043,865 $3,626,799 $(1,778,827)$(38,182)$2,999,751 
September 30, 2022
Balance at beginning of period$145,452 $642 $1,009,921 $2,956,966 $347,318 $(20,744)$4,439,555 
Net income— — — 387,976 — — 387,976 
Other comprehensive income (loss), net of tax— — — — (1,876,243)— (1,876,243)
Stock option exercises/stock unit conversions (232,612 shares)— — — (6,695)— 18,455 11,760 
Stock-based compensation expense recognized in earnings— — 8,703 — — — 8,703 
Purchase of treasury stock (7,459 shares)— — — — — (996)(996)
Cash dividends – Series B preferred stock (approximately $33.38 per share which is equivalent to approximately $0.83 per depositary share)— — — (5,006)— — (5,006)
Cash dividends – common stock ($2.37 per share)— — — (153,277)— — (153,277)
Balance at end of period$145,452 $642 $1,018,624 $3,179,964 $(1,528,925)$(3,285)$2,812,472 
See accompanying Notes to Consolidated Financial Statements.Statements



7
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Cullen/Frost Bankers, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Nine Months Ended
September 30,
20232022
Operating Activities:
Net income$495,422 $387,976 
Adjustments to reconcile net income to net cash from operating activities:
Credit loss expense30,190 — 
Deferred tax expense (benefit)(3,047)(3,378)
Accretion of loan discounts(13,074)(10,572)
Securities premium amortization (discount accretion), net50,614 76,328 
Net (gain) loss on securities transactions(66)— 
Depreciation and amortization56,257 53,303 
Net (gain) loss on sale/write-down of assets/foreclosed assets(194)109 
Stock-based compensation12,646 8,703 
Net tax benefit from stock-based compensation583 2,894 
Earnings on life insurance policies(2,164)(1,561)
Net change in:
Trading account securities(1,020)154 
Lease right-of-use assets17,347 18,151 
Accrued interest receivable and other assets55,440 (63,382)
Accrued interest payable and other liabilities(137,088)71,187 
Net cash from operating activities561,846 539,912 
Investing Activities:
Securities held to maturity:
Purchases(1,147,624)(878,434)
Maturities, calls and principal repayments154,465 557,901 
Securities available for sale:
Purchases(13,445,382)(6,702,519)
Sales1,904,067 — 
Maturities, calls and principal repayments13,073,663 1,140,939 
Proceeds from sale of loans2,215 2,365 
Net change in loans(1,257,033)(617,981)
Benefits received on life insurance policies1,000 1,332 
Proceeds from sales of premises and equipment1,282 47 
Purchases of premises and equipment(118,062)(55,635)
Proceeds from sales of repossessed properties583 2,585 
Net cash from investing activities(830,826)(6,549,400)
Financing Activities:
Net change in deposits(2,961,961)3,864,490 
Net change in short-term borrowings(964,096)(657,785)
Proceeds from stock option exercises3,042 11,760 
Purchase of treasury stock(40,496)(996)
Cash dividends paid on preferred stock(5,006)(5,006)
Cash dividends paid on common stock(172,552)(153,277)
Net cash from financing activities(4,141,069)3,059,186 
Net change in cash and cash equivalents(4,410,049)(2,950,302)
Cash and cash equivalents at beginning of period12,028,132 16,583,000 
Cash and cash equivalents at end of period$7,618,083 $13,632,698 
 Nine Months Ended 
 September 30,
 2017 2016
Operating Activities:   
Net income$263,625
 $220,542
Adjustments to reconcile net income to net cash from operating activities:   
Provision for loan losses27,358
 42,734
Deferred tax expense (benefit)(9,505) (11,629)
Accretion of loan discounts(11,567) (11,893)
Securities premium amortization (discount accretion), net66,455
 59,071
Net (gain) loss on securities transactions4,917
 (14,866)
Depreciation and amortization35,819
 35,712
Net (gain) loss on sale/write-down of assets/foreclosed assets(2,045) (373)
Stock-based compensation9,013
 7,998
Net tax benefit from stock-based compensation5,844
 1,610
Earnings on life insurance policies(2,367) (2,678)
Net change in:   
Trading account securities(3,018) 418
Accrued interest receivable and other assets10,495
 11,134
Accrued interest payable and other liabilities(39,580) (2,806)
Net cash from operating activities355,444
 334,974
    
Investing Activities:   
Securities held to maturity:   
Purchases—
 —
Sales—
 135,610
Maturities, calls and principal repayments780,562
 227,760
Securities available for sale:   
Purchases(9,138,457) (10,079,302)
Sales8,993,963
 9,040,245
Maturities, calls and principal repayments283,278
 270,737
Proceeds from sale of loans—
 30,470
Net change in loans(745,702) (142,698)
Benefits received on life insurance policies462
 906
Proceeds from sales of premises and equipment1,553
 1,517
Purchases of premises and equipment(23,796) (32,647)
Proceeds from sales of repossessed properties517
 297
Net cash from investing activities152,380
 (547,105)
    
Financing Activities:   
Net change in deposits591,694
 763,953
Net change in short-term borrowings20,927
 (89,220)
Proceeds from issuance of subordinated notes98,434
 —
Principal payments on subordinated notes(100,000) —
Proceeds from stock option exercises45,422
 47,873
Purchase of treasury stock(100,042) —
Cash dividends paid on preferred stock(6,047) (6,047)
Cash dividends paid on common stock(107,754) (100,563)
Net cash from financing activities442,634
 615,996
    
Net change in cash and cash equivalents950,458
 403,865
Cash and equivalents at beginning of period4,141,445
 3,591,523
Cash and equivalents at end of period$5,091,903
 $3,995,388


See accompanying Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements
(Table amounts in thousands, except for share and per share amounts)
Note 1 - 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 in this Quarterly Report on Form 10-Q 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.
The consolidated financial statements in this Quarterly Report on Form 10-Q have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of our financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2016,2022, included in our Annual Report on Form 10-K filed with the SEC on February 3, 20172023 (the “2016“2022 Form 10-K”10-K”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.
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 loan losses and the fair values of financial instruments and the status of contingencies are particularly subject to change.
Cash Flow Reporting. Additional cash flow information was as follows:
Nine Months Ended
September 30,
20232022
Cash paid for interest$435,099 $71,848 
Cash paid for income taxes97,000 78,500 
Significant non-cash transactions:
Unsettled securities transactions276 470,813 
Right-of-use lease assets obtained in exchange for lessee operating lease liabilities9,964 23,959 
Accounting Changes, Reclassifications and Restatements. Certain items in prior financial statements have been reclassified to conform to the current presentation.
9
 Nine Months Ended 
 September 30,
 2017 2016
Cash paid for interest$15,611
 $8,731
Cash paid for income taxes41,969
 39,160
Significant non-cash transactions:   
Unsettled purchases of securities41,763
 54,342
Loans foreclosed and transferred to other real estate owned and foreclosed assets257
 422

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Note 2 - Securities
Securities. Securities - Held to Maturity. A summary of the amortized cost, and estimated fair value and allowance for credit losses related to securities held to maturity as of securities, excluding trading securities,September 30, 2023 and December 31, 2022 is presented below.
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair Value		Allowance
for Credit
Losses		Net
Carrying
Amount
September 30, 2023
Residential mortgage-backed securities$1,258,155 $— $113,142 $1,145,013 $— $1,258,155 
States and political subdivisions2,368,778 48 283,585 2,085,241 (310)2,368,468 
Other1,500 — 63 1,437 — 1,500 
Total$3,628,433 $48 $396,790 $3,231,691 $(310)$3,628,123 
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 
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 $811.4 million and $256.3 million at September 30, 2023 and December 31, 2022, respectively. Accrued interest receivable on held-to-maturity securities totaled $22.9 million and $30.2 million at September 30, 2023 and December 31, 2022, 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 to held to maturity. The net unamortized, unrealized gain remaining on transferred securities included in accumulated other comprehensive income in the accompanying balance sheet totaled $1.3 million ($1.0 million, net of tax) at September 30, 2023 and $1.8 million ($1.4 million, net of tax) at December 31, 2022. This amount will be amortized out of accumulated other comprehensive income over the remaining life of the underlying securities as an adjustment of the yield on those securities.
The 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 September 30, 2023 and December 31, 2022:
States and Political Subdivisions
Not Guaranteed or Pre-RefundedGuaranteed by the Texas PSFGuaranteed by Third PartyPre-RefundedTotalOther
Securities
September 30, 2023
Aaa/AAA$301,822 $1,542,919 $13,653 $1,091 $1,859,485 $— 
Aa/AA503,190 — 6,103 — 509,293 — 
Not rated— — — — — 1,500 
Total$805,012 $1,542,919 $19,756 $1,091 $2,368,778 $1,500 
December 31, 2022
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 
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 September 30, 2017 December 31, 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Held to Maturity               
U.S. Treasury$—
 $—
 $—
 $—
 $249,889
 $1,762
 $—
 $251,651
Residential mortgage-backed securities3,708
 21
 24
 3,705
 4,511
 39
 —
 4,550
States and political subdivisions1,437,164
 36,991
 2,556
 1,471,599
 1,994,710
 16,821
 6,335
 2,005,196
Other1,350
 —
 1
 1,349
 1,350
 —
 —
 1,350
Total$1,442,222
 $37,012
 $2,581
 $1,476,653
 $2,250,460
 $18,622
 $6,335
 $2,262,747
Available for Sale               
U.S. Treasury$3,452,882
 $23,796
 $3,050
 $3,473,628
 $4,003,692
 $24,984
 $8,945
 $4,019,731
Residential mortgage-backed securities658,281
 24,218
 1,304
 681,195
 756,072
 30,388
 1,293
 785,167
States and political subdivisions5,898,098
 130,142
 40,501
 5,987,739
 5,403,918
 50,101
 98,134
 5,355,885
Other42,538
 —
 —
 42,538
 42,494
 —
 —
 42,494
Total$10,051,799
 $178,156
 $44,855
 $10,185,100
 $10,206,176
 $105,473
 $108,372
 $10,203,277
The following table details activity in the allowance for credit losses on held-to-maturity securities during the three and nine months ended September 30, 2023 and 2022.
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Beginning balance$267 $158 $158 $158 
Credit loss expense (benefit)43 — 152 — 
Ending balance$310 $158 $310 $158 
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 September 30, 2023 and December 31, 2022 is presented below.
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance
for Credit
Losses		Estimated
Fair Value
September 30, 2023
U.S. Treasury$5,459,758 $— $416,606 $— $5,043,152 
Residential mortgage-backed securities7,589,404 140 1,282,910 — 6,306,634 
States and political subdivisions5,237,185 — 512,552 — 4,724,633 
Other42,670 — — — 42,670 
Total$18,329,017 $140 $2,212,068 $— $16,117,089 
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 
All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. At September 30, 2017, approximately 98.1%2023, all of the securities in our available for sale municipal bond portfolio were issued by the State of Texas or political subdivisions or agencies within the State of Texas, of which approximately 67.7%73.3% 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 $3.5$4.8 billion and $8.0 billion at September 30, 20172023 and $3.9 billion at December 31, 2016.
During the fourth quarter of 2012, we reclassified certain2022, respectively. Accrued interest receivable on available-for-sale securities from available for sale to held to maturity. The securities had an aggregate fair value of $2.3 billion with an aggregate net unrealized gain of $165.7totaled $82.4 million ($107.7 and $140.6 million, net of tax) on the date of the transfer. The net unamortized, unrealized gain on the remaining transferred securities at September 30, 2023 and December 31, 2022, respectively, and is included in accumulatedaccrued interest receivable and other comprehensive incomeassets in the accompanying consolidated balance sheetsheets.
The table below summarizes, as of September 30, 2017 totaled $14.1 million ($9.2 million, net2023, securities available for sale in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by type of tax).security and length of time in a continuous unrealized loss position.
Less than 12 MonthsMore than 12 MonthsTotal
Estimated
Fair Value		Unrealized
Losses		Estimated
Fair Value		Unrealized
Losses		Estimated
Fair Value		Unrealized
Losses
U.S. Treasury$— $— $5,043,152 $416,606 $5,043,152 $416,606 
Residential mortgage-backed securities1,486,570 67,981 4,806,198 1,214,929 6,292,768 1,282,910 
States and political subdivisions2,247,673 79,479 2,476,343 433,073 4,724,016 512,552 
Total$3,734,243 $147,460 $12,325,693 $2,064,608 $16,059,936 $2,212,068 
As of September 30, 2023, no allowance for credit losses has been recognized on available for sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality. This amount will be amortized out of accumulated other comprehensive income over the remaining lifeis based upon our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our available for sale securities as an adjustmentand in consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the yield on those securities.
Unrealized Losses. As of September 30, 2017, 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
Held to Maturity           
Residential mortgage-backed securities$2,212
 $24
 $—
 $—
 $2,212
 $24
States and political subdivisions5,301
 28
 74,965
 2,528
 80,266
 2,556
Other1,349
 1
 —
 —
 1,349
 1
Total$8,862
 $53
 $74,965
 $2,528
 $83,827
 $2,581
Available for Sale           
U.S. Treasury$840,074
 $3,050
 $—
 $—
 $840,074
 $3,050
Residential mortgage-backed securities75,441
 618
 19,458
 686
 94,899
 1,304
States and political subdivisions986,705
 9,713
 842,751
 30,788
 1,829,456
 40,501
Total$1,902,220
 $13,381
 $862,209
 $31,474
 $2,764,429
 $44,855

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 September 30, 2017, management does not have the intent to sell any of the securities classified as available for sale in the table above and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost. Any The
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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
Contractual Maturities. The following table summarizes the maturity distribution schedule of thesecurities held to maturity and securities available for sale as of September 30, 2023. Mortgage-backed securities are impaired due to reasons of credit quality. Accordingly, as of September 30, 2017, management believes the impairments detailedincluded in the table above are temporary and no impairment loss has been realized in our consolidated income statement.
Contractual Maturities. The amortized cost and estimated fair value of securities, excluding trading securities, at September 30, 2017 are presented below by contractual maturity.maturity categories based on their stated maturity date. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential mortgage-backedOther securities and equity securities are shown separately since they are not due at a single maturity date.
 Held to Maturity Available for Sale
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less$251,739
 $256,716
 $37,321
 $38,127
Due after one year through five years116,604
 121,451
 4,056,709
 4,085,795
Due after five years through ten years411,074
 420,160
 385,649
 399,538
Due after ten years659,097
 674,621
 4,871,301
 4,937,907
Residential mortgage-backed securities3,708
 3,705
 658,281
 681,195
Equity securities—
 —
 42,538
 42,538
Total$1,442,222
 $1,476,653
 $10,051,799
 $10,185,100
Sales of Securities. As more fully discussed in our 2016 Form 10-K, during 2016, we sold certain securities issued by municipalities that, based upon our internal credit analysis, had experienced significant deterioration in creditworthiness. Some of the securities we sold were classified as held to maturity prior to their sale. Despite their classification as held to maturity, we believe the sale of these securities was merited and permissible under the applicable accounting guidelines because of the significant deterioration in the creditworthiness of the issuers.
Sales of securities held to maturity were as follows:
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Proceeds from sales$—
 $—
 $—
 $135,610
Amortized cost—
 —
 —
 131,840
Gross realized gains—
 —
 —
 3,770
Gross realized losses—
 —
 —
 —
Tax (expense) benefit of securities gains/losses—
 —
 —
 (1,319)
Sales of securities available for sale include stock in the Federal Reserve Bank and the Federal Home Loan Bank, which have no maturity date. These securities have been included in the total column only.
Within 1 Year1 - 5 Years5 - 10 YearsAfter 10 YearsTotal
Held To Maturity
Amortized Cost
Residential mortgage-backed securities$— $— $513,264 $744,891 $1,258,155 
States and political subdivisions7,867 12,052 52,210 2,296,649 2,368,778 
Other— 1,500 — — 1,500 
Total$7,867 $13,552 $565,474 $3,041,540 $3,628,433 
Estimated Fair Value
Residential mortgage-backed securities$— $— $439,829 $705,184 $1,145,013 
States and political subdivisions7,863 11,880 47,029 2,018,469 2,085,241 
Other— 1,437 — — 1,437 
Total$7,863 $13,317 $486,858 $2,723,653 $3,231,691 
Available For Sale
Amortized Cost
U. S. Treasury$1,285,709 $2,794,385 $1,187,343 $192,321 $5,459,758 
Residential mortgage-backed securities772 3,593 15,131 7,569,908 7,589,404 
States and political subdivisions249,063 188,612 861,578 3,937,932 5,237,185 
Other— — — — 42,670 
Total$1,535,544 $2,986,590 $2,064,052 $11,700,161 $18,329,017 
Estimated Fair Value
U. S. Treasury$1,269,227 $2,633,956 $1,011,055 $128,914 $5,043,152 
Residential mortgage-backed securities739 3,486 14,979 6,287,430 6,306,634 
States and political subdivisions247,660 184,085 802,922 3,489,966 4,724,633 
Other— — — — 42,670 
Total$1,517,626 $2,821,527 $1,828,956 $9,906,310 $16,117,089 
Sales of Securities. Sales of available for sale securities were as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Proceeds from sales$360,712 $— $1,904,067 $— 
Gross realized gains341 — 5,758 — 
Gross realized losses(329)— (5,692)— 
Tax (expense) benefit of securities gains/losses(3)— (14)— 
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Proceeds from sales$746,524
 $7,980,049
 $8,993,963
 $9,040,245
Gross realized gains—
 1
 —
 11,134
Gross realized losses(4,867) (38) (4,917) (38)
Tax (expense) benefit of securities gains/losses1,703
 13
 1,721
 (3,884)

Premiums and Discounts. Premium amortization and discount accretion included in interest income on securities was as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Premium amortization$(19,367)$(27,165)$(66,534)$(84,278)
Discount accretion5,672 4,062 15,920 7,950 
Net (premium amortization) discount accretion$(13,695)$(23,103)$(50,614)$(76,328)
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 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Premium amortization$(24,586) $(22,762) $(72,733) $(67,321)
Discount accretion1,783
 2,497
 6,278
 8,250
Net (premium amortization) discount accretion$(22,803) $(20,265) $(66,455) $(59,071)
Trading Account Securities. Trading account securities, at estimated fair value, were as follows:
September 30,
2017		 December 31,
2016		September 30,
2023		December 31,
2022
U.S. Treasury$18,814
 $16,594
U.S. Treasury$29,065 $25,879 
States and political subdivisions907
 109
States and political subdivisions276 2,166 
Total$19,721
 $16,703
Total$29,341 $28,045 
Net gains and losses on trading account securities were as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Net gain on sales transactions$1,093 $1,110 $2,964 $2,462 
Net mark-to-market gains (losses)(25)9 (52)(235)
Net gain (loss) on trading account securities$1,068 $1,119 $2,912 $2,227 
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Net gain on sales transactions$414
 $379
 $1,018
 $1,032
Net mark-to-market gains (losses)(8) —
 (51) (1)
Net gain (loss) on trading account securities$406
 $379
 $967
 $1,031
Note 3 - Loans
Loans were as follows:
September 30,
2023		December 31,
2022
Commercial and industrial$5,836,877 $5,674,798 
Energy:
Production743,746 696,570 
Service191,880 133,542 
Other71,233 95,617 
Total energy1,006,859 925,729 
Paycheck Protection Program17,945 34,852 
Commercial real estate:
Commercial mortgages6,660,367 6,168,910 
Construction1,544,666 1,477,247 
Land533,418 537,168 
Total commercial real estate8,738,451 8,183,325 
Consumer real estate:
Home equity lines of credit753,020 691,841 
Home equity loans662,827 449,507 
Home improvement loans733,120 577,377 
Other190,396 124,814 
Total consumer real estate2,339,363 1,843,539 
Total real estate11,077,814 10,026,864 
Consumer and other459,764 492,726 
Total loans$18,399,259 $17,154,969 
 September 30,
2017		 
Percentage
of Total
 December 31,
2016		 
Percentage
of Total
Commercial and industrial$4,677,923
 36.8% $4,344,000
 36.3%
Energy:       
Production1,094,927
 8.6
 971,767
 8.1
Service159,893
 1.3
 221,213
 1.8
Other132,240
 1.0
 193,081
 1.7
Total energy1,387,060
 10.9
 1,386,061
 11.6
Commercial real estate:       
Commercial mortgages3,714,172
 29.2
 3,481,157
 29.1
Construction1,082,229
 8.5
 1,043,261
 8.7
Land307,701
 2.4
 311,030
 2.6
Total commercial real estate5,104,102
 40.1
 4,835,448
 40.4
Consumer real estate:       
Home equity loans357,542
 2.8
 345,130
 2.9
Home equity lines of credit288,981
 2.3
 264,862
 2.2
Other367,948
 2.9
 326,793
 2.7
Total consumer real estate1,014,471
 8.0
 936,785
 7.8
Total real estate6,118,573
 48.1
 5,772,233
 48.2
Consumer and other522,748
 4.2
 473,098
 3.9
Total loans$12,706,304
 100.0% $11,975,392
 100.0%
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 September 30, 2017,2023, there were no concentrations of loans related to any single industry in excess of 10% of total loans other than energy loans,loans. At that date, the largest industry concentrations were related to the automobile dealerships industry, which totaled 10.9%5.6% of total loans and the energy industry, which totaled 5.5% of total loans.Unfunded commitments to extend credit and standby letters of credit issued to customers in the automobile dealership industry totaled $459.5 million and $20.2 million, respectively, as of September 30, 2023, while unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled $1.1$1.0 billion and $40.9$87.2 million, respectively, as of September 30, 2017.2023.

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 September 30, 20172023 or December 31, 2016.2022.
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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”). Such loans totaled $396.7 million at September 30, 2023 and $391.3 million at December 31, 2022.
Accrued Interest Receivable. Accrued interest receivable on loans totaled $83.9 million and $68.7 million at September 30, 2023 and December 31, 2022, respectively, and is included in accrued interest receivable and other assets in the accompanying 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.
Non-accrual loans, segregated by class of loans, were as follows:
September 30, 2023December 31, 2022
Total Non-AccrualNon-Accrual with No Credit Loss AllowanceTotal Non-AccrualNon-Accrual with No Credit Loss Allowance
Commercial and industrial$27,326 $3,693 $18,130 $8,514 
Energy14,200 9,698 15,224 7,139 
Commercial real estate:
Buildings, land, and other23,112 5,100 3,552 1,991 
Construction— — — — 
Consumer real estate2,537 202 927 927 
Consumer and other— — — — 
Total$67,175 $18,693 $37,833 $18,571 
 September 30,
2017		 December 31,
2016
Commercial and industrial$37,239
 $31,475
Energy96,717
 57,571
Commercial real estate:   
Buildings, land and other6,773
 8,550
Construction—
 —
Consumer real estate2,167
 2,130
Consumer and other208
 425
Total$143,104
 $100,151
AsThe following table presents non-accrual loans as of September 30, 2017, non-accrual loans reported in2023 by class and year of origination.
20232022202120202019PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial and industrial$— $359 $84 $747 $2,812 $1,068 $21,924 $332 $27,326 
Energy8,148 — — 56 1,348 — 4,502 146 14,200 
Commercial real estate:
Buildings, land, and other18,438 105 296 — 1,463 2,810 — — 23,112 
Construction— — — — — — — — — 
Consumer real estate— — — 38 2,335 93 — 71 2,537 
Consumer and other— — — — — — — — — 
Total$26,586 $464 $380 $841 $7,958 $3,971 $26,426 $549 $67,175 
In the table above, included $54.1 million relatedenergy and commercial real estate loans reported as 2023 originations as of September 30, 2023 were first originated in years prior to loans that2023 but were restructured as “troubled debt restructurings” during 2017. Seerenewed in the section captioned “Troubled Debt Restructurings” elsewhere in this note.current year. Had non-accrual loans performed in accordance with their original contract terms, we would have recognized additional interest income, net of tax, of approximately $783 thousand$1.2 million and $2.4$2.7 million for the three and nine months ended September 30, 2017, compared to $6472023, respectively, and approximately $372 thousand and $2.4$1.2 million for the three and nine months ended September 30, 2016.2022, respectively.
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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 September 30, 2017 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$26,415
 $30,740
 $57,155
 $4,620,768
 $4,677,923
 $20,614
Energy12,585
 46,097
 58,682
 1,328,378
 1,387,060
 634
Commercial real estate:           
Buildings, land and other9,065
 4,065
 13,130
 4,008,743
 4,021,873
 2,229
Construction—
 2,331
 2,331
 1,079,898
 1,082,229
 2,331
Consumer real estate7,671
 2,107
 9,778
 1,004,693
 1,014,471
 835
Consumer and other9,754
 486
 10,240
 512,508
 522,748
 478
Total$65,490
 $85,826
 $151,316
 $12,554,988
 $12,706,304
 $27,121
Impaired Loans. Impaired loans are set forth in the following table. No interest income was recognized on impaired loans subsequent to their classification as impaired.
 
Unpaid Contractual
Principal
Balance
 
Recorded Investment
With No
Allowance
 
Recorded Investment
With
Allowance
 
Total
Recorded
Investment
 
Related
Allowance
September 30, 2017         
Commercial and industrial$48,751
 $31,065
 $3,937
 $35,002
 $1,665
Energy107,883
 34,834
 61,805
 96,639
 13,267
Commercial real estate:      
  
Buildings, land and other9,976
 5,627
 —
 5,627
 —
Construction—
 —
 —
 —
 —
Consumer real estate1,214
 1,214
 —
 1,214
 —
Consumer and other—
 —
 —
 —
 —
Total$167,824
 $72,740
 $65,742
 $138,482
 $14,932

 Unpaid Contractual
Principal
Balance		 Recorded Investment
With No
Allowance		 Recorded Investment
With
Allowance		 Total
Recorded
Investment		 Related
Allowance
December 31, 2016         
Commercial and industrial$40,288
 $19,862
 $9,047
 $28,909
 $5,436
Energy60,522
 27,759
 29,804
 57,563
 3,750
Commercial real estate:         
Buildings, land and other11,369
 6,866
 —
 6,866
 —
Construction—
 —
 —
 —
 —
Consumer real estate977
 655
 —
 655
 —
Consumer and other32
 30
 —
 30
 —
Total$113,188
 $55,172
 $38,851
 $94,023
 $9,186
The average recorded investment in impaired loans2023 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$29,967 $9,682 $39,649 $5,797,228 $5,836,877 $5,404 
Energy1,684 6,052 7,736 999,123 1,006,859 — 
Paycheck Protection Program2,000 1,954 3,954 13,991 17,945 1,954 
Commercial real estate:
Buildings, land, and other11,364 1,452 12,816 7,180,969 7,193,785 1,056 
Construction8,523 — 8,523 1,536,143 1,544,666 — 
Consumer real estate12,106 6,999 19,105 2,320,258 2,339,363 6,801 
Consumer and other5,041 523 5,564 454,200 459,764 523 
Total$70,685 $26,662 $97,347 $18,301,912 $18,399,259 $15,738 
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017
2016
Commercial and industrial$26,910
 $26,921
 $26,651
 $25,365
Energy76,008
 47,003
 72,055
 57,309
Commercial real estate:       
Buildings, land and other5,553
 8,904
 6,106
 20,444
Construction—
 326
 —
 548
Consumer real estate1,209
 545
 1,155
 508
Consumer and other—
 48
 13
 24
Total$109,680
 $83,747
 $105,980
 $104,198
Troubled Debt Restructurings. Troubled debt restructuringsModifications to Borrowers Experiencing Financial Difficulty. From time to time, we may modify certain loans to borrowers who are experiencing financial difficulty. In some cases, these modifications may result in new loans. Loan modifications to borrowers experiencing financial difficulty may be in the form of a principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension or a combination thereof, among other things. The period-end balance of loan modifications, segregated by type of modification, to borrowers experiencing financial difficulty during the nine months ended September 30, 20172023 and September 30, 20162022 are set forth in the following table.table below, regardless of whether such modifications resulted in a new loan. There were no commitments to lend additional funds to these borrowers at September 30, 2023.
Payment
Delay		Percent of
Total Class
of Loans		Combination: Payment Delay and Term ExtensionPercent of
Total Class
of Loans		Combination: Interest Rate Reduction and Term ExtensionPercent of
Total Class
of Loans
September 30, 2023
Commercial and industrial$— — %$15,912 0.3 %$— — %
Commercial real estate:
Buildings, land, and other— — 19,785 0.3 2,100 — 
$— — $35,697 0.2 $2,100 — 
September 30, 2022
Commercial real estate:
Buildings, land, and other$1,083 — $— — $— — 
$1,083 — $— — $— — 
 Nine Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2016
 
Balance at
Restructure
 
Balance at
Period-End
 
Balance at
Restructure
 
Balance at
Period-End
Commercial and industrial$4,026
 $3,875
 $510
 $505
Energy56,097
 55,023
 73,977
 31,918
Commercial real estate:       
Buildings, land and other—
 —
 1,455
 1,455
Construction—
 —
 243
 221
 $60,123
 $58,898
 $76,185
 $34,099
Loan modifications are typically relatedDuring the third quarter of 2023, we modified the interest rate on one loan from a variable rate of prime plus a spread of 1.75% (10.25% as of the modification date) to a fixed rate of 6.74% in addition to extending amortization periods, converting loansthe term of the loan. The financial effects of the other loan modifications made 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 modificationsborrowers experiencing financial difficulty during the nine months ended September 30, 2023 were not significant. The loan modifications reported periodsin the table above did not significantly impact our determination of the allowance for loan losses. As of September 30, 2017, there was one loan totaling $43.1 million that was restructuredcredit losses on loans during the third quarter of 2017 that was in excess of 90 days past due, however, the underlying terms of the modification allow for the deferral of payments. During the nine months ended September 30, 2017, we recognized charge-offs totaling $10.0 million related to loans restructured during the third and fourth quarters2023.
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Information as of 2016. Duringor for the nine months ended September 30, 2016, we recognized a charge-off of $9.5 million2023 and September 30, 2022 related to a loan restructured duringloans modified (by type of modification) in the first quarterpreceding twelve months, respectively, whereby the borrower was experiencing financial difficulty at the time of 2016. The loan was subsequently sold with proceeds frommodification is set forth in the sale totaling $30.5 million.following table.
September 30, 2023September 30, 2022
Combination: Payment Delay and Term ExtensionCombination: Interest Rate Reduction and Term ExtensionPayment
Delay		Combination: Payment Delay and Term Extension
Past due in excess of 90 days or on non-accrual status at period-end:
Commercial real estate:
Buildings, land, and other$— $2,100 $1,083 $— 
$— $2,100 $1,083 $— 
Charge-offs during the period:
Commercial real estate:
Buildings, land, and other$— $— $371 $352 
$— $— $371 $352 
Proceeds from sales:
Commercial real estate:
Buildings, land, and other$— $— $— $1,070 
$— $— $— $1,070 
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)(v) 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 set forth in our 20162022 Form 10-K. In monitoring credit quality

trends in the context of assessing the appropriate level of the allowance for loan losses, weWe 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.
The following tables presenttable presents weighted-average risk grades for all commercial loans, by class.class and year of origination/renewal, as of September 30, 2023. Paycheck Protection Program (“PPP”) loans are excluded as such loans are fully guaranteed by the Small Business Administration (“SBA”).
20232022202120202019PriorRevolving LoansRevolving Loans Converted to TermTotalW/A Risk Grade
Commercial and industrial
Risk grades 1-8$1,360,645 $860,771 $495,449 $383,880 $182,663 $221,704 $2,034,460 $42,098 $5,581,670 6.29 
Risk grade 916,491 9,544 5,764 2,837 1,492 9,823 49,123 5,016 100,090 9.00 
Risk grade 109,184 904 912 312 4,121 619 34,027 1,021 51,100 10.00 
Risk grade 115,232 5,422 26,626 8,652 2,619 1,389 13,336 13,415 76,691 11.00 
Risk grade 12— 359 84 641 2,663 1,068 16,817 332 21,964 12.00 
Risk grade 13— — — 106 149 — 5,107 — 5,362 13.00 
$1,391,552 $877,000 $528,835 $396,428 $193,707 $234,603 $2,152,870 $61,882 $5,836,877 6.46 
W/A risk grade6.24 6.79 7.22 5.85 6.15 6.10 6.43 7.86 6.46 
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20232022202120202019PriorRevolving LoansRevolving Loans Converted to TermTotalW/A Risk Grade
September 30, 2017 December 31, 2016
Weighted
Average
Risk Grade		 Loans Weighted
Average
Risk Grade		 Loans
Commercial and industrial:       
Risk grades 1-86.01
 $4,236,670
 6.01
 $3,989,722
Risk grade 99.00
 201,635
 9.00
 106,988
Risk grade 1010.00
 89,126
 10.00
 115,420
Risk grade 1111.00
 113,253
 11.00
 100,245
Risk grade 1212.00
 35,574
 12.00
 25,939
Risk grade 1313.00
 1,665
 13.00
 5,686
Total6.38
 $4,677,923
 6.35
 $4,344,000
Energy       Energy
Risk grades 1-86.19
 $1,082,349
 6.34
 $854,688
Risk grades 1-8$288,729 $65,086 $78,601 $3,959 $2,057 $4,164 $453,243 $7,871 $903,710 5.67 
Risk grade 99.00
 46,285
 9.00
 78,524
Risk grade 935,025 7,492 1,184 — 475 — 4,355 18 48,549 9.00 
Risk grade 1010.00
 67,694
 10.00
 150,872
Risk grade 10— — 38 — 326 710 34,925 — 35,999 10.00 
Risk grade 1111.00
 94,015
 11.00
 244,406
Risk grade 11— — 88 147 3,031 — — 1,135 4,401 11.00 
Risk grade 1212.00
 83,450
 12.00
 53,821
Risk grade 128,148 — — 56 1,348 — 1,802 146 11,500 12.00 
Risk grade 1313.00
 13,267
 13.00
 3,750
Risk grade 13— — — — — — 2,700 — 2,700 13.00 
Total7.21
 $1,387,060
 7.95
 $1,386,061
$331,902 $72,578 $79,911 $4,162 $7,237 $4,874 $497,025 $9,170 $1,006,859 6.10 
W/A risk gradeW/A risk grade6.35 6.86 6.05 6.92 9.94 7.19 5.73 7.90 6.10 
Commercial real estate:  
    Commercial real estate:
Buildings, land and other       
Buildings, land, otherBuildings, land, other
Risk grades 1-86.69
 $3,720,068
 6.67
 $3,463,064
Risk grades 1-8$1,185,417 $1,718,438 $1,303,804 $792,410 $547,600 $924,632 $223,084 $100,763 $6,796,148 7.01 
Risk grade 99.00
 115,196
 9.00
 109,110
Risk grade 98,476 22,301 53,874 38,898 16,916 26,598 2,175 541 169,779 9.00 
Risk grade 1010.00
 110,647
 10.00
 145,067
Risk grade 10217 29,842 7,268 29,238 775 3,219 — 2,599 73,158 10.00 
Risk grade 1111.00
 69,189
 11.00
 66,396
Risk grade 114,723 5,985 49,075 10,716 1,697 55,729 2,993 670 131,588 11.00 
Risk grade 1212.00
 6,773
 12.00
 8,550
Risk grade 1217,288 105 — — 1,463 2,810 — — 21,666 12.00 
Risk grade 1313.00
 —
 13.00
 —
Risk grade 131,150 — 296 — — — — — 1,446 13.00 
Total6.93
 $4,021,873
 6.95
 $3,792,187
$1,217,271 $1,776,671 $1,414,317 $871,262 $568,451 $1,012,988 $228,252 $104,573 $7,193,785 7.17 
W/A risk gradeW/A risk grade7.21 7.13 7.34 7.22 6.83 7.18 7.29 6.49 7.17 
Construction       Construction
Risk grades 1-87.14
 $1,058,847
 6.97
 $1,023,194
Risk grades 1-8$390,535 $526,048 $331,652 $47,871 $305 $1,638 $138,353 $— $1,436,402 7.25 
Risk grade 99.00
 18,106
 9.00
 15,829
Risk grade 9— 16,259 29,569 — — — 4,773 — 50,601 9.00 
Risk grade 1010.00
 3,768
 10.00
 2,889
Risk grade 1023,446 — 5,353 — — — 7,311 — 36,110 10.00 
Risk grade 1111.00
 1,508
 11.00
 1,349
Risk grade 115,838 13,104 2,611 — — — — — 21,553 11.00 
Risk grade 1212.00
 —
 12.00
 —
Risk grade 12— — — — — — — — — 12.00 
Risk grade 1313.00
 —
 13.00
 —
Risk grade 13— — — — — — — — — 13.00 
Total7.19
 $1,082,229
 7.01
 $1,043,261
$419,819 $555,411 $369,185 $47,871 $305 $1,638 $150,437 $— $1,544,666 7.43 
W/A risk gradeW/A risk grade7.59 7.30 7.84 4.39 7.23 6.78 7.42 — 7.43 
Total commercial real estateTotal commercial real estate$1,637,090 $2,332,082 $1,783,502 $919,133 $568,756 $1,014,626 $378,689 $104,573 $8,738,451 7.22 
W/A risk gradeW/A risk grade7.30 7.17 7.44 7.07 6.83 7.18 7.35 6.49 7.22 

In the table above, certain loans are reported as 2023 originations and have risk grades of 11 or higher. These loans were, for the most part, first originated in various years prior to 2023 but were renewed in the current year.
Net (charge-offs)/recoveries,The following tables present weighted average risk grades for all commercial loans by class as of December 31, 2022. Refer to our 2022 Form 10-K for details of these loans by year of origination/renewal.
Commercial and IndustrialEnergyCommercial Real Estate - Buildings, Land and OtherCommercial Real Estate - ConstructionTotal Commercial Real Estate
W/A Risk GradeLoansW/A Risk GradeLoansW/A Risk GradeLoansW/A Risk GradeLoansW/A Risk GradeLoans
Risk grades 1-86.24 $5,435,917 5.44 $887,182 6.94 $6,340,028 7.04 $1,430,012 6.96 $7,770,040 
Risk grade 99.00 146,192 9.00 11,112 9.00 189,928 9.00 34,952 9.00 224,880 
Risk grade 1010.00 37,596 10.00 642 10.00 91,020 10.00 931 10.00 91,951 
Risk grade 1111.00 36,963 11.00 11,569 11.00 81,550 11.00 11,352 11.00 92,902 
Risk grade 1212.00 12,521 12.00 10,840 12.00 2,957 12.00 — 12.00 2,957 
Risk grade 1313.00 5,609 13.00 4,384 13.00 595 13.00 — 13.00 595 
Total6.39 $5,674,798 5.67 $925,729 7.09 $6,706,078 7.12 $1,477,247 7.10 $8,183,325 
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Information about the payment status of consumer loans, segregated by classportfolio segment and year of origination, as of September 30, 2023 was as follows:
20232022202120202019PriorRevolving LoansRevolving Loans Converted to TermTotal
Consumer real estate:
Past due 30-89 days$222 $1,201 $1,034 $535 $283 $2,329 $6,240 $262 $12,106 
Past due 90 or more days— 534 650 38 22 1,186 1,509 3,060 6,999 
Total past due222 1,735 1,684 573 305 3,515 7,749 3,322 19,105 
Current loans470,908 439,461 288,751 176,252 61,336 141,551 734,358 7,641 2,320,258 
Total$471,130 $441,196 $290,435 $176,825 $61,641 $145,066 $742,107 $10,963 $2,339,363 
Consumer and other:
Past due 30-89 days$2,403 $377 $193 $47 $35 $49 $1,818 $119 $5,041 
Past due 90 or more days95 62 — — — 11 350 5 523 
Total past due2,498 439 193 47 35 — 2,168 124 5,564 
Current loans59,223 32,960 9,543 4,076 1,641 1,645 323,629 21,483 454,200 
Total$61,721 $33,399 $9,736 $4,123 $1,676 $1,645 $325,797 $21,607 $459,764 
Revolving loans that converted to term during the three and nine months ended September 30, 2023 and 2022 were as follows:
Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,		Three Months Ended September 30,Nine Months Ended September 30,
2017 2016 2017 20162023202220232022
Commercial and industrial$(4,565) $(3,079) $(12,155) $(8,177)Commercial and industrial$13,144 $2,368 $18,246 $22,579 
Energy451
 (865) (10,010) (18,623)Energy3,451 1,582 4,050 1,806 
Commercial real estate:       Commercial real estate:
Buildings, land and other266
 259
 768
 801
Buildings, land and other— — 5,635 10,759 
Construction2
 9
 8
 18
Construction— — — 4,414 
Consumer real estate(629) (195) (422) (22)Consumer real estate709 700 1,630 2,223 
Consumer and other(1,760) (1,115) (4,289) (2,817)Consumer and other1,699 1,963 5,151 7,691 
Total$(6,235) $(4,986) $(26,100) $(28,820)Total$19,003 $6,613 $34,712 $49,472 
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, the components of which are more fully described in our 20162022 Form 10-K, totaled 124.6129.0 at August 31, 2017 (most recent date available)September 30, 2023 and 123.1130.4 at December 31, 2016.2022. A higherlower TLI value implies moreless favorable economic conditions.
Allowance for LoanFor Credit Losses. - Loans. The allowance for loancredit losses on loans is a reserve established through a provision for loan losses chargedcontra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to expense, whichpresent the net amount expected to be collected. The amount of the allowance represents management’smanagement's best estimate of inherentcurrent expected credit losses that have been incurred withinon loans considering available information, from internal and external sources, relevant to assessing collectibility over the existing portfolioloans' contractual terms, adjusted for expected prepayments when appropriate. Credit loss expense related to loans reflects the totality of loans. The allowance,actions taken on all loans for a particular period including any necessary increases or decreases in the judgmentallowance related to changes in credit loss expectations associated with specific loans or pools of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. Our allowance for loan loss methodology, which is more fully described in our 2016 Form 10-K, follows the accounting guidance set forth in U.S. generally accepted accounting principles and the Interagency Policy Statement on the Allowance for Loan and Lease Losses, which was jointly issued by U.S. bank regulatory agencies. 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.loans. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications. Our allowance methodology is more fully described in our 2022 Form 10-K.
During the first quarter of 2023, we recalibrated and updated all of our commercial loan models, with the exception of the models related to commercial real estate - non-owner-occupied loans, as well as our consumer real estate loan models. While the fundamental modeling methodologies remain unchanged, the updates included (i) separating the energy loan pool from the commercial and industrial pool as a result of differences in loss characteristics observed in recent history and (ii) changing the modeling approach related to loan renewals whereby each renewal is treated as a separate loan which impacted loan life assumptions. For modeling purposes, our loan pools now include (i) commercial and industrial non-revolving, (ii) commercial and industrial revolving, (iii) energy, (iv) commercial real estate - owner occupied, (v) commercial real estate - non-owner occupied, (vi) commercial real estate - construction/land development, (vii) consumer real estate and (viii) consumer and other.
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The overall approximate impact of the model updates during the first quarter was a $45.0 million decrease in modeled expected credit losses on loans though the impact of this decrease was largely offset with qualitative adjustments. The decrease in modeled expected credit losses on loans was largely driven by lower measurements for probability of default (“PD”) and loss given default (“LGD”) based on the historical data series (2008 through 2018) used for the recalibration. This period was one of relatively low losses and included higher levels of government stimulus. The lower PD and LGD measurements were also impacted by shorter loan life assumptions due to the aforementioned change in the modeling approach related to loan renewals.
The following table presents details of the allowance for loancredit losses allocated to eachon loans segregated by loan portfolio segment as of September 30, 20172023 and December 31, 2016 and detailed on the basis of the impairment evaluation methodology we used:
 
Commercial
and
Industrial
 Energy 
Commercial
Real Estate
 
Consumer
Real Estate
 
Consumer
and Other
 Total
September 30, 2017           
Historical valuation allowances$27,190
 $21,900
 $18,304
 $2,443
 $5,491
 $75,328
Specific valuation allowances1,665
 13,267
 —
 —
 —
 14,932
General valuation allowances7,397
 4,677
 4,841
 2,040
 163
 19,118
Macroeconomic valuation allowances12,185
 12,069
 14,930
 2,392
 3,349
 44,925
Total$48,437
 $51,913
 $38,075
 $6,875
 $9,003
 $154,303
Allocated to loans:           
Individually evaluated$1,665
 $13,267
 $—
 $—
 $—
 $14,932
Collectively evaluated46,772
 38,646
 38,075
 6,875
 9,003
 139,371
Total$48,437
 $51,913
 $38,075
 $6,875
 $9,003
 $154,303
December 31, 2016           
Historical valuation allowances$33,251
 $34,626
 $16,976
 $2,225
 $4,585
 $91,663
Specific valuation allowances5,436
 3,750
 —
 —
 —
 9,186
General valuation allowances6,708
 3,769
 5,004
 1,506
 (144) 16,843
Macroeconomic valuation allowances7,520
 18,508
 8,233
 507
 585
 35,353
Total$52,915
 $60,653
 $30,213
 $4,238
 $5,026
 $153,045
Allocated to loans:           
Individually evaluated$5,436
 $3,750
 $—
 $—
 $—
 $9,186
Collectively evaluated47,479
 56,903
 30,213
 4,238
 5,026
 143,859
Total$52,915
 $60,653
 $30,213
 $4,238
 $5,026
 $153,045

Our recorded investment in2022. No allowance for credit losses has been recognized for PPP loans as of September 30, 2017 and December 31, 2016 related to each balance insuch loans are fully guaranteed by the allowance for loan losses by portfolio segment and detailed on the basis of the impairment methodology we used was as follows:SBA.
September 30, 2023Commercial
and
Industrial		EnergyCommercial
Real Estate		Consumer
Real Estate		Consumer
and Other		Total
Modeled expected credit losses$45,398 $7,065 $16,366 $14,239 $5,258 $88,326 
Q-Factor and other qualitative adjustments23,547 7,301 108,680 498 4,073 144,099 
Specific allocations5,362 2,700 1,446 302 — 9,810 
Total$74,307 $17,066 $126,492 $15,039 $9,331 $242,235 
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 
 
Commercial
and
Industrial
 Energy Commercial
Real Estate		 Consumer
Real Estate		 Consumer
and Other		 Total
September 30, 2017           
Individually evaluated$35,002
 $96,639
 $5,627
 $1,214
 $—
 $138,482
Collectively evaluated4,642,921
 1,290,421
 5,098,475
 1,013,257
 522,748
 12,567,822
Total$4,677,923
 $1,387,060
 $5,104,102
 $1,014,471
 $522,748
 $12,706,304
December 31, 2016           
Individually evaluated$28,909
 $57,563
 $6,866
 $655
 $30
 $94,023
Collectively evaluated4,315,091
 1,328,498
 4,828,582
 936,130
 473,068
 11,881,369
Total$4,344,000
 $1,386,061
 $4,835,448
 $936,785
 $473,098
 $11,975,392
The following table details activity in the allowance for loancredit losses on loans by portfolio segment for the three and nine months ended September 30, 20172023 and 2016.2022. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. 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
Three months ended:
September 30, 2023
Beginning balance$75,166 $14,929 $120,926 $13,035 $9,563 $233,619 
Credit loss expense (benefit)(623)1,784 5,424 2,130 4,893 13,608 
Charge-offs(943)— (62)(170)(8,189)(9,364)
Recoveries707 353 204 44 3,064 4,372 
Net (charge-offs) recoveries(236)353 142 (126)(5,125)(4,992)
Ending balance$74,307 $17,066 $126,492 $15,039 $9,331 $242,235 
September 30, 2022
Beginning balance$87,270 $16,267 $117,106 $6,854 $12,135 $239,632 
Credit loss expense (benefit)10,844 2,491 (16,522)940 (216)(2,463)
Charge-offs(572)— — (68)(6,549)(7,189)
Recoveries1,288 93 23 309 2,622 4,335 
Net (charge-offs) recoveries716 93 23 241 (3,927)(2,854)
Ending balance$98,830 $18,851 $100,607 $8,035 $7,992 $234,315 
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Table of Contents
Commercial
and
Industrial		EnergyCommercial
Real Estate		Consumer
Real Estate		Consumer
and Other		Total
Commercial
and
Industrial
 Energy 
Commercial
Real Estate
 
Consumer
Real Estate
 
Consumer
and Other
 Total
Three months ended:           
September 30, 2017           
Nine months ended:Nine months ended:
September 30, 2023September 30, 2023
Beginning balance$48,906
 $54,277
 $33,002
 $5,535
 $7,838
 $149,558
Beginning balance$104,237 $18,062 $90,301 $8,004 $7,017 $227,621 
Provision for loan losses4,096
 (2,815) 4,805
 1,969
 2,925
 10,980
Credit loss expense (benefit)Credit loss expense (benefit)(18,903)(1,683)35,918 7,235 15,649 38,216 
Charge-offs(5,468) —
 —
 (766) (4,120) (10,354)Charge-offs(14,259)(518)(62)(1,500)(22,147)(38,486)
Recoveries903
 451
 268
 137
 2,360
 4,119
Recoveries3,232 1,205 335 1,300 8,812 14,884 
Net charge-offs(4,565) 451
 268
 (629) (1,760) (6,235)
Net (charge-offs) recoveriesNet (charge-offs) recoveries(11,027)687 273 (200)(13,335)(23,602)
Ending balance$48,437
 $51,913
 $38,075
 $6,875
 $9,003
 $154,303
Ending balance$74,307 $17,066 $126,492 $15,039 $9,331 $242,235 
September 30, 2016           
September 30, 2022September 30, 2022
Beginning balance$47,578
 $66,339
 $27,063
 $3,935
 $4,799
 $149,714
Beginning balance$72,091 $17,217 $144,936 $6,585 $7,837 $248,666 
Provision for loan losses4,632
 (3,231) 1,886
 427
 1,331
 5,045
Credit loss expense (benefit)Credit loss expense (benefit)29,347 874 (44,363)1,497 10,250 (2,395)
Charge-offs(4,036) (884) (9) (287) (3,300) (8,516)Charge-offs(5,918)(371)(702)(430)(17,642)(25,063)
Recoveries957
 19
 277
 92
 2,185
 3,530
Recoveries3,310 1,131 736 383 7,547 13,107 
Net charge-offs(3,079) (865) 268
 (195) (1,115) (4,986)
Net (charge-offs) recoveriesNet (charge-offs) recoveries(2,608)760 34 (47)(10,095)(11,956)
Ending balance$49,131
 $62,243
 $29,217
 $4,167
 $5,015
 $149,773
Ending balance$98,830 $18,851 $100,607 $8,035 $7,992 $234,315 
           
Nine months ended:           
September 30, 2017           
Beginning balance$52,915
 $60,653
 $30,213
 $4,238
 $5,026
 $153,045
Provision for loan losses7,677
 1,270
 7,086
 3,059
 8,266
 27,358
Charge-offs(14,574) (10,595) (14) (779) (11,291) (37,253)
Recoveries2,419
 585
 790
 357
 7,002
 11,153
Net charge-offs(12,155) (10,010) 776
 (422) (4,289) (26,100)
Ending balance$48,437
 $51,913
 $38,075
 $6,875
 $9,003
 $154,303
September 30, 2016           
Beginning balance$42,993
 $54,696
 $24,313
 $4,659
 $9,198
 $135,859
Provision for loan losses14,315
 26,170
 4,085
 (470) (1,366) 42,734
Charge-offs(10,754) (18,644) (56) (464) (9,276) (39,194)
Recoveries2,577
 21
 875
 442
 6,459
 10,374
Net charge-offs(8,177) (18,623) 819
 (22) (2,817) (28,820)
Ending balance$49,131
 $62,243
 $29,217
 $4,167
 $5,015
 $149,773

The following table presents year-to-date gross charge-offs by year of origination as of September 30, 2023.
20232022202120202019PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial and industrial$124 $952 $178 $54 $25 $29 $7,594 $5,303 $14,259 
Energy— — — — — — — 518 518 
Commercial real estate:
Buildings, land and other— — — — — 62 — — 62 
Construction— — — — — — — — — 
Consumer real estate— — 280 — — 130 1,090 — 1,500 
Consumer and other15,543 4,389 60 12 1 23 1,692 427 22,147 
Total$15,667 $5,341 $518 $66 $26 $244 $10,376 $6,248 $38,486 
In the table above, $15.5 million of the consumer and other loan charge-offs reported as 2023 originations and $4.2 million of the total reported as 2022 originations were related to deposit overdrafts.
The following table presents loans that were evaluated for expected credit losses on an individual basis and the related specific allocations, by loan portfolio segment, as of September 30, 2023 and December 31, 2022.
September 30, 2023December 31, 2022
Loan
Balance		Specific AllocationsLoan
Balance		Specific Allocations
Commercial and industrial$26,455 $5,362 $18,980 $6,082 
Energy14,054 2,700 15,058 4,383 
Paycheck Protection Program— — — — 
Commercial real estate:
Buildings, land and other22,318 1,446 17,711 1,716 
Construction— — — — 
Consumer real estate2,335 302 827 — 
Consumer and other— — — — 
Total$65,162 $9,810 $52,576 $12,181 
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Note 4 - Goodwill and Other Intangible Assets
Goodwill and other intangible assets are presented in the table below.
 September 30,
2017		 December 31,
2016
Goodwill$654,952
 $654,952
Other intangible assets:   
Core deposits$4,340
 $5,298
Customer relationships1,086
 1,410
Non-compete agreements49
 68
 $5,475
 $6,776
The estimated aggregate future amortization expense for intangible assets remaining as of September 30, 2017 is as follows:
Remainder of 2017$402
20181,424
20191,167
2020918
2021697
Thereafter867
 $5,475
Note 5 - Deposits
Deposits were as follows:
 September 30,
2017		 
Percentage
of Total
 December 31,
2016		 
Percentage
of Total
Non-interest-bearing demand deposits:     
Commercial and individual$10,466,844
 39.6% $9,670,989
 37.5%
Correspondent banks226,313
 0.9
 280,751
 1.1
Public funds481,094
 1.8
 561,629
 2.2
Total non-interest-bearing demand deposits11,174,251
 42.3
 10,513,369
 40.8
Interest-bearing deposits:       
Private accounts:       
Savings and interest checking6,449,079
 24.4
 6,436,065
 24.9
Money market accounts7,607,675
 28.8
 7,486,431
 29.0
Time accounts of $100,000 or more454,096
 1.7
 460,028
 1.8
Time accounts under $100,000323,748
 1.3
 338,714
 1.3
Total private accounts14,834,598
 56.2
 14,721,238
 57.0
Public funds:       
Savings and interest checking312,430
 1.2
 446,872
 1.7
Money market accounts68,018
 0.3
 113,669
 0.4
Time accounts of $100,000 or more13,462
 —
 15,748
 0.1
Time accounts under $100,000510
 —
 679
 —
Total public funds394,420
 1.5
 576,968
 2.2
Total interest-bearing deposits15,229,018
 57.7
 15,298,206
 59.2
Total deposits$26,403,269
 100.0% $25,811,575
 100.0%
September 30,
2023		December 31,
2022
Non-interest-bearing demand deposits$14,631,456 $17,598,234 
Interest-bearing deposits:
Savings and interest checking10,149,156 12,333,675 
Money market accounts11,140,875 12,227,247 
Time accounts5,070,748 1,795,040 
Total interest-bearing deposits26,360,779 26,355,962 
Total deposits$40,992,235 $43,954,196 
The following table below presents additional information about our deposits:deposits. Public funds in excess of deposit insurance limits are included in the totals for deposits not covered by insurance; however, such deposits are generally fully collateralized by securities.
September 30,
2023		December 31,
2022
Deposits from foreign sources (primarily Mexico)$1,079,651 $1,048,943 
Non-interest-bearing public funds deposits403,963 788,040 
Interest-bearing public funds deposits595,477 758,761 
Total deposits not covered by deposit insurance21,403,451 24,168,709 
Time deposits not covered by deposit insurance2,122,421 477,489 
 September 30,
2017		 December 31,
2016
Deposits from foreign sources (primarily Mexico)$756,326
 $776,003
Deposits not covered by deposit insurance13,255,165
 12,889,047


Note 65 - Borrowed Funds
Subordinated Notes Payable. In March 2017, we issued $100 million of 4.50% subordinated notes that mature on March 17, 2027. The notes, which qualify as Tier 2 capital for Cullen/Frost, bear interest at the rate of 4.50% per annum, payable semi-annually on each March 17 and September 17. The notes are unsecured and subordinated in right of payment to the payment of our existing and future senior indebtedness and structurally subordinated to all existing and future indebtedness of our subsidiaries. Unamortized debt issuance costs related to these notes, totaled approximately $1.5 million at September 30, 2017. Proceeds from sale of the notes were used for general corporate purposes.
Our $100 million of 5.75% fixed-to-floating rate subordinated notes matured and were redeemed on February 15, 2017. See Note 8 - Borrowed Funds in our 2016 Form 10-K for additional information about these notes.
Note 7 -Off-Balance-Sheet Arrangements, Commitments, Guarantees and Contingencies
Financial Instruments with Off-Balance-Sheet Risk. In the normal course of business, we enter into various transactions, which, in accordance with generally accepted accounting principles are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. As more fully discussed in our 20162022 Form 10-K, 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.
Financial instruments with off-balance-sheet risk were as follows:
September 30,
2023		December 31,
2022
Commitments to extend credit$12,053,260 $12,137,957 
Standby letters of credit370,718 383,851 
Deferred standby letter of credit fees1,972 2,236 
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. 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. Our allowance methodology is more fully described in our 2022 Form 10-K. This methodology was also impacted by the model updates during the first quarter of 2023 as described in Note 3 - Loans. The overall approximate impact of the model updates was a $19.0 million decrease in modeled expected credit losses for off-balance-sheet credit exposures, though the impact of this decrease was largely offset with qualitative adjustments.
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 September 30,
2017		 December 31,
2016
Commitments to extend credit$7,939,438
 $7,476,420
Standby letters of credit236,996
 239,482
Deferred standby letter of credit fees1,860
 2,054
The following table details activity in the allowance for credit losses on off-balance-sheet credit exposures.
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Beginning balance$52,881 $50,246 $58,593 $50,314 
Credit loss expense (benefit)(2,466)2,463 (8,178)2,395 
Ending balance$50,415 $52,709 $50,415 $52,709 
Lease Commitments. We lease certain office facilities and office equipment under operating leases. RentThe components of total lease expense for allwere as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Amortization of lease right-of-use assets$8,220 $8,389 $25,732 $24,703 
Short-term lease expense852 536 1,754 1,639 
Non-lease components (including taxes, insurance, common maintenance, etc.)3,269 3,092 10,312 8,860 
Total$12,341 $12,017 $37,798 $35,202 
Right-of-use lease assets totaled $281.4 million at September 30, 2023 and $288.8 million at December 31, 2022 and are reported as a component of premises and equipment on our accompanying consolidated balance sheets. The related lease liabilities totaled $316.9 million at September 30, 2023 and $321.9 million at December 31, 2022 and are reported as a component of accrued interest payable and other liabilities in the accompanying consolidated balance sheets. Lease payments under operating leases that were applied to our operating lease liability totaled $7.7$7.3 million and $23.0 million during the three and nine months ended September 30, 2017 and $7.5 million and $22.0$23.8 million during the three and nine months ended September 30, 2016.2023, respectively, and $8.2 million and $24.6 million during the three and nine months ended September 30, 2022, respectively. There has been no significant change in our expected future minimum lease payments since December 31, 2016.2022. See the 20162022 Form 10-K for information regarding these commitments.
Litigation.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 86 - 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.
Cullen/Frost’s and Frost Bank’s Common Equity Tier 1 capital (“CET1”) 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. Common Equity Tier 1CET1. We also elected to exclude the effects of credit loss accounting under CECL from CET1 for both Cullen/Frosta five-year transitional period, as further discussed in our 2022 Form 10-K. This CECL transitional adjustment totaled $30.8 million and Frost Bank$46.2 million at September 30, 2023 and December 31, 2022, respectively. CET1 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 1CET1 is also reduced by its equity investment in its financial subsidiary, Frost Insurance Agency (“FIA”).
Tier 1 capital includes Common Equity Tier 1 capitalCET1 and additional Tier 1 capital. For Cullen/Frost, additional Tier 1 capital included $145.5 million of 4.450% non-cumulative perpetual preferred stock at September 30, 20172023 and December 31, 2016 includes $144.5 million2022, the details of 5.375% non-cumulative perpetual preferred stock.which are further discussed below. Frost Bank did not have any additional Tier 1 capital beyond Common Equity Tier 1 at September 30, 20172023 or December 31, 2016.
2022. 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 allowanceallowances for loan losses.credit losses on securities, loans, and off-balance-sheet credit exposures. Tier 2 capital for Cullen/Frost also includes $100.0 millionthe permissible portion of qualified subordinated debt (which decreases 20.0% per year during the final five years of the term of the notes) totaling $60.0 million at September 30, 20172023 and $133.0$80.0 million ofat December 31, 2022 and trust preferred securities totaling $120.0 million at both September 30, 20172023 and December 31, 2016.2022.

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The following table presents actual and required capital ratios as of September 30, 2023 and December 31, 2022 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 September 30, 2017 and December 31, 2016 based on the phase-in provisions of the Basel III Capital Rules and the minimum required capital levels as of January 1, 2019 when the Basel III Capital Rules have been fully phased-in. Capital levels required to be considered well capitalizedwell-capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. See the 20162022 Form 10-K for a more detailed discussion of 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
September 30, 2023
Common Equity Tier 1 to Risk-Weighted Assets
Cullen/Frost$3,977,860 13.32 %$2,090,045 7.00 %N/AN/A
Frost Bank4,013,794 13.46 2,087,478 7.00 $1,938,372 6.50 %
Tier 1 Capital to Risk-Weighted Assets
Cullen/Frost4,123,312 13.81 2,537,911 8.50 1,791,467 6.00 
Frost Bank4,013,794 13.46 2,534,795 8.50 2,385,689 8.00 
Total Capital to Risk-Weighted Assets
Cullen/Frost4,561,577 15.28 3,135,067 10.50 2,985,778 10.00 
Frost Bank4,272,059 14.33 3,131,217 10.50 2,982,112 10.00 
Leverage Ratio
Cullen/Frost4,123,312 8.17 2,018,632 4.00 N/AN/A
Frost Bank4,013,794 7.96 2,018,241 4.00 2,522,801 5.00 
December 31, 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 
 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
September 30, 2017               
Common Equity Tier 1 to Risk-Weighted Assets               
Cullen/Frost$2,345,433
 12.38% $1,089,289
 5.75% $1,326,014
 7.00% $1,231,370
 6.50%
Frost Bank2,461,004
 13.02
 1,086,527
 5.75
 1,322,652
 7.00
 1,228,248
 6.50
Tier 1 Capital to Risk-Weighted Assets               
Cullen/Frost2,489,919
 13.14
 1,373,451
 7.25
 1,610,160
 8.50
 1,515,532
 8.00
Frost Bank2,461,004
 13.02
 1,369,969
 7.25
 1,606,077
 8.50
 1,511,690
 8.00
Total Capital to Risk-Weighted Assets               
Cullen/Frost2,877,222
 15.19
 1,752,334
 9.25
 1,989,021
 10.50
 1,894,415
 10.00
Frost Bank2,615,307
 13.84
 1,747,891
 9.25
 1,983,978
 10.50
 1,889,612
 10.00
Leverage Ratio               
Cullen/Frost2,489,919
 8.39
 1,187,616
 4.00
 1,187,573
 4.00
 1,484,521
 5.00
Frost Bank2,461,004
 8.29
 1,186,763
 4.00
 1,186,719
 4.00
 1,483,453
 5.00
December 31, 2016               
Common Equity Tier 1 to Risk-Weighted Assets               
Cullen/Frost$2,239,186
 12.52% $916,360
 5.125% $1,251,425
 7.00% $1,162,213
 6.50%
Frost Bank2,296,480
 12.88
 913,460
 5.125
 1,247,463
 7.00
 1,158,535
 6.50
Tier 1 Capital to Risk-Weighted Assets               
Cullen/Frost2,383,672
 13.33
 1,184,563
 6.625
 1,519,587
 8.50
 1,430,416
 8.00
Frost Bank2,296,480
 12.88
 1,180,814
 6.625
 1,514,776
 8.50
 1,425,889
 8.00
Total Capital to Risk-Weighted Assets               
Cullen/Frost2,669,717
 14.93
 1,542,168
 8.625
 1,877,137
 10.50
 1,788,020
 10.00
Frost Bank2,449,525
 13.74
 1,537,286
 8.625
 1,871,194
 10.50
 1,782,361
 10.00
Leverage Ratio               
Cullen/Frost2,383,672
 8.14
 1,171,682
 4.00
 1,171,573
 4.00
 1,464,602
 5.00
Frost Bank2,296,480
 7.85
 1,170,249
 4.00
 1,170,141
 4.00
 1,462,812
 5.00
____________________
(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.
As of September 30, 2017,2023, capital levels at Cullen/Frost and Frost Bank exceed all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis.Rules. Based on the ratios presented above, capital levels as of September 30, 20172023 at Cullen/Frost and Frost Bank exceed the minimum levels necessary to be considered “well capitalized.“well-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 September 30, 2017,2023, that Cullen/Frost and Frost Bank meet all capital adequacy requirements to which they are subject.
Preferred Stock. Outstanding preferred stock includes 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). 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. Refer to our 2022 Form 10-K for additional details related to our Series B Preferred Stock.
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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 October 27, 2016,January 25, 2023, our board of directors authorized a $100.0 million stock repurchase program, allowing us to

repurchase shares of our common stock over a two-yearone-year period from time to time at various prices in the open market or through private transactions. During the three months ended September 30, 2017,Under this plan, we repurchased 1,134,966400,868 shares under the plan at at a total cost of $100.0 million.$39.0 million (which includes applicable excise taxes) during the nine months ended September 30, 2023. No shares were repurchased under prior plans during the reported periods. Under the Basel III Capital Rules, Cullen/Frost may not repurchase or redeem any of its preferred stock or subordinated notes and, in some cases, its common stock without the prior approval of the Federal Reserve Board.
Dividend Restrictions. In the ordinary course of business, Cullen/Frost is dependent upon dividends from Frost Bank to provide funds for the payment of dividends to shareholders and to provide for other cash requirements.requirements, including to repurchase its common stock. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of Frost Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years. Under the foregoing dividend restrictions and while maintaining its “well capitalized”“well-capitalized” status, at September 30, 2017,2023, Frost Bank could pay aggregate dividends of up to $480.2 million$1.1 billion 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 ourthe Series AB Preferred Stock, in the event that we do not declare and pay dividends on ourthe 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 ourthe Series AB Preferred Stock.
Note 97 - 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 various interest rate swaps, caps, and floors, among other things, to mitigate exposure to interest rate risk and to facilitate the needs of our customers. Our objectives for utilizing these derivative instruments are described in our 20162022 Form 10-K.
The notional amounts and estimated fair values of interest rate derivative contracts 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. Beginning in 2017, CME rules legally characterize variation margin payments for centrally cleared derivatives as settlements of the derivatives' exposure rather than collateral. As a result, the variation margin payment and the related derivative instruments are considered a single unit of account for accounting and financial reporting purposes. Variation margin, as determined by the CME, is settled daily. As a result, derivative contracts that clear through the CME have an estimated fair value of zero as of September 30, 2017.2023 and December 31, 2022.
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Table of Contents
September 30, 2017 December 31, 2016September 30, 2023December 31, 2022
Notional
Amount
 
Estimated
Fair Value
 
Notional
Amount
 
Estimated
Fair Value
Notional
Amount		Estimated
Fair Value		Notional
Amount		Estimated
Fair Value
Derivatives designated as hedges of fair value:       Derivatives designated as hedges of fair value:
Financial institution counterparties:       Financial institution counterparties:
Loan/lease interest rate swaps – assets$39,372
 $296
 $41,818
 $368
Loan/lease interest rate swaps – assets$— $— $1,614 $19 
Loan/lease interest rate swaps – liabilities14,077
 (764) 18,812
 (1,278)
Non-hedging interest rate derivatives:       Non-hedging interest rate derivatives:
Financial institution counterparties:       Financial institution counterparties:
Loan/lease interest rate swaps – assets206,930
 747
 206,745
 2,649
Loan/lease interest rate swaps – assets1,339,716 95,361 1,165,812 70,416 
Loan/lease interest rate swaps – liabilities735,583
 (14,623) 694,965
 (25,466)Loan/lease interest rate swaps – liabilities60,450 (674)78,798 (1,102)
Loan/lease interest rate caps – assets114,744
 547
 85,966
 575
Loan/lease interest rate caps – assets226,507 14,062 246,442 15,256 
Customer counterparties:       Customer counterparties:
Loan/lease interest rate swaps – assets735,583
 22,384
 694,965
 25,467
Loan/lease interest rate swaps – assets60,450 674 53,570 1,102 
Loan/lease interest rate swaps – liabilities206,930
 (2,442) 206,745
 (2,649)Loan/lease interest rate swaps – liabilities1,339,716 (95,361)1,175,563 (79,175)
Loan/lease interest rate caps – liabilities114,744
 (547) 85,966
 (575)Loan/lease interest rate caps – liabilities226,507 (14,062)246,442 (15,256)

The weighted-average rates paid and received for interest rate swaps outstanding at September 30, 20172023 were as follows:
Weighted-AverageWeighted-Average
Interest
Rate
Paid
 
Interest
Rate
Received
Interest
Rate
Paid		Interest
Rate
Received
Interest rate swaps:   Interest rate swaps:
Fair value hedge loan/lease interest rate swaps2.32% 1.23%
Non-hedging interest rate swaps – financial institution counterparties3.96% 2.84%Non-hedging interest rate swaps – financial institution counterparties4.27 %5.46 %
Non-hedging interest rate swaps – customer counterparties2.84% 3.96%Non-hedging interest rate swaps – customer counterparties5.46 4.27 
The weighted-average strike rate for outstanding interest rate caps was 3.07%3.36% at September 30, 2017.2023.

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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.
September 30, 2023December 31, 2022
Notional
Units		Notional
Amount		Estimated
Fair Value		Notional
Amount		Estimated
Fair Value
Financial institution counterparties:
Oil – assetsBarrels3,819 $13,764 4,024 $27,082 
Oil – liabilitiesBarrels7,103 (49,509)6,068 (53,579)
Natural gas – assetsMMBTUs17,873 6,126 16,539 6,220 
Natural gas – liabilitiesMMBTUs8,382 (5,726)15,682 (19,138)
Customer counterparties:
Oil – assetsBarrels7,380 50,384 6,068 54,219 
Oil – liabilitiesBarrels3,542 (13,471)4,024 (26,551)
Natural gas – assetsMMBTUs8,824 5,745 15,682 19,164 
Natural gas – liabilitiesMMBTUs17,431 (5,901)16,539 (6,124)
   September 30, 2017 December 31, 2016
 
Notional
Units
 
Notional
Amount
 
Estimated
Fair Value
 
Notional
Amount
 
Estimated
Fair Value
Financial institution counterparties:         
Oil – assetsBarrels 977
 $1,530
 227
 $206
Oil – liabilitiesBarrels 1,082
 (1,311) 944
 (4,400)
Natural gas – assetsMMBTUs 3,351
 319
 —
 —
Natural gas – liabilitiesMMBTUs 1,546
 (81) 1,299
 (1,357)
Customer counterparties:         
Oil – assetsBarrels 1,096
 1,459
 944
 4,580
Oil – liabilitiesBarrels 963
 (1,327) 227
 (206)
Natural gas – assetsMMBTUs 1,546
 96
 1,299
 1,393
Natural gas – liabilitiesMMBTUs 3,351
 (285) —
 —
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 and options 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 and option contracts were as follows:are presented in the following table.
 September 30, 2023December 31, 2022
Notional
Currency		Notional
Amount		Estimated
Fair Value		Notional
Amount		Estimated
Fair Value
Financial institution counterparties:
Forward and option contracts – assetsEUR— $— 875 $1 
Forward and option contracts – liabilitiesEUR— — 875 (10)
Customer counterparties:
Forward and option contracts – assetsEUR— — 875 10 
Forward and option contracts – liabilitiesEUR— — 875 (1)
   September 30, 2017 December 31, 2016
 
Notional
Currency
 
Notional
Amount
 
Estimated
Fair Value
 
Notional
Amount
 
Estimated
Fair Value
Financial institution counterparties:         
Forward contracts – assetsEUR 135
 $1
 —
 $—
Forward contracts – assetsCAD 7,234
 15
 —
 —
Forward contracts – assetsGBP 547
 1
 —
 —
Forward contracts – assetsAUD 60
 1
 —
 —
Forward contracts – liabilitiesEUR 4,693
 (80) 870
 (9)
Forward contracts – liabilitiesCAD —
 —
 2,214
 (21)
Forward contracts – liabilitiesGBP 1,075
 (24) 419
 (3)
Customer counterparties:         
Forward contracts – assetsEUR 3,867
 104
 —
 —
Forward contracts – assetsCAD 7,205
 15
 2,205
 29
Forward contracts – assetsGBP 192
 2
 —
 —

Gains, Losses, and Derivative Cash Flows. For fair value hedges, the changes in the fair value of both the derivative hedging instrument and the hedged item are included in other non-interest income or other non-interest expense. The extent that such changes in fair value do not offset represents hedge ineffectiveness. Net cash flows from interest rate swaps on commercial loans/leases designated as hedging instruments in effective hedges of fair value are included in interest income on loans. For non-hedging derivative instruments, gains and losses due to changes in fair value and all cash flows are included in other non-interest income and other non-interest expense.
Amounts included in the consolidated statements of income related to interest rate derivatives designated as hedges of fair value were as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Commercial loan/lease interest rate swaps:
Amount of gain (loss) included in interest income on loans$— $2 $16 $(16)
Amount of (gain) loss included in other non-interest expense(4)1 — 6 
26
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Commercial loan/lease interest rate swaps:       
Amount of gain (loss) included in interest income on loans$(149) $(331) $(592) $(1,057)
Amount of (gain) loss included in other non-interest expense(2) 4
 (5) (3)
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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 and foreign currencynon-hedge related derivative instruments are presented in the table below.
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Non-hedging interest rate derivatives:
Other non-interest income$2,049 $140 $3,761 $1,171 
Other non-interest expense— — — — 
Non-hedging commodity derivatives:
Other non-interest income697 485 1,622 2,063 
Non-hedging foreign currency derivatives:
Other non-interest income— — 25 63 
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Non-hedging interest rate derivatives:       
Other non-interest income$1,085
 $374
 $2,062
 $1,788
Other non-interest expense—
 —
 1
 —
Non-hedging commodity derivatives:       
Other non-interest income231
 110
 387
 255
Non-hedging foreign currency derivatives:       
Other non-interest income83
 8
 101
 22
Counterparty Credit Risk. Our credit exposure relating to interest rate, swaps, commodity swaps/options and foreign currency forwardderivative contracts with bank customers was approximately $23.6$35.5 million at September 30, 2017.2023. 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 forwardderivative contracts with upstream financial institution counterparties was approximately $10.3$3.3 million at September 30, 2017.2023. This amount was primarily related to excess collateral we have posted to counterparties combined with a shortfall of collateral we have received from counterparties. Collateral positions are generally cleared on the next business day. Collateral levels for upstream financial institution counterparties are monitored and adjusted, as necessary. See Note 108 – Balance Sheet Offsetting and Repurchase Agreements for additional information regarding our credit exposure with upstream financial institution counterparties.
The aggregate fair value of securities we posted as collateral related to derivative contracts totaled $13.2$10.2 million at September 30, 2017. At such date, we also had $10.6 million in cash collateral on deposit with other financial institution counterparties.2023.

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Note 108 - 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 September 30, 20172023 is presented in the following tables.
Gross Amount
Recognized		Gross Amount
Offset		Net Amount
Recognized
September 30, 2023
Financial assets:
Derivatives:
Interest rate contracts$109,423 $— $109,423 
Commodity contracts19,890 — 19,890 
Total derivatives129,313 — 129,313 
Resell agreements84,650 — 84,650 
Total$213,963 $— $213,963 
Financial liabilities:
Derivatives:
Interest rate contracts$674 $— $674 
Commodity contracts55,235 — 55,235 
Total derivatives55,909 — 55,909 
Repurchase agreements3,722,245 — 3,722,245 
Total$3,778,154 $— $3,778,154 
Gross Amounts Not Offset
Net Amount
Recognized		Financial
Instruments		CollateralNet
Amount
September 30, 2023
Financial assets:
Derivatives:
Counterparty B$29,882 $(8,795)$(21,087)$— 
Counterparty E19,272 (597)(18,675)— 
Counterparty F19,028 (19,028)— — 
Counterparty G9,907 — (9,907)— 
Other counterparties51,224 (19,539)(30,641)1,044 
Total derivatives129,313 (47,959)(80,310)1,044 
Resell agreements84,650 — (84,650)— 
Total$213,963 $(47,959)$(164,960)$1,044 
Financial liabilities:
Derivatives:
Counterparty B$8,795 $(8,795)$— $— 
Counterparty E597 (597)— — 
Counterparty F26,978 (19,028)(7,950)— 
Other counterparties19,539 (19,539)— — 
Total derivatives55,909 (47,959)(7,950)— 
Repurchase agreements3,722,245 — (3,722,245)— 
Total$3,778,154 $(47,959)$(3,730,195)$— 
28
Table of Contents
 
Gross Amount
Recognized
 
Gross Amount
Offset
 
Net Amount
Recognized
September 30, 2017     
Financial assets:     
Derivatives:     
Loan/lease interest rate swaps and caps$1,590
 $—
 $1,590
Commodity swaps and options1,849
 —
 1,849
Foreign currency forward contracts18
 —
 18
Total derivatives3,457
 —
 3,457
Resell agreements17,642
 —
 17,642
Total$21,099
 $—
 $21,099
Financial liabilities:     
Derivatives:     
Loan/lease interest rate swaps$15,387
 $—
 $15,387
Commodity swaps and options1,392
 —
 1,392
Foreign currency forward contracts104
 —
 104
Total derivatives16,883
 —
 16,883
Repurchase agreements987,869
 —
 987,869
Total$1,004,752
 $—
 $1,004,752
   Gross Amounts Not Offset  
 
Net Amount
Recognized
 
Financial
Instruments
 Collateral 
Net
Amount
September 30, 2017       
Financial assets:       
Derivatives:       
Counterparty A$397
 $(397) $—
 $—
Counterparty B866
 (866) —
 —
Counterparty C204
 (204) —
 —
Counterparty D—
 —
 —
 —
Other counterparties1,990
 (1,631) (130) 229
Total derivatives3,457
 (3,098) (130) 229
Resell agreements17,642
 —
 (17,642) —
Total$21,099
 $(3,098) $(17,772) $229
Financial liabilities:       
Derivatives:       
Counterparty A$8,984
 $(397) $(8,587) $—
Counterparty B3,535
 (866) (2,669) —
Counterparty C1,128
 (204) (830) 94
Counterparty D—
 —
 —
 —
Other counterparties3,236
 (1,631) (1,605) —
Total derivatives16,883
 (3,098) (13,691) 94
Repurchase agreements987,869
 —
 (987,869) —
Total$1,004,752
 $(3,098) $(1,001,560) $94

Information about financial instruments that are eligible for offset in the consolidated balance sheet as of December 31, 20162022 is presented in the following tables.
Gross Amount
Recognized		Gross Amount
Offset		Net Amount
Recognized
December 31, 2022
Financial assets:
Derivatives:
Interest rate contracts$85,691 $— $85,691 
Commodity contracts33,302 — 33,302 
Foreign currency contracts1 — 1 
Total derivatives118,994 — 118,994 
Resell agreements87,150 — 87,150 
Total$206,144 $— $206,144 
Financial liabilities:
Derivatives:
Interest rate contracts$1,102 $— $1,102 
Commodity contracts72,717 — 72,717 
Foreign currency contracts10 — 10 
Total derivatives73,829 — 73,829 
Repurchase agreements4,660,641 — 4,660,641 
Total$4,734,470 $— $4,734,470 
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 
29
Table of Contents
 
Gross Amount
Recognized
 
Gross Amount
Offset
 
Net Amount
Recognized
December 31, 2016     
Financial assets:     
Derivatives:     
Loan/lease interest rate swaps and caps$3,592
 $—
 $3,592
Commodity swaps and options206
 —
 206
Foreign currency forward contracts—
 —
 —
Total derivatives3,798
 —
 3,798
Resell agreements9,642
 —
 9,642
Total$13,440
 $—
 $13,440
Financial liabilities:     
Derivatives:     
Loan/lease interest rate swaps$26,744
 $—
 $26,744
Commodity swaps and options5,757
 —
 5,757
Foreign currency forward contracts33
 —
 33
Total derivatives32,534
 —
 32,534
Repurchase agreements963,317
 —
 963,317
Total$995,851
 $—
 $995,851
   Gross Amounts Not Offset  
 
Net Amount
Recognized
 
Financial
Instruments
 Collateral 
Net
Amount
December 31, 2016       
Financial assets:       
Derivatives:       
Counterparty A$687
 $(687) $—
 $—
Counterparty B223
 (223) —
 —
Counterparty C158
 (158) —
 —
Counterparty D1,820
 (1,820) —
 —
Other counterparties910
 (677) (64) 169
Total derivatives3,798
 (3,565) (64) 169
Resell agreements9,642
 —
 (9,642) —
Total$13,440
 $(3,565) $(9,706) $169
Financial liabilities:       
Derivatives:       
Counterparty A$11,233
 $(687) $(10,026) $520
Counterparty B6,867
 (223) (6,344) 300
Counterparty C4,578
 (158) (4,415) 5
Counterparty D7,706
 (1,820) (5,886) —
Other counterparties2,150
 (677) (676) 797
Total derivatives32,534
 (3,565) (27,347) 1,622
Repurchase agreements963,317
 —
 (963,317) —
Total$995,851
 $(3,565) $(990,664) $1,622

Repurchase Agreements. We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. We monitor collateral levels on a continuous basis. We may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.
The remaining contractual maturity of repurchase agreements in the consolidated balance sheets as of September 30, 20172023 and December 31, 20162022 is presented in the following tables.
Remaining Contractual Maturity of the Agreements
Overnight and ContinuousUp to 30 Days30-90 DaysGreater than 90 DaysTotal
September 30, 2023
Repurchase agreements:
U.S. Treasury$2,576,399 $— $— $— $2,576,399 
Residential mortgage-backed securities1,145,846 — — — 1,145,846 
Total borrowings$3,722,245 $— $— $— $3,722,245 
Gross amount of recognized liabilities for repurchase agreements$3,722,245 
Amounts related to agreements not included in offsetting disclosures above$— 
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$4,660,641 
Amounts related to agreements not included in offsetting disclosures above$— 
 Remaining Contractual Maturity of the Agreements
 Overnight and Continuous Up to 30 Days 30-90 Days Greater than 90 Days Total
September 30, 2017         
Repurchase agreements:         
U.S. Treasury$907,509
 $—
 $—
 $—
 $907,509
Residential mortgage-backed securities80,360
 —
 —
 —
 80,360
Total borrowings$987,869
 $—
 $—
 $—
 $987,869
Gross amount of recognized liabilities for repurchase agreements $987,869
Amounts related to agreements not included in offsetting disclosures above $—
          
December 31, 2016         
Repurchase agreements:         
U.S. Treasury$841,475
 $—
 $—
 $—
 $841,475
Residential mortgage-backed securities121,842
 —
 —
 —
 121,842
Total borrowings$963,317
 $—
 $—
 $—
 $963,317
Gross amount of recognized liabilities for repurchase agreements $963,317
Amounts related to agreements not included in offsetting disclosures above $—
Note 119 - Stock-Based Compensation
A combined summary of activity in our active stock plans is presented in the table.table below. 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 2016 was 29,240.As of September 30, 2017,2023, there were 1,499,399518,746 shares remaining available for grant for future stock-based compensation awards.
Deferred
Stock Units
Outstanding		Non-Vested
Restricted Stock Units
Outstanding		Performance
Stock Units
Outstanding		Stock Options
Outstanding
 
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 Units		Weighted-
Average
Fair Value
at Grant		Number
of Units		Weighted-
Average
Fair Value
at Grant		Number
of Shares		Weighted-
Average
Exercise
Price
Balance, January 1, 2023Balance, January 1, 202345,661 $87.15 465,319 $105.36 213,749 $96.20 616,227 $71.27 
 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
Balance, 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
 —
 —
 —
 —
 —
 —
Granted8,503 103.47 2,941 125.16 — — — — 
Exercised/vested (6,098) 62.29
 (1,730) 76.07
 —
 —
 (766,971) 59.22
Exercised/vested— — (1,957)91.96 (28,151)85.74 (42,388)71.76 
Forfeited/expired —
 —
 (2,860) 76.07
 —
 —
 (50,764) 69.65
Forfeited/expired— — (6,480)115.63 (18,254)85.74 — — 
Balance, September 30, 2017 53,008
 $64.87
 252,260
 $73.38
 43,860
 $69.70
 3,271,293
 $63.37
Balance, September 30, 2023Balance, September 30, 202354,164 89.71 459,823 105.40 167,344 99.10 573,839 71.24 
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:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
New shares issued from available authorized shares— — 49,887 — 
Shares issued from available treasury stock8,483 88,350 22,609 232,612 
Proceeds from stock option exercises$596 $5,270 $3,042 $11,760 

30
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
New shares issued from available authorized shares9,299
 —
 602,662
 —
Issued from available treasury stock13,425
 841,846
 172,137
 908,921
Total22,724
 841,846
 774,799
 908,921
        
Proceeds from stock option exercises$1,274
 $44,287
 $45,422
 $47,873
Table of Contents
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.
Stock-based compensation expense or benefit 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.
Three Months Ended
September 30,		Nine Months Ended
September 30,
Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,		2023202220232022
2017 2016 2017 2016
Stock options$1,532
 $2,163
 $4,892
 $6,405
Non-vested stock awards/stock units813
 358
 2,747
 1,073
Director deferred stock units—
 —
 519
 520
Non-vested stock unitsNon-vested stock units$2,423 $2,174 $8,594 $6,823 
Deferred stock unitsDeferred stock units— — 880 720 
Performance stock units377
 —
 855
 —
Performance stock units688 999 3,172 1,160 
Total$2,722
 $2,521
 $9,013
 $7,998
Total$3,111 $3,173 $12,646 $8,703 
Income tax benefit$953
 $882
 $3,155
 $2,799
Income tax benefit$531 $440 $2,399 $1,760 
Unrecognized stock-based compensation expense at September 30, 20172023 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.
Non-vested stock units$12,839 
Performance stock units6,341 
Total$19,180 
Stock options$6,952
Non-vested stock awards/stock units7,448
Performance stock units2,202
Total$16,602

Note 1210 - Earnings Per Common Share
Earnings per common share is computed using the two-class method as more fully described in our 20162022 Form 10-K. 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.
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Net income$155,651 $169,760 $495,422 $387,976 
Less: Preferred stock dividends1,668 1,668 5,006 5,006 
Net income available to common shareholders153,983 168,092 490,416 382,970 
Less: Earnings allocated to participating securities1,533 1,503 5,016 3,414 
Net earnings allocated to common stock$152,450 $166,589 $485,400 $379,556 
Distributed earnings allocated to common stock$58,913 $55,820 $170,702 $151,963 
Undistributed earnings allocated to common stock93,537 110,769 314,698 227,593 
Net earnings allocated to common stock$152,450 $166,589 $485,400 $379,556 
Weighted-average shares outstanding for basic earnings per common share64,067,352 64,157,662 64,226,113 64,107,621 
Dilutive effect of stock compensation171,892 343,750 208,187 369,268 
Weighted-average shares outstanding for diluted earnings per common share64,239,244 64,501,412 64,434,300 64,476,889 
31
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Net income$93,131
 $80,219
 $263,625
 $220,542
Less: Preferred stock dividends2,016
 2,016
 6,047
 6,047
Net income available to common shareholders91,115
 78,203
 257,578
 214,495
Less: Earnings allocated to participating securities475
 282
 1,346
 769
Net earnings allocated to common stock$90,640
 $77,921
 $256,232
 $213,726
        
Distributed earnings allocated to common stock$36,174
 $33,918
 $107,194
 $100,203
Undistributed earnings allocated to common stock54,466
 44,003
 149,038
 113,523
Net earnings allocated to common stock$90,640
 $77,921
 $256,232
 $213,726
        
Weighted-average shares outstanding for basic earnings per common share63,667,356
 62,449,660
 63,822,011
 62,114,075
Dilutive effect of stock compensation897,945
 691,543
 957,337
 448,290
Weighted-average shares outstanding for diluted earnings per common share64,565,301
 63,141,203
 64,779,348
 62,562,365
Table of Contents
Note 1311 - Defined Benefit Plans
The components of the combined net periodic expense (benefit) for our defined benefit pension plans are presented in the table below.
Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,		Three Months Ended
September 30,		Nine Months Ended
September 30,
2017 2016 2017 20162023202220232022
Expected return on plan assets, net of expenses$(2,779) $(2,890) $(8,338) $(8,669)Expected return on plan assets, net of expenses$(2,740)$(3,492)$(8,220)$(6,983)
Interest cost on projected benefit obligation1,547
 1,732
 4,642
 5,230
Interest cost on projected benefit obligation1,746 1,004 5,238 2,008 
Net amortization and deferral1,357
 1,585
 4,072
 4,691
Net amortization and deferral869 741 2,609 1,482 
SERP settlement costs—
 —
 —
 187
Net periodic expense (benefit)$125
 $427
 $376
 $1,439
Net periodic expense (benefit)$(125)$(1,747)$(373)$(3,493)
Our non-qualified defined benefit pension plan is not funded. No contributions to the qualified defined benefit pension plan were made during the nine months ended September 30, 2017.2023. We do not expect to make any contributions to the qualified defined benefit plan during the remainder of 2017.2023.

Note 1412 - Income Taxes
Income tax expense was as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Current income tax expense$31,890 $28,684 $99,298 $64,389 
Deferred income tax expense (benefit)(558)(974)(3,047)(3,378)
Income tax expense, as reported$31,332 $27,710 $96,251 $61,011 
Effective tax rate16.8 %14.0 %16.3 %13.6 %
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Current income tax expense$15,224
 $12,848
 $44,636
 $40,251
Deferred income tax expense (benefit)(5,332) (1,996) (9,505) (11,629)
Income tax expense, as reported$9,892
 $10,852
 $35,131
 $28,622
        
Effective tax rate9.6% 11.9% 11.8% 11.5%
NetWe had a net deferred tax assets totaled $28.9asset totaling $491.9 million at September 30, 20172023 and $63.7$374.4 million at December 31, 2016.2022. No valuation allowance for deferred tax assets was recorded at September 30, 20172023 as management believes it is more likely than not that all of the deferred tax assets will be realized because they were supported by recoverable taxes paid in prior years.against deferred tax liabilities and projected future taxable income.
The effective income tax rates differed from the U.S. statutory ratefederal income tax rates of 35%21% during the comparable periods primarily due to the effect of tax-exempt income from securities, loans securities and life insurance policies and the income tax effects associated with stock-based compensation. The effective income tax rates for the three and nine months ended September 30, 2017 were also impacted by the correction of an over-accrual of taxes that resulted from incorrectly classifying certain tax-exempt loans as taxable for federal income tax purposes since 2013. As a result, we recognized tax benefits totaling $3.7 million, which included $2.9 million related to the 2013 through 2016 tax years and $756 thousand related to the first and second quarters of 2017.compensation, among other things. There were no 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.
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 2013.2019.


32
Table of Contents
Note 1513 - Other Comprehensive Income (Loss)
The before and after taxafter-tax amounts allocated to each component of other comprehensive income (loss) are presented in the following table. Reclassification adjustments related to securities available for sale are included in net gain (loss) on securities transactions in the accompanying consolidated statements of income. Reclassification adjustments related to defined-benefit post-retirement benefit plans are included in the computation of net periodic pension expense (see Note 1311 – Defined Benefit Plans).
Three Months Ended
September 30, 2023		Three Months Ended
September 30, 2022
Before Tax
Amount		Tax  Expense,
(Benefit)		Net of  Tax
Amount		Before Tax
Amount		Tax  Expense,
(Benefit)		Net of  Tax
Amount
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period$(600,441)$(126,092)$(474,349)$(829,324)$(174,158)$(655,166)
Change in net unrealized gain on securities transferred to held to maturity(164)(35)(129)(174)(36)(138)
Reclassification adjustment for net (gains) losses included in net income(12)(3)(9)— — — 
Total securities available for sale and transferred securities(600,617)(126,130)(474,487)(829,498)(174,194)(655,304)
Defined-benefit post-retirement benefit plans:
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)869 182 687 741 156 585 
Total defined-benefit post-retirement benefit plans869 182 687 741 156 585 
Total other comprehensive income (loss)$(599,748)$(125,948)$(473,800)$(828,757)$(174,038)$(654,719)
Nine Months Ended
September 30, 2023		Nine Months Ended
September 30, 2022
Before Tax
Amount		Tax  Expense,
(Benefit)		Net of  Tax
Amount		Before Tax
Amount		Tax  Expense,
(Benefit)		Net of  Tax
Amount
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period$(547,035)$(114,877)$(432,158)$(2,376,642)$(499,095)$(1,877,547)
Change in net unrealized gain on securities transferred to held to maturity(486)(102)(384)(572)(120)(452)
Reclassification adjustment for net (gains) losses included in net income(66)(14)(52)— — — 
Total securities available for sale and transferred securities(547,587)(114,993)(432,594)(2,377,214)(499,215)(1,877,999)
Defined-benefit post-retirement benefit plans:
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic expense (benefit)2,609 548 2,061 2,223 467 1,756 
Total defined-benefit post-retirement benefit plans2,609 548 2,061 2,223 467 1,756 
Total other comprehensive income (loss)$(544,978)$(114,445)$(430,533)$(2,374,991)$(498,748)$(1,876,243)
33
 Three Months Ended 
 September 30, 2017		 Three Months Ended 
 September 30, 2016
 
Before Tax
Amount
 
Tax  Expense,
(Benefit)
 
Net of  Tax
Amount
 
Before Tax
Amount
 
Tax  Expense,
(Benefit)
 
Net of  Tax
Amount
Securities available for sale and transferred securities:           
Change in net unrealized gain/loss during the period$7,082
 $2,479
 $4,603
 $(95,641) $(33,473) $(62,168)
Change in net unrealized gain on securities transferred to held to maturity(3,514) (1,230) (2,284) (7,278) (2,547) (4,731)
Reclassification adjustment for net (gains) losses included in net income4,867
 1,703
 3,164
 37
 12
 25
Total securities available for sale and transferred securities8,435
 2,952
 5,483
 (102,882) (36,008) (66,874)
Defined-benefit post-retirement benefit plans:           
Change in the net actuarial gain/loss—
 —
 —
 —
 —
 —
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)1,357
 475
 882
 1,585
 555
 1,030
Total defined-benefit post-retirement benefit plans1,357
 475
 882
 1,585
 555
 1,030
Total other comprehensive income (loss)$9,792
 $3,427
 $6,365
 $(101,297) $(35,453) $(65,844)
 
 Nine Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2016
 
Before Tax
Amount
 
Tax  Expense,
(Benefit)
 
Net of  Tax
Amount
 
Before Tax
Amount
 
Tax  Expense,
(Benefit)
 
Net of  Tax
Amount
Securities available for sale and transferred securities:           
Change in net unrealized gain/loss during the period$131,283
 $45,949
 $85,334
 $191,865
 $67,154
 $124,711
Change in net unrealized gain on securities transferred to held to maturity(13,660) (4,781) (8,879) (24,629) (8,620) (16,009)
Reclassification adjustment for net (gains) losses included in net income4,917
 1,721
 3,196
 (14,866) (5,204) (9,662)
Total securities available for sale and transferred securities122,540
 42,889
 79,651
 152,370
 53,330
 99,040
Defined-benefit post-retirement benefit plans:           
Change in the net actuarial gain/loss—
 —
 —
 (862) (302) (560)
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)4,072
 1,425
 2,647
 4,878
 1,708
 3,170
Total defined-benefit post-retirement benefit plans4,072
 1,425
 2,647
 4,016
 1,406
 2,610
Total other comprehensive income (loss)$126,612
 $44,314
 $82,298
 $156,386
 $54,736
 $101,650
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Activity in accumulated other comprehensive income (loss), net of tax, was as follows:
Securities
Available
For Sale		Defined
Benefit
Plans		Accumulated
Other
Comprehensive
Income
Balance at January 1, 2023$(1,313,791)$(34,503)$(1,348,294)
Other comprehensive income (loss) before reclassifications(432,542)— (432,542)
Reclassification of amounts included in net income(52)2,061 2,009 
Net other comprehensive income (loss) during period(432,594)2,061 (430,533)
Balance at September 30, 2023$(1,746,385)$(32,442)$(1,778,827)
Balance at January 1, 2022$380,209 $(32,891)$347,318 
Other comprehensive income (loss) before reclassifications(1,877,999)— (1,877,999)
Reclassification of amounts included in net income— 1,756 1,756 
Net other comprehensive income (loss) during period(1,877,999)1,756 (1,876,243)
Balance at September 30, 2022$(1,497,790)$(31,135)$(1,528,925)
 
Securities
Available
For Sale
 
Defined
Benefit
Plans
 
Accumulated
Other
Comprehensive
Income
Balance January 1, 2017$16,153
 $(40,776) $(24,623)
Other comprehensive income (loss) before reclassifications76,455
 —
 76,455
Amounts reclassified from accumulated other comprehensive income (loss)3,196
 2,647
 5,843
Net other comprehensive income (loss) during period79,651
 2,647
 82,298
Balance at September 30, 2017$95,804
 $(38,129) $57,675
      
Balance January 1, 2016$160,611
 $(46,748) $113,863
Other comprehensive income (loss) before reclassifications108,702
 2,489
 111,191
Amounts reclassified from accumulated other comprehensive income (loss)(9,662) 121
 (9,541)
Net other comprehensive income (loss) during period99,040
 2,610
 101,650
Balance at September 30, 2016$259,651
 $(44,138) $215,513
Note 1614 – Operating Segments
We are managed under a matrix organizational structure whereby our two primary operating segments, Banking and Frost Wealth Advisors, overlap a regional reporting structure. See our 20162022 Form 10-K for additional information regarding our operating segments. Summarized operating results by segment were as follows:
BankingFrost  Wealth
Advisors		Non-BanksConsolidated
Three months ended:
September 30, 2023
Net interest income (expense)$386,832 $2,018 $(3,424)$385,426 
Credit loss expense11,185 — — 11,185 
Non-interest income62,518 43,903 (423)105,998 
Non-interest expense254,747 37,304 1,205 293,256 
Income (loss) before income taxes183,418 8,617 (5,052)186,983 
Income tax expense (benefit)31,021 1,809 (1,498)31,332 
Net income (loss)152,397 6,808 (3,554)155,651 
Preferred stock dividends— — 1,668 1,668 
Net income (loss) available to common shareholders$152,397 $6,808 $(5,222)$153,983 
Revenues from (expenses to) external customers$449,350 $45,921 $(3,847)$491,424 
September 30, 2022
Net interest income (expense)$356,513 $1,357 $(2,323)$355,547 
Credit loss expense (benefit)— — — — 
Non-interest income55,994 44,263 (436)99,821 
Non-interest expense223,192 33,531 1,175 257,898 
Income (loss) before income taxes189,315 12,089 (3,934)197,470 
Income tax expense (benefit)26,520 2,539 (1,349)27,710 
Net income (loss)162,795 9,550 (2,585)169,760 
Preferred stock dividends— — 1,668 1,668 
Net income (loss) available to common shareholders$162,795 $9,550 $(4,253)$168,092 
Revenues from (expenses to) external customers$412,507 $45,620 $(2,759)$455,368 
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Table of Contents
 Banking 
Frost  Wealth
Advisors
 Non-Banks Consolidated
Revenues from (expenses to) external customers:       
Three months ended:       
September 30, 2017$266,582
 $36,529
 $(2,285) $300,826
September 30, 2016244,343
 33,536
 (1,258) 276,621
Nine months ended:       
September 30, 2017$786,743
 $107,829
 $(5,669) $888,903
September 30, 2016737,060
 97,484
 (3,537) 831,007
Net income (loss):       
Three months ended:       
September 30, 2017$88,368
 $6,417
 $(1,654) $93,131
September 30, 201676,347
 4,797
 (925) 80,219
Nine months ended:       
September 30, 2017$250,766
 $17,990
 $(5,131) $263,625
September 30, 2016210,454
 13,809
 (3,721) 220,542
BankingFrost  Wealth
Advisors		Non-BanksConsolidated
Nine months ended:
September 30, 2023
Net interest income (expense)$1,172,689 $5,762 $(7,939)$1,170,512 
Credit loss expense (benefit)30,190 — — 30,190 
Non-interest income183,969 132,088 (1,266)314,791 
Non-interest expense751,539 106,811 5,090 863,440 
Income (loss) before income taxes574,929 31,039 (14,295)591,673 
Income tax expense (benefit)93,775 6,518 (4,042)96,251 
Net income (loss)481,154 24,521 (10,253)495,422 
Preferred stock dividends— — 5,006 5,006 
Net income (loss) available to common shareholders$481,154 $24,521 $(15,259)$490,416 
Revenues from (expenses to) external customers$1,356,658 $137,850 $(9,205)$1,485,303 
September 30, 2022
Net interest income (expense)$895,818 $3,015 $(6,007)$892,826 
Credit loss expense— — — — 
Non-interest income170,097 130,546 (1,505)299,138 
Non-interest expense640,774 97,599 4,604 742,977 
Income (loss) before income taxes425,141 35,962 (12,116)448,987 
Income tax expense (benefit)57,355 7,552 (3,896)61,011 
Net income (loss)367,786 28,410 (8,220)387,976 
Preferred stock dividends— — 5,006 5,006 
Net income (loss) available to common shareholders$367,786 $28,410 $(13,226)$382,970 
Revenues from (expenses to) external customers$1,065,915 $133,561 $(7,512)$1,191,964 


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Note 1715 – 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 three-level 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. See our 20162022 Form 10-K for additional information regarding the fair value hierarchy and a description of our valuation techniques.
Financial Assets and Financial Liabilities. The tabletables below summarizessummarize financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 20172023 and December 31, 2016,2022, segregated by the level of the valuation inputs within the fair value hierarchy of ASC Topic 820 utilized to measure fair value.
Level 1 InputsLevel 2 InputsLevel 3 InputsTotal Fair Value
September 30, 2023
Securities available for sale:
U.S. Treasury$5,043,152 $— $— $5,043,152 
Residential mortgage-backed securities— 6,306,634 — 6,306,634 
States and political subdivisions— 4,724,633 — 4,724,633 
Other— 42,670 — 42,670 
Trading account securities:
U.S. Treasury29,065 — — 29,065 
States and political subdivisions— 276 — 276 
Derivative assets:
Interest rate swaps, caps, and floors— 110,097 — 110,097 
Commodity swaps and options— 76,019 — 76,019 
Derivative liabilities:
Interest rate swaps, caps, and floors— 110,097 — 110,097 
Commodity swaps and options— 74,607 — 74,607 
December 31, 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 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 contracts11 — — 11 

36
 Level 1
Inputs		 Level 2
Inputs		 Level 3
Inputs		 Total Fair
Value
September 30, 2017       
Securities available for sale:       
U.S. Treasury$3,473,628
 $—
 $—
 $3,473,628
Residential mortgage-backed securities—
 681,195
 —
 681,195
States and political subdivisions—
 5,987,739
 —
 5,987,739
Other—
 42,538
 —
 42,538
Trading account securities:       
U.S. Treasury18,814
 —
 —
 18,814
States and political subdivisions—
 907
 —
 907
Derivative assets:       
Interest rate swaps, caps and floors—
 23,974
 —
 23,974
Commodity swaps and options—
 3,404
 —
 3,404
Foreign currency forward contracts139
 —
 —
 139
Derivative liabilities:       
Interest rate swaps, caps and floors—
 18,376
 —
 18,376
Commodity swaps and options—
 3,004
 —
 3,004
Foreign currency forward contracts104
 —
 —
 104
December 31, 2016       
Securities available for sale:       
U.S. Treasury$4,019,731
 $—
 $—
 $4,019,731
Residential mortgage-backed securities—
 785,167
 —
 785,167
States and political subdivisions—
 5,355,885
 —
 5,355,885
Other—
 42,494
 —
 42,494
Trading account securities:       
U.S. Treasury16,594
 —
 —
 16,594
States and political subdivisions—
 109
 —
 109
Derivative assets:       
Interest rate swaps, caps and floors—
 29,059
 —
 29,059
Commodity swaps and options—
 6,179
 —
 6,179
Foreign currency forward contracts29
 —
 —
 29
Derivative liabilities:       
Interest rate swaps, caps and floors—
 29,968
 —
 29,968
Commodity swaps and options—
 5,963
 —
 5,963
Foreign currency forward contracts33
 —
 —
 33
Table of Contents

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).circumstances. Financial assets measured at fair value on a non-recurring basis during the reported periods include certain impairedcollateral dependent loans reported at the fair value of the underlying collateral if repayment is expected solely from the collateral.
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 during the reported periods.
Nine Months Ended
September 30, 2023		Nine Months Ended
September 30, 2022
Level 2Level 3Level 2Level 3
Carrying value before allocations$20,051 $24,921 $7,999 $2,087 
Specific (allocations) reversals of prior allocations(1,452)(4,849)(1,742)4,881 
Fair value$18,599 $20,072 $6,257 $6,968 
 Nine Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2016
 Level 2 Level 3 Level 2 Level 3
Carrying value of impaired loans before allocations$—
 $64,287
 $—
 $11,023
Specific valuation allowance (allocations) reversals of prior allocations—
 (13,477) —
 (3,750)
Fair value$—
 $50,810
 $—
 $7,273
Non-Financial Assets and Non-Financial Liabilities. We do not have any non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Non-financialFrom time to time, non-financial assets measured at fair value on a non-recurring basis during the reported periodsmay include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for loan losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other non-interest expense. The following table presents foreclosed assets thatThere were remeasured and reported atno such fair value measurements during the reported periods:periods.
 Nine Months Ended 
 September 30, 2017
 2017 2016
Foreclosed assets remeasured at initial recognition:   
Carrying value of foreclosed assets prior to remeasurement$—
 $425
Charge-offs recognized in the allowance for loan losses—
 (3)
Fair value$—
 $422
Foreclosed assets remeasured subsequent to initial recognition:   
Carrying value of foreclosed assets prior to remeasurement$89
 $492
Write-downs included in other non-interest expense(16) (217)
Fair value$73
 $275
Financial Instruments Reported at Amortized Cost. The estimated fair values of financial instruments that are reported at amortized cost in our consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, were as follows:
September 30, 2023December 31, 2022
Carrying
Amount		Estimated
Fair Value		Carrying
Amount		Estimated
Fair Value
Financial assets:
Level 2 inputs:
Cash and cash equivalents$7,618,083 $7,618,083 $12,028,132 $12,028,132 
Securities held to maturity3,628,123 3,231,691 2,639,083 2,467,865 
Accrued interest receivable199,344 199,344 243,682 243,682 
Level 3 inputs:
Loans, net18,157,024 17,496,332 16,927,348 16,343,417 
Financial liabilities:
Level 2 inputs:
Deposits40,992,235 40,971,688 43,954,196 43,920,741 
Federal funds purchased25,950 25,950 51,650 51,650 
Repurchase agreements3,722,245 3,722,245 4,660,641 4,660,641 
Junior subordinated deferrable interest debentures123,112 123,712 123,069 123,712 
Subordinated notes99,452 94,311 99,335 97,014 
Accrued interest payable51,468 51,468 18,444 18,444 
Under ASC Topic 825, entities may choose to measure eligible financial instruments at fair value at specified election dates. The fair value measurement option (i) may be applied instrument by instrument, with certain exceptions, (ii) is generally irrevocable and (iii) is applied only to entire instruments and not to portions of instruments. Unrealized gains and losses on items for which the fair value measurement option has been elected must be reported in earnings at each subsequent reporting date. During the reported periods, we had no financial instruments measured at fair value under the fair value measurement option.

37
 September 30, 2017 December 31, 2016
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
Financial assets:       
Level 2 inputs:       
Cash and cash equivalents$5,091,903
 $5,091,903
 $4,141,445
 $4,141,445
Securities held to maturity1,442,222
 1,476,653
 2,250,460
 2,262,747
Cash surrender value of life insurance policies179,789
 179,789
 177,884
 177,884
Accrued interest receivable118,035
 118,035
 156,714
 156,714
Level 3 inputs:       
Loans, net12,552,001
 12,574,862
 11,822,347
 11,903,956
Financial liabilities:       
Level 2 inputs:       
Deposits26,403,269
 26,398,885
 25,811,575
 25,812,039
Federal funds purchased and repurchase agreements997,919
 997,919
 976,992
 976,992
Junior subordinated deferrable interest debentures136,170
 137,115
 136,127
 137,115
Subordinated notes payable and other borrowings98,512
 102,072
 99,990
 100,000
Accrued interest payable1,737
 1,737
 1,204
 1,204
Table of Contents

Note 1816 - Accounting Standards Updates
Information about certain recently issued accounting standards updates is presented below. Also refer to Note 2120 - Accounting Standards Updates in our 20162022 Form 10-K for additional information related to previously issued accounting standards updates.
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 UpdateCodification (“ASU”ASC”) 2014-09, “Revenue from Contracts with Customers (Topic 606).” 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 2014-09 implements a common revenue standard that clarifies2022-02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the principles for recognizing revenue. The core principlescope of ASC Subtopic 3126-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 was originally going to be2022-02 became effective for us on January 1, 2017; however, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date" which deferred the effective date of ASU 2014-09 by one year to January 1, 2018. Our revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. We expect that ASU 2014-09 will require us to change how we recognize certain recurring revenue streams within trust and investment management fees, insurance commissions and fees and other categories of non-interest income; however, we do not expect these changes to have a significant impact on our financial statements. We expect to adopt the standard in the first quarter of 2018 with a cumulative effect adjustment to opening retained earnings, if such adjustment is deemed to be significant.
ASU 2016-02,“Leases (Topic 842).” ASU 2016-02 will, among other things, require 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 asset2023. See Note 3 - Loans for the lease term. new financial statement disclosures applicable under this update.
ASU 2016-02 does not significantly change lease accounting requirements2023-01, “Leases (Topic 842): Common Control Arrangements.” ASU 2023-01 requires entities to amortize leasehold improvements associated with common control leases over the useful life to the common control group. ASU 2023-01 also provides certain practical expedients applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting modelprivate companies and ASC Topic 606, “Revenue from Contracts with Customers.”not-for-profit organizations. ASU 2016-022023-01 will be effective for us on January 1, 20192024, though early adoption is permitted, and will require transition usingits adoption is not expected to have a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the potential impact of ASU 2016-02significant effect on our financial statements. In that regard, we have selected,
ASU No. 2023-02, “Investments - Equity Method and will soon implement, a third-party vendor solutionJoint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” ASU 2023-02 is intended to assist usimprove the accounting and disclosures for investments in tax credit structures. ASU 2023-02 allows entities to elect to account for qualifying tax equity investments using the applicationproportional amortization method, regardless of ASU 2016-02.
ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures relatedprogram giving rise to the significant estimates and judgments usedrelated income tax credits. Previously, this method was only available for qualifying tax equity investments in estimatinglow-income housing tax credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition,structures. ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective on January 1, 2020. We are currently evaluating the potential impact of ASU 2016-13 on our financial statements. In that regard, we have formed a cross-functional working group, under the direction of our Chief Financial Officer and our Chief Risk Officer. The working group is comprised of individuals from various functional areas including credit, risk management, finance and information technology, among others. We are currently developing an implementation plan to include assessment of processes, portfolio segmentation, model development, system requirements and the identification of data and resource needs, among other things. We are also currently evaluating selected third-party vendor solutions to assist us in the application of the ASU 2016-13. The adoption of the ASU 2016-13 is likely to result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. Furthermore, ASU 2016-13 will necessitate that we establish an allowance for expected credit losses on debt securities. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan and securities portfolios as well as the prevailing economic conditions and forecasts as of the adoption date.
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 2017-042023-02 will be effective for us on January 1, 2020,2024, though early adoption is permitted, and its adoption is not expected to have a significant effect on our financial statements.
ASU No. 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock.” ASU 2023-03 amends the ASC for SEC updates pursuant to SEC Staff Accounting Bulletin No. 120; SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force (“EITF”) Meeting; and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. These updates were immediately effective and did not have a significant impact on our financial statements.
ASU 2023-06, “Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” ASU 2023-06 amends the ASC to incorporate certain disclosure requirements from SEC Release No. 33-10532 - Disclosure Update and Simplification that was issued in 2018. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption permitted for interim or annual impairment tests beginning in 2017.prohibited. ASU 2017-042023-06 is not expected to have a significant impact on our financial statements.

38
ASU 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) - Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” ASU 2017-05 clarifies the scope of Subtopic 610-20 and adds guidance for partial sales of nonfinancial assets, including partial sales of real estate. Historically, U.S. GAAP contained several different accounting models to evaluate whether the transfer of certain assets qualified for sale treatment. ASU 2017-05 reduces the number of potential accounting models that might apply and clarifies which model does apply in various circumstances. ASU 2017-05 will be effective for us on January 1, 2018 and is not expected to 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.” 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. ASU 2017-08 will be effective for us on January 1, 2019, with early adoption permitted. We are currently evaluating the potential impact of ASU 2017-08 on our financial statements.
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ASU 2017-09, “Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting.” ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: (i) the award's fair value, (ii) the award's vesting conditions and (iii) the award's classification as an equity or liability instrument. ASU 2017-09 will be effective for us on January 1, 2018 and is not expected to have a significant impact on our financial statements.
ASU 2017-12, “Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 amends the hedge accounting recognition and presentation requirements in ASC 815 to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities to better align the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting. ASU 2017-12 will be effective for us on January 1, 2019 and is not expected to have a significant impact on our financial statements.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Review
Cullen/Frost Bankers, Inc.
The following discussion should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2016,2022, and the other information included in the 20162022 Form 10-K. Operating results for the three and nine months ended September 30, 20172023 are not necessarily indicative of the results for the year ending December 31, 20172023 or any future period.
Dollar amounts in tables are stated in thousands, except for per share amounts.
Forward-Looking Statements and Factors that Could Affect Future Results
Certain statements contained in this Quarterly Report on Form 10-Q 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 services;operations; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes”, “anticipates”, “expects”, “intends”, “targeted”, “continue”, “remain”, “will”, “should”, “may” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
•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 intervention•Changes 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 changes•Changes 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 in•Greater than expected costs or difficulties related to the financial performance and/integration of new products and lines of business.
•Technological changes.
•The cost and effects of cyber incidents or conditionother failures, interruptions, or security breaches of our borrowers.systems or those of our customers or third-party providers.
Technological changes.
•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 or economic instability.
•Acts of God or of war or terrorism.
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•The potential impact of climate change.
•The impact of pandemics, epidemics, or any other health-related crisis.
•The costs and effects of legal and regulatory developments, the resolution of legal proceedings or regulatory or other governmental inquiries, the results of regulatory examinations or reviews and the ability to obtain required regulatory approvals.
•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 global wars/military conflicts, 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.
For In the case of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses, 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 amount 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 instrument. Relevant available information includes historical credit loss experience, current conditions, and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions, or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. Refer to the 2022 Form 10-K for additional information regarding critical accounting policies, refer to Note 1 - Summary of Significant Accounting Policies and Note 3 - Loans in the notes to consolidated financial statements and the sections captioned “Application of Critical Accounting Policies and Accounting Estimates” and “Allowance for Loan Losses” in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2016 Form 10-K. There have been no significant changes in our application of critical accounting policies related to the allowance for loan losses since December 31, 2016.policies.
Overview
A discussion of our results of operations is presented below. Certain reclassifications have been made to make prior periods comparable. Taxable-equivalent adjustments are the result of increasing income from tax-free loans and investments by an amount equal to the taxes that would be paid if the income were fully taxable based on a 35%21% federal tax rate, thus making tax-exempt yields comparable to taxable asset yields.

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Results of Operations
Net income available to common shareholders totaled $91.1$154.0 million, or $1.41$2.38 per diluted common share, and $257.6$490.4 million, or $3.98$7.54 per diluted common share, for the three and nine months ended September 30, 20172023 compared to $78.2$168.1 million, or $1.24$2.59 per diluted common share, and $214.5$383.0 million, or $3.42$5.90 per diluted common share for the three and nine months ended September 30, 2016.2022.
Selected data for the comparable periods was as follows:
Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,		Three Months Ended
September 30,		Nine Months Ended
September 30,
2017 2016 2017 20162023202220232022
Taxable-equivalent net interest income$264,406
 $235,665
 $774,819
 $694,997
Taxable-equivalent net interest income$407,353 $379,518 $1,241,791 $963,089 
Taxable-equivalent adjustment45,195
 41,158
 132,311
 120,264
Taxable-equivalent adjustment21,927 23,971 71,279 70,263 
Net interest income219,211
 194,507
 642,508
 574,733
Net interest income385,426 355,547 1,170,512 892,826 
Provision for loan losses10,980
 5,045
 27,358
 42,734
Net interest income after provision for loan losses208,231
 189,462
 615,150
 531,999
Credit loss expenseCredit loss expense11,185 — 30,190 — 
Net interest income after credit loss expenseNet interest income after credit loss expense374,241 355,547 1,140,322 892,826 
Non-interest income81,615
 82,114
 246,395
 256,274
Non-interest income105,998 99,821 314,791 299,138 
Non-interest expense186,823
 180,505
 562,789
 539,109
Non-interest expense293,256 257,898 863,440 742,977 
Income before income taxes103,023
 91,071
 298,756
 249,164
Income before income taxes186,983 197,470 591,673 448,987 
Income taxes9,892
 10,852
 35,131
 28,622
Income taxes31,332 27,710 96,251 61,011 
Net income93,131
 80,219
 263,625
 220,542
Net income155,651 169,760 495,422 387,976 
Preferred stock dividends2,016
 2,016
 6,047
 6,047
Preferred stock dividends1,668 1,668 5,006 5,006 
Net income available to common shareholders$91,115
 $78,203
 $257,578
 $214,495
Net income available to common shareholders$153,983 $168,092 $490,416 $382,970 
Earnings per common share – basic$1.43
 $1.24
 $4.02
 $3.44
Earnings per common share – basic$2.38 $2.60 $7.56 $5.92 
Earnings per common share – diluted1.41
 1.24
 3.98
 3.42
Earnings per common share – diluted2.38 2.59 7.54 5.90 
Dividends per common share0.57
 0.54
 1.68
 1.61
Dividends per common share0.92 0.87 2.66 2.37 
Return on average assets1.19% 1.07% 1.14% 1.01%Return on average assets1.25 %1.27 %1.32 %1.00 %
Return on average common equity11.71
 10.31
 11.44
 9.87
Return on average common equity18.93 20.13 20.25 14.19 
Average shareholders’ equity to average assets10.63
 10.85
 10.43
 10.70
Average shareholders’ equity to average assets6.91 6.60 6.79 7.32 
Net income available to common shareholders increased $12.9decreased $14.1 million, or 16.5%8.4%, for the three months ended September 30, 20172023 and increased $43.1$107.4 million, or 20.1%28.1%, for the nine months ended September 30, 20172023 compared to the same respective periods in 2016.2022. The increasedecrease during the three months ended September 30, 20172023 was primarily the result of a $24.7$35.4 million increase in non-interest expense, an $11.2 million increase in credit loss expense, and a $3.6 million increase in income tax expense partly offset by a $29.9 million increase in net interest income and a $960 thousand decrease in income tax expense partly offset by a $6.3$6.2 million increase in non-interest expense, a $5.9 million increase in the provision for loan losses and a $499 thousand decrease in non-interest income. The increase during the nine months ended September 30, 20172023 was primarily the result of a $67.8$277.7 million increase in net interest income and a $15.4$15.7 million decreaseincrease in the provision for loan lossesnon-interest income partly offset by a $23.7$120.5 million increase in non-interest expense, a $9.9 million decrease in non-interest income and a $6.5$35.2 million increase in income tax expense, and a $30.2 million increase in credit loss expense. Details of the changes in the various components of net income are further discussed below.
During the third quarter of 2017, our operations in our Houston and Corpus Christi market areas were disrupted by hurricane Harvey. As a result, we incurred certain additional expenses, as discussed below; lost potential revenue as a result of branch closures; and allocated a portion of our allowance for loan losses for probable losses related to the impact of the hurricane, as discussed below. While the ultimate impact of the hurricane on our operations is uncertain, we expect that it will be mitigated, at least in part, by insurance coverage and, based on the information available to us at this time, we do not expect any significant impact on our financial statements.
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Net Interest Income
Net interest income is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is our largest source of revenue, representing 72.3%78.8% of total revenue during the first nine months of 2017.2023. 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 affectedAs of September 30, 2023, approximately 43.1% of our loans had a fixed interest rate, while the remaining loans had floating interest rates that were primarily tied to a benchmark developed by changes inthe American Financial Exchange, the Secured Overnight Financing Rate (“SOFR”) (approximately 24.4%); the prime interest rate. The prime interest rate which is(approximately 23.3%); or the rate offered on loans to borrowers with strong credit, remained at 3.50% during most of 2016. In December 2016, the prime rate increased 25 basis points to 3.75% and remained at that level until March 2017, when the prime rated increased

another 25 basis points to 4.00%. In June 2017, the prime rate increased an additional 25 basis points to 4.25%. Our loan portfolio is also impacted by changes in the LondonAmerican Interbank Offered Rate (LIBOR)(“AMERIBOR”) (approximately 8.7%). AtCertain other loans are tied to a benchmark developed by Bloomberg Index Services (“BSBY”) or other indices, however, such loans do not make up a significant portion of our loan portfolio as of September 30, 2017,2023.
Select average market rates for the one-monthperiods indicated are presented in the table below.
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Federal funds target rate upper bound5.43 %2.37 %5.10 %1.21 %
Effective federal funds rate5.26 2.18 4.92 1.03 
Interest on reserve balances at the Federal Reserve5.33 2.25 4.99 1.10 
Prime8.43 5.37 8.09 4.21 
AMERIBOR Term-30(1)
5.31 2.29 4.98 1.13 
AMERIBOR Term-90(1)
5.54 2.89 5.25 1.62 
1-Month Term SOFR(2)
5.29 2.43 4.98 1.18 
3-Month Term SOFR(2)
5.37 2.82 5.09 1.49 
Bloomberg 1-Month Short-Term Bank Yield Index5.34 2.35 5.00 1.14 
Bloomberg 3-Month Short-Term Bank Yield Index5.53 2.89 5.22 1.60 
1-Month LIBOR(3)
N/A2.47 4.85 1.24 
3-Month LIBOR(3)
N/A3.00 5.15 1.68 
____________________
(1)AMERIBOR Term-30 and three-month U.S. dollarAMERIBOR Term-90 are published by the American Financial Exchange.
(2)1-Month Term SOFR and 3-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.
(3)1-Month and 3-Month LIBOR interestceased to be published effective June 30, 2023. Accordingly, average rates were 1.23% and 1.33%, respectively, while atreflect through that date.
As of September 30, 2016,2023, the one-month and three-month U.S. dollar LIBOR interest rates were 0.53% and 0.85%, respectively. The effective federal funds rate, which istarget range for the cost of immediately available overnight funds, remained at 0.50% during most of 2016. In December 2016, the effective federal funds rate increased 25 basis points to 0.75% and remained at that level until March 2017, when the effective federal funds rate increased another 25 basis points to 1.00%. In June 2017, the effective federal funds rate was increased an additional5.25% to 5.50%. In September 2023, the Federal Reserve released projections whereby the midpoint of the projected appropriate target range for the federal funds rate would rise to 5.6% by the end of 2023 and subsequently decrease to 5.1% by the end of 2024. While there can be no such assurance that any increases or decreases in the federal funds rate will occur, these projections imply up to a 25 basis points to 1.25%.point increase in the federal funds rate during the remainder of 2023, followed by a 50 basis point decrease in 2024.
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. The Dodd-Frank Wall Street ReformNonetheless, our access to and Consumer Protection Act (the “Dodd-Frank Act”) repealed the federal prohibitions on the paymentpricing of interest on demand deposits thereby permitting depository institutions to pay interest on business transaction andmay be negatively impacted by, among other accounts beginning July 21, 2011. To date, we have not experienced any significant additional interest costs as a resultfactors, periods of the repeal. However, in light of the aforementioned increases in markethigher interest rates in late July 2017, wewhich could promote increased the interest rates we pay on most of our interest-bearing deposit products.competition for deposits, including from new financial technology competitors, or provide customers with alternative investment options. See Item 3. Quantitative and Qualitative Disclosures About Market Risk elsewhere in this report for information about the expected impact of this legislation on our sensitivity to interest rates. Further analysis of the components of our net interest margin is presented below.
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The following tables present 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 tables also set 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.
Quarter To DateQuarter To Date
September 30, 2023September 30, 2022
Average
Balance		Interest
Income/
Expense		Yield/
Cost		Average
Balance		Interest
Income/
Expense		Yield/
Cost
Assets:
Interest-bearing deposits$6,746,560 $91,904 5.33 %$12,776,193 $74,257 2.27 %
Federal funds sold12,675 183 5.65 50,656 316 2.44 
Resell agreements84,664 1,197 5.53 10,471 64 2.39 
Securities:
Taxable13,565,303 103,875 2.76 11,486,105 68,311 2.20 
Tax-exempt6,991,710 76,714 4.26 7,915,790 81,831 4.09 
Total securities20,557,013 180,589 3.24 19,401,895 150,142 2.94 
Loans, net of unearned discounts17,965,343 309,166 6.83 16,822,933 207,522 4.89 
Total Earning Assets and Average Rate Earned45,366,255 583,039 4.92 49,062,148 432,301 3.43 
Cash and due from banks590,526 633,905 
Allowance for credit losses on loans and securities(235,507)(238,623)
Premises and equipment, net1,163,204 1,061,315 
Accrued interest and other assets1,919,314 1,864,046 
Total Assets$48,803,792 $52,382,791 
Liabilities:
Non-interest-bearing demand deposits14,822,586 18,511,055 
Interest-bearing deposits:
Savings and interest checking10,202,037 9,757 0.38 12,235,537 2,159 0.07 
Money market deposit accounts11,143,718 77,997 2.78 13,465,863 36,568 1.08 
Time accounts4,659,395 51,025 4.34 1,590,561 3,955 0.99 
Total interest-bearing deposits26,005,150 138,779 2.12 27,291,961 42,682 0.62 
Total deposits40,827,736 1.35 45,803,016 0.37 
Federal funds purchased21,181 288 5.32 41,718 249 2.33 
Repurchase agreements3,536,167 33,195 3.67 1,959,630 7,529 1.50 
Junior subordinated deferrable interest debentures123,107 2,260 7.34 123,049 1,159 3.77 
Subordinated notes99,437 1,164 4.69 99,281 1,164 4.69 
Total Interest-Bearing Funds and Average Rate Paid29,785,042 175,686 2.33 29,515,639 52,783 0.71 
Accrued interest and other liabilities823,756 897,094 
Total Liabilities45,431,384 48,923,788 
Shareholders’ Equity3,372,408 3,459,003 
Total Liabilities and Shareholders’ Equity$48,803,792 $52,382,791 
Net interest income$407,353 $379,518 
Net interest spread2.59 %2.72 %
Net interest income to total average earning assets3.44 %3.01 %

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Year To DateYear To Date
September 30, 2023September 30, 2022
Average
Balance		Interest
Income/
Expense		Yield/
Cost		Average
Balance		Interest
Income/
Expense		Yield/
Cost
Assets:
Interest-bearing deposits$7,430,746 $278,897 4.95 %$13,190,883 $106,971 1.07 %
Federal funds sold32,984 1,246 4.98 32,042 428 1.76 
Resell agreements86,317 3,391 5.18 6,461 78 1.59 
Securities:
Taxable13,563,754 303,610 2.71 10,280,574 167,734 2.06 
Tax-exempt7,624,722 249,295 4.26 7,960,457 239,730 4.05 
Total securities21,188,476 552,905 3.24 18,241,031 407,464 2.90 
Loans, net of unearned discounts17,651,920 873,475 6.62 16,629,559 526,515 4.23 
Total Earning Assets and Average Rate Earned46,390,443 1,709,914 4.75 48,099,976 1,041,456 2.86 
Cash and due from banks631,338 643,654 
Allowance for credit losses on loans and securities(232,085)(244,763)
Premises and equipment, net1,141,719 1,053,887 
Accrued interest and other assets1,917,405 1,723,257 
Total Assets$49,848,820 $51,276,011 
Liabilities:
Non-interest-bearing demand deposits15,556,563 18,277,657 
Interest-bearing deposits:
Savings and interest checking10,903,147 31,254 0.38 12,176,393 3,775 0.04 
Money market deposit accounts11,655,293 229,804 2.64 12,650,089 51,334 0.54 
Time accounts3,408,515 95,976 3.76 1,403,238 7,078 0.67 
Total interest-bearing deposits25,966,955 357,034 1.84 26,229,720 62,187 0.32 
Total deposits41,523,518 1.15 44,507,377 0.19 
Federal funds purchased34,970 1,283 4.84 35,053 336 1.26 
Repurchase agreements3,819,406 99,960 3.45 1,917,622 9,837 0.68 
Junior subordinated deferrable interest debentures123,093 6,354 6.81 123,035 2,515 2.70 
Subordinated notes99,399 3,492 4.69 99,242 3,492 4.69 
Total Interest-Bearing Funds and Average Rate Paid30,043,823 468,123 2.08 28,404,672 78,367 0.37 
Accrued interest and other liabilities865,789 840,489 
Total Liabilities46,466,175 47,522,818 
Shareholders’ Equity3,382,645 3,753,193 
Total Liabilities and Shareholders’ Equity$49,848,820 $51,276,011 
Net interest income$1,241,791 $963,089 
Net interest spread2.67 %2.49 %
Net interest income to total average earning assets3.45 %2.64 %


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The following table presents the changes in taxable-equivalent net interest income and identifies the changes due to differences in the average volume of earning assets and interest-bearing liabilities and the changes due to changes in the average interest rate on those assets and liabilities. The changes in net interest income due to changes in both average volume and average interest rate have been allocated to the average volume change or the average interest rate change in proportion to the absolute amounts of the change in each. The comparison between the periods includes an additional change factor that shows the effect of the difference in the number of days in each period for assets and liabilities that accrue interest based upon the actual number of days in the period, as further discussed below.
Three Months Ended
September 30, 2023 vs. September 30, 2022
Increase (Decrease) Due to Change in
RateVolumeTotal
Interest-bearing deposits$63,760 $(46,113)$17,647 
Federal funds sold211 (344)(133)
Resell agreements177 956 1,133 
Securities:
Taxable19,328 16,236 35,564 
Tax-exempt3,321 (8,438)(5,117)
Loans, net of unearned discounts86,788 14,856 101,644 
Total earning assets173,585 (22,847)150,738 
Savings and interest checking8,009 (411)7,598 
Money market deposit accounts48,640 (7,211)41,429 
Time accounts29,978 17,092 47,070 
Federal funds purchased201 (162)39 
Repurchase agreements16,494 9,172 25,666 
Junior subordinated deferrable interest debentures1,100 1 1,101 
Subordinated notes— — — 
Total interest-bearing liabilities104,422 18,481 122,903 
Net change$69,163 $(41,328)$27,835 
 Three Months Ended
 September 30, 2017 vs. September 30, 2016
 Increase (Decrease) Due to Change in  
 Rate Volume Number of Days Total
Interest-bearing deposits$6,472
 $217
 $—
 $6,689
Federal funds sold and resell agreements75
 121
 —
 196
Securities:       
Taxable(1,176) (1,518) —
 (2,694)
Tax-exempt(3,239) 7,234
 —
 3,995
Loans, net of unearned discounts13,650
 12,298
 —
 25,948
Total earning assets15,782
 18,352
 —
 34,134
Savings and interest checking—
 83
 —
 83
Money market deposit accounts3,339
 4
 —
 3,343
Time accounts147
 (13) —
 134
Public funds362
 (3) —
 359
Federal funds purchased and repurchase agreements467
 12
 —
 479
Junior subordinated deferrable interest debentures181
 —
 —
 181
Subordinated notes payable and other notes819
 (5) —
 814
Total interest-bearing liabilities5,315
 78
 —
 5,393
Net change$10,467
 $18,274
 $—
 $28,741

Nine Months EndedNine Months Ended
September 30, 2017 vs. September 30, 2016September 30, 2023 vs. September 30, 2022
Increase (Decrease) Due to Change in  Increase (Decrease) Due to Change in
Rate Volume Number of Days TotalRateVolumeTotal
Interest-bearing deposits$13,757
 $1,630
 $(41) $15,346
Interest-bearing deposits$235,961 $(64,035)$171,926 
Federal funds sold and resell agreements202
 148
 (1) 349
Federal funds soldFederal funds sold806 12 818 
Resell agreementsResell agreements512 2,801 3,313 
Securities:       Securities:
Taxable(4,440) (726) (204) (5,370)Taxable62,104 73,772 135,876 
Tax-exempt(9,516) 32,818
 —
 23,302
Tax-exempt12,119 (2,554)9,565 
Loans, net of unearned discounts28,934
 25,851
 (1,257) 53,528
Loans, net of unearned discounts312,913 34,047 346,960 
Total earning assets28,937
 59,721
 (1,503) 87,155
Total earning assets624,415 44,043 668,458 
Savings and interest checking—
 117
 (3) 114
Savings and interest checking27,900 (421)27,479 
Money market deposit accounts3,391
 6
 (13) 3,384
Money market deposit accounts182,831 (4,361)178,470 
Time accounts231
 (41) (3) 187
Time accounts67,868 21,030 88,898 
Public funds721
 (6) —
 715
Federal funds purchased and repurchase agreements638
 60
 (1) 697
Federal funds purchasedFederal funds purchased948 (1)947 
Repurchase agreementsRepurchase agreements72,478 17,645 90,123 
Junior subordinated deferrable interest debentures497
 1
 —
 498
Junior subordinated deferrable interest debentures3,838 1 3,839 
Subordinated notes payable and other notes1,875
 (137) —
 1,738
Subordinated notesSubordinated notes— — — 
Total interest-bearing liabilities7,353
 —
 (20) 7,333
Total interest-bearing liabilities355,863 33,893 389,756 
Net change$21,584
 $59,721
 $(1,483) $79,822
Net change$268,552 $10,150 $278,702 
Taxable-equivalent net interest income for the three months ended September 30, 20172023 increased $28.7$27.8 million, or 12.2%7.3%, while taxable-equivalent net interest income for the nine months ended September 30, 20172023 increased $79.8$278.7 million, or 11.5%28.9%, compared to the same periods in 2016. Taxable-equivalent net interest income for the nine months ended September 30, 2017 included 273 days compared to 274 days for the same period in 2016 as a result of the leap year. The additional day added approximately $1.5 million to taxable-equivalent net interest income during the nine months ended September 30, 2016. Excluding the impact of the additional day results in an effective increase in taxable-equivalent net interest income of approximately $81.3 million during the nine months ended September 30, 2017.2022. The increases in taxable-equivalent net interest income during the three and nine months ended September 30, 2017, excluding the impact of the aforementioned additional day during the nine months ended September 30, 2016,2023 were primarily related to the impact of increases in the average volume of tax-exempt securities, loans and interest-bearing deposits as well as increases in the average yields on loans and, interest-bearing deposits partly offset byto a lesser extent, the impactaverage volumes of decreasesloans; increases in the average yields on tax-exempt and taxable securities andinterest-bearing deposits (primarily amounts held in an interest-bearing account at the impact ofFederal Reserve); increases in the average rate paidvolumes of and average yields on taxable securities; and increases in the average taxable-equivalent yields on tax-exempt securities, among other things. The impact of these items was partly offset
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by increases in the average costs of interest-bearing liabilities. deposit accounts and repurchase agreements, among other things, combined with decreases in the average volumes of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and increases in the average volumes of time deposit accounts and repurchase agreements, among other things.
As a result of the aforementioned fluctuations, the taxable-equivalent net interest margin increased 43 basis points from 3.01% during the three months ended September 30, 2022 to 3.44% during the three months ended September 30, 2023 while the taxable-equivalent net interest margin increased 81 basis points from 2.64% during the nine months ended September 30, 2022 to 3.45% during the nine months ended September 30, 2023.
The average volume of interest-earning assets for the three months ended September 30, 20172023 decreased $3.7 billion while the average volume of interest-earning assets for the nine months ended September 30, 2023 decreased $1.7 billion compared to the same periods in 2022. The decrease in the average volume of interest-earning assets during the three months ended September 30, 2023 was primarily related to a $6.0 billion decrease in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and a $924.1 million decrease in average tax-exempt securities partly offset by a $2.1 billion increase in average taxable securities and a $1.1 billion increase in average loans. The average taxable-equivalent yield on interest-earning assets increased $1.3 billion, while149 basis points from 3.43% during the three months ended September 30, 2022 to 4.92% during the three months ended September 30, 2023. The decrease in the average volume of interest-earning assets during the nine months ended September 30, 2017 increased $1.72023 was primarily related to a $5.8 billion compared to the same periods in 2016. The increasedecrease in average earning assets duringinterest-bearing deposits (primarily amounts held in an interest-bearing account at the three months ended September 30, 2017, includedFederal Reserve) and a $1.1$335.7 million decrease in average tax-exempt securities partly offset by a $3.3 billion increase in average loans,taxable securities and a $377.0 million$1.0 billion increase in average tax-exempt securities, and a $161.3 million increase inloans. The average interest-bearing deposits partly offset by a $421.2 million decrease in average taxable securities. The increase in average earningtaxable-equivalent yield on interest-earning assets increased 189 basis points from 2.86% during the nine months ended September 30, 2017, included an $821.8 million increase in average loans, a $648.9 million increase in average tax-exempt securities and a $384.9 million increase in average interest-bearing deposits partly offset by a $133.6 million decrease in average taxable securities.
The net interest margin increased 20 basis points from 3.53% during the three months ended September 30, 20162022 to 3.73% during the three months ended September 30, 2017 and increased 13 basis points from 3.56%4.75% during the nine months ended September 30, 2016 to 3.69% during the nine months ended September 30, 2017.2023. The increases in the net interest margin during the three and nine months ended September 30, 2017 were primarily due to increases in the average yield on interest earning assets. The averagetaxable-equivalent yield on interest-earning assets increased 28 basis points from 3.57% during the three months ended September 30, 2016 to 3.85% duringcomparable periods was impacted by the three months ended September 30, 2017 and increased 17 basis points from 3.60% during the nine months ended September 30, 2016 to 3.77% during the nine months ended September 30, 2017. The increases in the average yield on interest earning assets during the three and nine months ended September 30, 2017 were mostly due to increases in the average yields on interest-bearing deposits and loans. The average yield on interest-earning assets is primarily impacted byaforementioned changes in market interest rates as well asand changes in the volume and relative mix of interest-earning assets.
The average taxable-equivalent yield on loans increased 32194 basis points from 4.00%4.89% during the first ninethree months of 2016ended September 30, 2022 to 4.32%6.83% during the first ninethree months of 2017. Theended September 30, 2023 while the average taxable-equivalent yield on loans wasincreased 239 basis points from 4.23% during the nine months ended September 30, 2022 to 6.62% during the nine months ended September 30, 2023. The average taxable-equivalent yields on loans during the three and nine months ended September 30, 2023 were positively impacted by recent increases in market interest rates compared to the same period in 2016, as discussed above.rates. The average volume of loans duringfor the firstthree months ended September 30, 2023 increased $1.1 billion, or 6.8%, while the average volume of loans for the nine months of 2017ended September 30, 2023 increased $821.8 million,$1.0 billion, or 7.1%6.1%, compared to the same periodperiods in 2016.2022. Loans made up approximately 43.8%39.6% and 38.1% of average interest-earning assets during the firstthree and nine months of 2017ended September 30, 2023, compared to 43.6%34.3% and 34.6% during the same respective periods in 2022.
The average taxable-equivalent yield on securities was 3.24% during both the three and nine months ended September 30, 2023, increasing 30 basis points from 2.94% during the three months ended September 30, 2022 and increasing 34 basis points from 2.90% during nine months ended September 30, 2022. The average yield on taxable securities was 2.76% during the three months ended September 30, 2023, increasing 56 basis points from 2.20% during the same period in 2016.

The average yield on securities was 3.96% during the first nine months of 2017, decreasing 5 basis points from 4.01% during the first nine months of 2016. Despite the fact that2022 while the average yield on taxable securities decreased 12was 2.71% during the nine months ended September 30, 2023, increasing 65 basis points from 2.02%2.06% during the first nine months of 2016 to 1.90% during the first nine months of 2017 and thesame period in 2022. The average taxable-equivalent yield on tax-exempt securities decreased 19was 4.26% during both the three and nine months ended September 30, 2023, increasing 17 basis pointpoints from 5.58%4.09% during the firstthree months ended September 30, 2022 and increasing 21 basis points from 4.05% during the nine months of 2016 to 5.39% during the first nine months of 2017, the overall average yield on securities only decreased 5 basis points because of a higher proportion of average securities invested in higher yielding tax-exempt securities during the first nine months of 2017 compared to the same period in 2016. Tax exemptended September 30, 2022.
Tax-exempt securities made up approximately 58.8%34.0% and 36.0% of total average securities during the firstthree and nine months of 2017,ended September 30, 2023, compared to 55.9%40.8% and 43.6% during the same periodperiods in 2016.2022. The average volume of total securities during the first ninethree months of 2017ended September 30, 2023 increased $515.3 million,$1.2 billion, or 4.3%6.0%, compared to the same period in 2016.2022 while the average volume of total securities during the nine months ended September 30, 2023 increased $2.9 billion, or 16.2%, compared to the same period in 2022. Securities made up approximately 44.1%45.3% of average interest-earning assets during the first ninethree months of 2017ended September 30, 2023 compared to 45.1%39.5% during the same period in 2016.2022 while securities made up approximately 45.6% of average interest-earning assets during the nine months ended September 30, 2023 compared to 37.9% during the same period in 2022. The increases during the three and nine months ended September 30, 2023 were primarily related to the investment of available funds (primarily from the reinvestment of amounts held in an interest-bearing account at the Federal Reserve) into taxable securities.

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Average federal funds sold, resell agreements and interest-bearing deposits during(primarily amounts held in an interest-bearing account at the first nineFederal Reserve) for the three months of 2017 increased $407.3 millionended September 30, 2023 decreased $6.0 billion, or 47.2%, compared to the same period in 2016.The increase in2022, while average federal funds sold, resell agreements and interest-bearing deposits was primarily related(primarily amounts held in an interest-bearing account at the Federal Reserve) for the nine months ended September 30, 2023 decreased $5.8 billion, or 43.7%, compared to growththe same period in average deposits.2022. Interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal funds sold, resell agreements and interest-bearing depositsReserve) made up approximately 12.1%14.9% of average interest-earning assets during the first ninethree months of 2017ended September 30, 2023 compared to 11.3%26.0% during the same period in 2016. The combined average yield on federal funds sold, resell agreements and2022 while interest-bearing deposits was 1.07%(primarily amounts held in an interest-bearing account at the Federal Reserve) made up approximately 16.0% of average interest-earning assets during the first nine months of 2017ended September 30, 2023 compared to 0.51%27.4% during the same period in 2016. As discussed above,2022. The decreases during the effective federal funds rate increased from 0.50%three and nine months ended September 30, 2023 were primarily related to 0.75%the reinvestment of amounts held in December 2016, increased from 0.75%an interest-bearing account at the Federal Reserve into taxable securities, and to 1.00%a lesser extent, loans combined with decreases in March 2017average funding provided by customer deposits (primarily non-interest-bearing). The average yield on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) was 5.33% and increased from 1.00%4.95% during the three and nine months ended September 30, 2023, compared to 1.25%2.27% and 1.07% during the same respective periods in June 2017.2022. The average yields on interest-bearing deposits during the three and nine months ended September 30, 2023 were impacted by higher interest rates paid on reserves held at the Federal Reserve, compared to the same respective periods in 2022.
The average rate paid on interest-bearing liabilities was 0.13%2.33% during the first ninethree months of 2017,ended September 30, 2023, increasing 5162 basis points from 0.08%0.71% during the same period in 2016.2022 while the average rate paid on interest-bearing liabilities was 2.08% during the nine months ended September 30, 2023, increasing 171 basis points from 0.37% during the same period in 2022. Average deposits increased $1.5decreased $5.0 billion, or 10.9%, during the first ninethree months of 2017ended September 30, 2023 compared to the same period in 2016. Average2022 and included a $3.7 billion decrease in average non-interest-bearing deposits forand a $1.3 billion decrease in average interest-bearing deposits. Average deposits decreased $3.0 billion, or 6.7%, during the first nine months of 2017 increased $832.2 millionended September 30, 2023 compared to the same period in 2016, while2022 and included a $2.7 billion decrease in average non-interest-bearing deposits and a $262.8 million decrease in average interest-bearing deposits for the first nine months of 2017 increased $699.7 million compared to the same period in 2016.deposits. The ratio of average interest-bearing deposits to total average deposits was 58.3%63.7% and 62.5% during the firstthree and nine months of 2017ended September 30, 2023 compared to 59.1%59.6% and 58.9% during the same periodrespective periods in 2016.2022. 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 cost of interest-bearing deposits and total deposits was 0.09%2.12% and 0.05%1.35%, respectively, during the first ninethree months of 2017ended September 30, 2023 compared to 0.05%0.62% and 0.03%0.37%, respectively, during the firstsame period in 2022. The average cost of interest-bearing deposits and total deposits was 1.84% and 1.15%, respectively, during the nine months of 2016.ended September 30, 2023 compared to 0.32% and 0.19%, respectively, during the same period in 2022. The average cost of deposits during 2017the comparable periods was impacted by increases in the interest rates we pay on our interest-bearing deposit products as a result of the aforementioned increases in market interest rates paid on most of our interest-bearing deposit products during the third quarter.rates.
Our 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 3.64%2.59% and 2.67% during the firstthree and nine months of 2017ended September 30, 2023 compared to 3.52%2.72% and 2.49% during the same periodrespective periods in 2016.2022. 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.environment, including from new financial technology competitors, and the availability of alternative investment options. A discussion of the effects of changing interest rates on net interest income is set forth in Item 3. Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.
Our hedging policies permit the use of various derivative financial instruments, including interest rate swaps, swaptions, caps and floors, to manage exposure to changes in interest rates. Details of our derivatives and hedging activities are set forth in Note 97 - Derivative Financial Instruments in the accompanying notes to consolidated financial statements included elsewhere in this report. Information regarding the impact of fluctuations in interest rates on our derivative financial instruments is set forth in Item 3. Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.
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Provision for Loan Losses
Table of Contents
The provision for loan lossesCredit Loss Expense
Credit loss expense is determined by management as the amount to be added to the allowance for loan lossescredit loss accounts for various types of financial instruments including loans, securities and off-balance-sheet credit exposures after net charge-offs have been deducted to bring the allowanceallowances 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 $11.0 million and $27.4 million for the three and nine months ended September 30, 2017 compared to $5.0 million and $42.7 million for the three and nine months ended September 30, 2016. components of credit loss expense were as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Credit loss expense (benefit) related to:
Loans$13,608 $(2,463)$38,216 $(2,395)
Off-balance-sheet credit exposures(2,466)2,463 (8,178)2,395 
Securities held to maturity43 — 152 — 
Total$11,185 $— $30,190 $— 
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:
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Trust and investment management fees$27,493
 $26,451
 $81,690
 $77,806
Service charges on deposit accounts20,967
 20,540
 62,934
 60,769
Insurance commissions and fees10,892
 11,029
 34,441
 35,812
Interchange and debit card transaction fees5,884
 5,435
 17,150
 15,838
Other charges, commissions and fees10,493
 10,703
 29,983
 29,825
Net gain (loss) on securities transactions(4,867) (37) (4,917) 14,866
Other10,753
 7,993
 25,114
 21,358
Total$81,615
 $82,114
 $246,395
 $256,274
Total non-interest income for the three and nine months ended September 30, 2017 decreased $499 thousand, or 0.6% and decreased $9.92023 increased $6.2 million, or 3.9%6.2%, and increased $15.7 million, or 5.2%, respectively, compared to the same periods in 2016, respectively. Excluding the impact of the net gain (loss) on securities transactions, total non-interest income effectively increased $4.3 million, or 5.3%, and $9.9 million, or 4.1%, respectively, for the three and nine months ended September 30, 2017 compared to the same period in 2016.2022. Changes in the various components of non-interest income are discussed in more detail below.
Trust and Investment Management Fees. Trust and investment management fees decreased $936 thousand, or 2.4%, for the three months ended September 30, 2023 and decreased $1.8 million, or 1.6%, for the nine months ended September 30, 2017 increased $1.0 million, or 3.9%, and increased $3.9 million, or 5.0%,2023, compared to the same respective periods in 2016, respectively.2022. Investment management fees are the most significant component of trust and investment management fees, making up approximately 83.5%79.5% and 81.6%78.0% of total trust and investment management fees for the first nine months of 20172023 and 2016,2022, respectively. The decrease in trust and investment management fees during the three months ended September 30, 2023 was primarily due to a decrease in oil and gas fees (down $2.9 million) partly offset by an increase in investment management fees (up $1.9 million). The decrease in trust and investment management fees during the nine months ended September 30, 2023 was primarily due to a decrease in oil and gas fees (down $4.0 million) partly offset by increases in real estate fees (up $807 thousand), estate fees (up $663 thousand), and investment management fees (up $340 thousand). The decreases in oil and gas fees during the three and nine months ended September 30, 2023 were primarily related to lower average market prices in 2023 relative to 2022. The increases in real estate fees and estate fees during the nine months ended September 30, 2023 were primarily related to increases in transaction volumes. 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 increase in trust and investment management fees during the three and nine months ended September 30, 2017 compared2023 was primarily related to an increase in the average value of assets maintained in accounts, despite a slight decrease in the number of accounts. The increase in the average value of assets was partly related to higher equity valuations during the second and third quarters of 2023 relative to the same periodperiods in 2016 was primarily the result of increases in trust investment fees (up $1.6 million and $4.7 million, respectively). The increase in trust investment fees during 2017 was due to higher average equity valuations. The increases in trust investment fees were partly offset by decreases in estate fees (down $212 thousand and $537 thousand during the three and nine months ended September 30, 2017, respectively) and oil and gas fees (down $294 thousand and $159 thousand during the three and nine months ended September 30, 2017, respectively).2022.
At September 30, 2017,2023, trust assets, including both managed assets and custody assets, were primarily composed of equity securities (49.6%(41.1% of assets), fixed income securities (39.1%(33.4% of assets), alternative investments (10.3% of assets) and cash equivalents (6.9%(8.7% of assets). The estimated fair value of these assets was $31.0$44.5 billion (including managed assets of $13.9$22.5 billion and custody assets of $17.2$22.0 billion) at September 30, 2017,2023, compared to $29.3$42.9 billion (including managed assets of $13.4$21.4 billion and custody assets of $15.9$21.5 billion) at December 31, 20162022 and $29.7$40.1 billion (including managed assets of $13.3$19.3 billion and custody assets of $16.4$20.8 billion) at September 30, 2016.2022.
Service Charges on Deposit Accounts. Service charges on deposit accounts for the three and nine months ended September 30, 20172023 increased $427$643 thousand, or 2.1%2.8%, and decreased $601 thousand, or 0.9%, respectively, compared to the same periodperiods in 2016.2022. The increase during the three months ended September 30, 2023 was primarily duerelated to increases in consumer service charges (up $429 thousand) and overdraft/insufficient fundsoverdraft charges on consumer and commercial accounts (up $315$1.1 million and $207 thousand, respectively) and $62 thousand, respectively)consumer service charges (up $338 thousand), partly offset by a decrease in commercial service charges (down $368$994 thousand). Service charges on deposit accounts forThe decrease during the nine months ended September 30, 2017 increased $2.2 million, or 3.6%, compared to the same period in 2016. The increase2023 was primarily duerelated to a decrease in commercial service charges (down $6.2 million), partly offset by increases in overdraft/insufficient fundsoverdraft charges on consumer and commercial accounts (up $1.6$3.2 million and $361 thousand,$1.4 million, respectively) and consumer service charges (up $451$962 thousand) partly offset by a decrease. The decreases in commercial service charges (down $221 thousand). Overdraft/insufficient fundsduring the three and nine months ended September 30, 2023 primarily resulted from a higher average earnings credit rate applied to deposits maintained by treasury management customers. Because average market interest rates were higher during
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2023 compared to 2022, deposit balances were more valuable and yielded a higher average earnings credit rate. As a result, customers paid for less of their services through fees rather than with earnings credits applied to their deposit balances. Overdraft charges totaled $8.7$11.0 million ($6.88.3 million consumer and $2.0$2.6 million commercial) during the three months ended September 30, 20172023 compared to $8.4$9.7 million ($6.57.2 million consumer and $1.9$2.4 million commercial) during the same period in 2016. Overdraft/insufficient funds2022. Overdraft charges totaled $25.9$32.5 million ($20.024.6 million consumer and $5.9$7.9 million commercial) during the nine months ended September 30, 20172023 compared to $23.9$27.9 million ($18.421.4 million consumer and $5.5$6.5 million commercial) during the same period in 2016.2022. The increases in overdraft charges during the three and nine months ended September 30, 2023 were impacted by increases in the volumes of fee assessed overdrafts relative to 2022, in part due to growth in the number of accounts.
Insurance Commissions and Fees. Insurance commissions and fees for the three and nine months ended September 30, 2017 decreased $1372023 increased $484 thousand, or 1.2%3.7%, and increased $4.0 million, or 9.6%, respectively, compared to the same periodperiods in 2016.2022. The decreaseincrease during the three months ended September 30, 2023 was related toprimarily the result of an increase in commission income (up $552 thousand) partly offset by a decrease in contingent income (down $212 thousand) partly offset by an increase in commission income (up $75$68 thousand). Insurance commissions and fees forThe increase during the nine months ended September 30, 2017 decreased $1.4 million, or 3.8%, compared to2023 was primarily the same periodresult of increases in 2016. The decrease was

related to a decrease incommission income (up $2.8 million) and contingent income (down $2.7(up $1.2 million) partly offset by an. The increase in commission income (up $1.3 million). Insuranceduring the three months ended September 30, 2023 was related to an increase in commercial lines property and casualty commissions and, fees include contingentto a lesser extent, an increase in personal lines property and casualty commissions, partly offset by a decrease in life insurance commissions and, to a lesser extent, a decrease in benefit plan commissions. The increase in commission income totaling $358during the nine months ended September 30, 2023 was related to increases in commercial and personal lines property and casualty commissions, life insurance commissions and benefit plan commissions. The increases in commercial and personal lines property and casualty commissions during the three and nine months ended September 30, 2023 and benefit plan commissions during the nine months ended September 30, 2023 were primarily related to increases in the underlying exposure bases and increases in rates. The fluctuations in life insurance commissions during the three and nine months ended September 30, 2023 were primarily due to variations in business volumes.
Contingent income totaled $210 thousand and $3.4$4.5 million during the three and nine months ended September 30, 2017,2023, respectively, and $570compared to $278 thousand and $6.1$3.3 million during the same respective periods in 2016.2022. Contingent income primarily consists of amounts received from various property and casualty insurance carriers related to portfolio growth and 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 $2.1$3.2 million and $4.6$1.9 million during the nine months ended September 30, 20172023 and 2016,2022, respectively. The decreaseincrease in performance related contingent income during 2017 was primarily related to a lack of growth within the portfolio and a deteriorationimprovement in the loss performance of insurance policies previously placed. Performance related contingent income in 2022 was impacted by a severe weather event in Texas during 2021 that resulted in significant 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 $311$135 thousand and $1.3$1.2 million during the three and nine months ended September 30, 2017 and $4172023, respectively, compared to $232 thousand and $1.5$1.4 million during the three and nine months ended September 30, 2016. The increasessame respective periods in commission income during the three and nine months ended September 30, 2016 were primarily related to increases in benefit plan commissions due to increased business volumes partly offset by decreases in commissions on property and casualty policies.2022.
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 checkdebit and credit 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 interchange and card transaction fees for the three and nine months ended September 30, 20172023 increased $449$58 thousand, or 8.3%1.3%, and $1.3increased $1.1 million, or 8.3%7.7%, respectively, compared to the three and nine months ended September 30, 2016. The increases weresame periods in 2022 primarily due to increases in income from debittransaction volumes partly offset by an increase in network costs. A comparison of gross and net interchange and card transactions (up $381 thousand and $1.0 milliontransaction fees for the three and nine months ended September 30, 2017, respectively) and ATM service fees (up $68 thousand and $267 thousand forreported periods is presented in the three and nine months ended September 30, 2017, respectively). The increases were primarily related to increased transaction volumes.table below.
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Income from card transactions$9,041 $8,292 $27,248 $24,081 
ATM service fees902 871 2,658 2,502 
Gross interchange and card transaction fees9,943 9,163 29,906 26,583 
Network costs5,271 4,549 15,095 12,832 
Net interchange and card transaction fees$4,672 $4,614 $14,811 $13,751 
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
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is allowed if the card issuer develops and implements policies and procedures reasonably designed to achieve certain fraud-prevention standards. The Federal Reserve also has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product.
Other Charges, Commissions, and Fees. Other charges, commissions, and fees for the three months ended September 30, 2017 decreased $210 thousand,2023 increased $2.0 million, or 2.0%18.3%, compared to the same period in 2016.2022. The decrease included decreasesincrease was primarily related to increases in human resources consulting fee income (down $160other service charges (up $711 thousand), capital markets advisory fees (up $428 thousand), letter of credit fees (up $393 thousand), merchant services rebates/bonuses (up $269 thousand), and income from corporate finance and capitalthe placement of money market advisory services (down $109 thousand), among other things. These items were partly offset by an increase in income related to the sale of mutual fundsaccounts (up $128$219 thousand), among other things. Other charges, commissions, and fees for the nine months ended September 30, 20172023 increased $158 thousand,$6.3 million, or 0.5%20.6%, compared to the same period in 2016.2022. The increase includedwas primarily related to increases in income related tofrom the placement of money market accounts (up $2.2 million), other service charges (up $2.0 million), capital markets advisory fees (up $1.3 million), letter of credit fees (up $873 thousand), commitment fees on unused lines of credit (up $839 thousand), and merchant services rebates/bonuses (up $600 thousand), among other things, partly offset by a decrease in income from the sale of mutual funds (up $911 thousand) and wire transfer fees (up $235 thousand)(down $1.4 million), among other things. These items were partly offset by decreases in human resources consulting fee income (down $486 thousand) and income from corporate finance and capital market advisory services (down $476 thousand), among other things. Human resources consulting fee income decreased as we no longer provide these services. Changes in the other aforementioned categories of other charges, commissions and fees were due to fluctuations in business volumes.
Net Gain/Loss on Securities Transactions. During the nine months ended September 30, 2017,2023, we sold certain available-for-sale U.S Treasury securities with an amortized costcosts totaling $8.2$1.9 billion and realized a net loss of $50 thousand on those sales. The sales were primarily related to securities purchased during 2017 and subsequently sold in connection with our tax planning strategies related to the Texas franchise tax. The gross proceeds from the sales of these securities outside of Texas are included in total revenues/receipts from all sources reported for Texas franchise tax purposes, which results in a reduction in the overall percentage of revenues/receipts apportioned to Texas and subjected to taxation under the Texas franchise tax. We also sold, during the third quarter of 2017, certain other available-for-sale U.S. Treasury securities with an amortized cost totaling $751.4 million and realized a net loss of $4.9 million on those sales. These securities were sold with the intent to reinvest the sales proceeds in higher yielding debt securities and other investments.
During the nine months ended September 30, 2016, we sold certain available-for sale U.S. Treasury securities with an amortized cost totaling $8.0 billion and realized a net loss of $37 thousand on those sales. The sales were primarily related to securities purchased during 2016 and subsequently sold in connection with our aforementioned tax planning strategies related to the Texas franchise tax. We also sold certain other available-for-sale U.S. Treasury securities with an amortized cost totaling $749.5 million and realized a net gain of $2.8 million on those sales.$66 thousand. Market conditions provided us an opportunity to sell certain lower-yielding securities. The securities sold were due to mature during 2016. Most of the proceeds from these sales enhanced our current liquidity position and will provide us the saleflexibility to be more opportunistic with the reinvestment of these securities were reinvested into U.S. Treasury securities having comparable yields, but longer-terms. During the nine months ended September 30, 2016, we also sold certain municipal securities that were classified as both available for

sale and held to maturity due to a significant deteriorationfunds in the creditworthinessfuture. There were no sales of the issuers. These securities had a total amortized cost of $431.4 million and we realized a gain of $12.1 million on those sales. Refer to our 2016 Form 10-K for additional information related to these sales.during 2022.
Other Non-Interest Income. Income. Other non-interest income for the three months ended September 30, 20172023 increased $2.8$3.9 million, or 34.5%41.1%, compared to the same period in 2016.2022. The increase was primarily related to increases in sundry and other miscellaneous income (up $1.1 million), income from customer derivative and trading activities (up $935 thousand), gains on the sale of foreclosed and other assets (up $724 thousand) and income from customer foreign currencyexchange transactions (up $248$2.6 million) and public finance underwriting fees (up $751 thousand). Sundry and other miscellaneous income during the three months ended September 30, 2017 included $1.2 million related to the collection of amounts charged-off by Western National Bank prior to our acquisition and $426 thousand related to recoveries of prior write-offs,, among other things, while sundry and other miscellaneous income during the same period in 2016 included $453 thousand related to recoveries of prior write-offs, among other things. The fluctuations in income from customer derivative and trading activities and income from customer foreign currency transactions were primarily related to changes in business volumes. During the third quarter of 2017, gains on the sale of foreclosed and other assets included $700 thousand related to amortization of the deferred gain on our headquarters building, which we sold in December 2016.
Other non-interest income for the nine months ended September 30, 20172023 increased $3.8$6.7 million, or 17.6%23.2%, compared to the same period in 2016.2022. The increase was partly related to increases in income from customer derivative and foreign exchange transactions (up $3.0 million), sundry and other miscellaneous income (up $1.2 million), income from customer securities trading transactions (up $685 thousand), earnings on the cash surrender value of life insurance (up $603 thousand), and gains on the sale of foreclosed and other assets (up $327 thousand), among other things. The increases in income from customer derivative and securities trading transactions and income from customer foreign exchange transactions were primarily related to increases in transaction volumes. Sundry income during the nine months ended September 30, 2023 included $1.5 million related to a distributions received from a Small Business Investment Company (“SBIC”) fund investment, $1.3 million related to the recovery of prior write-offs, $950 thousand related to merchant services performance and revenue milestone bonuses, $839 thousand related to a volume bonus received from Frost Brokerage Services' clearing broker, and $575 thousand related to a partnership interest, among other things, while sundry income during the nine months ended September 30, 2022 included $2.2 million in card related incentives/rebates, $1.2 million related to the recovery of prior write-offs, and $458 thousand related to a contract fee, among other things. The increase in earnings on the cash surrender value of life insurance was related to an increase in market interest rates. The increase in gains on the sale of foreclosed and other assets (up $1.5 million), sundry and other miscellaneous income (up $1.5 million), income from customer foreign currency transactions (up $497 thousand) and income from customer derivative and trading activities (up $422 thousand), among other things, partly offset by decreases in lease rental income (down $384 thousand) and earnings on the cash surrender value of life insurance policies (down $311 thousand), among other things. Sundry income during the nine months ended September 30, 2017 included the aforementioned $1.2 million related to the collection of amounts charged-off by Western National Bank prior to our acquisition, $864 thousand related to the settlement of a non-solicitation agreement and $541 thousand related to recoveries of prior write-offs among other things, while sundry and other miscellaneous income during the same period in 2016 included $1.1 million related to recoveries of prior write-offs, among other things. The fluctuations in income from customer foreign currency transactions and income from customer derivative and trading activities werewas primarily related to changes in business volumes. During the first nine months of 2017, gains on the sale of foreclosed and other assets included $2.2 million related to amortization of the aforementioned deferred gain on our headquarters building.real estate property.
Non-Interest Expense
The components of non-interest expense were as follows:
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Salaries and wages$84,388
 $79,411
 $247,895
 $236,814
Employee benefits17,730
 17,844
 57,553
 55,861
Net occupancy19,391
 18,202
 57,781
 53,631
Furniture and equipment18,743
 17,979
 54,983
 53,474
Deposit insurance4,862
 4,558
 15,347
 12,412
Intangible amortization405
 586
 1,301
 1,869
Other41,304
 41,925
 127,929
 125,048
Total$186,823
 $180,505
 $562,789
 $539,109
Total non-interest expense for the three and nine months ended September 30, 20172023 increased $6.3$35.4 million, or 3.5%13.7%, and $23.7increased $120.5 million, or 4.4%16.2%, respectively, compared to the same periods in 2016.2022. Changes in the various components of non-interest expense are discussed below.
Salaries and Wages. Salaries and wages for the three and nine months ended September 30, 20172023 increased $5.0$10.4 million, or 6.3%8.2%, and $11.1increased $45.7 million, or 4.7%12.9%, respectively, compared to the same periods in 2016.2022. The increase wasincreases in salaries and wages were primarily related to an increaseincreases in salaries due to an increaseannual merit and market increases and increases in the number of employees. The increases in the number of employees were partly related to our investments in organic expansion in the Houston, Dallas, and normal annual merit and market increases,Austin markets as well as increases in stock compensation and incentive compensation.the gradual rollout of our mortgage loan product offering. Salaries and wages during the nine months ended September 30, 2023 was also impacted, to a lesser extent, by an increase in stock-based compensation. The aforementioned increases were partly offset by decreases in incentive compensation during the three and nine months ended September 30, 2017 also included approximately $1.2 million2023. We are experiencing a competitive labor market which has resulted in severance expense primarily relatedand could continue to the closure of certain branch locations.result in an increase in our staffing costs.
Employee Benefits. Employee benefits expense for the three months ended September 30, 2017 decreased $114 thousand, or 0.6%, compared to the same period in 2016. The decrease was primarily due to decreases in medical insurance expense (down $502 thousand), expenses related to our defined benefit retirement plans (down $302 thousand) and other employee benefits (down $120 thousand) partly offset by an increase in expenses related to our 401(k) and profit sharing plans (up $851 thousand). Employee

benefits expense for the nine months ended September 30, 2017 increased $1.7 million, or 3.0%, compared to the same period in 2016. The increase was primarily due to increases in expenses related to our 401(k) and profit sharing plans (up $1.6 million) and payroll taxes (up $1.1 million) partly offset by a decrease in expenses related to our defined benefit retirement plans (down $1.1 million).
During the three and nine months ended September 30, 2017, we recognized a combined2023 increased $4.8 million, or 22.4%, and increased $20.6 million, or 30.9%, respectively, compared to the same periods in 2022. The increases were primarily related to increases in 401(k) plan expense (up $321 thousand and $5.9 million during the three and nine months
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ended September 30, 2023, respectively), medical benefits expense (up $2.0 million and $5.6 million during the three and nine months ended September 30, 2023, respectively), and payroll taxes (up $850 thousand and $3.7 million during the three and nine months ended September 30, 2023, respectively), and decreases in the net periodic pension expense of $125 thousand and $376 thousand, respectively,benefit related to our defined benefit retirement plans compared to a combined net periodic pension expense of $427 thousandplan (down $1.6 million and $1.4$4.9 million, during the same periods in 2016. Net periodic pension expense during the nine months ended September 30, 2016 included $187 thousand in supplemental executive retirement plan (“SERP”) settlement costs related to the retirement of a former executive officer. respectively), among other things.
Our defined benefit retirement and restoration plans were frozen effective as of December 31,in 2001 and were replaced by a profit sharing plan. Management believes these actionswhich 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 retirement expense related to these plans in future years, which would be dependent on the return earned on plan assets, the level of interest rates and employee turnover. See Note 11 - Defined Benefit Plans for additional information related to our net periodic pension benefit/cost.
Net Occupancy. Net occupancy expense for the three and nine months ended September 30, 20172023 increased $1.2$3.4 million, or 6.5%12.3%, and $4.2increased $9.7 million, or 7.7%11.6%, respectively, compared to the same periods in 2016.2022. The increaseincreases during the three and nine months ended September 30, 2017 was2023 were primarily related to increases in depreciation on buildings and leasehold improvements (together up $1.3 million and $3.0 million, respectively), lease expense (up $782 thousand), property taxes (up $338 thousand)$383 thousand and $2.8 million, respectively), utilities expense (up $140 thousand)$381 thousand and depreciation on leasehold improvements (up $125 thousand) partly offset by a decrease in building depreciation (down $372 thousand). The increase during the nine months ended September 30, 2017 was primarily related to increases in lease expense (up $2.6 million)$1.3 million, respectively), property taxes (up $1.0 million), depreciation on leasehold improvements (up $604 thousand), repairs and repairs/maintenance/service contracts expense (up $535 thousand)$867 thousand and utilities expense (up $336 thousand) partly offset by a decrease in building depreciation (down $1.1 million).$1.2 million, respectively), among other things. The increases in leasethe aforementioned components of net occupancy expense were impacted, in part, by our expansion within the Houston and the decreases in building depreciation during the reported periods were primarily related to the sale and lease back of our headquarters building in December 2016, as more fully discussed in our 2016 Form 10-K.Dallas market areas.
Technology, Furniture, and Equipment. Furniture Technology, furniture, and equipment expense for the three and nine months ended September 30, 20172023 increased $764 thousand,$4.5 million, or 4.2%14.6%, and $1.5increased $10.9 million, or 2.8%12.2%, respectively, compared to the same periods in 2016.2022. The increases during the three and nine months ended September 30, 2023 were primarily related to increases in software maintenancecloud services expense (up $974 thousand$3.3 million and $2.3$6.9 million, respectively) and service contracts expense (up $1.3 million and $3.2 million, respectively), among other things.
Deposit Insurance. Deposit insurance expense totaled $6.0 million and $18.5 million for the three and nine months ended September 30, 2017, respectively)2023, respectively, compared to $4.3 million and depreciation on furniture and equipment (up $198 thousand and $1.4$11.6 million for the three and nine months ended September 30, 2017, respectively) partly offset2022, respectively. The increases during the three and nine months ended September 30, 2023 were primarily related to an increase in the assessment rate. In October 2022, the Federal Deposit Insurance Corporation (“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.
In May 2023, the FDIC issued a decreaseNotice of Proposed Rulemaking proposing an emergency special assessment to recover losses to the Deposit Insurance Fund ("DIF") incurred as a result of recent bank failures and the FDIC's use of the systemic risk exception to cover certain deposits that were otherwise uninsured. Under the proposal, the special assessment would be based on estimated uninsured deposits as of December 31, 2022 (excluding the first $5.0 billion) and assessed at a rate of 25 basis points payable over eight quarters beginning in equipment rentalthe first quarter of 2024. If this rule is made final as it is proposed, we expect that we will incur a special assessment of approximately $47.9 million ($37.9 million after tax). Based on the proposed rule, such amount will be fully expensed in the period the rule is made final, which is currently expected to be later in 2023. Nonetheless, the proposal could be changed and the timing of accounting recognition is still under consideration. Under the proposed rule, the estimated loss pursuant to the systemic risk determination would be periodically adjusted, and the FDIC would retain the ability to cease collection early, extend the special assessment collection period and impose a final shortfall special assessment on a one-time basis. The extent to which any such future assessment will impact our future deposit insurance expense (down $576 thousand and $1.6 millionis currently uncertain.
Other Non-Interest Expense. Other non-interest expense for the three and nine months ended September 30, 2017, respectively)2023 increased $10.4 million, or 22.8%, and for the nine months ended September 30, 2017, a decrease in service contracts (down $413 thousand), among other things.
Deposit Insurance. Deposit insurance expense totaled $4.9increased $26.6 million, and $15.3 million for the three and nine months ended September 30, 2017 compared to $4.6 million and $12.4 million for the three and nine months ended September 30, 2016. Deposit insurance expense was impacted by an increase in assets and, during the nine-months ended September 30, 2017, an increase in the overall assessment rate. The increase in the assessment rate was partly related to a new surcharge that became applicable during the third quarter of 2016. In August 2016, the Federal Deposit Insurance Corporation (“FDIC”) announced that the Deposit Insurance Fund (“DIF”) reserve ratio had surpassed 1.15% as of June 30, 2016. As a result, beginning in the third quarter of 2016, the range of initial assessment rates for all institutions was adjusted downward and institutions with $10 billion or more in assets were assessed a quarterly surcharge. The quarterly surcharge will continue to be assessed until such time as the reserve ratio reaches the statutory minimum of 1.35% required by the Dodd-Frank Wall Street Reform and Consumer Protection 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 for the three and nine months ended September 30, 2017 decreased $181 thousand, or 30.9%, and $568 thousand, or 30.4%19.7%, respectively, compared to the same periods in 2016.2022. The decrease in amortization 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 ratesincrease during the earlier years of the useful lives of intangible assets.
Other Non-Interest Expense. Other non-interest expense for the three months ended September 30, 2017 decreased $621 thousand, or 1.5%, compared to the same period in 2016. The decrease2023 included decreases in check card expense (down $1.2 million), sundry and other miscellaneous expense (down $711 thousand), regulatory examination fees (down $198 thousand) and losses on the sale/write-down of foreclosed and other assets (down $170 thousand). These items were partly offset by increases in guardadvertising/promotions expense (up $3.6 million); professional services expense (up $580 thousand)$3.5 million), the provision forwhich was primarily related to information technology services; fraud losses on unfunded loan commitments (up$250 thousand), business development expenses (up $207 thousand), point-of-sale related expenses (up $205 thousand), platform fees associated with our managed mutual funds (up $198 thousand)$1.2 million); and travel/travel, meals, and entertainment expense (up $194$706 thousand), among other things. Other non-interest expense for the nine months ended September 30, 2017 increased

$2.9 million, or 2.3%, compared to the same period in 2016. The increase included increases in guard services expense (up $1.1 million), fraud losses (up $924 thousand), travel/meals and entertainment expense (up $828 thousand), advertising/promotions expense (up $688 thousand) and outside computer services expense (up $760 thousand),; among other things. These items were partly offset by a decrease in check card expensesundry and other miscellaneous expenses (down $1.8 million)$789 thousand), among other things. Guard services expenseSundry and other miscellaneous expenses during the three months ended September 30, 2022 included $1.6 million related to an operational loss and $225 thousand related to the write-off of certain assets while sundry and other miscellaneous expenses during the three months ended September 30, 2023 included $465 thousand related to an operational loss. The increase during the nine months ended September 30, 2017 was impacted by the effects of hurricane Harvey during the third quarter. The increase2023 included increases in fraud lossesprofessional services expense (up $8.6 million), which was primarily related to information technology services; advertising/promotions expense (up $7.7 million); travel, meals, and entertainment (up $3.0 million); fraud losses (up $1.6 million); check cards, ATMscard expense (up $1.6 million); business development expense (up $1.5 million); and checks.stationery, printing and supplies expense (up $941 thousand), among other things.
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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 andsegment, the methodologies used to measure segment financial performance isand summarized operating results by segment are described in Note 1614 - Operating Segments in the accompanying notes to consolidated financial statements included elsewhere in this report. Net income (loss) bySegment operating segment is presented below:
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Banking$88,368
 $76,347
 $250,766
 $210,454
Frost Wealth Advisors6,417
 4,797
 17,990
 13,809
Non-Banks(1,654) (925) (5,131) (3,721)
Consolidated net income$93,131
 $80,219
 $263,625
 $220,542
results are discussed in more detail below.
Banking
Net income for the three and nine months ended September 30, 2017 increased $12.02023 decreased $10.4 million, or 15.7%6.4%, and $40.3increased $113.4 million, or 19.2%30.8%, respectively, compared to the same periods in 2016.2022. The increasedecrease during the three months ended September 30, 20172023 was primarily the result of a $24.0$31.6 million increase in non-interest expense, an $11.2 million increase in credit loss expense, and a $4.5 million increase in income tax expense partly offset by a $30.3 million increase in net interest income and a $1.8$6.5 million decrease in income tax expense partly offset by a $6.1 million increase in non-interest expense, a $5.9 million increase in the provision for loan losses and a $1.8 million decrease in non-interest income. The increase during the nine months ended September 30, 20172023 was primarily the result of a $65.0$276.9 million increase in net interest income and a $15.4$13.9 million decreaseincrease in the provision for loan lossesnon-interest income partly offset by a $20.2$110.8 million increase in non-interest expense, a $15.4 million decrease in non-interest income and a $4.5$36.4 million increase in income tax expense and a $30.2 million increase in credit loss expense.
Net interest income for the three and nine months ended September 30, 20172023 increased $24.0$30.3 million, or 12.5%8.5%, and $65.0$276.9 million, or 11.4%30.9%, respectively, compared to the same periods in 2016. Taxable-equivalent net interest income for the first nine months of 2017 included 273 days compared to 274 days for the same period in 2016 as a result of the leap year.2022. The additional day added approximately $1.5 million to taxable-equivalent net interest income during the first nine months of 2016. Despite the effect of this additional day during 2016, net interest incomeincreases during the three and nine months ended September 30, 2017 increased due2023 were primarily related to the impact of increases in the average volume of tax-exempt securities, loans and interest-bearing deposits as well as increases in the average yields on loans and, interest-bearing deposits partly offset byto a lesser extent, the impactaverage volumes of decreasesloans; increases in the average yields on tax-exempt and taxable securities combined withinterest-bearing deposits (primarily amounts held in an interest-bearing account at the impact ofFederal Reserve); increases in the average rate paidvolumes of and average yields on taxable securities; and increases in the average taxable-equivalent yields on tax-exempt securities, among other things. The impact of these items was partly offset by increases in the average costs of interest-bearing liabilities.deposit accounts and repurchase agreements, among other things, combined with decreases in the average volumes of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and increases in the average volumes of time deposit accounts and repurchase agreements, among other things. See the analysis of net interest income included in the section captioned “Net Interest Income” included elsewhere in this discussion.
The provision for loan lossesCredit loss expense for the three and nine months ended September 30, 20172023 totaled $11.0$11.2 million and $27.4$30.2 million, compared to $5.0 millionrespectively. There was no credit loss expense during the three and $42.7 million for the same periods in 2016.nine months ended September 30, 2022. See the analysis of the provision for loan losses included in the sectionsections captioned “Credit Loss Expense” and “Allowance for LoanCredit Losses” included elsewhere in this discussion.discussion for further analysis of credit loss expense related to loans and off-balance-sheet commitments.
Non-interest income for the three months ended September 30, 2017 decreased $1.82023 increased $6.5 million, or 3.5%11.7%, compared to the same period in 2022, while non-interest income for the nine months ended September 30, 2017 decreased $15.42023 increased $13.9 million, or 9.2%8.2%, compared to the same periodsperiod in 2016. Both the three and nine months ended September 30, 2017 included a net loss on securities transactions of $4.9 million compared to a net loss of $37 thousand2022. The increase during the three months ended September 30, 20162023 was primarily due to increases in other non-interest income; other charges, commissions, and a net gain of $14.9 millionfees; service charges on deposit accounts and insurance commissions, and fees. The increase during the nine months ended September 30, 2016. See the analysis of these net gains and losses included in the section captioned “Net Gain/Loss on Securities Transactions” included elsewhere in this discussion. Excluding the impact of the net gains or losses on securities transactions, total non-interest income during the three and nine months ended September 30, 2017 effectively increased $3.0 million, or 5.9%, and $4.4 million, or 2.9%, respectively compared to the same periods in 20162023 was primarily duerelated to increases in other charges, commissions, and fees; other non-interest income, service charges on deposit accounts and interchange and debit card transactions fees partly offset by decreases inincome; insurance commissions and fees and other charges, commissionsinterchange and card transaction fees. The increases in other non-interest income for the three and nine months ended September 30, 2017 were primarily related to increases in gains on the sale of foreclosed and other assets, sundry and other miscellaneous income, income from customer foreign currency transactions and income from customer derivative and trading activities, among other things, partly offset by decreases in lease rental income and earnings on the cash surrender value of life insurance policies, among other things. Sundry income during the three and nine months ended September 30, 2017 included $1.2 million related to the collection of amounts charged-off by Western National Bank prior to our acquisition,

among other things. Gains on the sale of foreclosed and other assets during 2017 included the amortization of the deferred gain on our headquarters building, which we sold in December 2016. The increase in service charges on deposit accounts during the three and nine months ended September 30, 2017 were primarily due to increases in overdraft/insufficient funds charges on consumer and commercial accounts and consumer service charges partly offset by decreases in commercial service charges. The increase in interchange and debit card transactions fees during the three and nine months ended September 30, 2017 were primarily due to increases in income from debit card transactions and ATM service fees. The increases were primarily related to increased transaction volumes. The decrease in insurance commissions and fees during the three and nine months ended September 30, 2017 were related to decreases in contingent income, primarily related to a lack of growth within the portfolio and a deterioration in the loss performance of insurance policies previously placed, partly offset by increases in commission income, primarily related to increases in benefit plan commissions due to increased business volumes. The decrease in other charges, commissions, and fees during the three and nine months ended September 30, 2017 was primarily due to decreases2023 included increases in human resources consulting fee incomecapital markets advisory fees, letter of credit fees, and income from corporate finance and capital market advisorymerchant services rebates/bonuses, among other things, partly offset by increases in wire transfer fees, and for the nine months ended September 30, 2017,2023, an increase in loan processingcommitment fees on unused lines of credit. The increase in other non-interest income during the three months ended September 30, 2023 was primarily related to increases in income from customer derivative and foreign exchange transactions and public finance underwriting fees, among other things. The increase in other non-interest income during the nine months ended September 30, 2023 was partly related to increases in income from customer derivative and foreign exchange transactions, sundry and other miscellaneous income, earnings on the cash surrender value of life insurance, and gains on the sale of foreclosed and other assets, among other things. The increase in insurance commissions and fees during the three months ended September 30, 2023 was primarily the result of an increase in commission income partly offset by a decrease in contingent income, while the increase during the nine months ended September 30, 2023 was primarily the result of increases in both commission income and contingent income. These changes are further discussed below in relation to Frost Insurance Agency. The increase in interchange and card transaction fees during the nine months ended September 30, 2023 was primarily due to an increase in transaction volumes partly offset by an increase in network costs. The increase in service charges on deposit accounts during the three months ended September 30, 2023 was primarily related to increases in overdraft charges on consumer and commercial accounts and consumer service charges, partly offset by a decrease in commercial service charges. See the analysis of these categories of non-interest income included in the section captioned “Non-Interest Income” included elsewhere in this discussion.
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Non-interest expense for three and nine months ended September 30, 2023 increased $31.6 million, or 14.1%, and $110.8 million, or 17.3%, compared to the same respective periods in 2022. The increases during the three and nine months ended September 30, 2017 increased $6.1 million, or 4.0%,2023 were primarily due to increases in salaries and $20.2 million, or 4.4%, compared to the same periodswages; other non-interest expense; employee benefit expense; technology, furniture, and equipment expense; net occupancy expense and deposit insurance. The increases in 2016. The increasesalaries and wages during the three and nine months ended September 30, 2017 was2023, were primarily related to increases in salaries due to annual merit and market increases and increases in the number of employees. The increase in the number of employees was partly related to our investments in organic expansion in the Houston, Dallas, and Austin markets as well as the gradual rollout of our mortgage loan product offering. Salaries and wages other non-interest expense and furniture and equipment expense. The increase during the nine months ended September 30, 20172023 was primarily relatedalso impacted, to a lesser extent, by an increase in stock-based compensation. The aforementioned increases were partly offset by decreases in salariesincentive compensation during the three and wages, other non-interest expense, deposit insurance expense, employee benefits and furniture and equipment expense.nine months ended September 30, 2023. The increases in salaries were primarily due to increases in the number of employees and normal annual merit and market increases, as well as increases in stock compensation and incentive compensation. The increases in other non-interest expense were primarily related to increases in guard services expense, sundry and other miscellaneous expense and travel/meals and entertainment, among other things. Guard servicesemployee benefits expense during the three and nine months ended September 30, 2017 was impacted by the effects of hurricane Harvey during the third quarter. The increases in furniture and equipment expense2023 were primarily related to increases in software maintenance401(k) plan expense, medical benefits expense, and depreciation on furniturepayroll taxes, and equipment partly offset by a decreasedecreases in equipment rentalthe net periodic benefit related to our defined benefit retirement plan, among other things. The increases in other non-interest expense during the three and nine months ended September 30, 2023 were primarily related to increases in professional services expense; advertising/promotions expense; travel, meals, and entertainment; check card expense; business development expense and stationery, printing and supplies expense, among other things. The increaseincreases in deposit insurancetechnology, furniture, and equipment expense during the three and nine months ended September 30, 2017 was2023 were primarily related to increases in cloud services expense and service contracts expense, among other things. The increases in net occupancy during the three and nine months ended September 30, 2023 were primarily related to increases in depreciation on buildings and leasehold improvements, lease expense, utilities expense, and repairs/maintenance/service contracts expense, among other things. 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 increases in deposit insurance during the three and nine months ended September 30, 2023 were primarily related to an increase in the assessment rate due to a new quarterly surcharge which began in the third quarter of 2016 and an increase in assets. The increase in employee benefits during the nine months ended September 30, 2017 was primarily due to increases in payroll taxes and expenses related to our 401(k) and profit sharing plans partly offset by a decrease in expenses related to our defined benefit retirement plans.rate. See the analysis of these categories of non-interest expense included in the section captioned “Non-Interest Expense” included elsewhere in this discussion.
Frost Insurance Agency, which is included in the Banking operating segment, had gross commission revenues of $10.9$13.6 million and $34.6$45.6 million during the three and nine months ended September 30, 2017 and $11.02023, respectively, compared to $13.2 million and $35.9$41.6 million during the same respective periods in 2022. The increase during the three months ended September 30, 2023 was primarily related to an increase in commission income while the increase during the nine months ended September 30, 2023 was primarily due to increases in both commission and contingent income. The increases in commission income during the three months ended September 30, 2023 was related to an increase in commercial lines property and casualty commissions and, to a lesser extent, an increase in personal lines property and casualty commissions, partly offset by a decrease in life insurance commissions and, to a lesser extent, a decrease in benefit plan commissions. The increase in commission income during the nine months ended September 30, 2023 was related to increases in commercial and personal lines property and casualty commissions, life insurance commissions and benefit plan commissions. The increases in commercial and personal lines property and casualty commissions during the three and nine months ended September 30, 2016. The decreases2023 and benefit plan commissions during the nine months ended September 30, 2023 were primarily related to decreasesincreases in the underlying exposure bases and increases in rates. The fluctuations in life insurance commissions during the three and nine months ended September 30, 2023 were primarily due to variations in business volumes. The increase in contingent commissions, partly offset by increasesincome during the nine months ended September 30, 2023 was primarily related to an increase in benefit plan commissions.performance related contingent payments due to growth within the portfolio and improvement in the loss performance of insurance policies previously placed. See the analysis of insurance commissions, and fees included in the section captioned “Non-Interest Income” included elsewhere in this discussion.
Frost Wealth Advisors
Net income for the three and nine months ended September 30, 2017 increased $1.62023 decreased $2.7 million, or 33.8%28.7%, and $4.2decreased $3.9 million, or 30.3%13.7%, respectively, compared to the same periods in 2016.2022. The increasedecrease during the three months ended September 30, 20172023 was primarily due tothe result of a $1.7$3.8 million increase in net interest incomenon-interest expense and a $1.3 million increase$360 thousand decrease in non-interest income partly offset by an $873a $730 thousand increasedecrease in income tax expense and a $500$661 thousand increase in non-interest expense.net interest income. The increasedecrease during the nine months ended September 30, 20172023 was primarily due tothe result of a $5.4$9.2 million increase in non-interest expense partly offset by a $2.7 million increase in net interest income, a $1.5 million increase in non-interest income and a $5.0$1.0 million increase in net interest income partly offset by a $3.9 million increase in non-interest expense and a $2.3 million increasedecrease in income tax expense.
Net interest income for the three and nine months ended September 30, 20172023 increased $1.7$661 thousand, or 48.7%, and increased $2.7 million, or 57.0%91.1%, and $5.0 million, or 64.5%,respectively, compared to the same periods in 2016.2022. The increases during the three and nine months ended September 30, 2023 were primarily due to an increase in the funds transfer price received for funds provided related to Frost Wealth Advisors' repurchase agreements and increases in the average volumefunds transfer prices allocated to funds provided by Frost Wealth Advisors. See the analysis of funds provided.net interest income included in the section captioned “Net Interest Income” included elsewhere in this discussion.
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Non-interest income for the three and nine months ended September 30, 20172023 decreased $360.0 thousand, or 0.8%, and increased $1.3$1.5 million, or 4.3%1.2%, and $5.4 million, or 6.0%,respectively, compared to the same periods in 2016.2022. The increases in non-interest incomedecrease during the three and nine months ended September 30, 2017 were2023 was primarily relateddue to increasesa decrease in trust and investment management fees partly offset by increases in other non-interest income and other charges, commissions, and fees. The increase during the nine months ended September 30, 2023 was primarily due to increases in other non-interest income and other charges, commissions, and fees partly offset by a decrease in trust and investment management fees. 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 83.5%79.5% of total trust and investment management fees for the first nine months of 2017. Investment2023. The decrease in trust and other custodial accountinvestment management fees are

generally based onduring the three months ended September 30, 2023 was primarily due to a decrease in oil and gas fees partly offset by an increase in investment management fees. The decrease in trust and investment management fees during the nine months ended September 30, 2023 was primarily due to a decrease in oil and gas fees partly offset by increases in real estate fees, estate fees, and investment management fees. The decreases in oil and gas fees during the three and nine months ended September 30, 2023 were primarily related to lower average market value of assets within a trust account. Volatilityprices in the equity and bond markets impacts the market value of trust assets and the related investment fees.2023 relative to 2022. The increases in trustreal estate fees and estate fees during the nine months ended September 30, 2023 were primarily related to increases in transaction volumes. The increase in investment management fees during the three and nine months ended September 30, 2017 compared2023 was primarily related to the same periods in 2016 were primarily the result of increases in trust investment fees. Thean increase in trust investment fees during 2017 was due to higherthe average equity valuations and an increasevalue of assets maintained in accounts, despite a slight decrease in the number of accounts. The increase in the average value of assets was partly related to higher equity valuations during the second and third quarters of 2023 relative to the same periods in 2022. The increases in other non-interest income during the three and nine months ended September 30, 2023 were primarily related to increases in income from customer securities trading transactions, and for the nine months ended September 30, 2023, an increase in sundry income, primarily related to a volume bonus received from Frost Brokerage Services' clearing broker. The increases in other charges, commissions, and fees during the three and nine months ended September 30, 2017 was2023 were primarily duerelated to increases in income related tofrom the placement of money market accounts, among other things, partly offset by decreases in income from the sale of mutual funds.funds, among other things. See the analysis of trust and investment management fees, other non-interest income and other charges, commissions, and fees included in the section captioned “Non-Interest Income” included elsewhere in this discussion.
Non-interest expense for the three and nine months ended September 30, 20172023 increased $500 thousand,$3.8 million, or 1.9%11.3%, and $3.9increased $9.2 million, or 5.1%9.4%, respectively, compared to the same periods in 2016.2022. The increases during the three and nine months ended September 30, 20172023 were primarily relateddue to increases in net occupancy expense, salaries and wages, and employee benefits partly offset by decreases in other non-interest expense. The increase in net occupancy expense and decrease in other non-interest expense, were related to a change in the way we allocateemployee benefits expense and net occupancy expenses among our operating segments. Beginning in 2017, operating segments receive a direct charge for occupancy expense based upon cost centers within the segment. Such amounts are now reported as occupancy expense. Previously, these costs were included within the allocated overhead and reported as a component of other non-interest expense. The increases in salaries and wages were primarily due to an increase in salaries, due to annual merit and market increases, as well as increases in commission expense, among other things. The increase in other non-interest expense during the three months ended September 30, 2023 was primarily related increases in sundry and other miscellaneous expenses and professional service expense, among other things. The increase in other non-interest expense during the nine months ended September 30, 2023 was primarily related to an increase in the corporate overhead expense allocation and an increase in professional service expense, among other things. The increases in employee benefits during the three and nine months ended September 30, 20172023 were primarily related to an increases in the number of employeesmedical benefits expense, payroll taxes, defined benefit plan expense and normal annual merit and market increases.401(k) plan expense, among other things. The increases in employee benefitsnet occupancy expense during the three and nine months ended September 30, 20172023 were primarily related to increases in payroll taxes, expenses related to our defined benefit retirement plans and medical insurancelease expense.
Non-Banks
The Non-Banks operating segment had a net losslosses of $1.7$3.6 million and $5.1$10.3 million for the three and nine months ended September 30, 2017, respectively, compared to a net loss of $925 thousand and $3.7 million for the same periods in 2016. The increases in net loss during the three and nine months ended September 30, 20172023, respectively, compared to net loss of $2.6 million and $8.2 million during the same respective periods in 2022. The increases in net losses during the three and nine months ended September 30, 2023 were primarily due to increases in net interest expense due to an increase in the interestaverage rates paid on our long-term borrowings.
Income Taxes
WeDuring the three months ended September 30, 2023, we recognized income tax expense of $9.9 million and $35.1$31.3 million, for an effective tax rate of 9.6% and 11.8% for the three and nine months ended September 30, 201716.8%, compared to $10.9 million and $28.6$27.7 million, for an effective tax rate of 11.9% and 11.5%14.0%, for the three andsame period in 2022. During the nine months ended September 30, 2016.2023, we recognized income tax expense of $96.3 million, for an effective tax rate of 16.3%, compared to $61.0 million, for an effective tax rate of 13.6%, for the same period in 2022. The effective income tax rates differed from the U.S. statutory federal income tax rate of 35%21% during the comparable periods2023 and 2022 primarily due to the effect of tax-exempt income from securities, loans securities and life insurance policies and the income tax effects associated with stock-based compensation.compensation, among other things, and their relative proportion to total pre-tax net income. The decreaseincreases in income tax expense and the effective tax raterates during the three months ended September 30, 2017 compared to the same period in 2016 was primarily related to the correction of an over-accrual of taxes that resulted from incorrectly classifying certain tax-exempt loans as taxable for federal income tax purposes since 2013. As a result, we recognized tax benefits totaling $3.7 million, which included $2.9 million related to the 2013 through 2016 tax years and $756 thousand related to the first and second quarters of 2017. The increase in income tax expense and the effective tax rate during the nine months ended September 30, 20172023 was primarily related to an increase in totalprojected pre-tax net income withand, to a higher proportion of taxable income relative to tax-exempt income, partly offset by the effect of the aforementionedlesser extent, increases in disallowed deposit interest expense and deposit insurance premiums and a decrease in discrete tax benefits related to tax-exempt loans. Excluding the effect of the corrections related to tax-exempt loan interest, our effective tax rates would have been 13.2% and 12.7% for the three and nine months ended September 30, 2017, respectively.associated with stock-based compensation, among other things.
Excluding the deferred tax effects related to other comprehensive income, net deferred tax assets totaled $59.9 million at September 30, 2017. This amount is based upon the current statutory federal income tax rate of 35%. There have been recent legislative proposals to reduce the statutory federal income tax rate. While there can be no assurance that a reduction will ultimately occur, any such reduction in the statutory federal income tax rate would impact the carrying value of our net deferred tax assets with a corresponding charge to income tax expense.
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Average Balance Sheet
Average assets totaled $30.2$49.8 billion for the nine months ended September 30, 20172023 representing an increasea decrease of $1.7$1.4 billion, or 6.1%2.8%, compared to average assets for the same period in 2016. The growth in average2022. Earning assets was primarily funded by deposit growth, an increase in average federal funds purchased and repurchase agreements and earnings retention. The increase was primarily reflected in earning assets, which increaseddecreased $1.7 billion, or 6.6%3.6%, during the first nine months of 2017ended September 30, 2023 compared to the same period in 2016.2022. The increasedecrease in earning assets included an $821.8 million increase in average loans,was primarily related to a $648.9 million increase in average tax-exempt securities, and a $384.9 million increase$5.8 billion decrease in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and a $335.7 million decrease in tax-exempt securities partly offset by a $133.6$3.3 billion increase in average taxable securities and a $1.0 billion increase in average loans. Average deposits decreased $3.0 billion, or 6.7%, during nine months ended September 30, 2023 compared to the same period in 2022. The decrease included a $2.7 billion decrease in non-interest-bearing deposits and a $262.8 million decrease in average taxable securities.interest-bearing deposits. Average deposit growth included an $832.2 million increase in non-interest bearing deposits and a $699.7 million increase in interest-bearing deposit accounts. Average non-interest bearingnon-interest-bearing deposits made up 41.7%37.5% and 40.9%41.1% of average total deposits during the first nine months of 2017ended September 30, 2023 and 2016,2022, respectively.
Loans
Details of our loan portfolio are presented in Note 3 - Loans were as follows as ofin the dates indicated:
 September 30,
2017		 
Percentage
of Total
 December 31,
2016		 
Percentage
of Total
Commercial and industrial$4,677,923
 36.8% $4,344,000
 36.3%
Energy:       
Production1,094,927
 8.6
 971,767
 8.1
Service159,893
 1.3
 221,213
 1.8
Other132,240
 1.0
 193,081
 1.7
Total energy1,387,060
 10.9
 1,386,061
 11.6
Commercial real estate:       
Commercial mortgages3,714,172
 29.2
 3,481,157
 29.1
Construction1,082,229
 8.5
 1,043,261
 8.7
Land307,701
 2.4
 311,030
 2.6
Total commercial real estate5,104,102
 40.1
 4,835,448
 40.4
Consumer real estate:       
Home equity loans357,542
 2.8
 345,130
 2.9
Home equity lines of credit288,981
 2.3
 264,862
 2.2
Other367,948
 2.9
 326,793
 2.7
Total consumer real estate1,014,471
 8.0
 936,785
 7.8
Total real estate6,118,573
 48.1
 5,772,233
 48.2
Consumer and other522,748
 4.2
 473,098
 3.9
Total loans$12,706,304
 100.0% $11,975,392
 100.0%
accompanying notes to consolidated financial statements included elsewhere in this report. Loans increased $730.9 million,$1.2 billion, or 6.1%7.3%, compared tofrom $17.2 billion at December 31, 2016.2022 to $18.4 billion at September 30, 2023. The majority of our loan portfolio is comprised of commercial and industrial loans, energy loans, and real estate loans. Commercial and industrial loans made up 36.8% and 36.3% of total loans at September 30, 2017 and December 31, 2016, respectively, while energy loans made up 10.9% and 11.6% of total loans, respectively, and real estate loans made up 48.1% and 48.2% of total loans, respectively, at those dates. Real estate loans include both commercial and consumer balances. Selected details related to our loan portfolio segments are presented below. Refer to our 20162022 Form 10-K for a more detailed discussion of our loan origination and risk management processes.
Commercial and industrial.Industrial. Commercial and industrial loans increased $333.9$162.1 million, or 7.7%2.9%, during the first nine months of 2017.from $5.7 billion at December 31, 2022 to $5.8 billion at September 30, 2023. 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 commercial leases and purchased shared national credits ("SNC"s).
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 $999 thousand,$81.1 million, or 0.1%8.8%, during the first nine months of 2017 compared tofrom $925.7 million at December 31, 2016. The increase was related2022 to an increase in production$1.0 billion at September 30, 2023. Energy loans mostly offset by decreases in service and other loans.are one of our largest industry concentrations totaling 5.5% of total loans at September 30, 2023, up from 5.4% of total loans at December 31, 2022. 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 SNCs.
Purchased Shared National Credits. Purchased shared national credits SNCs are participations purchased from upstream financial organizations and tend to be larger in size than our originated portfolio. Our purchased SNC portfolio totaled $795.4$789.3 million at September 30, 2017, increasing $23.32023, decreasing $1.2 million, or 3.0%0.2%, from $772.2$790.5 million at December 31, 2016.2022. At September 30, 2017, 53.4%2023, 35.1% of outstanding purchased SNCs were related to the energyconstruction industry and 16.4% of outstanding purchased SNCswhile 19.3% were related to the constructionenergy industry, and 16.7% 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 portfolio, with the remainder included in the real estate categories. SNC participations are originated in the normal course of business to meet the needs of 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.
Commercial Real Estate. Commercial real estate loans totaled $5.1increased $555.1 million, or 6.8%, from $8.2 billion at December 31, 2022 to $8.7 billion at September 30, 2017, increasing $268.7 million compared to $4.8 billion at December 31, 2016. At such dates, commercial2023. Commercial real estate loans represented 83.4% and 83.8%78.9% of total real estate loans respectively.at September 30, 2023 compared to 81.6% at December 31, 2022. The majority of thisour commercial real estate loan portfolio consists of commercial real estate mortgages, which includes both permanent and intermediate term loans. 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. At September 30, 2017,2023, approximately 51%49.6% of the outstanding principal balance of our commercial real estate loans were secured by owner-occupied properties.
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Consumer Real Estate and Other Consumer Loans. The consumer loan portfolio, including all consumer real estate and consumer installment loans, totaled $1.5loan portfolio increased $495.8 million, or 26.9%, from $1.8 billion at December 31, 2022 to $2.3 billion at September 30, 2017 and $1.4 billion at December 31, 2016. Consumer real estate loans, increased $77.7 million, or 8.3%, from December 31, 2016.2023. Combined, home equity loans and lines of credit made up 63.7%60.5% and 65.1%61.9% of the consumer real estate loan total at September 30, 20172023 and December 31, 2016,2022, 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,Prior to 2023, we dodid not generally originate 1-4 family mortgage loans; however, from time to time, we maydid invest in such loans to meet the needs of our customers or for other regulatory compliance purposes. We began offering 1-4 family mortgage loans to our employees during the first quarter of 2023 and have since gradually expanded our production of 1-4 family mortgage loans for customers. We expect our 1-4 family mortgage operations to be fully implemented across our markets by the end of 2023. Our 1-4 family mortgage loan production is intended to be for portfolio investment purposes. Nonetheless, 1-4 family mortgage loans are not a significant component of our consumer real estate portfolio. Consumer and other loans increased $49.7decreased $33.0 million, or 10.5%6.7%, from December 31, 2016.2022. The consumer and other loan portfolio primarily consists of automobile loans, overdrafts, unsecured revolving credit products, personal loans secured by cash and cash equivalents and other similar types of credit facilities.

Paycheck Protection Program. We have originated 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. Refer to the 2022 Form 10-K for additional details.
Non-Performing Assets
Non-performing assets and accruingAccruing Past Due Loans. Accruing past due loans are presented in the table below. Troubled debt restructurings on non-accrual status are reported as non-accrual loans. Troubled debt restructurings on accrual status are reported separately.following tables. 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
September 30, 2023
Commercial and industrial$5,836,877 $13,873 0.24 %$5,404 0.09 %$19,277 0.33 %
Energy1,006,859 1,684 0.17 — — 1,684 0.17 
Paycheck Protection Program17,945 2,000 11.15 1,954 10.89 3,954 22.04 
Commercial real estate:
Buildings, land, and other7,193,785 9,368 0.13 1,056 0.01 10,424 0.14 
Construction1,544,666 8,523 0.55 — — 8,523 0.55 
Consumer real estate2,339,363 12,106 0.52 6,801 0.29 18,907 0.81 
Consumer and other459,764 5,041 1.10 523 0.11 5,564 1.21 
Total$18,399,259 $52,595 0.29 $15,738 0.09 $68,333 0.38 
Excluding PPP loans$18,381,314 $50,595 0.28 $13,784 0.07 $64,379 0.35 
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 
 September 30,
2017		 December 31,
2016
Non-accrual loans:   
Commercial and industrial$37,239
 $31,475
Energy96,717
 57,571
Commercial real estate:   
Buildings, land and other6,773
 8,550
Construction—
 —
Consumer real estate2,167
 2,130
Consumer and other208
 425
Total non-accrual loans143,104
 100,151
Restructured loans4,815
 —
Foreclosed assets:   
Real estate2,094
 2,440
Other—
 —
Total foreclosed assets2,094
 2,440
Total non-performing assets$150,013
 $102,591
    
Ratio of non-performing assets to:   
Total loans and foreclosed assets1.18% 0.86%
Total assets0.48
 0.34
Accruing past due loans:   
30 to 89 days past due$52,044
 $55,456
90 or more days past due27,121
 24,864
Total accruing past due loans$79,165
 $80,320
Ratio of accruing past due loans to total loans:   
30 to 89 days past due0.41% 0.46%
90 or more days past due0.21
 0.21
Total accruing past due loans0.62% 0.67%
Non-performing assets include non-accrualAccruing past due loans troubled debt restructurings and foreclosed assets. Non-performing assets at September 30, 20172023 decreased $33.6 million compared to December 31, 2022. The decrease was primarily related to decreases in past due commercial real estate - buildings, land, and other loans (down $18.8 million); past due commercial and industrial loans (down $17.1 million); and past due PPP loans (down $15.2 million) partly offset by increases in past due consumer real estate loans (up $8.7 million) and past due commercial real estate - construction loans (up $8.5 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 $18.4 million.
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Non-Accrual Loans. Non-accrual loans are presented in the table below. Also see in Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.
September 30, 2023December 31, 2022
Non-Accrual LoansNon-Accrual Loans
Total
Loans		AmountPercent of Loans in CategoryTotal
Loans		AmountPercent of Loans in Category
Commercial and industrial$5,836,877 $27,326 0.47 %$5,674,798 $18,130 0.32 %
Energy1,006,859 14,200 1.41 925,729 15,224 1.64 
Paycheck Protection Program17,945 — — 34,852 — — 
Commercial real estate:
Buildings, land, and other7,193,785 23,112 0.32 6,706,078 3,552 0.05 
Construction1,544,666 — — 1,477,247 — — 
Consumer real estate2,339,363 2,537 0.11 1,843,539 927 0.05 
Consumer and other459,764 — — 492,726 — — 
Total$18,399,259 $67,175 0.37 $17,154,969 $37,833 0.22 
Allowance for credit losses on loans$242,235 $227,621 
Ratio of allowance for credit losses on loans to non-accrual loans360.60 %601.65 %
Non-accrual loans at September 30, 2023 increased $47.4$29.3 million from December 31, 20162022 primarily due to an increase in non-accrual energycommercial real estate - buildings, land, and other loans, which was mostly related to a single credit relationship; and, to a lesser extent, non-accrual commercial and industrial loans. Non-accrual energy loans included four credit relationships in excess of $5 million totaling $86.4 million at September 30, 2017. Of this amount, $29.0 million related to two credit relationships that were previously reported as non-accrual at December 31, 2016 and $57.5 million related to two credit relationships that were placed on non-accrual status during the third quarter of 2017, one of which was a $43.1 million credit relationship that was previously reported as a potential problem loan at June 30, 2017. Non-accrual energy loans included four credit relationships in excess of $5 million totaling $52.1 million at December 31, 2016. Of this amount, we charged-off a total of $10.0 million related to two credit relationships during the first and second quarters of 2017. The outstanding balance of these two credit relationships was $20.5 million at December 31, 2016. Subsequent to the charge-off, the remaining balance of one of these credit relationships was paid-off. The outstanding balance of the other credit relationship totaled $4.9 million at September 30, 2017 and is included in non-accrual energy loans in the table above. Non-accrual commercial and industrial loans included one credit relationship in excess of $5 million totaling $22.0 million at September 30, 2017. This credit relationship was placed on non-accrual status during the third quarter of 2017 and was previously classified as “substandard - accrual” (risk grade 11) at June 30, 2017, though not reported as a potential problem at that time. Non-accrual commercial and industrial loans included one credit relationship in excess of $5 million totaling $9.8 million at December 31, 2016. Of this amount, we charged-off $4.7 million during the third quarter of 2017. The outstanding balance of this credit relationship totaled $4.9 million at September 30, 2017 and is includedincreases in non-accrual commercial and industrial loans in the table above. Non-accrualand consumer real estate loans primarily consist of land development, 1-4 family residential construction credit relationships and loans secured by office buildings and religious facilities.loans.
Generally, loans are placed on non-accrual status if principal or interest payments become 90 days past due and/or management deems the collectibility of the principal and/or interest to be in question, as well as when required by regulatory requirements. Once interest accruals are discontinued, accrued but uncollected interest is charged to current year operations. Subsequent receipts

on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Classification of a loan as non-accrual does not preclude the ultimate collection of loan principal or interest. Non-accrual commercial and industrial loans included one credit relationship in excess of $5.0 million totaling $15.9 million at September 30, 2023, while there were no non-accrual commercial and industrial loans in excess of $5.0 million at December 31, 2022. Non-accrual energy loans included one credit relationship in excess of $5.0 million totaling $6.3 million at September 30, 2023. There were two non-accrual energy loan relationships in excess of $5.0 million with an aggregate balance of $11.1 million at December 31, 2022. The aggregate balance of these loans totaled $6.4 million at September 30, 2023 and neither credit relationship exceeded $5.0 million as of that date. The decreases in the aggregate balance of these credit relationship were related to principal payments made by these borrowers. Non-accrual real estate loans primarily consist of land development, 1-4 family residential construction credit relationships and loans secured by office buildings and religious facilities. There was one non-accrual commercial real estate loan in excess of $5.0 million totaling $17.7 million at September 30, 2023, while there were no non-accrual commercial real estate loans in excess of $5.0 million at December 31, 2022.
Foreclosed
Allowance for Credit Losses
In the case of loans and securities, allowances for credit losses are contra-asset valuation accounts, calculated in accordance with Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses, that are deducted from the amortized cost basis of these assets represent property acquired asto present the resultnet amount expected to be collected. In the case 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 againstoff-balance-sheet credit exposures, the allowance for loan losses. Regulatory guidelines require us to reevaluate the fair value of foreclosed assets on at least an annual basis. Our policycredit losses is to comply with the regulatory guidelines. Write-downs are provided for subsequent declines in value and are included in other non-interest expense along with other expenses related to maintaining the properties. Write-downs of foreclosed assets were not significant during the nine months ended September 30, 2017 or 2016.
Potential problem loans consist of loans that are performinga liability account, calculated in accordance with contractual terms but for which management has concerns about the abilityASC 326, reported as a component of an obligor to continue to comply with repayment terms becauseaccrued interest payable and other liabilities in our consolidated balance sheets. The amount of the obligor’s potential operating or financial difficulties. Management monitors these loans closely and reviews their performance on a regular basis. At September 30, 2017 and December 31, 2016, we had $89.7 million and $62.7 million in loans of this type which are not included in any one of the non-accrual, restructured or 90 days past due loan categories. At September 30, 2017, potential problem loans consisted of seven credit relationships. Of the total outstanding balance at September 30, 2017, 32.5% was related to the energy industry, 24.8% was related to the manufacturing industry and 13.9% was related to the chemicals industry. Weakness in these organizations’ operating performance and financial condition, loan agreement breaches and borrowing base deficits for certain energy credits, among other factors, have caused us to heighten the attention given to these credits.
Allowance for Loan Losses
Theeach allowance for loan losses is a reserve established through a provision for loan losses charged to expense, whichaccount represents management’smanagement's best estimate of inherentcurrent expected credit losses that have been incurred within(“CECL”) on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the existing portfoliocontractual term of loans. Thethe instrument. Relevant available information includes historical credit loss experience, current conditions, and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions, or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. See our 2022 Form 10-K for additional information regarding our accounting policies
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related to credit losses. Also see Note 3 - Loans in the judgmentaccompanying notes to consolidated financial statements for information related to model updates during the first quarter of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. Our allowance for loan loss methodology, which is more fully described in our 2016 Form 10-K, follows the accounting guidance set forth in U.S. generally accepted accounting principles and the Interagency Policy Statement on the 2023.
Allowance for Loan and LeaseCredit Losses which was jointly issued by U.S. bank regulatory agencies. 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.
- Loans. The table below provides, as of the dates indicated, an allocation of the allowance for loan losses 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:segments.
Amount of Allowance AllocatedPercent of Loans in Each Category to Total LoansTotal
Loans		Ratio of Allowance Allocated to Loans in Each Category
September 30,
2017		 December 31,
2016
September 30, 2023September 30, 2023
Commercial and industrial$48,437
 $52,915
Commercial and industrial$74,307 31.7 %$5,836,877 1.27 %
Energy51,913
 60,653
Energy17,066 5.5 1,006,859 1.69 
Paycheck Protection ProgramPaycheck Protection Program— 0.1 17,945 — 
Commercial real estate38,075
 30,213
Commercial real estate126,492 47.5 8,738,451 1.45 
Consumer real estate6,875
 4,238
Consumer real estate15,039 12.7 2,339,363 0.64 
Consumer and other9,003
 5,026
Consumer and other9,331 2.5 459,764 2.03 
Total$154,303
 $153,045
Total$242,235 100.0 %$18,399,259 1.32 
December 31, 2022December 31, 2022
Commercial and industrialCommercial and industrial$104,237 33.1 %$5,674,798 1.84 %
EnergyEnergy18,062 5.4 925,729 1.95 
Paycheck Protection ProgramPaycheck Protection Program— 0.2 34,852 — 
Commercial real estateCommercial real estate90,301 47.7 8,183,325 1.10 
Consumer real estateConsumer real estate8,004 10.7 1,843,539 0.43 
Consumer and otherConsumer and other7,017 2.9 492,726 1.42 
TotalTotal$227,621 100.0 %$17,154,969 1.33 
The reserveallowance allocated to commercial and industrial loans totaled $74.3 million, or 1.27% of total commercial and industrial loans, at September 30, 20172023 decreasing $29.9 million, or 28.7%, compared to $104.2 million, or 1.84% of total commercial and industrial loans, at December 31, 2022. Modeled expected credit losses decreased $4.5$16.5 million while qualitative factor (“Q-Factor”) and other qualitative adjustments related to commercial and industrial loans decreased $12.7 million. Specific allocations for commercial and industrial loans that were evaluated for expected credit losses on an individual basis decreased $720 thousand from $6.1 million at December 31, 2022 to $5.4 million at September 30, 2023. The decrease in specific allocations for commercial and industrial loans was primarily related to the recognition of charge-offs partly offset by new specific allocations for new individually assessed loans.
The allowance allocated to energy loans totaled $17.1 million, or 1.69% of total energy loans, at September 30, 2023 decreasing $996 thousand, or 5.5%, compared to $18.1 million, or 1.95% of total energy loans, at December 31, 2022. Modeled expected credit losses related to energy loans decreased $1.5 million while Q-Factor and other qualitative adjustments related to energy loans increased $2.2 million. Specific allocations for energy loans that were evaluated for expected credit losses on an individual basis totaled $2.7 million at September 30, 2023 decreasing $1.7 million compared to $4.4 million on December 31, 2022. The decrease in specific allocations for energy loans was related to principal payments received and loans no longer requiring a specific allocation.
The allowance allocated to commercial real estate loans totaled $126.5 million, or 1.45% of total commercial real estate loans, at September 30, 2023 increasing $36.2 million, or 40.1%, compared to $90.3 million, or 1.10% of total commercial real estate loans, at December 31, 2022. Modeled expected credit losses related to commercial real estate loans decreased $10.6 million while Q-Factor and other qualitative adjustments related to commercial real estate loans increased $47.1 million. Specific allocations for commercial real estate loans that were evaluated for expected credit losses on an individual basis decreased from $1.7 million at December 31, 2022 to $1.4 million at September 30, 2023. The decrease in specific allocations for commercial real estate loans was related to principal payments received and loans no longer requiring a specific allocation partly offset by new specific allocations for new individually assessed loans.
The allowance allocated to consumer real estate loans totaled $15.0 million, or 0.64% of total consumer real estate loans, at September 30, 2023 increasing $7.0 million, or 87.9%, compared to $8.0 million, or 0.43% of total consumer real estate loans, at December 31, 2022. Modeled expected credit losses related to consumer real estate loans increased $6.4 million while Q-Factor and other qualitative adjustments related to consumer real estate loans increased $341 thousand.

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The allowance allocated to consumer loans totaled $9.3 million, or 2.03% of total consumer loans, at September 30, 2023 increasing $2.3 million, or 33.0%, compared to $7.0 million, or 1.42% of total consumer loans, at December 31, 2022. Modeled expected credit losses related to consumer loans increased $275 thousand while Q-Factor and other qualitative adjustments increased $2.0 million, which was primarily due to an increase in the consumer overlay, which is further discussed below.
As more fully described in our 2022 Form 10-K, we measure expected credit losses over the life of each loan utilizing a combination of models which measure probability of default and loss given default, among other things. The measurement of expected credit losses is impacted by loan/borrower attributes and certain macroeconomic variables. Models are adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period.
In estimating expected credit losses as of September 30, 2023, we utilized the Moody’s Analytics September 2023 Consensus Scenario (the “September 2023 Consensus Scenario”) to forecast the macroeconomic variables used in our models. The September 2023 Consensus Scenario was based on the review of a variety of surveys of baseline forecasts of the U.S. economy. The September 2023 Consensus Scenario projections included, among other things, (i) U.S. Nominal Gross Domestic Product annualized quarterly growth rate of 3.13% during the remainder of 2023 followed by average annualized quarterly growth rates of 2.91% in 2024 and 4.31% through the end of the forecast period in the third quarter of 2025; (ii) average U.S. unemployment rate of 4.03% during the remainder of 2023 followed by average annualized quarterly rates of 4.52% in 2024 and 4.36% through the end of the forecast period in the third quarter of 2025; (iii) average Texas unemployment rate of 4.25% during the remainder of 2023 followed by average annualized quarterly rates of 4.38% in 2024 and 4.15% through the end of the forecast period in the third quarter of 2025; (iv) projected average 10 year Treasury rate of 4.18% during the remainder of 2023, decreasing to 3.94% during 2024 and 3.66% through the end of the forecast period in the third quarter of 2025 and (v) average oil price of $78.95 per barrel during the remainder of 2023, increasing to $79.15 per barrel in 2024 and decreasing to $78.59 per barrel by the end of the forecast period in the third quarter of 2025.
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 our models. The December 2022 Baseline Scenario was based on the most likely outcome based on prevailing economic conditions and Moody's forecast of the U.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 end of the forecast 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.
The overall loan portfolio as of September 30, 2023 increased $1.2 billion, or 7.3%, compared to December 31, 2016. The decrease was due to decreases2022. This increase included a $555.1 million, or 6.8%, increase in historicalcommercial real estate loans; a $495.8 million, or 26.9%, increase in consumer real estate loans; a $162.1 million, or 2.9%, increase in commercial and specific valuation allowancesindustrial loans; and an $81.1 million, or 8.8%, increase in energy loans; partly offset by increasesa $33.0 million, or 6.7%, decrease in macroeconomic valuation allowancesconsumer and general valuation allowances. Historical valuation allowances decreased $6.1 million from $33.3 million at December 31, 2016 to $27.2 million at September 30, 2017. other loans.
The decrease was primarily related to decreases in the historical loss allocation factorsweighted average risk grade for non-classified loans graded as “watch” (risk grade 9) and “special mention” (risk grade 10) and classified commercial and industrial loans increased to 6.46 at September 30, 2023 from 6.39 at December 31, 2022. The increase was partly offset by increasesrelated to an increase in the volumeweighted-average risk grade of certain categories of both non-classifiedpass-grade commercial and industrial loans, which increased to 6.29 at September 30, 2023 from 6.24 at December 31, 2022, and a $48.9 million increase in higher-risk grade classified loans. Classified loans consist of loans having a risk grade of 11, 12 or 13. ClassifiedThe impact of the increase in the volume of classified commercial and industrial loans totaled $150.5 million at September 30, 2017 compared to $131.9 million at December 31, 2016. The weighted-average risk grade of commercial and industrial loans was 6.38 at September 30, 2017 compared to 6.35 at December 31, 2016. Commercial loan net charge-offs totaled $12.2 million during the first nine months of 2017 compared to $8.2 million during the first nine months of 2016. Specific valuation allowances decreased $3.8 million from $5.4 million at December 31, 2016 to $1.7 million at September 30, 2017. Charge-offs in 2017 included $3.6 million related to two credit relationships that, as of December 31, 2016, had associated specific valuation allowances totaling $3.5 million. Charge-offs in 2017 also included $7.4 million related to two credit relationships for which we had no specific allocation as of December 31, 2016, or at the time of charge-off. Macroeconomic valuation allowances for commercial and industrial loans increased $4.7 million from $7.5 million at December 31,

2016 to $12.2 million at September 30, 2017. The increase was primarily related to an increase in the general macroeconomic allocation (up $5.5 million) partly offset by a decrease in the environmentalweighted-average risk adjustment (down $980 thousand). The general macroeconomic risk allocationgrade of such loans from 11.43 at December 31, 2022 to 11.31 at September 30, 2017 was partly impacted by the effect of hurricane Harvey on our Houston and Corpus Christi market areas. General valuation allowances2023. The weighted-average risk grade for commercial and industrialenergy loans increased $689 thousandto 6.10 at September 30, 2023 from $6.7 million5.67 at December 31, 20162022. Pass grade energy loans increased $16.5 million while the weighted-average risk grade of such loans increased from 5.44 at December 31, 2022 to $7.4 million5.67 at September 30, 2017.2023. The increase was primarily relatedweighted average risk grade for commercial real estate loans increased to increases in the allocations for highly leveraged credit relationships, large credit relationships and loans not reviewed by concurrence combined with a decrease in the adjustment for recoveries. These items were partly offset by a decrease in the allocation for excessive industry concentrations.
The reserve allocated to energy loans7.22 at September 30, 2017 decreased $8.7 million compared to2023 from 7.10 at December 31, 2016. As a result, reserves allocated2022. Pass grade commercial real estate loans increased $462.5 million while the weighted-average risk grade of such loans increased from 6.96 at December 31, 2022 to energy loans as a percentage of total energy loans totaled 3.74%7.05 at September 30, 2017 compared to 4.38% at December 31, 2016. This decrease was primarily related to decreases in historical valuation allowances and macroeconomic valuation allowances and partly offset by increases in specific valuation allowances and general valuation allowances. Historical valuation allowances decreased $12.7 million from $34.6 million at December 31, 2016 to $21.9 million at September 30, 2017. The decrease was primarily related to decreases in the volume of classified energy loans and higher risk categories of non-classified energy loans partly offset by increases in the historical loss allocation factors for both non-classified and classified energy loans. Classified energy loans totaled $190.7 million at September 30, 2017 compared to $302.0 million at December 31, 2016, decreasing $111.2 million. Non-classified energy2023. Commercial real estate loans graded as “watch” and “special mention” totaled $114.0increased $12.8 million atwhile classified commercial real estate loans increased $79.8 million.

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As noted above, our credit loss models utilized the economic forecasts in the Moody's September 2023 Consensus Scenario for our estimated expected credit losses as of September 30, 2017 compared to $229.4 million at2023 and the Moody’s December 2022 Baseline Scenario for our estimate of expected credit losses as of December 31, 2016, decreasing $115.4 million, while "pass" grade energy loans increased $227.7 million from $854.7 million at December 31, 20162022. 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 qualitative factor, or Q-Factor, adjustments are discussed below.
Q-Factor adjustments are based upon management's judgment and current assessment as to $1.1 billion at September 30, 2017.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 these changes, the weighted-average risk gradethis assessment as of energy loans decreased to 7.21 at September 30, 2017 from 7.952023, modeled expected credit losses were adjusted upwards by a weighted-average Q-Factor adjustment of approximately 4.5%, resulting in a $3.8 million total adjustment, compared to 2.3% at December 31, 2016. Macroeconomic valuation allowances2022, which resulted in a $2.3 million total adjustment. The increase in the Q-Factor adjustment percentage as of September 30, 2023 was largely related to energy loans decreased $6.4 million from $18.5 million at December 31, 2016 to $12.1 million ata generally more negative outlook associated with national, regional and local economic and business conditions and developments that affect the collectability of loans; changes in loan portfolio concentrations; changes in the volumes and severity of loan delinquencies; changes in risk grades and adverse classifications; and the potential for deterioration of collateral values, among other things.
We have also provided additional qualitative adjustments, or management overlays, as of September 30, 2017, in part due to improving trends2023 as management believes there are still significant risks impacting certain categories of our loan portfolio. Q-Factor and other qualitative adjustments as of September 30, 2023 are detailed in the weighted-averagetable below.
Q-Factor AdjustmentModel OverlaysOffice Building OverlaysDown-Side Scenario OverlayCredit Concentration OverlaysConsumer OverlayTotal
Commercial and industrial$1,816 $— $— $14,802 $6,929 $— $23,547 
Energy283 — — — 7,018 — 7,301 
Commercial real estate:
Owner occupied445 25,008 — — 626 — 26,079 
Non-owner occupied243 35,162 11,110 — 1,076 — 47,591 
Construction487 28,261 5,400 — 862 — 35,010 
Consumer real estate498 — — — — — 498 
Consumer and other73 — — — — 4,000 4,073 
Total$3,845 $88,431 $16,510 $14,802 $16,511 $4,000 $144,099 
Model overlays are qualitative adjustments to address the effects 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 loans. In the case of our commercial real estate - owner occupied loan portfolio, we determined a minimum reserve ratio is appropriate to address the effect of the model's over-sensitivity to positive changes in certain economic variables. After analysis and benchmarking against peer bank data, we believe the modeled results may be overly optimistic and not appropriately capturing downside risk. As such, we determined that the appropriate forecasted loss rate for our owner-occupied commercial real estate loan portfolio should be more closely aligned with that of our commercial and industrial loan portfolio. In the case of our commercial real estate - non-owner occupied and commercial real estate - construction loan portfolios, we determined minimum reserve ratios are appropriate as we believe the modeled results are not appropriately capturing the downside risk associated with our borrowers' ability to access the capital markets for the sale or refinancing of investor real estate and assets currently under construction. We believe access to capital may be impaired for a significant amount of time. Accordingly, this would require secondary sources of liquidity and capital to support completed projects that may take considerably longer to stabilize than originally underwritten. Furthermore, rapidly rising interest rates have presented a new emerging risk as most non-owner occupied and construction loans are originated with floating interest rates.
Office building overlays are qualitative adjustments to address longer-term concerns over the utilization of commercial office space which could impact the long-term performance 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.

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The down-side scenario overlay is a qualitative adjustment for our commercial and industrial loan 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 global wars/military conflicts, 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 September 30, 2023, we used the Moody’s Analytics September S3 Alternative Scenario Downside - 90th Percentile. In modeling expected credit losses using this scenario, we also assume each non-classified 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 energyprimary 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 address 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 decreased oil price volatility. 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 price per barrelconsumer overlay is a qualitative adjustment for our consumer and other loan portfolio to address the risk associated with the level of crude oilunsecured 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 approximately $54 atdetermined 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.
As of December 31, 20162022, we provided qualitative adjustments, as detailed in the table below. Further information regarding these qualitative adjustments is provided in our 2022 Form 10-K.
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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Additional information related to credit loss expense and $52 atnet (charge-offs) recoveries is presented in the tables below. Also see Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.
Credit Loss Expense (Benefit)Net
(Charge-Offs)
Recoveries		Average
Loans		Ratio of Annualized Net (Charge-Offs)
Recoveries to Average Loans
Three months ended:
September 30, 2023
Commercial and industrial$(623)$(236)$5,742,644 (0.02)%
Energy1,784 353 985,432 0.14 
Paycheck Protection Program— — 19,924 — 
Commercial real estate5,424 142 8,502,967 0.01 
Consumer real estate2,130 (126)2,251,932 (0.02)
Consumer and other4,893 (5,125)462,444 (4.40)
Total$13,608 $(4,992)$17,965,343 (0.11)
September 30, 2022
Commercial and industrial$10,844 $716 $5,501,675 0.05 %
Energy2,491 93 971,418 0.04 
Paycheck Protection Program— — 70,896 — 
Commercial real estate(16,522)23 8,147,431 — 
Consumer real estate940 241 1,630,568 0.06 
Consumer and other(216)(3,927)500,945 (3.11)
Total$(2,463)$(2,854)$16,822,933 (0.07)
Nine months ended:
September 30, 2023
Commercial and industrial$(18,903)$(11,027)$5,705,645 (0.26)%
Energy(1,683)687 1,023,472 0.09 
Paycheck Protection Program— — 26,033 — 
Commercial real estate35,918 273 8,346,397 — 
Consumer real estate7,235 (200)2,079,406 (0.01)
Consumer and other15,649 (13,335)470,967 (3.79)
Total$38,216 $(23,602)$17,651,920 (0.18)
September 30, 2022
Commercial and industrial$29,347 $(2,608)$5,495,705 (0.06)%
Energy874 760 1,021,927 0.10 
Paycheck Protection Program— — 171,591 — 
Commercial real estate(44,363)34 7,932,491 — 
Consumer real estate1,497 (47)1,516,912 — 
Consumer and other10,250 (10,095)490,933 (2.75)
Total$(2,395)$(11,956)$16,629,559 (0.10)
We recorded a net credit loss expense related to loans totaling $38.2 million for the nine months ended September 30, 2017. Despite2023 while we recorded a net credit loss expense totaling $2.4 million during the overall decrease, macroeconomic valuation allowancessame period in 2022. 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 expense related to energy loans at September 30, 2017 were partly impacted by the effect of hurricane Harvey on our Houston and Corpus Christi market areas. Specific valuation allowances for energy loans increased $9.5 million from $3.8 million at December 31, 2016 to $13.3 million at September 30, 2017. Specific valuation allowances at September 30, 2017 were related to two credit relationships totaling $61.8 million while specific valuation allowances at December 31, 2016 were related to three credit relationships totaling $29.8 million. Energy loan net charge-offs totaled $10.0 million during the first nine months of 2017 compared2023 primarily reflects an increase in expected credit losses associated with commercial real estate loans, primarily related to increases in the minimum reserve ratios for our commercial real estate - non-owner occupied and construction portfolios. The net charge-offs of $18.6 millioncredit loss expense related to loans during the first nine months of 2016. The charge-offs in 2017 included $10.0 million2023 also reflects charge-off trends related to twocommercial and industrial loans as well as consumer and other loans (primarily related to overdrafts) and the additional expected credit relationships that, aslosses associated with our consumer real estate and consumer and other loan portfolios. The impact of December 31, 2016, had associated specific valuation allowances totaling $3.4 million. General valuation allowances increased $908 thousand primarily due to an increase in the allocation for excessive industry concentrationsthese items was partly offset by a decrease in expected credit losses associated with commercial and increase in the adjustment for recoveries.
The reserve allocated to commercial real estate loans at September 30, 2017 increased $7.9 million compared to December 31, 2016. The increase wasindustrial loans; primarily related to increasesdecreases in macroeconomic valuation allowances and historical valuation allowances. Macroeconomic valuation allowances increased $6.7 million from $8.2 million at December 31, 2016 to $14.9 million at September 30, 2017. The increase was primarily related to an increase in the general macroeconomic allocation (up $6.3 million)modeled expected losses and the environmental risk adjustment (up $503 thousand). The increase in macroeconomic valuation allowances reflects current economic trends impacting our Houston market area which has been impacted by decreased construction, higher rent concessions and higher vacancy rates. Macroeconomic valuation allowances were also partly impacted by the effect of hurricane Harvey on our Houston and Corpus Christi market areas. Historical valuation allowances increased $1.3 million primarily due to an increase in the volume of non-classified commercial real estate loans. Non-classified commercial real estate loans increased $267.5 million from December 31, 2016 to September 30, 2017 primarily due to an increase in commercial real estate loans graded as “pass.” Classified commercial real estate loans increased $1.2 million from $76.3 million at December 31, 2016 to $77.5 million at September 30, 2017 due to an increase in loans classified as “substandard - accrual” (risk grade 11). The weighted-average risk grade of commercial real estate loans was 6.98 at September 30, 2017 compared to 6.96 at December 31, 2016.
The reserve allocated to consumer real estate loans at September 30, 2017 increased $2.6 million compared to December 31, 2016. This increase was mostly due to a $1.9 million increase in macroeconomic valuation allowances, which was partly impacted by the effect of hurricane Harvey on our Houston and Corpus Christi market areas, and a $534 thousand increase in general valuation allowances, which was primarily related to an increase in allowances allocated for loans not reviewed by concurrencedown-side scenario overlay; and a decrease in the reduction for recoveries.
The reserve allocated to consumer and other loans at September 30, 2017 increased $4.0 million compared to December 31, 2016. The increase wasexpected credit losses associated with energy loans; primarily related to increasesdecreases in macroeconomic valuation allowances, historical valuation allowancesmodeled expected losses and to a lesser extent, an increase in general valuation allowances. The increase in macroeconomic valuation allowances was related to a $2.7 million increase in the general macroeconomic allocation, which was primarily related to growth in unsecured personal lines of credit, and also partly impacted by the effect of hurricane Harvey on our Houston and Corpus Christi market

areas. The increase in historical valuation allowances was primarily due to an increase in the volume of non-classified consumer and other loans. The increase in general valuation allowances was primarily related to an increase in the allocation for loans not reviewed by concurrence and a decrease in the adjustment for recoveries.
Activity in the allowance for loan losses is presented in the following table.specific allocations.
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 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Balance at beginning of period$149,558
 $149,714
 $153,045
 $135,859
Provision for loan losses10,980
 5,045
 27,358
 42,734
Charge-offs:       
Commercial and industrial(5,468) (4,036) (14,574) (10,754)
Energy—
 (884) (10,595) (18,644)
Commercial real estate—
 (9) (14) (56)
Consumer real estate(766) (287) (779) (464)
Consumer and other(4,120) (3,300) (11,291) (9,276)
Total charge-offs(10,354) (8,516) (37,253) (39,194)
Recoveries:       
Commercial and industrial903
 957
 2,419
 2,577
Energy451
 19
 585
 21
Commercial real estate268
 277
 790
 875
Consumer real estate137
 92
 357
 442
Consumer and other2,360
 2,185
 7,002
 6,459
Total recoveries4,119
 3,530
 11,153
 10,374
Net charge-offs(6,235) (4,986) (26,100) (28,820)
Balance at end of period$154,303
 $149,773
 $154,303
 $149,773
        
Ratio of allowance for loan losses to:       
Total loans1.21% 1.29% 1.21% 1.29%
Non-accrual loans107.83
 154.67
 107.83
 154.67
Ratio of annualized net charge-offs to average total loans0.20
 0.17
 0.28
 0.33
The provision for loan losses decreased $15.4 million, or 36.0%, during the nine months ended September 30, 2017 compared to the same period in 2016. The level of the provision for loan losses in 2016 was reflective of a significant increase in the volume of classified energy loans, specific valuation allowances taken on certain classified energy loans and increases in the weighted-average risk grades of our energy, commercial and industrial and commercial real estate loan portfolios. Classified energy, commercial and industrial and commercial real estate loans totaled $418.7 million at September 30, 2017 compared to $510.1 million at December 31, 2016 and $498.7 million at September 30, 2016. Specific valuation allowances related to energy, commercial and industrial and commercial real estate loans totaled $14.9 million at September 30, 2017 compared to $9.2 million at December 31, 2016 and $7.8 million at September 30, 2016. The overall weighted-average risk grade of our energy, commercial and industrial and commercial real estate loan portfolios was 6.76 at September 30, 2017 compared to 6.84 at December 31, 2016 and 6.85 at September 30, 2016. The level of the provision for loan losses during 2017 was mostly reflective of the level of net charge-offs during during the nine months ended September 30, 2017, which totaled $26.1 million. These charge-offs were mostly related to six credit relationships, as discussed above. The ratio of the allowance for loancredit losses on loans to total loans was 1.21%1.32% at September 30, 20172023 compared to 1.28%1.33% at December 31, 2016.2022. Management believes the recorded amount of the allowance for loancredit losses on loans is appropriate based upon management’s best estimate of probablecurrent expected credit losses that have been incurred within the existing portfolio of loans. Should any of the factors considered by management in evaluating the appropriate level of the allowance for loan lossesmaking this estimate change, our estimate of probable loancurrent expected 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 $50.4 million and $58.6 million at September 30, 2023 and December 31, 2022, 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. We recognized a net credit loss benefit related to off-balance-sheet credit exposures totaling $8.2 million during the nine months ended September 30, 2023 compared to a net credit loss expense of $2.4 million during the same period in 2022. Our policies and methodology used to estimate the allowance for credit losses on off-balance-sheet credit exposures are further described in our 2022 Form 10-K. This methodology was also impacted by the model updates during the first quarter of 2023 described in Note 3 - Loans in the accompanying notes to consolidated financial statements elsewhere in this report. The overall approximate impact of model updates during the first quarter was a $19.0 million decrease in modeled expected credit losses for off-balance-sheet credit exposures, though the impact of this decrease was largely offset with a qualitative adjustment similar to the model overlay described above for commercial real estate - construction loans.

Capital and Liquidity
Capital. Shareholders’ equity totaled $3.2$3.0 billion and $3.1 billion at September 30, 20172023 and $3.0 billion December 31, 2016. In addition to net income of $263.6 million, other sources2022, respectively. Sources of capital during the nine months ended September 30, 20172023 included $82.3net income of $495.4 million, of other comprehensive income, net of tax, $45.4$12.6 million related to stock-based compensation and $3.0 million in proceeds from stock option exercises and $9.0 million related to stock-based compensation.exercises. Uses of capital during the nine months ended September 30, 20172023 included $113.8an other comprehensive loss, net of tax, of $430.5 million; $177.6 million of dividends paid on preferred and common stock.stock; and $40.5 million of treasury stock purchases.
The accumulated other comprehensive income/loss component of shareholders’ equity totaled a net, after-tax, unrealized gainloss of $57.7 million$1.8 billion at September 30, 20172023 compared to a net, after-tax, unrealized loss of $24.6 million$1.3 billion at December 31, 2016.2022. The changeincrease in the net, after-tax, unrealized loss was primarily due to an $85.3a $432.6 million net, after-tax, increasedecrease in the net unrealized gain onfair value of securities available for sale.
Under the Basel III Capital Rules, we have 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 do not increase or reduce regulatory capital and are not included in the calculation of risk-basedour regulatory capital 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 leverageregulatory 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 sheeton-balance-sheet and off-balance sheetoff-balance-sheet items. See Note 86 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report.
We paid a quarterly dividend of $0.54, $0.57$0.87, $0.87, and $0.57$0.92 per common share during the first, second and third quarters of 2017,2023, respectively and a quarterly dividend of $0.53, $0.54$0.75, $0.75 and $0.54$0.87 per common share during the first, second and third quarters of 2016,2022, respectively. This equatesThese dividend amounts equate to a common stock dividend payout ratio of 41.8%35.2% and 46.9%40.0% during the first nine months of 20172023 and 2016,2022, respectively. Our ability to declare or pay dividends on, or purchase, redeem or otherwise acquire, shares of our capital stock may be impacted by certain restrictions under the terms of our junior subordinated deferrable interest debentures and our Series A Preferred Stock as described in Note 86 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included 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 October 27, 2016, our board of directors authorized a $100.0 million stock repurchase program allowing us to repurchase shares of our common stock over a two-year period from time to time at various pricesFor additional details, see Note 6 - Capital and Regulatory Matters in the open market or through private transactions. During the third quarter of 2017, we repurchased 1,134,966 shares under the plan at a total cost of $100.0 million. On October 24, 2017, our board of directors authorized a new $150.0 million stock repurchase plan allowing usaccompanying notes to repurchase shares of our common stock over a two-year period from time to time at various prices in the open market or through private transactions. Seeconsolidated financial statements and Part II, Item 2 - Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities each included elsewhere in this report.
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 pursuant to compensatory arrangements.

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Liquidity. As more fully discussed in our 20162022 Form 10-K, 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. Our principal source of funding has been our customer deposits, supplemented by our short-term and long-term borrowings as well as maturities of securities and loan amortization. As of September 30, 2017, management2023, we had approximately $7.0 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 September 30, 2023, based upon available, pledgeable collateral, our total borrowing capacity with the FHLB was approximately $5.4 billion. Furthermore, at September 30, 2023, we had approximately $14.1 billion in securities that were unencumbered by a pledge and could be used to support additional borrowings, as needed, through repurchase agreements, the Federal Reserve discount window or the Federal Reserve's new Bank Term Funding Program (“BTFP”). The BTFP is not awarea new facility established in response to recent liquidity concerns within the banking industry in part due to recent deposit runs that resulted in a few large bank failures. The BTFP was designed to provide available additional funding to eligible depository institutions in order to help assure that banks have the ability to meet the needs of any events thatall their depositors. Under the program, eligible depository institutions can obtain loans of up to one year in length by pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP is intended to eliminate the need for depository institutions to quickly sell their securities when they are reasonably likely to have a material adverse effectexperiencing stress 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.their liquidity.
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 86 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report regarding such dividends. At September 30, 2017,2023, Cullen/Frost had liquid assets, includingprimarily consisting of cash and resell agreements,on deposit at Frost Bank, totaling $241.3$317.1 million.
Accounting Standards Updates
See Note 1816 - Accounting Standards Updates in the accompanying notes to consolidated financial statements included elsewhere in this report for details of recently issued accounting pronouncements and their expected impact on our financial statements.


Consolidated Average Balance Sheets and Interest Income Analysis - Quarter To Date
(Dollars in thousands - taxable-equivalent basis)
64
 September 30, 2017 September 30, 2016
 Average
Balance		 Interest
Income/
Expense		 Yield/
Cost		 Average
Balance		 Interest
Income/
Expense		 Yield/
Cost
Assets:           
Interest-bearing deposits$3,351,576
 $10,800
 1.28% $3,190,306
 $4,111
 0.51%
Federal funds sold and resell agreements72,239
 244
 1.34
 28,152
 48
 0.68
Securities:           
Taxable4,970,647
 23,203
 1.88
 5,391,848
 25,897
 1.97
Tax-exempt7,360,643
 96,912
 5.34
 6,983,626
 92,917
 5.53
Total securities12,331,290
 120,115
 3.94
 12,375,474
 118,814
 3.97
Loans, net of unearned discounts12,587,290
 141,622
 4.46
 11,457,464
 115,674
 4.02
Total Earning Assets and Average Rate Earned28,342,395
 272,781
 3.85
 27,051,396
 238,647
 3.57
Cash and due from banks483,497
     487,456
    
Allowance for loan losses(152,237)     (152,549)    
Premises and equipment, net522,413
     564,764
    
Accrued interest and other assets1,194,316
     1,180,987
    
Total Assets$30,390,384
     $29,132,054
    
            
Liabilities:           
Non-interest-bearing demand deposits:           
Commercial and individual$10,159,636
     $9,225,059
    
Correspondent banks233,748
     292,971
    
Public funds362,779
     484,543
    
Total non-interest-bearing demand deposits10,756,163
     10,002,573
    
Interest-bearing deposits:           
Private accounts           
Savings and interest checking6,344,476
 347
 0.02
 5,948,616
 264
 0.02
Money market deposit accounts7,501,285
 4,513
 0.24
 7,473,650
 1,170
 0.06
Time accounts766,339
 412
 0.21
 807,055
 278
 0.14
Public funds381,632
 396
 0.41
 420,281
 37
 0.03
Total interest-bearing deposits14,993,732
 5,668
 0.15
 14,649,602
 1,749
 0.05
Total deposits25,749,895
     24,652,175
    
Federal funds purchased and repurchase agreements1,005,486
 523
 0.21
 797,417
 44
 0.02
Junior subordinated deferrable interest debentures136,164
 1,020
 3.00
 136,107
 839
 2.47
Subordinated notes payable and other notes98,498
 1,164
 4.73
 99,948
 350
 1.40
Total Interest-Bearing Funds and Average Rate Paid16,233,880
 8,375
 0.21
 15,683,074
 2,982
 0.08
Accrued interest and other liabilities168,572
     285,585
    
Total Liabilities27,158,615
     25,971,232
    
Shareholders’ Equity3,231,769
     3,160,822
    
Total Liabilities and Shareholders’ Equity$30,390,384
     $29,132,054
    
Net interest income  $264,406
     $235,665
  
Net interest spread    3.64%     3.49%
Net interest income to total average earning assets    3.73%     3.53%
For these computations: (i) average balances are presented on a daily average basis, (ii) information is shown on a taxable-equivalent basis assuming a 35% tax rate, (iii) average loans include loans on non-accrual status, and (iv) average securities include unrealized gains and losses on securities available for sale while yields are based on average amortized cost.


Consolidated Average Balance Sheets and Interest Income Analysis - Year To Date
(Dollars in thousands - taxable-equivalent basis)
Table of Contents
 September 30, 2017 September 30, 2016
 Average
Balance		 Interest
Income/
Expense		 Yield/
Cost		 Average
Balance		 Interest
Income/
Expense		 Yield/
Cost
Assets:           
Interest-bearing deposits$3,341,710
 $26,712
 1.07% $2,956,822
 $11,366
 0.51%
Federal funds sold and resell agreements56,581
 514
 1.21
 34,179
 165
 0.64
Securities:           
Taxable5,112,072
 72,032
 1.90
 5,245,649
 77,402
 2.02
Tax-exempt7,309,739
 293,888
 5.39
 6,660,843
 270,586
 5.58
Total securities12,421,811
 365,920
 3.96
 11,906,492
 347,988
 4.01
Loans, net of unearned discounts12,319,125
 397,817
 4.32
 11,497,340
 344,289
 4.00
Total Earning Assets and Average Rate Earned28,139,227
 790,963
 3.77
 26,394,833
 703,808
 3.60
Cash and due from banks503,818
     504,074
    
Allowance for loan losses(152,604)     (151,643)    
Premises and equipment, net522,768
     561,215
    
Accrued interest and other assets1,211,309
     1,180,513
    
Total Assets$30,224,518
     $28,488,992
    
            
Liabilities:           
Non-interest-bearing demand deposits:           
Commercial and individual$10,054,481
     $9,055,750
    
Correspondent banks253,567
     322,495
    
Public funds417,555
     515,195
    
Total non-interest-bearing demand deposits10,725,603
     9,893,440
    
Interest-bearing deposits:           
Private accounts           
Savings and interest checking6,352,986
 892
 0.02
 5,610,695
 778
 0.02
Money market deposit accounts7,454,421
 6,929
 0.12
 7,441,626
 3,545
 0.06
Time accounts777,202
 1,040
 0.18
 813,297
 853
 0.14
Public funds433,395
 848
 0.26
 452,655
 133
 0.04
Total interest-bearing deposits15,018,004
 9,709
 0.09
 14,318,273
 5,309
 0.05
Total deposits25,743,607
     24,211,713
    
Federal funds purchased and repurchase agreements942,400
 849
 0.12
 734,022
 152
 0.03
Junior subordinated deferrable interest debentures136,150
 2,890
 2.83
 136,092
 2,392
 2.34
Subordinated notes payable and other notes87,173
 2,696
 4.12
 99,918
 958
 1.28
Total Interest-Bearing Funds and Average Rate Paid16,183,727
 16,144
 0.13
 15,288,305
 8,811
 0.08
Accrued interest and other liabilities161,643
     259,131
    
Total Liabilities27,070,973
     25,440,876
    
Shareholders’ Equity3,153,545
     3,048,116
    
Total Liabilities and Shareholders’ Equity$30,224,518
     $28,488,992
    
Net interest income  $774,819
     $694,997
  
Net interest spread    3.64%     3.52%
Net interest income to total average earning assets    3.69%     3.56%
For these computations: (i) average balances are presented on a daily average basis, (ii) information is shown on a taxable-equivalent basis assuming a 35% tax rate, (iii) average loans include loans on non-accrual status, and (iv) average securities include unrealized gains and losses on securities available for sale while yields are based on average amortized cost.



Item 3. Quantitative and Qualitative Disclosures About Market Risk
The disclosures set forth in this item are qualified by the section captioned “Forward-Looking Statements and Factors that Could Affect Future Results” included in Item 2. 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.
Refer to the discussion of market risks included in Item 7A. Quantitative and Qualitative Disclosures About Market Risk in the 20162022 Form 10-K. There has been no significant change in the types of market risks we face since December 31, 2016.2022.
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.
For modeling purposes, as of September 30, 2017,2023, 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 1.2%1.7% and 3.3%, respectively, relative to the flat-rate case over the next 12 months, while 100 and 125200 basis point ratable decreases in interest rates would result in a negative variances in net interest income of 5.1%1.2% and 9.9%2.8%, respectively, relative to the flat-rate case over the next 12 months. The September 30, 2017 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 fourth quarter of 2017, as further discussed below. For modeling purposes, as of September 30, 2016,December 31, 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 0.4%0.2% and 1.5%1.4%, respectively, relative to the flat-rate case over the next 12 months, while a decrease100 and 200 basis point ratable decreases in interest rates of 50 basis points would result in a negative variancevariances in net interest income of 6.5%0.2% and 1.4%, respectively, relative to the flat-rate case over the next 12 months. The
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 September 30, 20162023 and December 31, 2022 model simulations for increased interest rates were impacted by the assumption, for modeling purposes, that we would begin to paydid not assume any payment of interest on commercial demand deposits (those not already receiving an earnings credit rate) incredit). Management believes, based on our experience during the fourth quarter of 2016, as further discussed below. The likelihood of a decrease in interest rates beyond 125 basis points as of September 30, 2017 and 50 basis points as of September 30, 2016 was considered to be remote given prevailinglast interest rate levels.cycle, that it is less likely we will pay interest on these deposits as rates increase.
The model simulations as of September 30, 20172023 indicate that our projected balance sheet is more asset sensitive in comparison to our balance sheet as of December 31, 2022. The increased asset sensitivity was partly due to a decrease in the expected deposit pricing beta for rate increases on certain types of deposit accounts. The deposit pricing beta is a measure of how much deposit rates will reprice, up or down, given a defined change in market rates. Management believes that the deposit pricing betas used as of September 30, 2016.2023 are more reflective of current expectations. The shift to a moreincreased asset sensitive positionsensitivity was primarilyalso partly due to increasesan increase in the relative proportion of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and federal funds sold to projected average interest-earning assets combined with a decrease in the relative proportion of fixed-rate securities to projected average interest-earning assets. FederalInterest-bearing deposits and federal funds sold are more immediately impacted by changes in interest rates in comparison to our other categories of earning assets.
Financial regulatory reform legislation entitled the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (the “Dodd-Frank Act”) repealed the federal prohibition on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts beginning July 21, 2011. To date, we have not experienced any significant additional interest costs as a result of the repeal. However, in light of recent increases in market interest rates, in late July 2017, we increased the interest rates we pay on most of our interest-bearing deposit products. If we began to pay interest on commercial demand deposits (those not already receiving an earnings credit rate), our balance sheet would likely become less asset sensitive. Because the interest rate that will ultimately be paid on these commercial demand deposits depends upon a variety of factors, some of which are beyond our control, we assumed an aggressive pricing structure for the purposes of the model simulations discussed above with interest payments beginning in the fourth quarter of 2017. Should the actual interest rate paid on commercial demand deposits be less than the rate assumed in the model simulations, or should the interest rate paid for commercial demand deposits become an administered rate with less direct correlation to movements in general market interest rates, our balance sheet could be more asset sensitive than the model simulations might otherwise indicate.
As of September 30, 2017,2023, the effects of a 200 basis point increase and a 125200 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.

Item 4. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried outconducted by management, with the participation of its 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 change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the last fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Table of Contents
Part II. Other Information
Item 1. 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 impact on our financial statements.
Item 1A. Risk Factors
There has been no material change in the risk factors disclosed under Item 1A. of our 20162022 Form 10-K.
Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities
The following table provides information with respect to purchases we made or were made on our behalf 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 three months ended September 30, 2017.2023. Dollar amounts in thousands.
PeriodTotal Number of
Shares Purchased		Average Price
Paid Per Share		Total Number of
Shares Purchased
as Part of Publicly
Announced Plan		Maximum
Number of Shares
(or Approximate
Dollar Value)
That May Yet Be
Purchased Under
the Plan at the
End of the Period
July 1, 2023 to July 31, 202337,378 $106.09 37,378 $68,293 
August 1, 2023 to August 31, 202359,820 98.94 59,820 62,374 
September 1, 2023 to September 30, 202314,758 93.74 14,758 60,991 
Total111,956 111,956 

Period
Total Number of
Shares Purchased
 
Average Price
Paid Per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plan
 
Maximum
Number of Shares
(or Approximate
Dollar Value)
That May Yet Be
Purchased Under
the Plan at the
End of the Period
July 1, 2017 to July 31, 2017169,342
 $91.11
 169,342
 $84,572
August 1, 2017 to August 31, 2017614,493
 88.69
 614,493
 30,070
September 1, 2017 to September 30, 2017351,131
 85.64
 351,131
 —
Total1,134,966
 $88.11
 1,134,966
  


Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements.None.
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Table of Contents
Item 6. Exhibits
(a) Exhibits
Exhibit

Number
Description
31.1
31.2
32.1+
32.1(1)
32.2+
32.2(1)
101
101.INS(2)
Inline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInlineXBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104(3)
Cover Page Interactive Data File
+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.

(1)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.
(2)The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
(3)Formatted as Inline XBRL and contained within the Inline XBRL Instance Document in Exhibit 101.

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Table of Contents
Signatures
Pursuant to the requirements 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.

Cullen/Frost Bankers, Inc.
(Registrant)
Date:October 26, 20172023By:/s/ Jerry Salinas
Jerry Salinas
Group Executive Vice President
and Chief Financial Officer
(Duly Authorized Officer, Principal Financial
Officer and Principal Accounting Officer)

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