0000039263us-gaap:OtherIncomeMemberus-gaap:NondesignatedMemberus-gaap:ForeignExchangeContractMember2020-01-012020-06-30
Table of ContentsContents

United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: June 30, 20192020
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.)
Texas74-1751768
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
111 W. Houston Street,San Antonio,Texas78205
(Address of principal executive offices)(Zip code)
(210)220-4011
(Registrant's telephone number, including area code)
100 W. Houston Street,(210)San Antonio,220-4011Texas78205
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on
which registered
Title of each classTrading Symbol(s)
Name of each exchange on
which registered
Common Stock, $.01 Par ValueCFRNew York Stock Exchange
5.375% Non-Cumulative Perpetual Preferred Stock, Series ACFR.PRANew 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  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 filer☒Accelerated filer☐
Non-accelerated filer☐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  ☒
As of July 22, 201923, 2020 there were 62,655,88162,700,880 shares of the registrant’s Common Stock, $.01 par value, outstanding.


Table of Contents
Cullen/Frost Bankers, Inc.
Quarterly Report on Form 10-Q
June 30, 20192020
Table of Contents
Page
Item 1.
3
Item 1.
Consolidated Balance Sheets
3
Consolidated Statements of Income
4
5
6
8
9
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
3641
Item 3.
5672
Item 4.
5673
Item 1.
5774
Item 1A.
5774
Item 2.
5775
Item 3.
5775
Item 4.
5775
Item 5.
5775
Item 6.
5776
5877

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)
June 30,
2019		 December 31,
2018		June 30,
2020		December 31,
2019
Assets:   Assets:
Cash and due from banks$526,830
 $678,791
Cash and due from banks$558,422  $581,857  
Interest-bearing deposits948,862
 2,641,971
Interest-bearing deposits5,992,246  2,849,950  
Federal funds sold and resell agreements469,718
 635,017
Federal funds sold and resell agreements48,900  356,374  
Total cash and cash equivalents1,945,410
 3,955,779
Total cash and cash equivalents6,599,568  3,788,181  
Securities held to maturity, at amortized cost1,035,299
 1,106,057
Securities held to maturity, net of allowance for credit losses of $172 at June 30, 2020Securities held to maturity, net of allowance for credit losses of $172 at June 30, 20201,968,954  2,030,005  
Securities available for sale, at estimated fair value12,279,513
 11,387,321
Securities available for sale, at estimated fair value10,606,696  11,269,591  
Trading account securities25,482
 24,086
Trading account securities24,495  24,298  
Loans, net of unearned discounts14,459,149
 14,099,733
Loans, net of unearned discounts17,971,937  14,750,332  
Less: Allowance for loan losses(134,929) (132,132)
Less: Allowance for credit losses on loansLess: Allowance for credit losses on loans(250,061) (132,167) 
Net loans14,324,220
 13,967,601
Net loans17,721,876  14,618,165  
Premises and equipment, net915,497
 552,330
Premises and equipment, net1,044,261  1,011,947  
Goodwill654,952
 654,952
Goodwill654,952  654,952  
Other intangible assets, net3,019
 3,649
Other intangible assets, net1,983  2,481  
Cash surrender value of life insurance policies185,303
 183,473
Cash surrender value of life insurance policies189,091  187,156  
Accrued interest receivable and other assets450,168
 457,718
Accrued interest receivable and other assets565,677  440,652  
Total assets$31,818,863
 $32,292,966
Total assets$39,377,553  $34,027,428  
   
Liabilities:   Liabilities:
Deposits:   Deposits:
Non-interest-bearing demand deposits$10,136,437
 $10,997,494
Non-interest-bearing demand deposits$14,671,989  $10,873,629  
Interest-bearing deposits15,848,586
 16,151,710
Interest-bearing deposits18,007,107  16,765,935  
Total deposits25,985,023
 27,149,204
Total deposits32,679,096  27,639,564  
Federal funds purchased and repurchase agreements1,319,507
 1,367,548
Federal funds purchased and repurchase agreements1,589,384  1,695,342  
Junior subordinated deferrable interest debentures, net of unamortized issuance costs136,270
 136,242
Junior subordinated deferrable interest debentures, net of unamortized issuance costs136,328  136,299  
Subordinated notes, net of unamortized issuance costs98,786
 98,708
Subordinated notes, net of unamortized issuance costs98,943  98,865  
Accrued interest payable and other liabilities537,970
 172,347
Accrued interest payable and other liabilities865,001  545,690  
Total liabilities28,077,556
 28,924,049
Total liabilities35,368,752  30,115,760  
   
Shareholders’ Equity:   Shareholders’ Equity:
Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; 6,000,000 Series A shares ($25 liquidation preference) issued at June 30, 2019 and December 31, 2018144,486
 144,486
Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,236,306 shares issued at June 30, 2019 and December 31, 2018642
 642
Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; 6,000,000 Series A shares ($25 liquidation preference) issued at December 31, 2019Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; 6,000,000 Series A shares ($25 liquidation preference) issued at December 31, 2019—  144,486  
Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,236,306 shares issued at June 30, 2020 and December 31, 2019Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,236,306 shares issued at June 30, 2020 and December 31, 2019642  642  
Additional paid-in capital975,322
 967,304
Additional paid-in capital989,034  983,250  
Retained earnings2,558,296
 2,440,002
Retained earnings2,678,686  2,667,534  
Accumulated other comprehensive income (loss), net of tax219,438
 (63,600)Accumulated other comprehensive income (loss), net of tax488,264  267,370  
Treasury stock, at cost; 1,598,222 shares at June 30, 2019 and 1,250,464 shares at December 31, 2018(156,877) (119,917)
Treasury stock, at cost; 1,566,661 shares at June 30, 2020 and 1,567,302 shares at December 31, 2019Treasury stock, at cost; 1,566,661 shares at June 30, 2020 and 1,567,302 shares at December 31, 2019(147,825) (151,614) 
Total shareholders’ equity3,741,307
 3,368,917
Total shareholders’ equity4,008,801  3,911,668  
Total liabilities and shareholders’ equity$31,818,863
 $32,292,966
Total liabilities and shareholders’ equity$39,377,553  $34,027,428  
See Notes to Consolidated Financial Statements.


3
Table of Contents
Cullen/Frost Bankers, Inc.
Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
2019 2018 2019 20182020201920202019
Interest income:       Interest income:
Loans, including fees$189,848
 $164,133
 $375,120
 $315,335
Loans, including fees$171,305  $189,848  $343,442  $375,120  
Securities:       Securities:
Taxable30,324
 21,188
 55,003
 41,746
Taxable23,360  30,324  49,390  55,003  
Tax-exempt58,596
 57,298
 117,739
 114,009
Tax-exempt59,009  58,596  117,895  117,739  
Interest-bearing deposits7,828
 13,917
 18,467
 28,011
Interest-bearing deposits1,257  7,828  9,382  18,467  
Federal funds sold and resell agreements1,541
 1,415
 3,129
 2,176
Federal funds sold and resell agreements63  1,541  865  3,129  
Total interest income288,137
 257,951
 569,458
 501,277
Total interest income254,994  288,137  520,974  569,458  
Interest expense:       Interest expense:
Deposits26,844
 17,575
 54,018
 28,213
Deposits6,227  26,844  22,280  54,018  
Federal funds purchased and repurchase agreements5,220
 631
 10,236
 1,265
Federal funds purchased and repurchase agreements486  5,220  3,523  10,236  
Junior subordinated deferrable interest debentures1,478
 1,311
 2,976
 2,453
Junior subordinated deferrable interest debentures988  1,478  2,193  2,976  
Other long-term borrowings1,164
 1,164
 2,328
 2,328
Subordinated notesSubordinated notes1,164  1,164  2,328  2,328  
Federal Home Loan Bank advancesFederal Home Loan Bank advances318  —  318  —  
Total interest expense34,706
 20,681
 69,558
 34,259
Total interest expense9,183  34,706  30,642  69,558  
Net interest income253,431
 237,270
 499,900
 467,018
Net interest income245,811  253,431  490,332  499,900  
Provision for loan losses6,400
 8,251
 17,403
 15,196
Net interest income after provision for loan losses247,031
 229,019
 482,497
 451,822
Credit loss expenseCredit loss expense31,975  6,400  207,172  17,403  
Net interest income after credit loss expenseNet interest income after credit loss expense213,836  247,031  283,160  482,497  
Non-interest income:       Non-interest income:
Trust and investment management fees30,448
 29,121
 62,145
 58,708
Trust and investment management fees31,060  30,448  65,533  62,145  
Service charges on deposit accounts21,798
 21,142
 42,588
 41,985
Service charges on deposit accounts17,580  21,798  40,231  42,588  
Insurance commissions and fees10,118
 10,556
 28,524
 26,536
Insurance commissions and fees10,668  10,118  27,153  28,524  
Interchange and debit card transaction fees3,868
 3,446
 7,148
 6,604
Interchange and debit card transaction fees2,966  3,868  6,221  7,148  
Other charges, commissions and fees8,933
 9,273
 17,995
 18,280
Other charges, commissions and fees7,663  8,933  17,028  17,995  
Net gain (loss) on securities transactions169
 (60) 169
 (79)Net gain (loss) on securities transactions—  169  108,989  169  
Other7,304
 11,588
 20,854
 24,477
Other7,664  7,304  25,361  20,854  
Total non-interest income82,638
 85,066
 179,423
 176,511
Total non-interest income77,601  82,638  290,516  179,423  
Non-interest expense:       Non-interest expense:
Salaries and wages90,790
 85,204
 183,266
 171,887
Salaries and wages90,350  90,790  189,162  183,266  
Employee benefits20,051
 17,907
 43,577
 39,902
Employee benefits18,861  20,051  43,750  43,577  
Net occupancy21,133
 19,455
 40,400
 39,195
Net occupancy25,266  21,133  50,650  40,400  
Technology, furniture and equipment22,157
 20,459
 43,821
 40,138
Technology, furniture and equipment26,046  22,157  51,286  43,821  
Deposit insurance2,453
 4,605
 5,261
 9,484
Deposit insurance2,800  2,453  5,424  5,261  
Intangible amortization305
 369
 630
 757
Intangible amortization241  305  498  630  
Other46,320
 40,909
 88,054
 84,156
Other36,115  46,320  83,072  88,054  
Total non-interest expense203,209
 188,908
 405,009
 385,519
Total non-interest expense199,679  203,209  423,842  405,009  
Income before income taxes126,460
 125,177
 256,911
 242,814
Income before income taxes91,758  126,460  149,834  256,911  
Income taxes14,874
 13,836
 28,829
 24,993
Income taxes \ (benefits)Income taxes \ (benefits)(1,314) 14,874  2,009  28,829  
Net income111,586
 111,341
 228,082
 217,821
Net income93,072  111,586  147,825  228,082  
Preferred stock dividends2,015
 2,015
 4,031
 4,031
Preferred stock dividends—  2,015  2,016  4,031  
Redemption of preferred stockRedemption of preferred stock—  —  5,514  —  
Net income available to common shareholders$109,571
 $109,326
 $224,051
 $213,790
Net income available to common shareholders$93,072  $109,571  $140,295  $224,051  
       
Earnings per common share:       Earnings per common share:
Basic$1.73
 $1.70
 $3.53
 $3.33
Basic$1.47  $1.73  $2.22  $3.53  
Diluted1.72
 1.68
 3.51
 3.30
Diluted1.47  1.72  2.21  3.51  
See Notes to Consolidated Financial Statements.

4
Table of Contents
Cullen/Frost Bankers, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in thousands)
Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
2019 2018 2019 20182020201920202019
Net income$111,586
 $111,341
 $228,082
 $217,821
Net income$93,072  $111,586  $147,825  $228,082  
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 period158,140
 (11,884) 356,286
 (190,788)Change in net unrealized gain/loss during the period156,509  158,140  386,627  356,286  
Change in net unrealized gain on securities transferred to held to maturity(308) (2,041) (652) (4,660)Change in net unrealized gain on securities transferred to held to maturity(308) (308) (685) (652) 
Reclassification adjustment for net (gains) losses included in net income(169) 60
 (169) 79
Reclassification adjustment for net (gains) losses included in net income—  (169) (108,989) (169) 
Total securities available for sale and transferred securities157,663
 (13,865) 355,465
 (195,369)Total securities available for sale and transferred securities156,201  157,663  276,953  355,465  
Defined-benefit post-retirement benefit plans:       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)1,406
 1,251
 2,812
 2,501
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)1,329  1,406  2,659  2,812  
Total defined-benefit post-retirement benefit plans1,406
 1,251
 2,812
 2,501
Total defined-benefit post-retirement benefit plans1,329  1,406  2,659  2,812  
Other comprehensive income (loss), before tax159,069
 (12,614) 358,277
 (192,868)Other comprehensive income (loss), before tax157,530  159,069  279,612  358,277  
Deferred tax expense (benefit)33,405
 (2,649) 75,239
 (40,502)Deferred tax expense (benefit)33,081  33,405  58,718  75,239  
Other comprehensive income (loss), net of tax125,664
 (9,965) 283,038
 (152,366)Other comprehensive income (loss), net of tax124,449  125,664  220,894  283,038  
Comprehensive income (loss)$237,250
 $101,376
 $511,120
 $65,455
Comprehensive income (loss)$217,521  $237,250  $368,719  $511,120  
See Notes to Consolidated Financial Statements.

5
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:             
June 30, 2019             
Balance at beginning of period$144,486
 $642
 $970,958
 $2,495,268
 $93,774
 $(111,550) $3,593,578
Net income—
 —
 —
 111,586
 —
 —
 111,586
Other comprehensive loss, net of tax—
 —
 —
 —
 125,664
 —
 125,664
Stock option exercises/stock unit conversions (53,035 shares)—
 —
 —
 (1,717) —
 4,673
 2,956
Stock-based compensation expense recognized in earnings—
 —
 4,364
 —
 —
 —
 4,364
Purchase of treasury stock (496,307 shares)—
 —
 —
 —
 —
 (50,000) (50,000)
Cash dividends – preferred stock (approximately $0.33 per share)—
 —
 —
 (2,015) —
 —
 (2,015)
Cash dividends - common stock ($0.71 per share)—
 —
 —
 (44,826) —
 —
 (44,826)
Balance at end of period$144,486
 $642
 $975,322
 $2,558,296
 $219,438
 $(156,877) $3,741,307
              
June 30, 2018             
Balance at beginning of period$144,486
 $642
 $956,536
 $2,234,301
 $(53,354) $(39,181) $3,243,430
Net income—
 —
 —
 111,341
 —
 —
 111,341
Other comprehensive income, net of tax—
 —
 —
 —
 (9,965) —
 (9,965)
Stock option exercises/stock unit conversions (110,489 shares)—
 —
 —
 (3,451) —
 9,734
 6,283
Stock-based compensation expense recognized in earnings—
 —
 3,585
 —
 —
 —
 3,585
Purchase of treasury stock (601 shares)—
 —
 —
 —
 —
 (70) (70)
Cash dividends – preferred stock (approximately $0.33 per share)—
 —
 —
 (2,015) —
 —
 (2,015)
Cash dividends – common stock ($0.67 per share)—
 —
 —
 (43,077) —
 —
 (43,077)
Balance at end of period$144,486
 $642
 $960,121
 $2,297,099
 $(63,319) $(29,517) $3,309,512

Preferred
Stock		Common
Stock		Additional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax		Treasury
Stock		Total
Three months ended:
June 30, 2020
Balance at beginning of period$—  $642  $985,762  $2,635,588  $363,815  $(159,141) $3,826,666  
Net income—  —  —  93,072  —  —  93,072  
Other comprehensive income, net of tax—  —  —  —  124,449  —  124,449  
Stock option exercises/stock unit conversions (77,308 shares)—  —  —  (4,142) —  7,525  3,383  
Stock-based compensation expense recognized in earnings—  —  3,272  —  —  —  3,272  
Treasury stock issued to the 401(k) stock purchase plan ( 38,943 shares)—  —  —  (961) —  3,791  2,830  
Cash dividends – common stock ($0.71 per share)—  —  —  (44,871) —  —  (44,871) 
Balance at end of period$—  $642  $989,034  $2,678,686  $488,264  $(147,825) $4,008,801  
June 30, 2019
Balance at beginning of period$144,486  $642  $970,958  $2,493,207  $93,774  $(111,550) $3,591,517  
Net income—  —  —  111,586  —  —  111,586  
Other comprehensive loss, net of tax—  —  —  —  125,664  —  125,664  
Stock option exercises/stock unit conversions (53,035 shares)—  —  —  (1,717) —  4,673  2,956  
Stock-based compensation expense recognized in earnings—  —  4,364  —  —  —  4,364  
Purchase of treasury stock (496,307 shares)—  —  —  —  —  (50,000) (50,000) 
Cash dividends – preferred stock (approximately $0.33 per share)—  —  —  (2,015) —  —  (2,015) 
Cash dividends – common stock ($0.71 per share)—  —  —  (44,826) —  —  (44,826) 
Balance at end of period$144,486  $642  $975,322  $2,556,235  $219,438  $(156,877) $3,739,246  
See accompanying Notes to Consolidated Financial Statements



6
Table of Contents
Cullen/Frost Bankers, Inc.
Consolidated Statements of Changes in Shareholders’ Equity (continued)
(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
Six months ended:             
June 30, 2019             
Balance at beginning of period$144,486
 $642
 $967,304
 $2,440,002
 $(63,600) $(119,917) $3,368,917
Cumulative effect of accounting change—
 —
 —
 (12,611) —
 —
 (12,611)
Total shareholders' equity at beginning of period, as adjusted144,486
 642
 967,304
 2,427,391
 (63,600) (119,917) 3,356,306
Net income—
 —
 —
 228,082
 —
 —
 228,082
Other comprehensive income, net of tax—
 —
 —
 —
 283,038
 —
 283,038
Stock option exercises/stock unit conversions (153,900 shares)—
 —
 —
 (5,718) —
 13,559
 7,841
Stock-based compensation expense recognized in earnings—
 —
 8,018
 —
 —
 —
 8,018
Purchase of treasury stock (501,658 shares)—
 —
 —
 —
 —
 (50,519) (50,519)
Cash dividends – preferred stock (approximately $0.67 per share)—
 —
 —
 (4,031) —
 —
 (4,031)
Cash dividends – common stock ($1.38 per share)—
 —
 —
 (87,428) —
 —
 (87,428)
Balance at end of period$144,486
 $642
 $975,322
 $2,558,296
 $219,438
 $(156,877) $3,741,307
              
June 30, 2018             
Balance at beginning of period$144,486
 $642
 $953,361
 $2,187,069
 $79,512
 $(67,207) $3,297,863
Cumulative effect of accounting change—
 —
 —
 (2,285) —
 —
 (2,285)
Total shareholders' equity at beginning of period, as adjusted144,486
 642
 953,361
 2,184,784
 79,512
 (67,207) 3,295,578
Net income—
 —
 —
 217,821
 —
 —
 217,821
Other comprehensive loss, net of tax—
 —
 —
 —
 (152,366) —
 (152,366)
Reclassification of certain income tax effects related to the change in the U.S. statutory federal income tax rate under the Tax Cuts and Jobs Act—
 —
 —
 (9,535) 9,535
 —
 —
Stock option exercises/stock unit conversions (428,599 shares)—
 —
 —
 (12,312) —
 37,760
 25,448
Stock-based compensation expense recognized in earnings—
 —
 6,760
 —
 —
 —
 6,760
Purchase of treasury stock (601 shares)—
 —
 —
 —
 —
 (70) (70)
Cash dividends – preferred stock (approximately $0.67 per share)—
 —
 —
 (4,031) —
 —
 (4,031)
Cash dividends – common stock ($1.24 per share)—
 —
 —
 (79,628) —
 —
 (79,628)
Balance at end of period$144,486
 $642
 $960,121
 $2,297,099
 $(63,319) $(29,517) $3,309,512

Preferred
Stock		Common
Stock		Additional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax		Treasury
Stock		Total
Six months ended:
June 30, 2020
Balance at beginning of period$144,486  $642  $983,250  $2,667,534  $267,370  $(151,614) $3,911,668  
Cumulative effect of accounting change—  —  —  (29,252) —  —  (29,252) 
Total shareholders' equity at beginning of period, as adjusted144,486  642  983,250  2,638,282  267,370  (151,614) 3,882,416  
Net income—  —  —  147,825  —  —  147,825  
Other comprehensive income, net of tax—  —  —  —  220,894  —  220,894  
Stock option exercises/stock unit conversions (143,523 shares)—  —  —  (9,125) —  13,971  4,846  
Stock-based compensation expense recognized in earnings—  —  5,784  —  —  —  5,784  
Redemption of preferred stock (6,000,000 shares)(144,486) —  —  (5,514) —  —  (150,000) 
Purchase of treasury stock (181,825 shares)—  —  —  —  —  (13,973) (13,973) 
Treasury stock issued to the 401(k) stock purchase plan (38,943 shares)—  —  —  (961) —  3,791  2,830  
Cash dividends – preferred stock (approximately $0.34 per share)—  —  —  (2,016) —  —  (2,016) 
Cash dividends – common stock ($1.42 per share)—  —  —  (89,805) —  —  (89,805) 
Balance at end of period$—  $642  $989,034  $2,678,686  $488,264  $(147,825) $4,008,801  
June 30, 2019
Balance at beginning of period$144,486  $642  $967,304  $2,440,002  $(63,600) $(119,917) $3,368,917  
Cumulative effect of accounting change—  —  —  (14,672) —  —  (14,672) 
Total shareholders' equity at beginning of period, as adjusted144,486  642  967,304  2,425,330  (63,600) (119,917) 3,354,245  
Net income—  —  —  228,082  —  —  228,082  
Other comprehensive loss, net of tax—  —  —  —  283,038  —  283,038  
Stock option exercises/stock unit conversions (153,900 shares)—  —  —  (5,718) —  13,559  7,841  
Stock-based compensation expense recognized in earnings—  —  8,018  —  —  —  8,018  
Purchase of treasury stock (501,658 shares)—  —  —  —  —  (50,519) (50,519) 
Cash dividends – preferred stock (approximately $0.67 per share)—  —  —  (4,031) —  —  (4,031) 
Cash dividends – common stock ($1.38 per share)—  —  —  (87,428) —  —  (87,428) 
Balance at end of period$144,486  $642  $975,322  $2,556,235  $219,438  $(156,877) $3,739,246  
See accompanying Notes to Consolidated Financial Statements


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Cullen/Frost Bankers, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Six Months Ended
June 30,
20202019
Operating Activities:
Net income$147,825  $228,082  
Adjustments to reconcile net income to net cash from operating activities:
Credit loss expense207,172  17,403  
Deferred tax expense (benefit)(51,933) (675) 
Accretion of loan discounts(7,680) (7,325) 
Securities premium amortization (discount accretion), net62,177  56,726  
Net (gain) loss on securities transactions(108,989) (169) 
Depreciation and amortization31,489  25,705  
Net (gain) loss on sale/write-down of assets/foreclosed assets(139) (5,135) 
Stock-based compensation5,784  8,018  
Net tax benefit from stock-based compensation556  1,131  
Earnings on life insurance policies(1,935) (1,830) 
Net change in:
Trading account securities(197) (1,068) 
Lease right-of-use assets11,491  9,167  
Accrued interest receivable and other assets(131,772) (18,107) 
Accrued interest payable and other liabilities43,111  (20,008) 
Net cash from operating activities206,960  291,915  
Investing Activities:
Securities held to maturity:
Purchases(1,500) —  
Maturities, calls and principal repayments51,232  60,077  
Securities available for sale:
Purchases(3,739,598) (4,555,448) 
Sales1,162,352  3,291,529  
Maturities, calls and principal repayments3,791,908  708,273  
Proceeds from sale of loans—  24,036  
Net change in loans(3,293,619) (390,452) 
Proceeds from sales of premises and equipment3,054  4,677  
Purchases of premises and equipment(52,036) (98,622) 
Proceeds from sales of repossessed properties8  5  
Net cash from investing activities(2,078,199) (955,925) 
Financing Activities:
Net change in deposits5,039,532  (1,164,181) 
Net change in short-term borrowings(105,958) (48,041) 
Proceeds from Federal Home Loan Bank advances1,250,000  —  
Principal payments on Federal Home Loan Bank advances(1,250,000) —  
Redemption of preferred stock(150,000) —  
Proceeds from stock option exercises4,846  7,841  
Purchase of treasury stock(13,973) (50,519) 
Cash dividends paid on preferred stock(2,016) (4,031) 
Cash dividends paid on common stock(89,805) (87,428) 
Net cash from financing activities4,682,626  (1,346,359) 
Net change in cash and cash equivalents2,811,387  (2,010,369) 
Cash and cash equivalents at beginning of period3,788,181  3,955,779  
Cash and cash equivalents at end of period$6,599,568  $1,945,410  
 Six Months Ended 
 June 30,
 2019 2018
Operating Activities:   
Net income$228,082
 $217,821
Adjustments to reconcile net income to net cash from operating activities:   
Provision for loan losses17,403
 15,196
Deferred tax expense (benefit)(675) 22,886
Accretion of loan discounts(7,325) (6,904)
Securities premium amortization (discount accretion), net56,726
 48,936
Net (gain) loss on securities transactions(169) 79
Depreciation and amortization25,705
 24,581
Net (gain) loss on sale/write-down of assets/foreclosed assets(5,135) (5,453)
Stock-based compensation8,018
 6,760
Net tax benefit from stock-based compensation1,131
 3,160
Earnings on life insurance policies(1,830) (1,663)
Net change in:   
Trading account securities(1,068) (2,263)
Lease right-of-use assets9,167
 —
Accrued interest receivable and other assets(18,107) (42,959)
Accrued interest payable and other liabilities(20,008) (26,176)
Net cash from operating activities291,915
 254,001
    
Investing Activities:   
Securities held to maturity:   
Purchases—
 (1,500)
Maturities, calls and principal repayments60,077
 183,140
Securities available for sale:   
Purchases(4,555,448) (11,453,662)
Sales3,291,529
 10,890,388
Maturities, calls and principal repayments708,273
 108,316
Proceeds from sale of loans24,036
 18,918
Net change in loans(390,452) (601,101)
Benefits received on life insurance policies—
 384
Proceeds from sales of premises and equipment4,677
 12,844
Purchases of premises and equipment(98,622) (45,766)
Proceeds from sales of repossessed properties5
 986
Net cash from investing activities(955,925) (887,053)
    
Financing Activities:   
Net change in deposits(1,164,181) (875,890)
Net change in short-term borrowings(48,041) (170,354)
Proceeds from stock option exercises7,841
 25,448
Purchase of treasury stock(50,519) (70)
Cash dividends paid on preferred stock(4,031) (4,031)
Cash dividends paid on common stock(87,428) (79,628)
Net cash from financing activities(1,346,359) (1,104,525)
    
Net change in cash and cash equivalents(2,010,369) (1,737,577)
Cash and cash equivalents at beginning of period3,955,779
 5,053,047
Cash and cash equivalents at end of period$1,945,410
 $3,315,470

See 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, 2018,2019, included in our Annual Report on Form 10-K filed with the SEC on February 6, 20194, 2020 (the “2018“2019 Form 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:
 Six Months Ended 
 June 30,
 2019 2018
Cash paid for interest$66,657
 $31,962
Cash paid for income taxes31,858
 3,888
Significant non-cash transactions:   
Unsettled purchases/sales of securities39,896
 2,186
Loans foreclosed and transferred to other real estate owned and foreclosed assets616
 2,656
Loans to facilitate the sale of other real estate owned847
 —
Right-of-use lease assets obtained in exchange for lessee operating lease liabilities295,109
 —

Six Months Ended
June 30,
20202019
Cash paid for interest$31,712  $66,657  
Cash paid for income taxes32,174  31,858  
Significant non-cash transactions:
Unsettled securities transactions216,855  39,896  
Loans foreclosed and transferred to other real estate owned and foreclosed assets—  616  
Loans to facilitate the sale of other real estate owned—  847  
Right-of-use lease assets obtained in exchange for lessee operating lease liabilities18,679  295,109  
Treasury stock issued to 401(k) stock purchase plan2,830  —  
Accounting Changes, Reclassifications and Restatements. Certain items in prior financial statements have been reclassified to conform to the current presentation. In addition, on January 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” as subsequently updated for certain clarifications, targeted relief and codification improvements. Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) replaces the previous “incurred loss” model for measuring credit losses, which encompassed allowances for current known and inherent losses within the portfolio, with an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. The new current expected credit loss (“CECL”) model requires the measurement of all expected credit losses for financial assets measured at amortized cost and certain off-balance-sheet credit exposures based on historical experience, current conditions, and reasonable and supportable forecasts. ASC 326 also requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASC 326 includes certain changes to the accounting for available-for-sale securities including the requirement to present credit losses as
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an allowance rather than as a direct write-down for available-for-sale securities management does not intend to sell or believes that it is more likely than not they will be required to sell.
We adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Upon adoption, we recognized an after-tax cumulative effect reduction to retained earnings totaling $29.3 million, as detailed in the table below. Operating results for periods after January 1, 2020 are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable standards and the accounting policies described in our 2019 Form 10-K.
The following table details the impact of the adoption of ASC 326 on the allowance for credit losses as of January 1, 2020.
January 1, 2020
Pre-Adoption AllowanceImpact of AdoptionPost-Adoption AllowanceCumulative Effect on Retained Earnings
Securities held to maturity:
U.S. Treasury$—  $—  $—  $—  
Residential mortgage-backed securities—  —  —  —  
States and political subdivisions—  215  215  (170) 
Other—  —  —  —  
Total$—  $215  $215  $(170) 
Loans:
Commercial and industrial$51,593  $21,263  $72,856  $(16,798) 
Energy37,382  (10,453) 26,929  8,258  
Commercial real estate31,037  (13,519) 17,518  10,680  
Consumer real estate4,113  2,392  6,505  (1,890) 
Consumer and other8,042  (2,248) 5,794  1,776  
Total$132,167  $(2,565) $129,602  $2,026  
Off-balance-sheet credit exposures$500  $39,377  $39,877  $(31,108) 
In connection with the adoption of ASC 326, we revised certain accounting policies and implemented certain accounting policy elections. The revised accounting policies are described below.
Securities: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them until maturity. Securities to be held for indefinite periods of time are classified as available for sale and carried at fair value, with the unrealized holding gains and losses (those for which no allowance for credit losses are recorded) reported as a component of other comprehensive income, net of tax. Securities held for resale in anticipation of short-term market movements are classified as trading and are carried at fair value, with changes in unrealized holding gains and losses included in income. Management determines the appropriate classification of securities at the time of purchase. Securities with limited marketability, such as stock in the Federal Reserve Bank and the Federal Home Loan Bank, are carried at cost.
Interest income on securities includes amortization of purchase premiums and discounts. Premiums and discounts on securities are generally amortized using the interest method with a constant effective yield without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Premiums on callable securities are amortized to their earliest call date. A security is placed on non-accrual status if (i) principal or interest has been in default for a period of 90 days or more or (ii) full payment of principal and interest is not expected. Interest accrued but not received for a security placed on non-accrual status is reversed against interest income. Gains and losses on sales are recorded on the trade date and are derived from the amortized cost of the security sold.
Allowance For Credit Losses - Held-to-Maturity Securities: The allowance for credit losses on held-to-maturity securities is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of held-to-maturity securities to present management's best estimate of the net amount expected to be collected. Held-to-maturity securities are charged-off against the allowance when deemed uncollectible by management. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management has made the accounting policy election to exclude accrued interest receivable on held-to-maturity securities from the estimate of credit losses. Further information regarding our policies and methodology used to estimate the allowance for credit losses on held-to-maturity securities is presented in Note 2 - Securities.
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Allowance For Credit Losses - Available-for-Sale Securities: For available-for sale securities in an unrealized loss position, we first assess whether (i) we intend to sell, or (ii) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either case is affirmative, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through income. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Management has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.
Loans: Loans are reported at the principal balance outstanding net of unearned discounts. Interest income on loans is reported on the level-yield method and includes amortization of deferred loan fees and costs over the terms of the individual loans to which they relate, or, in certain cases, over the average expected term for loans where deferred fees and costs are accounted for on a pooled basis. Net loan commitment fees or costs for commitment periods greater than one year are deferred and amortized into fee income or other expense on a straight-line basis over the commitment period. Income on direct financing leases is recognized on a basis that achieves a constant periodic rate of return on the outstanding investment. Further information regarding our accounting policies related to past due loans, non-accrual loans, collateral dependent loans and troubled-debt restructurings is presented in Note 3 - Loans.
Allowance For Credit Losses - Loans: The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present management's best estimate of the net amount expected to be collected. Loans are charged-off against the allowance when deemed uncollectible by management. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Management has made the accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses. Further information regarding our policies and methodology used to estimate the allowance for credit losses on loans is presented in Note 3 - Loans.
Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures: The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. The allowance is reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Further information regarding our policies and methodology used to estimate the allowance for credit losses on off-balance-sheet credit exposures is presented in Note 6 - Off-Balance-Sheet Arrangements, Commitments, Guarantees and Contingencies.
As more fully discussed in our 2019 Form 10-K, we adopted certain accounting standard updates related to accounting for leases (Topic 842 - Leases), primarily Accounting Standards Update (“ASU”) 2016-02 and subsequent updates. Among other things, these updates require lessees to recognize a lease liability, measured on a discounted basis, related to the lessee's obligation to make lease payments arising under a lease contract; and a right-of-use asset related to the lessee’s right to use, or control the useas of a specified asset for the lease term. The updates did not significantly change lease accounting requirements applicable to lessors and did not significantly impact our financial statements in relation to contracts whereby we act as a lessor. We adopted the updatesJanuary 1, 2019 using a modified-retrospective transition approach and recognized right-of-use lease assets and related lease liabilities totaling $170.5 million and $174.4 million, respectively, as of January 1, 2019. We elected to apply certain practical adoption expedients provided under the updates whereby we did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We did not elect to apply the recognition requirements of the updates to any short-term leases (as discussed below). As of June 30, 2019, right-of-use lease assets and related lease liabilities totaled $284.5 million and $291.7 million, respectively. During the

second quarter of 2019, we recognized a right-of-use asset totaling $121.7 million and a related lease liability totaling $121.7 million in connection with the commencement of the lease of our new corporate headquarters facility in downtown San Antonio. See Note 6 - Commitments and Contingencies.
We lease certain office facilities and office equipment under operating leases. We also own certain office facilities which we lease to outside parties under operating lessor leases; however, such leases are not significant. We do not apply the recognition requirements of Topic 842 - Leases to short-term operating leases. A short-term operating lease has an original term of 12 months or less and does not have a purchase option that is likely to be exercised. For non-short-term operating leases, we recognized lease right-of-use assets and related lease liabilities on our balance sheet upon commencement of the lease in accordance with Topic 842 - Leases. In recognizing lease right-of-use assets and related lease liabilities, we account for lease and non-lease components (such as taxes, insurance, and common area maintenance costs) separately as such amounts are generally readily determinable under our lease contracts. Lease payments over the expected term are discounted using our incremental borrowing rate referenced to the Federal Home Loan Bank Secure Connect advance rates for borrowings of similar term. We also consider renewal and termination options in the determination of the term of the lease. If it is reasonably certain that a renewal or termination option will be exercised, the effects of such options are included in the determination of the expected lease term. Generally, we cannot be reasonably certain about whether or not we will renew a lease until such time the lease is within the last two years of the existing lease term. However, renewal options related to our regional headquarter facilities or operations centers are evaluated on a case-by-case basis, typically in advance of such time frame. When we are reasonably certain that a renewal option will be exercised, we measure/remeasure the right-of-use asset and related lease liability using the lease payments specified for the renewal period or, if such amounts are unspecified, we generally assume an increase (evaluated on a case-by-case basis in light of prevailing market conditions) in the lease payment over the final period of the existing lease term.
date. We also adopted ASU 2017-08 “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities” as of January 1, 2019. ASU 2017-08 shortensan accounting standard update which shortened 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 poolsas of securities is applied to consider estimated prepayments. Under prior guidance, entities were generally required to amortize premiums on individual, non-pooled callable debt securities as a yield adjustment over the contractual life of the security. ASU 2017-08 does not change the accounting for callable debt securities held at a discount. Upon adoption,January 1, 2019 using a modified retrospective transition adoption approach weand recognized a cumulative effect reduction to retained earnings totaling$12.6totaling $14.7 million. We expect premium amortization expense for 2019 will be approximately $5.2 million higher than what would have been the case had we continued to amortize the affected securities to their respective maturity dates.
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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,June 30, 2020 and December 31, 2019 is presented below.
 June 30, 2019 December 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Held to Maturity               
Residential mortgage-backed securities$2,554
 $13
 $4
 $2,563
 $2,737
 $8
 $85
 $2,660
States and political subdivisions1,031,245
 26,670
 —
 1,057,915
 1,101,820
 11,525
 552
 1,112,793
Other1,500
 —
 —
 1,500
 1,500
 —
 —
 1,500
Total$1,035,299
 $26,683
 $4
 $1,061,978
 $1,106,057
 $11,533
 $637
 $1,116,953
Available for Sale               
U.S. Treasury$2,907,476
 $18,187
 $4,943
 $2,920,720
 $3,455,417
 $1,772
 $29,500
 $3,427,689
Residential mortgage-backed securities2,212,761
 36,354
 1,403
 2,247,712
 823,208
 13,079
 6,547
 829,740
States and political subdivisions6,783,505
 287,668
 2,872
 7,068,301
 7,089,132
 70,760
 72,690
 7,087,202
Other42,780
 —
 —
 42,780
 42,690
 —
 —
 42,690
Total$11,946,522
 $342,209
 $9,218
 $12,279,513
 $11,410,447
 $85,611
 $108,737
 $11,387,321


Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair Value		Allowance
for Credit
Losses		Net
Carrying
Amount
June 30, 2020
Residential mortgage-backed securities$529,868  $45,243  $—  $575,111  $—  $529,868  
States and political subdivisions1,437,758  59,072  —  1,496,830  (172) 1,437,586  
Other1,500  —  —  1,500  —  1,500  
Total$1,969,126  $104,315  $—  $2,073,441  $(172) $1,968,954  
December 31, 2019
Residential mortgage-backed securities$530,861  $22  $9,365  $521,518  $—  $530,861  
States and political subdivisions1,497,644  28,909  896  1,525,657  —  1,497,644  
Other1,500  —  —  1,500  —  1,500  
Total$2,030,005  $28,931  $10,261  $2,048,675  $—  $2,030,005  
All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. At June 30, 2019, approximately 99.7% of the securities in our municipal bond portfolio were issued by political subdivisions or agencies within the State of Texas, of which approximately 69.0% are either guaranteed by the Texas Permanent School Fund, which has a “triple A” insurer financial strength rating, or are secured by U.S. Treasury securities via defeasance of the debt by the issuers. Securities with limited marketability and that do not have readily determinable fair values are carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar securities of the same issuer. These securities include stock in the Federal Reserve Bank and the Federal Home Loan Bank and are reported as other available for sale securities in the table above. 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 $3.5 billion$557.7 million and $561.4 million at June 30, 20192020 and $3.8 billion at December 31, 2018.2019, respectively. Accrued interest receivable on held-to-maturity securities totaled $22.1 million and $21.1 million at June 30, 2020 and December 31, 2019, respectively and is included in accrued interest receivable and other assets in the accompanying consolidated balance sheets.
During the fourth quarter of 2012,From time to time, we have reclassified certain securities from available for sale to held to maturity. TheDuring the fourth quarter of 2019, we reclassified securities hadwith an aggregate fair value of $2.3 billion with$377.8 million and an aggregate net unrealized gain of $165.7$3.3 million ($107.7 ($2.6 million,, net of tax) on the date of the transfer. The net unamortized, unrealized gain remaining on the remaining transferred securities, including those transferred in 2019 and in years prior, included in accumulated other comprehensive income in the accompanying balance sheet as of June 30, 2019 totaled $2.1$4.1 million ($1.63.2 million, net of tax). at June 30, 2020 and $4.8 million ($3.8 million, net of tax) at December 31, 2019. This amount will be amortized out of accumulated other comprehensive income over the remaining life of the underlying securities as an adjustment of the yield on those securities.
Unrealized Losses. AsThe allowance for credit losses on held-to-maturity securities is a contra-asset valuation account that is deducted from the amortized cost basis of held-to-maturity securities to present the net amount expected to be collected. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to U.S. Treasury and residential mortgage-backed securities issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to securities issued by States and political subdivisions and other held-to-maturity securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, (iv) internal forecasts and (v) whether or not such securities are guaranteed by the Texas Permanent School Fund (“PSF”) or pre-refunded by the issuers.
The following table summarizes Moody's and/or Standard & Poor's bond ratings for our portfolio of held-to-maturity securities issued by States and political subdivisions and other securities as of June 30, 20192020:
States and Political Subdivisions
Not Guaranteed or Pre-RefundedGuaranteed by the Texas PSFPre-RefundedTotalOther
Securities
Aaa/AAA$131,304  $840,004  $292,036  $1,263,344  $—  
Aa/AA111,427  —  —  111,427  —  
A62,987  —  —  62,987  —  
Not rated—  —  —  —  1,500  
Total$305,718  $840,004  $292,036  $1,437,758  $1,500  
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Historical loss rates associated with securities with unrealized losses, segregated by length of impairment, werehaving similar grades 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$—
 $—
 $900
 $4
 $900
 $4
Total$—
 $—
 $900
 $4
 $900
 $4
Available for Sale           
U.S. Treasury$—
 $—
 $1,819,942
 $4,943
 $1,819,942
 $4,943
Residential mortgage-backed securities12,258
 38
 116,919
 1,365
 129,177
 1,403
States and political subdivisions49,020
 1,279
 186,554
 1,593
 235,574
 2,872
Total$61,278
 $1,317
 $2,123,415
 $7,901
 $2,184,693
 $9,218

Declinesthose 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 hasour portfolio have generally not 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.significant. Furthermore, as of June 30, 2020, there were no past due principal or interest payments associated with these securities. The PSF is a sovereign wealth fund which serves to provide revenues for funding of public primary and secondary education in the State of Texas. Based upon (i) the PSF's AAA insurer financial strength rating, (ii) the PSF's substantial capitalization and excess guarantee capacity and (iii) a zero historical loss rate, no allowance for credit losses has been recorded for securities guaranteed by the PSF as there is no current expectation of credit losses related to these securities. Pre-refunded securities have been defeased by the issuer and are fully secured by cash and/or U.S. Treasury securities held in escrow for payment to holders when the underlying call dates of the securities are reached. Accordingly, no allowance for credit losses has been recorded for securities that have been defeased as there is no current expectation of credit losses related to these securities.
The following table details activity in the allowance for credit losses on held-to-maturity securities during the three and six months ended June 30, 2020.
Three Months Ended
June 30, 2020		Six Months Ended June 30, 2020
Beginning balance$200  $—  
Impact of adopting ASC 326—  215  
Credit loss expense (benefit)(28) (43) 
Ending balance$172  $172  
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 June 30, 2020 and December 31, 2019 is presented below.
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance
for Credit
Losses		Estimated
Fair Value
June 30, 2020
U.S. Treasury$1,117,867  $45,768  $—  $—  $1,163,635  
Residential mortgage-backed securities2,051,686  79,604  3  —  2,131,287  
States and political subdivisions6,725,404  544,091  —  —  7,269,495  
Other42,279  —  —  —  42,279  
Total$9,937,236  $669,463  $3  $—  $10,606,696  
December 31, 2019
U.S. Treasury$1,941,283  $18,934  $12,084  $—  $1,948,133  
Residential mortgage-backed securities2,176,275  32,608  1,289  —  2,207,594  
States and political subdivisions6,717,344  353,857  204  —  7,070,997  
Other42,867  —  —  —  42,867  
Total$10,877,769  $405,399  $13,577  $—  $11,269,591  
All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. At June 30, 2020, nearly 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 70.7% are either guaranteed by the PSF or 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 $3.2 billion and $3.4 billion at June 30, 2020 and December 31, 2019, respectively. Accrued interest receivable on available-for-sale securities totaled $114.3 million and $115.9 million at June 30, 2020 and December 31, 2019, respectively, and is included in accrued interest receivable and other assets in the accompanying consolidated balance sheets.
The table below summarizes, as of June 30, 2020, securities available for sale in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by type of security and length of time in a continuous unrealized loss position.
Less than 12 MonthsMore than 12 MonthsTotal
Estimated
Fair Value		Unrealized
Losses		Estimated
Fair Value		Unrealized
Losses		Estimated
Fair Value		Unrealized
Losses
Residential mortgage-backed securities$1,243  $2  $127  $1  $1,370  $3  
Total$1,243  $2  $127  $1  $1,370  $3  
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As of June 30, 2020, 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 is based upon our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors (such as a PSF guarantee) related to our available for sale securities and 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 securities. Furthermore, management does not have the intent to sell any of the securities classified as available for sale in the table above and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost. AnyThe unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of June 30, 2019, management believes the impairments detailed 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 valuefollowing table summarizes the maturity distribution schedule of securities excluding tradingheld to maturity and securities at available for sale as of June 30, 20192020. Mortgage-backed securities are presented below by contractual maturity.included in maturity categories based on their stated maturity date. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential mortgage-backedOther securities classified as available for sale include stock in the Federal Reserve Bank and equity securities are shown separately since they are not due at a singlethe Federal Home Loan Bank, which have no maturity date. These securities have been included in the total column only.
 Held to Maturity Available for Sale
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less$21,334
 $21,546
 $1,974,510
 $1,968,237
Due after one year through five years128,125
 131,517
 1,427,453
 1,454,226
Due after five years through ten years534,695
 547,279
 400,327
 421,390
Due after ten years348,591
 359,073
 5,888,691
 6,145,168
Residential mortgage-backed securities2,554
 2,563
 2,212,761
 2,247,712
Equity securities—
 —
 42,780
 42,780
Total$1,035,299
 $1,061,978
 $11,946,522
 $12,279,513

Within 1 Year1 - 5 Years5 - 10 YearsAfter 10 YearsTotal
Held To Maturity
Amortized Cost
Residential mortgage-backed securities$—  $285  $516,618  $12,965  $529,868  
States and political subdivisions25,717  339,996  425,582  646,463  1,437,758  
Other—  1,500  —  —  1,500  
Total$25,717  $341,781  $942,200  $659,428  $1,969,126  
Estimated Fair Value
Residential mortgage-backed securities$—  $287  $560,606  $14,218  $575,111  
States and political subdivisions25,991  353,852  439,542  677,445  1,496,830  
Other—  1,500  —  —  1,500  
Total$25,991  $355,639  $1,000,148  $691,663  $2,073,441  
Available For Sale
Amortized Cost
U. S. Treasury$33,986  $1,083,881  $—  $—  $1,117,867  
Residential mortgage-backed securities126  57,223  5,424  1,988,913  2,051,686  
States and political subdivisions241,102  411,156  658,064  5,415,082  6,725,404  
Other—  —  —  —  42,279  
Total$275,214  $1,552,260  $663,488  $7,403,995  $9,937,236  
Estimated Fair Value
U. S. Treasury$34,067  $1,129,568  $—  $—  $1,163,635  
Residential mortgage-backed securities133  59,793  5,967  2,065,394  2,131,287  
States and political subdivisions243,001  444,100  714,089  5,868,305  7,269,495  
Other—  —  —  —  42,279  
Total$277,201  $1,633,461  $720,056  $7,933,699  $10,606,696  
Sales of Securities. Sales of securities available for sale were as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Proceeds from sales$51,250  $2,346,626  $1,162,352  $3,291,529  
Gross realized gains—  803  108,989  803  
Gross realized losses—  (634) —  (634) 
Tax (expense) benefit of securities gains/losses—  (35) (22,888) (35) 
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Proceeds from sales$2,346,626
 $7,905,521
 $3,291,529
 $10,890,388
Gross realized gains803
 3
 803
 3
Gross realized losses(634) (63) (634) (82)
Tax (expense) benefit of securities gains/losses(35) 13
 (35) 17
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Premiums and Discounts. Premium amortization and discount accretion included in interest income on securities was as follows:
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Premium amortization$(29,408) $(26,689) $(59,287) $(52,723)
Discount accretion1,378
 2,010
 2,561
 3,787
Net (premium amortization) discount accretion$(28,030) $(24,679) $(56,726) $(48,936)

Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Premium amortization$(30,988) $(29,408) $(63,333) $(59,287) 
Discount accretion571  1,378  1,156  2,561  
Net (premium amortization) discount accretion$(30,417) $(28,030) $(62,177) $(56,726) 
Trading Account Securities. Trading account securities, at estimated fair value, were as follows:
 June 30,
2019		 December 31,
2018
U.S. Treasury$22,642
 $21,928
States and political subdivisions2,840
 2,158
Total$25,482
 $24,086

June 30,
2020		December 31,
2019
U.S. Treasury$24,495  $24,298  
Total$24,495  $24,298  
Net gains and losses on trading account securities were as follows:
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Net gain on sales transactions$552
 $434
 $1,058
 $939
Net mark-to-market gains (losses)27
 23
 31
 (13)
Net gain (loss) on trading account securities$579
 $457
 $1,089
 $926

Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Net gain on sales transactions$304  $552  $774  $1,058  
Net mark-to-market gains (losses)(22) 27  93  31  
Net gain (loss) on trading account securities$282  $579  $867  $1,089  

Note 3 - Loans
Loans were as follows:
 June 30,
2019		 
Percentage
of Total
 December 31,
2018		 
Percentage
of Total
Commercial and industrial$5,380,487
 37.2% $5,111,957
 36.3%
Energy:       
Production1,197,717
 8.3
 1,309,314
 9.3
Service173,473
 1.2
 168,775
 1.2
Other110,159
 0.7
 124,509
 0.9
Total energy1,481,349
 10.2
 1,602,598
 11.4
Commercial real estate:       
Commercial mortgages4,291,781
 29.7
 4,121,966
 29.2
Construction1,323,040
 9.2
 1,267,717
 9.0
Land299,435
 2.1
 306,755
 2.2
Total commercial real estate5,914,256
 41.0
 5,696,438
 40.4
Consumer real estate:       
Home equity loans356,754
 2.5
 353,924
 2.5
Home equity lines of credit349,061
 2.4
 337,168
 2.4
Other453,083
 3.1
 427,898
 3.0
Total consumer real estate1,158,898
 8.0
 1,118,990
 7.9
Total real estate7,073,154
 49.0
 6,815,428
 48.3
Consumer and other524,159
 3.6
 569,750
 4.0
Total loans$14,459,149
 100.0% $14,099,733
 100.0%

June 30,
2020		Percentage
of Total		December 31,
2019		Percentage
of Total
Commercial and industrial$5,004,229  27.9 %$5,187,466  35.2 %
Energy:
Production1,162,673  6.5  1,348,900  9.2  
Service164,597  0.9  192,996  1.3  
Other97,610  0.5  110,986  0.8  
Total energy1,424,880  7.9  1,652,882  11.2  
Paycheck Protection Program3,162,279  17.6  —  —  
Commercial real estate:
Commercial mortgages5,042,546  28.1  4,594,113  31.1  
Construction1,265,550  7.0  1,312,659  8.9  
Land316,839  1.8  289,467  2.0  
Total commercial real estate6,624,935  36.9  6,196,239  42.0  
Consumer real estate:
Home equity loans346,210  1.9  375,596  2.6  
Home equity lines of credit395,099  2.2  354,671  2.4  
Other508,876  2.8  464,146  3.1  
Total consumer real estate1,250,185  6.9  1,194,413  8.1  
Total real estate7,875,120  43.8  7,390,652  50.1  
Consumer and other505,429  2.8  519,332  3.5  
Total loans$17,971,937  100.0 %$14,750,332  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 June 30, 2019,2020, there were no0 concentrations of loans related to any single industry in excess of 10% of total loans other thanloans. The largest industry concentration was related to the energy loans,industry, which totaled 10.2%7.9% of total loans, or 9.6% excluding PPP loans. Unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled $1.3 billion$982.6 million and $59.9$63.0 million, respectively, as of June 30, 2019.2020.
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Foreign Loans. We have U.S. dollar denominated loans and commitments to borrowers in Mexico. The outstanding balance of these loans and the unfunded amounts available under these commitments were not significant at June 30, 20192020 or December 31, 2018.2019.
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 $291.8$314.2 million at June 30, 20192020 and $256.1$298.5 million at December 31, 2018.2019.
Accrued Interest Receivable. Accrued interest receivable on loans totaled $39.9 million and $45.5 million at June 30, 2020 and December 31, 2019, respectively and is included in accrued interest receivable and other assets in the accompany consolidated balance sheets.
COVID-19 Loan Deferments. Certain borrowers are currently unable to meet their contractual payment obligations because of the adverse effects of COVID-19. To help mitigate these effects, loan customers may apply for a deferral of payments, or portions thereof, for up to 90 days. In the absence of other intervening factors, such short-term modifications made on a good faith basis are not categorized as troubled debt restructurings, nor are loans granted payment deferrals related to COVID-19 reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral). At June 30, 2020, there were nearly 3,100 loans in COVID-19 related deferment with an aggregate outstanding balance of approximately $2.1 billion.
Non-Accrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. In determining whether or not a borrower may be unable to meet payment obligations for each class of loans, we consider the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regards to our collateral position. Regulatory provisions would typically require the placement of a loan on non-accrual status if (i) principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or (ii) full payment of principal and interest is not expected. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed against income. Interest income on non-accrual loans is recognized only to the extent that cash payments are received in excess of principal due. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period (at least six months) of repayment performance by the borrower.
Non-accrual loans, segregated by class of loans, were as follows:
June 30, 2020December 31, 2019
Total Non-AccrualNon-Accrual with No Credit Loss AllowanceTotal Non-AccrualNon-Accrual with No Credit Loss Allowance
Commercial and industrial$27,146  $10,623  $26,038  $13,266  
Energy36,239  30,892  65,761  3,281  
Paycheck Protection Program—  —  —  —  
Commercial real estate:
Buildings, land and other12,154  6,513  8,912  6,558  
Construction1,869  677  665  665  
Consumer real estate2,035  2,035  922  922  
Consumer and other18  —  5  —  
Total$79,461  $50,740  $102,303  $24,692  
 June 30,
2019		 December 31,
2018
Commercial and industrial$18,768
 $9,239
Energy40,228
 46,932
Commercial real estate:   
Buildings, land and other10,437
 15,268
Construction—
 —
Consumer real estate669
 892
Consumer and other1,419
 1,408
Total$71,521
 $73,739
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The following table presents non-accrual loans as of June 30, 2020 by class and year of origination.
20202019201820172016PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial and industrial$1,439  $2,951  $8,023  $2,130  $290  $111  $8,163  $4,039  $27,146  
Energy27,628  —  —  —  —  —  2,929  5,682  36,239  
Paycheck Protection Program—  —  —  —  —  —  —  —  —  
Commercial real estate:
Buildings, land and other249  5,763  33  1,393  659  3,700  357  —  12,154  
Construction1,192  677  —  —  —  —  —  —  1,869  
Consumer real estate—  —  418  211  350  663  336  57  2,035  
Consumer and other—  —  —  —  —  —  18  —  18  
Total$30,508  $9,391  $8,474  $3,734  $1,299  $4,474  $11,803  $9,778  $79,461  
Had non-accrual loans performed in accordance with their original contract terms, we would have recognized additional interest income, net of tax, of approximately $570 thousand and $1.6 million for the three and six months ended June 30, 2020, and approximately $1.1 million and $2.1 million for the three and six months ended June 30, 2019, compared to $1.4 million and $2.9 million for the three and six months ended June 30, 2018.2019.

An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of June 30, 2019 was as follows:
 
Loans
30-89 Days
Past Due
 
Loans
90 or More
Days
Past Due
 
Total
Past Due
Loans
 
Current
Loans
 
Total
Loans
 
Accruing
Loans 90 or
More Days
Past Due
Commercial and industrial$28,577
 $18,751
 $47,328
 $5,333,159
 $5,380,487
 $6,823
Energy3,546
 20
 3,566
 1,477,783
 1,481,349
 20
Commercial real estate:           
Buildings, land and other13,516
 8,470
 21,986
 4,569,230
 4,591,216
 4,808
Construction14,425
 774
 15,199
 1,307,841
 1,323,040
 774
Consumer real estate9,237
 1,610
 10,847
 1,148,051
 1,158,898
 1,191
Consumer and other5,015
 2,105
 7,120
 517,039
 524,159
 2,031
Total$74,316
 $31,730
 $106,046
 $14,353,103
 $14,459,149
 $15,647

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
June 30, 2019         
Commercial and industrial$18,536
 $4,455
 $12,267
 $16,722
 $6,276
Energy55,043
 5,866
 33,946
 39,812
 9,721
Commercial real estate:      
  
Buildings, land and other10,329
 5,196
 4,760
 9,956
 1,420
Construction—
 —
 —
 —
 —
Consumer real estate293
 293
 —
 293
 —
Consumer and other1,532
 —
 1,419
 1,419
 1,419
Total$85,733
 $15,810
 $52,392
 $68,202
 $18,836
December 31, 2018         
Commercial and industrial$9,094
 $2,842
 $4,287
 $7,129
 $2,558
Energy67,900
 6,817
 39,890
 46,707
 9,671
Commercial real estate:         
Buildings, land and other15,774
 2,168
 12,517
 14,685
 2,599
Construction—
 —
 —
 —
 —
Consumer real estate293
 293
 —
 293
 —
Consumer and other1,475
 —
 1,407
 1,407
 1,407
Total$94,536
 $12,120
 $58,101
 $70,221
 $16,235

The average recorded investment in impaired loans2020 was as follows:
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019
2018
Commercial and industrial$15,462
 $15,307
 $12,684
 $24,791
Energy42,643
 92,380
 43,997
 93,001
Commercial real estate:       
Buildings, land and other18,139
 13,867
 16,988
 11,376
Construction205
 —
 137
 —
Consumer real estate789
 860
 624
 978
Consumer and other1,422
 813
 1,417
 542
Total$78,660
 $123,227
 $75,847
 $130,688


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$34,018  $23,765  $57,783  $4,946,446  $5,004,229  $7,669  
Energy9,319  7,978  17,297  1,407,583  1,424,880  2,466  
Paycheck Protection Program—  —  —  3,162,279  3,162,279  —  
Commercial real estate:
Buildings, land and other10,271  9,593  19,864  5,339,521  5,359,385  5,225  
Construction3,164  —  3,164  1,262,386  1,265,550  —  
Consumer real estate10,437  5,876  16,313  1,233,872  1,250,185  4,661  
Consumer and other7,621  976  8,597  496,832  505,429  976  
Total$74,830  $48,188  $123,018  $17,848,919  $17,971,937  $20,997  
Troubled Debt Restructurings. Troubled debt restructurings during the six months ended June 30, 20192020 and June 30, 20182019 are set forth in the following table.
 Six Months Ended 
 June 30, 2019		 Six Months Ended 
 June 30, 2018
 
Balance at
Restructure
 
Balance at
Period-End
 
Balance at
Restructure
 
Balance at
Period-End
Commercial and industrial$677
 $555
 $2,203
 $843
Energy—
 —
 13,708
 —
Commercial real estate:       
Buildings, land and other7,347
 7,308
 —
 —
 $8,024
 $7,863
 $15,911
 $843

Six Months Ended
June 30, 2020		Six Months Ended
June 30, 2019
Balance at
Restructure		Balance at
Period-End		Balance at
Restructure		Balance at
Period-End
Commercial and industrial$3,660  $3,652  $677  $555  
Commercial real estate:
Buildings, land and other6,606  6,606  7,347  7,308  
Construction1,192  1,192  —  —  
Consumer and other1,104  1,104  —  —  
$12,562  $12,554  $8,024  $7,863  
Loan modifications are typically related to extending amortization periods, converting loans to interest only for a limited period of time, deferral of interest payments, waiver of certain covenants, consolidating notes and/or reducing collateral or interest rates. The modifications during the reported periods did not significantly impact our determination of the allowance for loan losses.credit losses on loans.

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Additional information related to restructured loans as of or for the three months ended June 30, 20192020 and June 30, 20182019 is set forth in the following table.
June 30, 2019 June 30, 2018June 30, 2020June 30, 2019
Restructured loans past due in excess of 90 days at period-end:   Restructured loans past due in excess of 90 days at period-end:
Number of loans—
 —
Number of loans—  —  
Dollar amount of loans$—
 $—
Dollar amount of loans$—  $—  
Restructured loans on non-accrual status at period end3,890
 843
Restructured loans on non-accrual status at period end7,631  3,890  
Charge-offs of restructured loans:   Charge-offs of restructured loans:
Recognized in connection with restructuring—
 —
Recognized in connection with restructuring—  —  
Recognized on previously restructured loans—
 1,650
Recognized on previously restructured loans—  —  
Proceeds from sale of restructured loans—
 13,350
Credit Quality Indicators. As part of the on-going monitoring of the credit quality of our loan portfolio, management tracks certain credit quality indicators including trends related to (i) the weighted-average risk grade of commercial loans, (ii) the level of classified commercial loans, (iii) the delinquency status of consumer loans (see details above), (iv) net charge-offs, (v) non-performing loans (see details above) and (vi) the general economic conditions in the State of Texas.
We utilize a risk grading matrix to assign a risk grade to each of our commercial loans. Loans are graded on a scale of 1 to 14. A description of the general characteristics of the 14 risk grades is set forth in our 20182019 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 present weighted-average risk grades for all commercial loans, by class.class and year of origination/renewal as of June 30, 2020. Paycheck Protection Program (“PPP”) loans are excluded as such loans are fully guaranteed by the Small Business Administration (“SBA”).
20202019201820172016PriorRevolving LoansRevolving Loans Converted to TermTotalW/A Risk Grade
Commercial and industrial
Risk grades 1-8$964,725  $717,740  $381,096  $293,462  $135,834  $131,562  $1,870,668  $43,753  $4,538,840  6.12  
Risk grade 940,097  40,498  47,038  23,292  17,302  10,094  100,309  7,624  286,254  9.00  
Risk grade 10511  6,542  13,823  6,106  1,106  914  55,019  322  84,343  10.00  
Risk grade 11627  11,037  8,118  3,825  978  2,258  32,625  8,178  67,646  11.00  
Risk grade 12—  400  6,891  1,366  290  111  3,921  2,416  15,395  12.00  
Risk grade 131,439  2,551  1,132  764  —  —  4,242  1,623  11,751  13.00  
$1,007,399  $778,768  $458,098  $328,815  $155,510  $144,939  $2,066,784  $63,916  $5,004,229  6.45  
W/A Risk grade5.86  6.75  7.25  6.26  6.51  6.08  6.46  7.90  6.45  
Energy
Risk grades 1-8$464,306  $34,818  $15,531  $7,152  $2,177  $4,931  $458,761  $18,745  $1,006,421  6.17  
Risk grade 9109,731  14,431  3,754  18  —  —  97,175  16,594  241,703  9.00  
Risk grade 1032,588  228  1,203  1,032  930  —  10,054  952  46,987  10.00  
Risk grade 1159,119  341  1,268  3,261  —  1,110  28,152  279  93,530  11.00  
Risk grade 1227,628  —  —  —  —  —  2,929  3,432  33,989  12.00  
Risk grade 13—  —  —  —  —  —  —  2,250  2,250  13.00  
$693,372  $49,818  $21,756  $11,463  $3,107  $6,041  $597,071  $42,252  $1,424,880  7.24  
W/A Risk grade7.42  7.76  7.73  8.56  7.50  7.67  6.82  8.90  7.24  
 June 30, 2019 December 31, 2018
 Weighted
Average
Risk Grade		 Loans Weighted
Average
Risk Grade		 Loans
Commercial and industrial:       
Risk grades 1-86.13
 $5,024,193
 6.12
 $4,862,275
Risk grade 99.00
 200,167
 9.00
 112,431
Risk grade 1010.00
 43,269
 10.00
 58,328
Risk grade 1111.00
 94,090
 11.00
 69,684
Risk grade 1212.00
 12,492
 12.00
 6,681
Risk grade 1313.00
 6,276
 13.00
 2,558
Total6.37
 $5,380,487
 6.30
 $5,111,957
Energy       
Risk grades 1-85.81
 $1,305,553
 5.76
 $1,451,673
Risk grade 99.00
 82,176
 9.00
 35,565
Risk grade 1010.00
 2,061
 10.00
 43,001
Risk grade 1111.00
 51,331
 11.00
 25,427
Risk grade 1212.00
 30,507
 12.00
 37,261
Risk grade 1313.00
 9,721
 13.00
 9,671
Total6.35
 $1,481,349
 6.22
 $1,602,598
Commercial real estate:  
    
Buildings, land and other       
Risk grades 1-86.76
 $4,290,833
 6.76
 $4,143,264
Risk grade 99.00
 128,068
 9.00
 109,660
Risk grade 1010.00
 76,686
 10.00
 62,353
Risk grade 1111.00
 85,192
 11.00
 98,176
Risk grade 1212.00
 9,017
 12.00
 12,669
Risk grade 1313.00
 1,420
 13.00
 2,599
Total6.97
 $4,591,216
 6.98
 $4,428,721
Construction       
Risk grades 1-87.17
 $1,271,280
 7.13
 $1,177,260
Risk grade 99.00
 35,453
 9.00
 60,754
Risk grade 1010.00
 13,355
 10.00
 24,877
Risk grade 1111.00
 2,952
 11.00
 4,826
Risk grade 1212.00
 —
 12.00
 —
Risk grade 1313.00
 —
 13.00
 —
Total7.26
 $1,323,040
 7.29
 $1,267,717
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20202019201820172016PriorRevolving LoansRevolving Loans Converted to TermTotalW/A Risk Grade
Commercial real estate:
Buildings, land, other
Risk grades 1-8$738,500  $1,050,204  $781,460  $749,286  $471,551  $812,382  $68,195  $54,199  $4,725,777  6.97  
Risk grade 92,459  75,727  41,972  67,920  77,455  103,423  2,150  783  371,889  9.00  
Risk grade 10995  20,053  3,206  35,727  29,801  56,419  2,422  2,876  151,499  10.00  
Risk grade 113,353  11,407  3,798  38,848  14,901  20,944  3,100  1,715  98,066  11.00  
Risk grade 12249  4,963  33  1,393  659  3,450  294  —  11,041  12.00  
Risk grade 13—  800  —  —  —  250  63  —  1,113  13.00  
$745,556  $1,163,154  $830,469  $893,174  $594,367  $996,868  $76,224  $59,573  $5,359,385  7.28  
W/A Risk grade7.20  7.27  7.13  7.44  7.62  7.17  7.29  6.93  7.28  
Construction
Risk grades 1-8$189,575  $435,960  $362,978  $764  $1,178  $16,956  $131,793  $—  $1,139,204  7.15  
Risk grade 93,103  11,714  49,915  7,818  6,984  —  14,514  —  94,048  9.00  
Risk grade 1013,124  12,864  2,589  891  —  —  —  —  29,468  10.00  
Risk grade 11—  —  —  —  —  961  —  —  961  11.00  
Risk grade 12992  677  —  —  —  —  —  —  1,669  12.00  
Risk grade 13200  —  —  —  —  —  —  —  200  13.00  
$206,994  $461,215  $415,482  $9,473  $8,162  $17,917  $146,307  $—  $1,265,550  7.36  
W/A Risk grade7.30  7.23  7.64  9.00  8.75  6.31  6.97  —  7.36  
Total commercial real estate$952,550  $1,624,369  $1,245,951  $902,647  $602,529  $1,014,785  $222,531  $59,573  $6,624,935  7.30  
W/A Risk grade7.22  7.26  7.30  7.45  7.63  7.16  7.08  6.93  7.30  
In the tables above, certain loans are reported as 2020 originations and have risk grades of 11 or higher. These loans were, for the most part, first originated in various years prior to 2020 but were renewed in the current year.
The following tables present weighted average risk grades for all commercial loans by class as of December 31, 2019.
Commercial and IndustrialEnergyCommercial Real Estate - Buildings, Land and OtherCommercial Real Estate - ConstructionTotal Commercial Real Estate
W/A Risk GradeLoansW/A Risk GradeLoansW/A Risk GradeLoansW/A Risk GradeLoansW/A Risk GradeLoans
Risk grades 1-86.17  $4,788,857  5.90  $1,488,301  6.78  $4,523,271  7.25  $1,274,098  6.88  $5,797,369  
Risk grade 99.00  247,212  9.00  32,163  9.00  163,714  9.00  21,509  9.00  185,223  
Risk grade 1010.00  71,472  10.00  51,898  10.00  103,626  10.00  15,243  10.00  118,869  
Risk grade 1111.00  53,887  11.00  14,760  11.00  84,057  11.00  1,144  11.00  85,201  
Risk grade 1212.00  18,189  12.00  45,514  12.00  8,529  12.00  665  12.00  9,194  
Risk grade 1313.00  7,849  13.00  20,246  13.00  383  13.00  —  13.00  383  
Total6.44  $5,187,466  6.39  $1,652,882  7.01  $4,883,580  7.31  $1,312,659  7.07  $6,196,239  
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Information about the payment status of consumer loans, segregated by portfolio segment and year of origination, as of June 30, 2020 was as follows:
20202019201820172016PriorRevolving LoansRevolving Loans Converted to TermTotal
Consumer real estate:
Past due 30-89 days$308  $392  $744  $1,424  $951  $5,552  $594  $472  $10,437  
Past due 90 or more days631  139  825  364  385  1,622  1,772  138  5,876  
Total past due939  531  1,569  1,788  1,336  7,174  2,366  610  16,313  
Current loans153,945  208,060  125,413  107,404  84,106  162,656  373,461  18,827  1,233,872  
Total$154,884  $208,591  $126,982  $109,192  $85,442  $169,830  $375,827  $19,437  $1,250,185  
Consumer and other:
Past due 30-89 days$995  $164  $88  $10  $35  $1  $6,157  $171  $7,621  
Past due 90 or more days83  43  3  —  —  —  791  56  976  
Total past due1,078  207  91  10  35  1  6,948  227  8,597  
Current loans28,816  39,651  11,925  3,775  2,421  1,292  382,499  26,453  496,832  
Total$29,894  $39,858  $12,016  $3,785  $2,456  $1,293  $389,447  $26,680  $505,429  

Net (charge-offs)/recoveries, segregated by class ofRevolving loans that converted to term during the three and six months ended June 30, 2020 were as follows:
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Commercial and industrial$(2,454) $(3,548) $(4,392) $(11,223)
Energy(1,971) (2,076) (1,924) (4,925)
Commercial real estate:       
Buildings, land and other(531) (402) (504) (321)
Construction3
 6
 6
 8
Consumer real estate(286) (164) (1,975) (690)
Consumer and other(2,582) (1,726) (5,817) (3,183)
Total$(7,821) $(7,910) $(14,606) $(20,334)


Three Months Ended
June 30, 2020		Six Months Ended
June 30, 2020
Commercial and industrial$9,405  $18,975  
Energy26,839  42,186  
Commercial real estate:
Buildings, land and other—  7,551  
Construction—  —  
Consumer real estate905  1,955  
Consumer and other10,371  10,371  
Total$47,520  $81,038  
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 20182019 Form 10-K, totaled 128.8106.7 at June 30, 20192020 and 126.4127.9 at December 31, 2018.2019. 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 on loans considering available information, from internal and external sources, relevant to assessing collectibility over the loans' contractual terms, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless (i) management has a reasonable expectation that have been incurred withina trouble debt restructuring will be executed with an individual borrower or (ii) such extension or renewal options are not unconditionally cancellable by us and, in such cases, the existing portfolioborrower is likely to meet applicable conditions and likely to request extension or renewal. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of loans.expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. The allowance for credit losses is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

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Credit loss expense related to loans reflects the totality of actions taken on all loans for a particular period including any necessary increases or decreases in the 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 2018 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.
In calculating the allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles. Common characteristics and risk profiles include the type/purpose of loan, underlying collateral, geographical similarity and historical/expected credit loss patterns. In developing these loan pools for the purposes of modeling expected credit losses, we also analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors. For modeling purposes, our loan pools include (i) commercial and industrial and energy - non-revolving, (ii) commercial and industrial and energy - revolving, (iii) commercial real estate - owner occupied, (iv) commercial real estate - non-owner occupied, (v) commercial real estate - construction/land development, (vi) consumer real estate and (vii) consumer and other. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary.
For each loan pool, we measure expected credit losses over the life of each loan utilizing a combination of models which measure (i) probability of default (“PD”), which is the likelihood that loan will stop performing/default, (ii) probability of attrition (“PA”), which is the likelihood that a loan will pay-off prior to maturity, (iii) loss given default (“LGD”), which is the expected loss rate for loans in default and (iv) exposure at default (“EAD”), which is the estimated outstanding principal balance of the loans upon default, including the expected funding of unfunded commitments outstanding as of the measurement date. For certain commercial loan portfolios, the PD is calculated using a transition matrix to determine the likelihood of a customer’s risk grade migrating from one specified range of risk grades to a different specified range. Expected credit losses are calculated as the product of PD (adjusted for attrition), LGD and EAD. This methodology builds on default probabilities already incorporated into our risk grading process by utilizing pool-specific historical loss rates to calculate expected credit losses. These pool-specific historical loss rates may be adjusted for current macroeconomic assumptions, as further discussed below, and other factors such as differences in underwriting standards, portfolio mix, or when historical asset terms do not reflect the contractual terms of the financial assets being evaluated as of the measurement date. Each time we measure expected credit losses, we assess the relevancy of historical loss information and consider any necessary adjustments to address any differences in asset-specific characteristics. Due to their short-term nature, expected credit losses for overdrafts included in consumer and other loans are based solely upon a weighting of recent historical charge-offs over a period of three years.
The measurement of expected credit losses is impacted by loan/borrower attributes and certain macroeconomic variables. Significant loan/borrower attributes utilized in our modeling processes include, among other things, (i) origination date, (ii) maturity date, (iii) payment type, (iv) collateral type and amount, (v) current risk grade, (vi) current unpaid balance and commitment utilization rate, (vii) payment status/delinquency history and (viii) expected recoveries of previously charged-off amounts. Significant macroeconomic variables utilized in our modeling processes include, among other things, (i) Gross State Product for Texas and U.S. Gross Domestic Product, (ii) selected market interest rates including U.S. Treasury rates, bank prime rate, 30-year fixed mortgage rate, BBB corporate bond rate, among others, (iii) unemployment rates, (iv) commercial and residential property prices in Texas and the U.S. as a whole, (v) West Texas Intermediate crude oil price and (vi) total stock market index.
PD and PA were estimated by analyzing internally-sourced data related to historical performance of each loan pool over a complete economic cycle. PD and PA are adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period. We have determined that we are reasonably able to forecast the macroeconomic variables used in our modeling processes with an acceptable degree of confidence for a total of two years with the last twelve months of the forecast period encompassing a reversion process whereby the forecasted macroeconomic variables are reverted to their historical mean utilizing a rational, systematic basis. The macroeconomic variables utilized as inputs in our modeling processes were subjected to a variety of analysis procedures and were selected primarily based on statistical relevancy and correlation to our historical credit losses. By reverting these modeling inputs to their historical mean and considering loan/borrower specific attributes, our models will yield a measurement of expected credit losses that reflects our average historical loss rates for periods subsequent to the twelve-month reversion period. The LGD is based on historical recovery averages for each loan pool, adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a two-year forecast period, with the final twelve months of the forecast period encompassing a reversion process, which management considers to be both reasonable and supportable. This same forecast/reversion period is used for all macroeconomic variables used in all of our models. EAD is estimated using a linear regression model that estimates the average percentage of the loan balance that remains at the time of a default event.
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Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor (“Q-Factor”) adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor adjustments include, among other things, the impact of (i) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (ii) actual and expected changes in international, national, regional, and local economic and business conditions and developments that affect the collectibility of the loan pools, (iii) changes in the nature and volume of the loan pools and in the terms of the underlying loans, (iv) changes in the experience, ability, and depth of our lending management and staff, (v) changes in volume and severity of past due financial assets, the volume of non-accrual assets, and the volume and severity of adversely classified or graded assets, (vi) changes in the quality of our credit review function, (vii) changes in the value of the underlying collateral for loans that are non-collateral dependent, (viii) the existence, growth, and effect of any concentrations of credit and (ix) other factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters or health pandemics.
In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by our internal appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. The fair value of collateral supporting collateral dependent construction loans is based on an “as is” valuation.
The following table presents details of the allowance for loancredit losses allocated to eachon loans segregated by loan portfolio segment as of June 30, 2019 and December 31, 2018 and detailed on2020, calculated in accordance with the basis of the impairment evaluationCECL methodology we used:
 
Commercial
and
Industrial
 Energy 
Commercial
Real Estate
 
Consumer
Real Estate
 
Consumer
and Other
 Total
June 30, 2019           
Historical valuation allowances$31,699
 $9,087
 $20,979
 $2,619
 $7,592
 $71,976
Specific valuation allowances6,276
 9,721
 1,420
 —
 1,419
 18,836
General valuation allowances10,227
 4,487
 4,105
 1,560
 (397) 19,982
Macroeconomic valuation allowances9,512
 2,523
 9,410
 1,458
 1,232
 24,135
Total$57,714
 $25,818
 $35,914
 $5,637
 $9,846
 $134,929
Allocated to loans:           
Individually evaluated$6,276
 $9,721
 $1,420
 $—
 $1,419
 $18,836
Collectively evaluated51,438
 16,097
 34,494
 5,637
 8,427
 116,093
Total$57,714
 $25,818
 $35,914
 $5,637
 $9,846
 $134,929
December 31, 2018           
Historical valuation allowances$25,351
 $9,697
 $20,817
 $2,688
 $6,845
 $65,398
Specific valuation allowances2,558
 9,671
 2,599
 —
 1,407
 16,235
General valuation allowances10,062
 6,014
 4,366
 1,671
 (13) 22,100
Macroeconomic valuation allowances10,609
 3,670
 10,995
 1,744
 1,381
 28,399
Total$48,580
 $29,052
 $38,777
 $6,103
 $9,620
 $132,132
Allocated to loans:           
Individually evaluated$2,558
 $9,671
 $2,599
 $—
 $1,407
 $16,235
Collectively evaluated46,022
 19,381
 36,178
 6,103
 8,213
 115,897
Total$48,580
 $29,052
 $38,777
 $6,103
 $9,620
 $132,132


Our recorded investment indescribed above. No allowance for credit losses has been recognized for PPP loans as such loans are fully guaranteed by the SBA.
Commercial
and
Industrial		EnergyCommercial
Real Estate		Consumer
Real Estate		Consumer
and Other		Total
Modeled expected credit losses$86,016  $17,977  $121,978  $8,865  $8,224  $243,060  
Q-Factor and other qualitative adjustments430  20,590  (29,867) 133  43  (8,671) 
Specific allocations12,090  2,250  1,314  —  18  15,672  
Total$98,536  $40,817  $93,425  $8,998  $8,285  $250,061  
The following table presents details of June 30, 2019 and December 31, 2018 related to each balance in the allowance for loancredit losses on loans segregated by loan portfolio segment and detailed on the basisas of the impairmentDecember 31, 2019, calculated in accordance with our prior incurred loss methodology we used was as follows:described in our 2019 Form 10-K.
Commercial
and
Industrial		EnergyCommercial
Real Estate		Consumer
Real Estate		Consumer
and Other		Total
Historical valuation allowances$29,015  $7,873  $21,947  $2,690  $7,562  $69,087  
Specific valuation allowances7,849  20,246  383  —  5  28,483  
General valuation allowances9,840  5,196  4,201  904  (409) 19,732  
Macroeconomic valuation allowances4,889  4,067  4,506  519  884  14,865  
Total$51,593  $37,382  $31,037  $4,113  $8,042  $132,167  
 
Commercial
and
Industrial
 Energy Commercial
Real Estate		 Consumer
Real Estate		 Consumer
and Other		 Total
June 30, 2019           
Individually evaluated$16,722
 $39,812
 $9,956
 $293
 $1,419
 $68,202
Collectively evaluated5,363,765
 1,441,537
 5,904,300
 1,158,605
 522,740
 14,390,947
Total$5,380,487
 $1,481,349
 $5,914,256
 $1,158,898
 $524,159
 $14,459,149
December 31, 2018           
Individually evaluated$7,129
 $46,707
 $14,685
 $293
 $1,407
 $70,221
Collectively evaluated5,104,828
 1,555,891
 5,681,753
 1,118,697
 568,343
 14,029,512
Total$5,111,957
 $1,602,598
 $5,696,438
 $1,118,990
 $569,750
 $14,099,733
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The following table details activity in the allowance for loancredit losses on loans by portfolio segment for the three and six months ended June 30, 20192020 and 2018.2019. 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:
June 30, 2020
Beginning balance$92,152  $103,201  $52,319  $8,170  $8,039  $263,881  
Credit loss expense7,334  (27,342) 44,587  352  2,297  27,228  
Charge-offs(1,841) (35,042) (3,511) (135) (4,178) (44,707) 
Recoveries891  —  30  611  2,127  3,659  
Net charge-offs(950) (35,042) (3,481) 476  (2,051) (41,048) 
Ending balance$98,536  $40,817  $93,425  $8,998  $8,285  $250,061  
June 30, 2019
Beginning balance$58,571  $25,343  $36,455  $5,661  $10,320  $136,350  
Credit loss expense1,597  2,446  (13) 262  2,108  6,400  
Charge-offs(3,389) (2,000) (557) (601) (5,103) (11,650) 
Recoveries935  29  29  315  2,521  3,829  
Net charge-offs(2,454) (1,971) (528) (286) (2,582) (7,821) 
Ending balance$57,714  $25,818  $35,914  $5,637  $9,846  $134,929  
Six months ended:
June 30, 2020
Beginning balance$51,593  $37,382  $31,037  $4,113  $8,042  $132,167  
Impact of adopting ASC 32621,263  (10,453) (13,519) 2,392  (2,248) (2,565) 
Credit loss expense29,284  82,664  79,348  1,922  6,935  200,153  
Charge-offs(6,210) (68,842) (3,584) (420) (9,183) (88,239) 
Recoveries2,606  66  143  991  4,739  8,545  
Net charge-offs(3,604) (68,776) (3,441) 571  (4,444) (79,694) 
Ending balance$98,536  $40,817  $93,425  $8,998  $8,285  $250,061  
June 30, 2019
Beginning balance$48,580  $29,052  $38,777  $6,103  $9,620  $132,132  
Credit loss expense13,526  (1,310) (2,365) 1,509  6,043  17,403  
Charge-offs(6,077) (2,000) (617) (2,379) (10,800) (21,873) 
Recoveries1,685  76  119  404  4,983  7,267  
Net charge-offs(4,392) (1,924) (498) (1,975) (5,817) (14,606) 
Ending balance$57,714  $25,818  $35,914  $5,637  $9,846  $134,929  
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 June 30, 2020 and December 31, 2019.
June 30, 2020December 31, 2019
Loan
Balance		Specific AllocationsLoan
Balance		Specific Allocations
Commercial and industrial$46,087  $12,090  $24,360  $7,849  
Energy35,904  2,250  65,244  20,246  
Paycheck Protection Program—  —  —  —  
Commercial real estate:
Buildings, land and other28,582  1,114  8,609  383  
Construction1,869  200  665  —  
Consumer real estate1,334  —  570  —  
Consumer and other18  18  5  5  
Total$113,794  $15,672  $99,453  $28,483  
 
Commercial
and
Industrial
 Energy 
Commercial
Real Estate
 
Consumer
Real Estate
 
Consumer
and Other
 Total
Three months ended:           
June 30, 2019           
Beginning balance$58,571
 $25,343
 $36,455
 $5,661
 $10,320
 $136,350
Provision for loan losses1,597
 2,446
 (13) 262
 2,108
 6,400
Charge-offs(3,389) (2,000) (557) (601) (5,103) (11,650)
Recoveries935
 29
 29
 315
 2,521
 3,829
Net charge-offs(2,454) (1,971) (528) (286) (2,582) (7,821)
Ending balance$57,714
 $25,818
 $35,914
 $5,637
 $9,846
 $134,929
June 30, 2018           
Beginning balance$57,733
 $39,039
 $38,474
 $6,349
 $8,290
 $149,885
Provision for loan losses3,528
 350
 840
 151
 3,382
 8,251
Charge-offs(4,153) (2,689) (614) (482) (3,994) (11,932)
Recoveries605
 613
 218
 318
 2,268
 4,022
Net charge-offs(3,548) (2,076) (396) (164) (1,726) (7,910)
Ending balance$57,713
 $37,313
 $38,918
 $6,336
 $9,946
 $150,226
            
Six months ended:           
June 30, 2019           
Beginning balance$48,580
 $29,052
 $38,777
 $6,103
 $9,620
 $132,132
Provision for loan losses13,526
 (1,310) (2,365) 1,509
 6,043
 17,403
Charge-offs(6,077) (2,000) (617) (2,379) (10,800) (21,873)
Recoveries1,685
 76
 119
 404
 4,983
 7,267
Net charge-offs(4,392) (1,924) (498) (1,975) (5,817) (14,606)
Ending balance$57,714
 $25,818
 $35,914
 $5,637
 $9,846
 $134,929
June 30, 2018           
Beginning balance$59,614
 $51,528
 $30,948
 $5,657
 $7,617
 $155,364
Provision for loan losses9,322
 (9,290) 8,283
 1,369
 5,512
 15,196
Charge-offs(13,405) (5,539) (619) (1,201) (7,966) (28,730)
Recoveries2,182
 614
 306
 511
 4,783
 8,396
Net charge-offs(11,223) (4,925) (313) (690) (3,183) (20,334)
Ending balance$57,713
 $37,313
 $38,918
 $6,336
 $9,946
 $150,226
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Note 4 - Goodwill and Other Intangible Assets
Goodwill and other intangible assets are presented in the table below. As of June 30, 2020, we evaluated recent potential triggering events that might be indicators that our goodwill was impaired. The events include the economic disruption and uncertainty surrounding the COVID-19 pandemic and the circumstances surrounding recent volatility in the market price of crude oil. Based on our evaluation, we concluded that our goodwill was not more than likely impaired as of that date.
June 30,
2020		December 31,
2019
Goodwill$654,952  $654,952  
Other intangible assets:
Core deposits$1,634  $2,043  
Customer relationships349  438  
$1,983  $2,481  
 June 30,
2019		 December 31,
2018
Goodwill$654,952
 $654,952
Other intangible assets:   
Core deposits$2,466
 $2,959
Customer relationships547
 672
Non-compete agreements6
 18
 $3,019
 $3,649
The estimated aggregate future amortization expense for intangible assets remaining as of June 30, 20192020 is as follows:
Remainder of 2019$537
2020919
2021697
2022481
2023283
Thereafter102
 $3,019

Remainder of 2020$420  
2021697  
2022481  
2023282  
202487  
Thereafter16  
$1,983  
Note 5 - Deposits
Deposits were as follows:
 June 30,
2019		 
Percentage
of Total
 December 31,
2018		 
Percentage
of Total
Non-interest-bearing demand deposits:     
Commercial and individual$9,634,530
 37.1% $10,305,850
 37.9%
Correspondent banks192,478
 0.7
 235,748
 0.9
Public funds309,429
 1.2
 455,896
 1.7
Total non-interest-bearing demand deposits10,136,437
 39.0
 10,997,494
 40.5
Interest-bearing deposits:       
Private accounts:       
Savings and interest checking6,754,027
 26.0
 6,977,813
 25.7
Money market accounts7,544,621
 29.0
 7,777,470
 28.6
Time accounts of $100,000 or more674,198
 2.6
 526,789
 2.0
Time accounts under $100,000344,700
 1.3
 331,511
 1.2
Total private accounts15,317,546
 58.9
 15,613,583
 57.5
Public funds:       
Savings and interest checking456,871
 1.8
 473,754
 1.8
Money market accounts67,620
 0.3
 59,953
 0.2
Time accounts of $100,000 or more6,524
 —
 4,332
 —
Time accounts under $100,00025
 —
 88
 —
Total public funds531,040
 2.1
 538,127
 2.0
Total interest-bearing deposits15,848,586
 61.0
 16,151,710
 59.5
Total deposits$25,985,023
 100.0% $27,149,204
 100.0%


June 30,
2020		Percentage
of Total		December 31,
2019		Percentage
of Total
Non-interest-bearing demand deposits:
Commercial and individual$13,866,774  42.4 %$10,212,265  36.9 %
Correspondent banks283,893  0.9  246,181  0.9  
Public funds521,322  1.6  415,183  1.5  
Total non-interest-bearing demand deposits14,671,989  44.9  10,873,629  39.3  
Interest-bearing deposits:
Private accounts:
Savings and interest checking7,937,394  24.3  7,147,327  25.9  
Money market accounts8,431,539  25.8  7,888,433  28.5  
Time accounts of $100,000 or more779,859  2.4  736,481  2.7  
Time accounts under $100,000335,131  1.0  347,418  1.2  
Total private accounts17,483,923  53.5  16,119,659  58.3  
Public funds:
Savings and interest checking442,349  1.4  548,399  2.0  
Money market accounts76,437  0.2  73,180  0.3  
Time accounts of $100,000 or more4,315  —  24,672  0.1  
Time accounts under $100,00083  —  25  —  
Total public funds523,184  1.6  646,276  2.4  
Total interest-bearing deposits18,007,107  55.1  16,765,935  60.7  
Total deposits$32,679,096  100.0 %$27,639,564  100.0 %
The following table presents additional information about our deposits:
June 30,
2020		December 31,
2019
Deposits from the Certificate of Deposit Account Registry Service (CDARS) deposits$366  $361  
Deposits from foreign sources (primarily Mexico)797,499  805,828  
Deposits not covered by deposit insurance16,442,913  13,115,796  
 June 30,
2019		 December 31,
2018
Deposits from the Certificate of Deposit Account Registry Service (CDARS) deposits$356
 $—
Deposits from foreign sources (primarily Mexico)766,942
 752,658
Deposits not covered by deposit insurance11,747,001
 13,111,210
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Note 6 - 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 20182019 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:
June 30,
2020		December 31,
2019
Commitments to extend credit$9,601,250  $9,306,043  
Standby letters of credit254,142  260,587  
Deferred standby letter of credit fees1,756  1,276  
 June 30,
2019		 December 31,
2018
Commitments to extend credit$8,552,270
 $8,369,721
Standby letters of credit294,722
 271,575
Deferred standby letter of credit fees1,776
 2,069
Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures. The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. Off-balance-sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit detailed in the table above. For the period of exposure, the estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment or other off-balance-sheet exposure. The likelihood and expected amount of funding are based on historical utilization rates. The amount of the allowance represents management's best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment. Estimating credit losses on amounts expected to be funded uses the same methodology as described for loans in Note 3 - Loans as if such commitments were funded.

The following table details activity in the allowance for credit losses on off-balance-sheet credit exposures.
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Beginning balance$42,164  $500  $500  $500  
Impact of adopting ASC 326—  —  39,377  —  
Credit loss expense4,775  —  7,062  —  
Ending balance$46,939  $500  $46,939  $500  
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
June 30,		Six Months Ended
June 30,
2020201920202019
Amortization of lease right-of-use assets$8,150  $6,487  $16,024  $12,283  
Short-term lease expense610  1,038  1,171  2,117  
Non-lease components (including taxes, insurance, common maintenance, etc.)2,897  2,175  5,824  3,908  
Total$11,657  $9,700  $23,019  $18,308  
Right-of-use lease assets totaled $304.9 million at June 30, 2020 and $297.7 million at December 31, 2019 and are reported as a component of premises and equipment on our accompanying consolidated balance sheets. The related lease liabilities totaled $334.8 million at June 30, 2020 and $323.7 million at December 31, 2019 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 $9.7$8.1 million and $18.3$15.8 million during the three and six months ended June 30, 20192020 and $8.1$6.1 million and $16.3$12.1 million during the three and six months ended June 30, 2018. On January 1, 2019, we adopted a new accounting standard which required the recognition of our operating leases on our balance sheet. See Note 1 - Significant Accounting Policies. As of June 30, 2019, right-of-use lease assets and related lease liabilities totaled $284.5 million and $291.7 million, respectively, and are included with premises and equipment and accrued interest payable and other liabilities, respectively, on our accompanying consolidated balance sheet. During the second quarter of 2019, we recognized a right-of-use asset totaling $121.7 million and a related lease liability totaling $121.7 million in connection with the commencement of the lease of our new corporate headquarters facility in downtown San Antonio.2019. There has been no0 significant change in our expected future minimum lease payments since December 31, 2018.2019. See the 20182019 Form 10-K for information regarding these commitments.

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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.
As previously disclosed, in April of 2020, purported class action lawsuits were filed against Frost Bank in each of Federal and Texas State courts alleging certain violations of law in connection with Frost Bank’s participation in the PPP. Frost Banks’s motion to dismiss with prejudice the Federal lawsuit was granted and as a result the Federal lawsuit is resolved. The Texas State court lawsuit has also been favorably resolved. In May of 2020, a purported class action lawsuit was filed against Frost Bank alleging, among other claims, that Frost Bank had refused to pay agent fees to purported agents of borrowers under the PPP in violation of SBA regulations. Frost Bank believes the claims in the agent fee case to be without merit.
Note 7 - 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 othero ther factors.
Cullen/Frost’s and Frost Bank’s Common Equity Tier 1 capital includes common stock and related paid-in capital, net of treasury stock, and retained earnings. In connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include most components of accumulated other comprehensive income in Common Equity Tier 1. We also elected to exclude, for a five-year transitional period, the effects of credit loss accounting under CECL from Common Equity Tier 1, as further discussed below. Common Equity Tier 1 for both Cullen/Frost and Frost Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities, and subject to transition provisions.liabilities. Frost Bank's Common Equity Tier 1 is also reduced by its equity investment in its financial subsidiary, Frost Insurance Agency (“FIA”).
Tier 1 capital includes Common Equity Tier 1 capital and additional Tier 1 capital. For Cullen/Frost additional Tier 1 capital at June 30, 2019 and December 31, 2018 includes $144.5 million of 5.375% non-cumulative perpetual preferred stock. Frost Bank did not have any additional Tier 1 capital beyond Common Equity Tier 1 at June 30, 2019 or2020. For Cullen/Frost, additional Tier 1 capital at December 31, 2018.2019 included $144.5 million of 5.375% non-cumulative perpetual preferred stock. This preferred stock was redeemed during the first quarter of 2020, as further discussed below. Frost Bank did not have any additional Tier 1 capital beyond Common Equity Tier 1 at December 31, 2019.
Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital for both Cullen/Frost and Frost Bank includes a permissible portion of the 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 million of qualified subordinated debt and $133.0 million of trust preferred securities at both June 30, 20192020 and December 31, 2018.2019.

As discussed in Note 1 - Significant Accounting Policies, in connection with the adoption of ASC 326, we recognized an after-tax cumulative effect reduction to retained earnings totaling $29.3 million. In February 2019, the federal bank regulatory agencies issued a final rule (the “2019 CECL Rule”) that revised certain capital regulations to account for changes to credit loss accounting under U.S. GAAP. The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year period, the day-one adverse effects of CECL on their regulatory capital ratios (three-year transition option). In March 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three-year transition option of the 2019 CECL Rule and also provides banking organizations that were required under U.S. GAAP (as of January 2020) to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). We elected to adopt the five-year transition option. Accordingly, a CECL transitional amount totaling $61.1 million has been added back to CET1 as of June 30, 2020. The CECL transitional amount includes $29.3 million related to cumulative effect of adopting CECL and $31.9 million related to the estimated incremental effect of CECL since adoption.
In April 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA. Federal bank regulatory agencies have issued an interim final rule that permits banks to neutralize the regulatory capital effects of participating in the Paycheck Protection Program Lending Facility (the “PPP Facility”) and clarify that PPP loans have a zero percent risk weight under applicable risk-based capital rules. Specifically, a bank may exclude all PPP loans pledged as collateral to the PPP Facility from its average total consolidated assets for the purposes of calculating its leverage ratio, while PPP loans that are not pledged as collateral to the PPP Facility will be included. The PPP loans we originated in the second quarter of 2020 are included in the calculation of our leverage ratio as of June 30, 2020 as we did not utilize the PPP Facility for funding purposes.
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The following tables presenttable presents actual and required capital ratios as of June 30, 20192020 and December 31, 20182019 for Cullen/Frost and Frost Bank under the Basel III Capital Rules. The Basel III Capital Rules became fully phased-in on January 1, 2019. The minimum required capital amounts presented as of December 31, 2018 include the minimum required capital levels applicable as of that date as well as the minimum required capital levels as of January 1, 2019 when the Basel III Capital Rules became fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. See the 20182019 Form 10-K for a more detailed discussion of the Basel III Capital Rules. After a review of risk-weight classifications during the first quarter of 2019, risk-weightings for certain loans were reclassified. Amounts reported as of December 31, 20182019 have been revised to reflect these reclassifications.
ActualMinimum Capital Required - Basel IIIRequired to be
Considered Well
Capitalized
Actual Minimum Capital Required - Basel III Required to be
Considered Well
Capitalized		Capital
Amount		RatioCapital
Amount		RatioCapital
Amount		Ratio
Capital
Amount		 Ratio Capital
Amount		 Ratio Capital
Amount		 Ratio
June 30, 2019           
June 30, 2020June 30, 2020
Common Equity Tier 1 to Risk-Weighted Assets           Common Equity Tier 1 to Risk-Weighted Assets
Cullen/Frost$2,733,377
 12.29% $1,556,842
 7.00% $1,445,639
 6.50%Cullen/Frost$2,940,493  12.48 %$1,649,766  7.00 %$1,531,926  6.50 %
Frost Bank2,841,165
 12.81
 1,552,278
 7.00
 1,441,401
 6.50
Frost Bank2,977,672  12.66  1,646,300  7.00  1,528,707  6.50  
Tier 1 Capital to Risk-Weighted Assets           Tier 1 Capital to Risk-Weighted Assets
Cullen/Frost2,877,863
 12.94
 1,890,451
 8.50
 1,779,248
 8.00
Cullen/Frost2,940,493  12.48  2,003,287  8.50  1,885,447  8.00  
Frost Bank2,841,165
 12.81
 1,884,909
 8.50
 1,774,032
 8.00
Frost Bank2,977,672  12.66  1,999,078  8.50  1,881,485  8.00  
Total Capital to Risk-Weighted Assets           Total Capital to Risk-Weighted Assets
Cullen/Frost3,246,292
 14.60
 2,335,264
 10.50
 2,224,061
 10.00
Cullen/Frost3,401,768  14.43  2,474,649  10.50  2,356,809  10.00  
Frost Bank2,976,594
 13.42
 2,328,417
 10.50
 2,217,540
 10.00
Frost Bank3,205,947  13.63  2,469,450  10.50  2,351,857  10.00  
Leverage Ratio           Leverage Ratio
Cullen/Frost2,877,863
 9.40
 1,224,631
 4.00
 1,530,789
 5.00
Cullen/Frost2,940,493  8.01  1,469,180  4.00  1,836,475  5.00  
Frost Bank2,841,165
 9.29
 1,223,119
 4.00
 1,528,899
 5.00
Frost Bank2,977,672  8.11  1,468,312  4.00  1,835,391  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
December 31, 2018               
Common Equity Tier 1 to Risk-Weighted Assets               
Cullen/Frost$2,642,475
 12.27% $1,372,573
 6.375% $1,507,139
 7.00% $1,358,171
 6.50%
Frost Bank2,743,973
 12.78
 1,368,701
 6.375
 1,502,887
 7.00
 1,354,222
 6.50
Tier 1 Capital to Risk-Weighted Assets               
Cullen/Frost2,786,961
 12.94
 1,695,532
 7.875
 1,830,098
 8.50
 1,671,595
 8.00
Frost Bank2,743,973
 12.78
 1,690,748
 7.875
 1,824,934
 8.50
 1,666,735
 8.00
Total Capital to Risk-Weighted Assets               
Cullen/Frost3,152,593
 14.64
 2,126,143
 9.875
 2,260,709
 10.50
 2,089,494
 10.00
Frost Bank2,876,605
 13.40
 2,120,144
 9.875
 2,254,331
 10.50
 2,083,419
 10.00
Leverage Ratio               
Cullen/Frost2,786,961
 9.06
 1,231,028
 4.00
 1,231,028
 4.00
 1,538,785
 5.00
Frost Bank2,743,973
 8.93
 1,229,650
 4.00
 1,229,650
 4.00
 1,537,062
 5.00

December 31, 2019
Common Equity Tier 1 to Risk-Weighted Assets
Cullen/Frost$2,857,250  12.36 %$1,617,886  7.00 %$1,502,323  6.50 %
Frost Bank2,958,326  12.82  1,615,206  7.00  1,499,834  6.50  
Tier 1 Capital to Risk-Weighted Assets
Cullen/Frost3,001,736  12.99  1,964,576  8.50  1,849,013  8.00  
Frost Bank2,958,326  12.82  1,961,322  8.50  1,845,950  8.00  
Total Capital to Risk-Weighted Assets
Cullen/Frost3,367,403  14.57  2,426,829  10.50  2,311,266  10.00  
Frost Bank3,090,993  13.40  2,422,809  10.50  2,307,438  10.00  
Leverage Ratio
Cullen/Frost3,001,736  9.28  1,293,188  4.00  1,616,485  5.00  
Frost Bank2,958,326  9.15  1,292,743  4.00  1,615,929  5.00  
As of June 30, 2019,2020, capital levels at Cullen/Frost and Frost Bank exceed all capital adequacy requirements under the fully phased-in Basel III Capital Rules. Based on the ratios presented above, capital levels as of June 30, 20192020 at Cullen/Frost and Frost Bank exceed the minimum levels necessary to be considered “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 June 30, 2019,2020, that Cullen/Frost and Frost Bank meet all capital adequacy requirements to which they are subject.

Preferred Stock. On March 16, 2020, we redeemed all 6,000,000 shares of our 5.375% Non-Cumulative Perpetual Preferred Stock, Series A, (“Series A Preferred Stock”) at a redemption price of $25 per share, or an aggregate redemption of $150.0 million. When issued, the net proceeds of the Series A Preferred Stock totaled $144.5 million after deducting $5.5 million of issuance costs including the underwriting discount and professional service fees, among other things. Upon redemption, these issuance costs were reclassified to retained earnings and reported as a reduction of net income available to common shareholders.
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 24, 2017, our board
27
Table of directors authorized a $150.0 million stock repurchase program, allowing us to repurchase shares of our common stock over a two-year period from time to time at various prices in the open market or through private transactions. We repurchased 496,307 shares at a total cost of $50.0 million under this plan during the second quarter of 2019 while we repurchased 1,027,292 shares at a total cost of $100.0 million during the fourth quarter of 2018.Contents
awards. On July 24, 2019, our board of directors authorized a $100.0 million stock repurchase program, allowing us to repurchase shares of our common stock over a one-year period from time to time at various prices in the open market or through private transactions. Under this plan, we repurchased 177,834 shares at a total cost of $13.7 million during the first quarter of 2020 and 202,724 shares at a total cost of $17.2 million during the third quarter of 2019. 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, 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” status, at June 30, 2019,2020, Frost Bank could pay aggregate dividends of up to $577.3$451.7 million to Cullen/Frost without prior regulatory approval.
Under the terms of the junior subordinated deferrable interest debentures that Cullen/Frost has issued to Cullen/Frost Capital Trust II and WNB Capital Trust I, Cullen/Frost has the right at any time during the term of the debentures to defer the payment of interest at any time or from time to time for an extension period not exceeding 20 consecutive quarterly periods with respect to each extension period. In the event that we have elected to defer interest on the debentures, we may not, with certain exceptions, declare or pay any dividends or distributions on our capital stock or purchase or acquire any of our capital stock.
Under the terms of our Series A Preferred Stock, in the event that we do not declare and pay dividends on our Series A 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 our Series A Preferred Stock.

Note 8 - Derivative Financial Instruments
The fair value of derivative positions outstanding is included in accrued interest receivable and other assets and accrued interest payable and other liabilities in the accompanying consolidated balance sheets and in the net change in each of these financial statement line items in the accompanying consolidated statements of cash flows.
Interest Rate Derivatives. We utilize interest rate swaps, caps and floors to mitigate exposure to interest rate risk and to facilitate the needs of our customers. Our objectives for utilizing these derivative instruments are described in our 20182019 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 models with observable market data inputs, or as determined by the Chicago Mercantile Exchange (“CME”) for centrally cleared derivative contracts. CME rules legally characterize variation margin payments for centrally cleared derivatives as settlements of the derivatives' exposure rather than collateral. As a result, the variation margin payment and the related derivative instruments are considered a single unit of account for accounting and financial reporting purposes. Variation margin, as determined by the CME, is settled daily. As a result, derivative contracts that clear through the CME have an estimated fair value of zero0 as of June 30, 20192020 and December 31, 2018.2019.
June 30, 2020December 31, 2019
Notional
Amount		Estimated
Fair Value		Notional
Amount		Estimated
Fair Value
Derivatives designated as hedges of fair value:
Financial institution counterparties:
Loan/lease interest rate swaps – assets$—  $—  $2,545  $6  
Loan/lease interest rate swaps – liabilities4,378  (202) 6,000  (138) 
Non-hedging interest rate derivatives:
Financial institution counterparties:
Loan/lease interest rate swaps – assets—  —  122,788  67  
Loan/lease interest rate swaps – liabilities1,198,058  (38,504) 1,002,860  (19,483) 
Loan/lease interest rate caps – assets287,544  1,302  107,835  266  
Customer counterparties:
Loan/lease interest rate swaps – assets1,198,058  101,801  1,002,860  43,857  
Loan/lease interest rate swaps – liabilities—  —  122,788  (310) 
Loan/lease interest rate caps – liabilities287,544  (1,302) 107,835  (266) 
 June 30, 2019 December 31, 2018
 
Notional
Amount
 
Estimated
Fair Value
 
Notional
Amount
 
Estimated
Fair Value
Derivatives designated as hedges of fair value:       
Financial institution counterparties:       
Loan/lease interest rate swaps – assets$10,143
 $41
 $10,941
 $207
Loan/lease interest rate swaps – liabilities3,429
 (185) 3,885
 (199)
Non-hedging interest rate derivatives:       
Financial institution counterparties:       
Loan/lease interest rate swaps – assets134,415
 205
 496,887
 2,384
Loan/lease interest rate swaps – liabilities983,745
 (19,896) 691,143
 (8,921)
Loan/lease interest rate caps – assets144,298
 670
 122,791
 509
Customer counterparties:       
Loan/lease interest rate swaps – assets983,745
 44,371
 691,143
 16,706
Loan/lease interest rate swaps – liabilities134,415
 (534) 496,887
 (8,891)
Loan/lease interest rate caps – liabilities144,298
 (670) 122,791
 (509)
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Table of Contents
The weighted-average rates paid and received for interest rate swaps outstanding at June 30, 20192020 were as follows:
 Weighted-Average
 
Interest
Rate
Paid
 
Interest
Rate
Received
Interest rate swaps:   
Fair value hedge loan/lease interest rate swaps2.29% 2.41%
Non-hedging interest rate swaps – financial institution counterparties4.19
 4.03
Non-hedging interest rate swaps – customer counterparties4.03
 4.19

Weighted-Average
Interest
Rate
Paid		Interest
Rate
Received
Interest rate swaps:
Fair value hedge loan/lease interest rate swaps3.47 %0.18 %
Non-hedging interest rate swaps – financial institution counterparties4.03  2.09  
Non-hedging interest rate swaps – customer counterparties2.09  4.03  
The weighted-average strike rate for outstanding interest rate caps was 2.99%3.75% at June 30, 2019.2020.
Commodity Derivatives. We enter into commodity swaps and option contracts that are not designated as hedging instruments primarily to accommodate the business needs of our customers. Upon the origination of a commodity swap or option contract with a customer, we simultaneously enter into an offsetting contract with a third party financial institution to mitigate the exposure to fluctuations in commodity prices.

The notional amounts and estimated fair values of non-hedging commodity swap and option derivative positions outstanding are presented in the following table. We obtain dealer quotations and use internal valuation models with observable market data inputs to value our commodity derivative positions.
   June 30, 2019 December 31, 2018
 
Notional
Units
 
Notional
Amount
 
Estimated
Fair Value
 
Notional
Amount
 
Estimated
Fair Value
Financial institution counterparties:         
Oil – assetsBarrels 1,745
 $7,880
 2,416
 $24,332
Oil – liabilitiesBarrels 1,135
 (3,812) 415
 (646)
Natural gas – assetsMMBTUs 10,197
 1,861
 5,745
 417
Natural gas – liabilitiesMMBTUs 3,066
 (248) 9,314
 (1,272)
Customer counterparties:         
Oil – assetsBarrels 1,205
 3,919
 415
 646
Oil – liabilitiesBarrels 1,675
 (7,662) 2,416
 (24,009)
Natural gas – assetsMMBTUs 3,066
 248
 10,236
 1,373
Natural gas – liabilitiesMMBTUs 10,197
 (1,768) 4,823
 (393)

June 30, 2020December 31, 2019
Notional
Units		Notional
Amount		Estimated
Fair Value		Notional
Amount		Estimated
Fair Value
Financial institution counterparties:
Oil – assetsBarrels2,512  $30,220  1,214  $2,796  
Oil – liabilitiesBarrels2,054  (7,022) 2,148  (6,916) 
Natural gas – assetsMMBTUs10,414  2,553  8,295  2,131  
Natural gas – liabilitiesMMBTUs10,776  (1,205) 2,689  (70) 
Customer counterparties:
Oil – assetsBarrels2,054  7,193  2,172  7,208  
Oil – liabilitiesBarrels2,512  (29,916) 1,190  (2,652) 
Natural gas – assetsMMBTUs12,298  1,358  2,689  83  
Natural gas – liabilitiesMMBTUs8,891  (2,417) 8,295  (2,039) 
Foreign Currency Derivatives. We enter into foreign currency forward contracts that are not designated as hedging instruments primarily to accommodate the business needs of our customers. Upon the origination of a foreign currency denominated transaction with a customer, we simultaneously enter into an offsetting contract with a third party financial institution to negate the exposure to fluctuations in foreign currency exchange rates. We also utilize foreign currency forward contracts that are not designated as hedging instruments to mitigate the economic effect of fluctuations in foreign currency exchange rates on foreign currency holdings and certain short-term, non-U.S. dollar denominated loans. The notional amounts and fair values of open foreign currency forward contracts were as follows:
   June 30, 2019 December 31, 2018
 
Notional
Currency
 
Notional
Amount
 
Estimated
Fair Value
 
Notional
Amount
 
Estimated
Fair Value
Financial institution counterparties:         
Forward contracts – liabilitiesCAD 5,339
 $(14) 11,003
 $(13)
Forward contracts – liabilitiesGBP —
 —
 142
 (2)
Forward contracts – liabilitiesMXN —
 —
 3,015
 (132)
Customer counterparties:         
Forward contracts – assetsCAD 5,326
 27
 10,979
 40
Forward contracts – assetsGBP —
 —
 145
 4
Forward contracts – assetsMXN —
 —
 3,000
 149

 June 30, 2020December 31, 2019
Notional
Currency		Notional
Amount		Estimated
Fair Value		Notional
Amount		Estimated
Fair Value
Financial institution counterparties:
Forward contracts – assetsEUR1,130  $6  —  $—  
Forward contracts – liabilitiesCAD1,460  (9) 4,593  (33) 
Customer counterparties:
Forward contracts – assetsCAD1,454  16  4,583  45  
Forward contracts – liabilitiesEUR1,126  (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.
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Amounts included in the consolidated statements of income related to interest rate derivatives designated as hedges of fair value were as follows:
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Commercial loan/lease interest rate swaps:       
Amount of gain (loss) included in interest income on loans$28
 $31
 $54
 $(11)
Amount of (gain) loss included in other non-interest expense1
 (1) 1
 (1)

Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Commercial loan/lease interest rate swaps:
Amount of gain (loss) included in interest income on loans$(35) $28  $(43) $54  
Amount of (gain) loss included in other non-interest expense3  1  4  1  
As stated above, we enter into non-hedge related derivative positions primarily to accommodate the business needs of our customers. Upon the origination of a derivative contract with a customer, we simultaneously enter into an offsetting derivative contract with a third party financial institution. We recognize immediate income based upon the difference in the bid/ask spread of the underlying transactions with our customers and the third party. Because we act only as an intermediary for our customer,

subsequent changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact our results of operations.
During the first quarter of 2020, we sold certain non-hedge related, short-term put options on U.S. Treasury securities with an aggregate notional amount of $500 million and realized gains totaling approximately $6.0 million in connection with the sales. The put options were not exercised and expired in March 2020.
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 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Non-hedging interest rate derivatives:       
Other non-interest income$387
 $702
 $973
 $2,190
Other non-interest expense—
 17
 —
 (4)
Non-hedging commodity derivatives:       
Other non-interest income110
 (54) 213
 36
Non-hedging foreign currency derivatives:       
Other non-interest income12
 91
 29
 150

Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Non-hedging interest rate derivatives:
Other non-interest income$296  $387  $2,335  $973  
Non-hedging commodity derivatives:
Other non-interest income539  110  678  213  
Non-hedging foreign currency derivatives:
Other non-interest income11  12  18  29  
Non-hedging put options:
Other non-interest income—  —  5,980  —  
Counterparty Credit Risk. Our credit exposure relating to interest rate swaps, commodity swaps/options and foreign currency forward contracts with bank customers was approximately $44.7$103.4 million at June 30, 2019.2020. This credit exposure is partly mitigated as transactions with customers are generally secured by the collateral, if any, securing the underlying transaction being hedged. Our credit exposure, net of collateral pledged, relating to interest rate swaps, commodity swaps/options and foreign currency forward contracts with upstream financial institution counterparties was approximately $13.6$23.5 million at June 30, 2019.2020. This amount was primarily related to initial margin payments to the CME and excess collateral we posted to counterparties. Collateral levels for upstream financial institution counterparties are monitored and adjusted as necessary. See Note 9 – Balance Sheet Offsetting and Repurchase Agreements for additional information regarding our credit exposure with upstream financial institution counterparties. The aggregate fair value of securitiesAt June 30, 2020, we posted ashad $47.8 million in cash collateral related to derivative contracts totaled $147 thousand at June 30, 2019. At such date, we also had $26.9 million in cash collateral on deposit with other financial institution counterparties.
30
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Note 9 - 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 June 30, 20192020 is presented in the following tables.
Gross Amount
Recognized		Gross Amount
Offset		Net Amount
Recognized
June 30, 2020
Financial assets:
Derivatives:
Loan/lease interest rate swaps and caps$1,302  $—  $1,302  
Commodity swaps and options32,773  —  32,773  
Foreign currency forward contracts6  —  6  
Total derivatives34,081  —  34,081  
Resell agreements20,000  —  20,000  
Total$54,081  $—  $54,081  
Financial liabilities:
Derivatives:
Loan/lease interest rate swaps$38,706  $—  $38,706  
Commodity swaps and options8,227  —  8,227  
Foreign currency forward contracts9  —  9  
Total derivatives46,942  —  46,942  
Repurchase agreements1,553,109  —  1,553,109  
Total$1,600,051  $—  $1,600,051  
Gross Amounts Not Offset
Net Amount
Recognized		Financial
Instruments		CollateralNet
Amount
June 30, 2020
Financial assets:
Derivatives:
Counterparty A$4  $(4) $—  $—  
Counterparty B7,333  (7,333) —  —  
Other counterparties26,744  (13,639) (11,440) 1,665  
Total derivatives34,081  (20,976) (11,440) 1,665  
Resell agreements20,000  —  (20,000) —  
Total$54,081  $(20,976) $(31,440) $1,665  
Financial liabilities:
Derivatives:
Counterparty A$7,521  $(4) $(7,517) $—  
Counterparty B13,184  (7,333) (5,851) —  
Counterparty C122  —  (122) —  
Other counterparties26,115  (13,639) (12,458) 18  
Total derivatives46,942  (20,976) (25,948) 18  
Repurchase agreements1,553,109  —  (1,553,109) —  
Total$1,600,051  $(20,976) $(1,579,057) $18  
 
Gross Amount
Recognized
 
Gross Amount
Offset
 
Net Amount
Recognized
June 30, 2019     
Financial assets:     
Derivatives:     
Loan/lease interest rate swaps and caps$916
 $—
 $916
Commodity swaps and options9,741
 —
 9,741
Foreign currency forward contracts—
 —
 —
Total derivatives10,657
 —
 10,657
Resell agreements10,193
 —
 10,193
Total$20,850
 $—
 $20,850
Financial liabilities:     
Derivatives:     
Loan/lease interest rate swaps$20,081
 $—
 $20,081
Commodity swaps and options4,060
 —
 4,060
Foreign currency forward contracts14
 —
 14
Total derivatives24,155
 —
 24,155
Repurchase agreements1,308,257
 —
 1,308,257
Total$1,332,412
 $—
 $1,332,412
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   Gross Amounts Not Offset  
 
Net Amount
Recognized
 
Financial
Instruments
 Collateral 
Net
Amount
June 30, 2019       
Financial assets:       
Derivatives:       
Counterparty A$104
 $(104) $—
 $—
Counterparty B3,937
 (3,937) —
 —
Counterparty C16
 (16) —
 —
Other counterparties6,600
 (6,469) —
 131
Total derivatives10,657
 (10,526) —
 131
Resell agreements10,193
 —
 (10,193) —
Total$20,850
 $(10,526) $(10,193) $131
Financial liabilities:       
Derivatives:       
Counterparty A$5,706
 $(104) $(5,602) $—
Counterparty B7,224
 (3,937) (3,287) —
Counterparty C184
 (16) (168) —
Other counterparties11,041
 (6,469) (4,493) 79
Total derivatives24,155
 (10,526) (13,550) 79
Repurchase agreements1,308,257
 —
 (1,308,257) —
Total$1,332,412
 $(10,526) $(1,321,807) $79

Information about financial instruments that are eligible for offset in the consolidated balance sheet as of December 31, 20182019 is presented in the following tables.
Gross Amount
Recognized		Gross Amount
Offset		Net Amount
Recognized
December 31, 2019
Financial assets:
Derivatives:
Loan/lease interest rate swaps and caps$339  $—  $339  
Commodity swaps and options4,927  —  4,927  
Total derivatives5,266  —  5,266  
Resell agreements31,299  —  31,299  
Total$36,565  $—  $36,565  
Financial liabilities:
Derivatives:
Loan/lease interest rate swaps$19,621  $—  $19,621  
Commodity swaps and options6,986  —  6,986  
Foreign currency forward contracts33  —  33  
Total derivatives26,640  —  26,640  
Repurchase agreements1,668,142  —  1,668,142  
Total$1,694,782  $—  $1,694,782  
Gross Amounts Not Offset
Net Amount
Recognized		Financial
Instruments		CollateralNet
Amount
December 31, 2019
Financial assets:
Derivatives:
Counterparty A$39  $(39) $—  $—  
Counterparty B1,650  (1,650) —  —  
Counterparty C1  (1) —  —  
Other counterparties3,576  (3,546) —  30  
Total derivatives5,266  (5,236) —  30  
Resell agreements31,299  —  (31,299) —  
Total$36,565  $(5,236) $(31,299) $30  
Financial liabilities:
Derivatives:
Counterparty A$5,192  $(39) $(5,153) $—  
Counterparty B7,424  (1,650) (5,774) —  
Counterparty C135  (1) (134) —  
Other counterparties13,889  (3,546) (10,343) —  
Total derivatives26,640  (5,236) (21,404) —  
Repurchase agreements1,668,142  —  (1,668,142) —  
Total$1,694,782  $(5,236) $(1,689,546) $—  
 
Gross Amount
Recognized
 
Gross Amount
Offset
 
Net Amount
Recognized
December 31, 2018     
Financial assets:     
Derivatives:     
Loan/lease interest rate swaps and caps$3,100
 $—
 $3,100
Commodity swaps and options24,749
 —
 24,749
Foreign currency forward contracts—
 —
 —
Total derivatives27,849
 —
 27,849
Resell agreements11,642
 —
 11,642
Total$39,491
 $—
 $39,491
Financial liabilities:     
Derivatives:     
Loan/lease interest rate swaps$9,120
 $—
 $9,120
Commodity swaps and options1,918
 —
 1,918
Foreign currency forward contracts147
 —
 147
Total derivatives11,185
 —
 11,185
Repurchase agreements1,360,298
 —
 1,360,298
Total$1,371,483
 $—
 $1,371,483
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   Gross Amounts Not Offset  
 
Net Amount
Recognized
 
Financial
Instruments
 Collateral 
Net
Amount
December 31, 2018       
Financial assets:       
Derivatives:       
Counterparty A$598
 $(598) $—
 $—
Counterparty B7,255
 (3,380) (3,875) —
Counterparty C81
 (81) —
 —
Other counterparties19,915
 (2,084) (17,776) 55
Total derivatives27,849
 (6,143) (21,651) 55
Resell agreements11,642
 —
 (11,642) —
Total$39,491
 $(6,143) $(33,293) $55
Financial liabilities:       
Derivatives:       
Counterparty A$4,293
 $(598) $(3,651) $44
Counterparty B3,380
 (3,380) —
 —
Counterparty C326
 (81) (245) —
Other counterparties3,186
 (2,084) (725) 377
Total derivatives11,185
 (6,143) (4,621) 421
Repurchase agreements1,360,298
 —
 (1,360,298) —
Total$1,371,483
 $(6,143) $(1,364,919) $421

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 June 30, 20192020 and December 31, 20182019 is presented in the following tables.
 Remaining Contractual Maturity of the Agreements
 Overnight and Continuous Up to 30 Days 30-90 Days Greater than 90 Days Total
June 30, 2019         
Repurchase agreements:         
U.S. Treasury$946,724
 $—
 $—
 $—
 $946,724
Residential mortgage-backed securities361,533
 —
 —
 —
 361,533
Total borrowings$1,308,257
 $—
 $—
 $—
 $1,308,257
Gross amount of recognized liabilities for repurchase agreements $1,308,257
Amounts related to agreements not included in offsetting disclosures above $—
          
December 31, 2018         
Repurchase agreements:         
U.S. Treasury$1,334,063
 $—
 $—
 $—
 $1,334,063
Residential mortgage-backed securities26,235
 —
 —
 —
 26,235
Total borrowings$1,360,298
 $—
 $—
 $—
 $1,360,298
Gross amount of recognized liabilities for repurchase agreements $1,360,298
Amounts related to agreements not included in offsetting disclosures above $—

Remaining Contractual Maturity of the Agreements
Overnight and ContinuousUp to 30 Days30-90 DaysGreater than 90 DaysTotal
June 30, 2020
Repurchase agreements:
U.S. Treasury$49,002  $—  $—  $—  $49,002  
State and political subdivisions4,000  145,000  —  —  149,000  
Residential mortgage-backed securities1,305,107  50,000  —  —  1,355,107  
Total borrowings$1,358,109  $195,000  $—  $—  $1,553,109  
Gross amount of recognized liabilities for repurchase agreements$1,553,109  
Amounts related to agreements not included in offsetting disclosures above$—  
December 31, 2019
Repurchase agreements:
U.S. Treasury$435,904  $—  $—  $—  $435,904  
State and political subdivisions—  —  —  —  —  
Residential mortgage-backed securities1,232,238  —  —  —  1,232,238  
Total borrowings$1,668,142  $—  $—  $—  $1,668,142  
Gross amount of recognized liabilities for repurchase agreements$1,668,142  
Amounts related to agreements not included in offsetting disclosures above$—  

Note 10 - Stock-Based Compensation
A combined summary of activity in our active stock plans is presented in the table. Performance stock units outstanding are presented assuming attainment of the maximum payout rate as set forth by the performance criteria. As of June 30, 2019,2020, there were 1,265,4801,108,516 shares remaining available for grant for future stock-based compensation awards.
Director Deferred
Stock Units
Outstanding		Non-Vested Stock
Awards/Stock Units
Outstanding		Performance Stock Units OutstandingStock Options
Outstanding
Number of UnitsWeighted-
Average
Fair Value
at Grant		Number
of Shares/Units		Weighted-
Average
Fair Value
at Grant		Number of UnitsWeighted-
Average
Fair Value
at Grant		Number
of Shares		Weighted-
Average
Exercise
Price
Balance, January 1, 202055,370  $74.76  440,647  $90.22  177,288  $83.48  1,980,866  $64.60  
Authorized—  —  —  —  —  —  —  —  
Granted10,428  73.84  458  65.43  —  —  —  —  
Exercised/vested(12,938) 71.09  —  —  (41,755) 69.70  (88,830) 54.56  
Forfeited/expired—  —  (1,840) 89.29  (6,894) 81.33  (5,052) 76.19  
Balance, June 30, 202052,860  $75.47  439,265  $90.20  128,639  $88.07  1,886,984  $65.04  
  
Director Deferred
Stock Units
Outstanding
 
Non-Vested Stock
Awards/Stock Units
Outstanding
 Performance Stock Units Outstanding 
Stock Options
Outstanding
  Number of Units 
Weighted-
Average
Fair Value
at Grant
 
Number
of Shares/Units
 
Weighted-
Average
Fair Value
at Grant
 Number of Units 
Weighted-
Average
Fair Value
at Grant
 
Number
of Shares
 
Weighted-
Average
Exercise
Price
Balance, January 1, 2019 48,910
 $71.14
 383,797
 $85.59
 125,809
 $82.55
 2,352,008
 $63.55
Authorized —
 —
 —
 —
 —
 —
 —
 —
Granted 7,592
 102.70
 1,957
 91.96
 —
 —
 —
 —
Exercised/vested —
 —
 (17,800) 65.11
 —
 —
 (136,100) 57.61
Forfeited/expired —
 —
 (3,877) 90.10
 —
 —
 (6,875) 65.11
Balance, June 30, 2019 56,502
 $75.38
 364,077
 $86.58
 125,809
 $82.55
 2,209,033
 $63.91
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Table of Contents
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 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
New shares issued from available authorized shares—
 —
 —
 —
Issued from available treasury stock53,035
 110,489
 153,900
 428,599
Total53,035
 110,489
 153,900
 428,599
        
Proceeds from stock option exercises$2,956
 $6,283
 $7,841
 $25,448

Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
New shares issued from available authorized shares—  —  —  —  
Issued from available treasury stock77,303  53,035  143,523  153,900  
Total77,303  53,035  143,523  153,900  
Proceeds from stock option exercises$3,383  $2,956  $4,846  $7,841  
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 and the related income tax benefit is presented in the following table.
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Stock options$379
 $1,019
 $761
 $2,104
Non-vested stock awards/stock units2,056
 1,371
 4,191
 2,839
Director deferred stock units780
 720
 780
 720
Performance stock units1,149
 475
 2,286
 1,097
Total$4,364
 $3,585
 $8,018
 $6,760
Income tax benefit$732
 $753
 $1,316
 $1,420

Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Stock options$—  $379  $—  $761  
Non-vested stock awards/stock units2,062  2,056  4,326  4,191  
Director deferred stock units770  780  770  780  
Performance stock units440  1,149  688  2,286  
Total$3,272  $4,364  $5,784  $8,018  
Income tax benefit$624  $732  $1,089  $1,316  
Unrecognized stock-based compensation expense at June 30, 20192020 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 awards/stock units$14,425 
Performance stock units5,096 
Total$19,521 
Stock options$465
Non-vested stock awards/stock units13,441
Performance stock units4,241
Total$18,147
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Note 11 - Earnings Per Common Share
Earnings per common share is computed using the two-class method as more fully described in our 20182019 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 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Net income$111,586
 $111,341
 $228,082
 $217,821
Less: Preferred stock dividends2,015
 2,015
 4,031
 4,031
Net income available to common shareholders109,571
 109,326
 224,051
 213,790
Less: Earnings allocated to participating securities906
 726
 1,886
 1,431
Net earnings allocated to common stock$108,665
 $108,600
 $222,165
 $212,359
        
Distributed earnings allocated to common stock$44,461
 $42,791
 $86,699
 $79,096
Undistributed earnings allocated to common stock64,204
 65,809
 135,466
 133,263
Net earnings allocated to common stock$108,665
 $108,600
 $222,165
 $212,359
        
Weighted-average shares outstanding for basic earnings per common share62,789,182
 63,836,651
 62,898,514
 63,743,442
Dilutive effect of stock compensation764,916
 1,062,637
 791,513
 1,043,712
Weighted-average shares outstanding for diluted earnings per common share63,554,098
 64,899,288
 63,690,027
 64,787,154

Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Net income$93,072  $111,586  $147,825  $228,082  
Less: Preferred stock dividends—  2,015  2,016  4,031  
Redemption of preferred stock—  —  5,514  —  
Net income available to common shareholders93,072  109,571  140,295  224,051  
Less: Earnings allocated to participating securities868  906  1,335  1,886  
Net earnings allocated to common stock$92,204  $108,665  $138,960  $222,165  
Distributed earnings allocated to common stock$44,453  $44,461  $88,965  $86,699  
Undistributed earnings allocated to common stock47,751  64,204  49,995  135,466  
Net earnings allocated to common stock$92,204  $108,665  $138,960  $222,165  
Weighted-average shares outstanding for basic earnings per common share62,596,171  62,789,182  62,619,427  62,898,514  
Dilutive effect of stock compensation204,848  764,916  300,667  791,513  
Weighted-average shares outstanding for diluted earnings per common share62,801,019  63,554,098  62,920,094  63,690,027  
Note 12 - Defined Benefit Plans
The components of the combined net periodic expense (benefit) for our defined benefit pension plans are presented in the table below.
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Expected return on plan assets, net of expenses$(2,693) $(2,979) $(5,386) $(5,958)
Interest cost on projected benefit obligation1,618
 1,474
 3,236
 2,949
Net amortization and deferral1,406
 1,251
 2,812
 2,501
Net periodic expense (benefit)$331
 $(254) $662
 $(508)

Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Expected return on plan assets, net of expenses$(3,072) $(2,693) $(6,144) $(5,386) 
Interest cost on projected benefit obligation1,253  1,618  2,505  3,236  
Net amortization and deferral1,329  1,406  2,659  2,812  
Net periodic expense (benefit)$(490) $331  $(980) $662  
Our non-qualified defined benefit pension plan is not funded. NoNaN contributions to the qualified defined benefit pension plan were made during the six months ended June 30, 2019.2020. We do not expect to make any contributions to the qualified defined benefit plan during the remainder of 2019.2020.
Note 13 - Income Taxes
Income tax expense was as follows:
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Current income tax expense (benefit)$14,505
 $1,361
 $29,504
 $2,107
Deferred income tax expense (benefit)369
 12,475
 (675) 22,886
Income tax expense, as reported$14,874
 $13,836
 $28,829
 $24,993
        
Effective tax rate11.8% 11.1% 11.2% 10.3%

Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Current income tax expense (benefit)$24,530  $14,505  $53,942  $29,504  
Deferred income tax expense (benefit)(25,844) 369  (51,933) (675) 
Income tax expense (benefit), as reported$(1,314) $14,874  $2,009  $28,829  
Effective tax rate(1.4)%11.8 %1.3 %11.2 %
We had a net deferred tax liability totaling $54.8$74.8 million at June 30, 20192020 and a net deferred tax asset totaling $19.8$75.8 million at December 31, 2018. The change in net deferred taxes was primarily related to unrealized gains on available-for-sale securities during the six months ended June 30, 2019. NoNaN valuation allowance for deferred tax assets was recorded at June 30, 20192020 as management believes it is more likely than not that all of the deferred tax assets will be realized against deferred tax liabilities and projected future taxable income.

The effective income tax rates differed from the U.S. statutory federal income tax rates of 21% during the comparable periods primarily due to the effect of tax-exempt income from loans, securities and life insurance policies and the income tax effects associated with stock-based compensation. The effective tax rates during 2020 were also impacted by a one-time,
35
discrete tax benefit associated with an asset contribution to a charitable trust during the second quarter. There were no0 unrecognized tax benefits during any of the reported periods. Interest and/or penalties related to income taxes are reported as a component of income tax expense. Such amounts were not significant during the reported periods.
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 2015.2016.
Note 14 - Other Comprehensive Income (Loss)
The before and after 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 12 – Defined Benefit Plans).
Three Months Ended 
 June 30, 2019		 Three Months Ended 
 June 30, 2018		Three Months Ended
June 30, 2020		Three Months Ended
June 30, 2019
Before Tax
Amount
 
Tax  Expense,
(Benefit)
 
Net of  Tax
Amount
 
Before Tax
Amount
 
Tax  Expense,
(Benefit)
 
Net of  Tax
Amount
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:           Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period$158,140
 $33,209
 $124,931
 $(11,884) $(2,496) $(9,388)Change in net unrealized gain/loss during the period$156,509  $32,868  $123,641  $158,140  $33,209  $124,931  
Change in net unrealized gain on securities transferred to held to maturity(308) (65) (243) (2,041) (429) (1,612)Change in net unrealized gain on securities transferred to held to maturity(308) (65) (243) (308) (65) (243) 
Reclassification adjustment for net (gains) losses included in net income(169) (35) (134) 60
 13
 47
Reclassification adjustment for net (gains) losses included in net income—  —  —  (169) (35) (134) 
Total securities available for sale and transferred securities157,663
 33,109
 124,554
 (13,865) (2,912) (10,953)Total securities available for sale and transferred securities156,201  32,803  123,398  157,663  33,109  124,554  
Defined-benefit post-retirement benefit plans:           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)1,406
 296
 1,110
 1,251
 263
 988
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)1,329  278  1,051  1,406  296  1,110  
Total defined-benefit post-retirement benefit plans1,406
 296
 1,110
 1,251
 263
 988
Total defined-benefit post-retirement benefit plans1,329  278  1,051  1,406  296  1,110  
Total other comprehensive income (loss)$159,069
 $33,405
 $125,664
 $(12,614) $(2,649) $(9,965)Total other comprehensive income (loss)$157,530  $33,081  $124,449  $159,069  $33,405  $125,664  
Six Months Ended 
 June 30, 2019		 Six Months Ended 
 June 30, 2018		Six Months Ended
June 30, 2020		Six Months Ended
June 30, 2019
Before Tax
Amount
 
Tax  Expense,
(Benefit)
 
Net of  Tax
Amount
 
Before Tax
Amount
 
Tax  Expense,
(Benefit)
 
Net of  Tax
Amount
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:           Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period$356,286
 $74,820
 $281,466
 $(190,788) $(40,066) $(150,722)Change in net unrealized gain/loss during the period$386,627  $81,193  $305,434  $356,286  $74,820  $281,466  
Change in net unrealized gain on securities transferred to held to maturity(652) (137) (515) (4,660) (979) (3,681)Change in net unrealized gain on securities transferred to held to maturity(685) (144) (541) (652) (137) (515) 
Reclassification adjustment for net (gains) losses included in net income(169) (35) (134) 79
 17
 62
Reclassification adjustment for net (gains) losses included in net income(108,989) (22,888) (86,101) (169) (35) (134) 
Total securities available for sale and transferred securities355,465
 74,648
 280,817
 (195,369) (41,028) (154,341)Total securities available for sale and transferred securities276,953  58,161  218,792  355,465  74,648  280,817  
Defined-benefit post-retirement benefit plans:           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)2,812
 591
 2,221
 2,501
 526
 1,975
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)2,659  557  2,102  2,812  591  2,221  
Total defined-benefit post-retirement benefit plans2,812
 591
 2,221
 2,501
 526
 1,975
Total defined-benefit post-retirement benefit plans2,659  557  2,102  2,812  591  2,221  
Total other comprehensive income (loss)$358,277
 $75,239
 $283,038
 $(192,868) $(40,502) $(152,366)Total other comprehensive income (loss)$279,612  $58,718  $220,894  $358,277  $75,239  $283,038  
36

Table of Contents

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 January 1, 2019$(16,103) $(47,497) $(63,600)
Other comprehensive income (loss) before reclassifications280,951
 —
 280,951
Reclassification of amounts included in net income(134) 2,221
 2,087
Net other comprehensive income (loss) during period280,817
 2,221
 283,038
Balance at June 30, 2019$264,714
 $(45,276) $219,438
      
Balance January 1, 2018$117,230
 $(37,718) $79,512
Other comprehensive income (loss) before reclassifications(154,403) —
 (154,403)
Reclassification of amounts included in net income62
 1,975
 2,037
Net other comprehensive income (loss) during period(154,341) 1,975
 (152,366)
Reclassification of certain income tax effects related to the change in the U.S. statutory federal income tax rate under the Tax Cuts and Jobs Act to retained earnings17,557
 (8,022) 9,535
Balance at June 30, 2018$(19,554) $(43,765) $(63,319)

Securities
Available
For Sale		Defined
Benefit
Plans		Accumulated
Other
Comprehensive
Income
Balance January 1, 2020$313,304  $(45,934) $267,370  
Other comprehensive income (loss) before reclassifications304,893  —  304,893  
Reclassification of amounts included in net income(86,101) 2,102  (83,999) 
Net other comprehensive income (loss) during period218,792  2,102  220,894  
Balance at June 30, 2020$532,096  $(43,832) $488,264  
Balance January 1, 2019$(16,103) $(47,497) $(63,600) 
Other comprehensive income (loss) before reclassifications280,951  —  280,951  
Reclassification of amounts included in net income(134) 2,221  2,087  
Net other comprehensive income (loss) during period280,817  2,221  283,038  
Balance at June 30, 2019$264,714  $(45,276) $219,438  
Note 15 – Operating Segments
We are managed under a matrix organizational structure whereby our two2 primary operating segments, Banking and Frost Wealth Advisors, overlap a regional reporting structure. See our 20182019 Form 10-K for additional information regarding our operating segments. Summarized operating results by segment were as follows:
 Banking 
Frost  Wealth
Advisors
 Non-Banks Consolidated
Revenues from (expenses to) external customers:       
Three months ended:       
June 30, 2019$302,747
 $36,164
 $(2,842) $336,069
June 30, 2018290,433
 34,526
 (2,623) 322,336
Six months ended:       
June 30, 2019$611,360
 $73,515
 $(5,552) $679,323
June 30, 2018578,994
 69,607
 (5,072) 643,529
Net income (loss):       
Three months ended:       
June 30, 2019$110,893
 $4,897
 $(4,204) $111,586
June 30, 2018109,276
 5,901
 (3,836) 111,341
Six months ended:       
June 30, 2019$223,810
 $11,297
 $(7,025) $228,082
June 30, 2018212,917
 11,535
 (6,631) 217,821

BankingFrost  Wealth
Advisors		Non-BanksConsolidated
Revenues from (expenses to) external customers:
Three months ended:
June 30, 2020$290,185  $35,604  $(2,377) $323,412  
June 30, 2019302,747  36,164  (2,842) 336,069  
Six months ended:
June 30, 2020$709,614  $76,211  $(4,977) $780,848  
June 30, 2019611,360  73,515  (5,552) 679,323  
Net income (loss):
Three months ended:
June 30, 2020$92,492  $3,925  $(3,345) $93,072  
June 30, 2019110,893  4,897  (4,204) 111,586  
Six months ended:
June 30, 2020$144,516  $9,512  $(6,203) $147,825  
June 30, 2019223,810  11,297  (7,025) 228,082  

Note 16 – 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 20182019 Form 10-K for additional information regarding the fair value hierarchy and a description of our valuation techniques.
37
Financial Assets and Financial Liabilities. The tabletables below summarizessummarize financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 20192020 and December 31, 2018,2019, segregated by the level of the valuation inputs within the fair value hierarchy of ASC Topic 820 utilized to measure fair value.
 Level 1
Inputs		 Level 2
Inputs		 Level 3
Inputs		 Total Fair
Value
June 30, 2019       
Securities available for sale:       
U.S. Treasury$2,920,720
 $—
 $—
 $2,920,720
Residential mortgage-backed securities—
 2,247,712
 —
 2,247,712
States and political subdivisions—
 7,068,301
 —
 7,068,301
Other—
 42,780
 —
 42,780
Trading account securities:       
U.S. Treasury22,642
 —
 —
 22,642
States and political subdivisions—
 2,840
 —
 2,840
Derivative assets:       
Interest rate swaps, caps and floors—
 45,287
 —
 45,287
Commodity swaps and options—
 13,908
 —
 13,908
Foreign currency forward contracts27
 —
 —
 27
Derivative liabilities:       
Interest rate swaps, caps and floors—
 21,285
 —
 21,285
Commodity swaps and options—
 13,490
 —
 13,490
Foreign currency forward contracts14
 —
 —
 14
December 31, 2018       
Securities available for sale:       
U.S. Treasury$3,427,689
 $—
 $—
 $3,427,689
Residential mortgage-backed securities—
 829,740
 —
 829,740
States and political subdivisions—
 7,087,202
 —
 7,087,202
Other—
 42,690
 —
 42,690
Trading account securities:       
U.S. Treasury21,928
 —
 —
 21,928
States and political subdivisions—
 2,158
 —
 2,158
Derivative assets:       
Interest rate swaps, caps and floors—
 19,806
 —
 19,806
Commodity swaps and options—
 26,768
 —
 26,768
Foreign currency forward contracts193
 —
 —
 193
Derivative liabilities:       
Interest rate swaps, caps and floors—
 18,520
 —
 18,520
Commodity swaps and options—
 26,320
 —
 26,320
Foreign currency forward contracts147
 —
 —
 147

Level 1 InputsLevel 2 InputsLevel 3 InputsTotal Fair Value
June 30, 2020
Securities available for sale:
U.S. Treasury$1,163,635  $—  $—  $1,163,635  
Residential mortgage-backed securities—  2,131,287  —  2,131,287  
States and political subdivisions—  7,269,495  —  7,269,495  
Other—  42,279  —  42,279  
Trading account securities:
U.S. Treasury24,495  —  —  24,495  
Derivative assets:
Interest rate swaps, caps and floors—  103,103  —  103,103  
Commodity swaps and options—  41,324  —  41,324  
Foreign currency forward contracts22  —  —  22  
Derivative liabilities:
Interest rate swaps, caps and floors—  40,008  —  40,008  
Commodity swaps and options—  40,560  —  40,560  
Foreign currency forward contracts11  —  —  11  

December 31, 2019
Securities available for sale:
U.S. Treasury$1,948,133  $—  $—  $1,948,133  
Residential mortgage-backed securities—  2,207,594  —  2,207,594  
States and political subdivisions—  7,070,997  —  7,070,997  
Other—  42,867  —  42,867  
Trading account securities:
U.S. Treasury24,298  —  —  24,298  
Derivative assets:
Interest rate swaps, caps and floors—  44,196  —  44,196  
Commodity swaps and options—  12,218  —  12,218  
Foreign currency forward contracts45  —  —  45  
Derivative liabilities:
Interest rate swaps, caps and floors—  20,197  —  20,197  
Commodity swaps and options—  11,677  —  11,677  
Foreign currency forward contracts33  —  —  33  
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.
Six Months Ended
June 30, 2020		Six Months Ended
June 30, 2019
Level 2Level 3Level 2Level 3
Carrying value before allocations$5,257  $5,006  $2,161  $33,839  
Specific (allocations) reversals of prior allocations(731) 4,209  1,179  (3,623) 
Fair value$4,526  $9,215  $3,340  $30,216  
 Six Months Ended 
 June 30, 2019		 Six Months Ended 
 June 30, 2018
 Level 2 Level 3 Level 2 Level 3
Carrying value of impaired loans before allocations$2,161
 $33,839
 $14,359
 $52,048
Specific valuation allowance (allocations) reversals of prior allocations1,179
 (3,623) (799) (1,149)
Fair value$3,340
 $30,216
 $13,560
 $50,899
38
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-financial assets measured at fair value on a non-recurring basis during the reported periods may 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 that were remeasured and reported at fair value during the reported periods:
 Six Months Ended 
 June 30,
 2019 2018
Foreclosed assets remeasured at initial recognition:   
Carrying value of foreclosed assets prior to remeasurement$616
 $2,656
Charge-offs recognized in the allowance for loan losses(50) —
Fair value$566
 $2,656
Foreclosed assets remeasured subsequent to initial recognition:   
Carrying value of foreclosed assets prior to remeasurement$—
 $1,823
Write-downs included in other non-interest expense—
 (473)
Fair value$—
 $1,350

Six Months Ended
June 30,
20202019
Foreclosed assets remeasured at initial recognition:
Carrying value of foreclosed assets prior to remeasurement$—  $616  
Charge-offs recognized in the allowance for credit losses on loan—  (50) 
Fair value$—  $566  
Foreclosed assets remeasured subsequent to initial recognition:
Carrying value of foreclosed assets prior to remeasurement$328  $—  
Write-downs included in other non-interest expense(231) —  
Fair value$97  $—  
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:
 June 30, 2019 December 31, 2018
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
Financial assets:       
Level 2 inputs:       
Cash and cash equivalents$1,945,410
 $1,945,410
 $3,955,779
 $3,955,779
Securities held to maturity1,035,299
 1,061,978
 1,106,057
 1,116,953
Cash surrender value of life insurance policies185,303
 185,303
 183,473
 183,473
Accrued interest receivable188,907
 188,907
 188,989
 188,989
Level 3 inputs:       
Loans, net14,324,220
 14,345,627
 13,967,601
 13,933,239
Financial liabilities:       
Level 2 inputs:       
Deposits25,985,023
 25,985,025
 27,149,204
 27,143,572
Federal funds purchased and repurchase agreements1,319,507
 1,319,507
 1,367,548
 1,367,548
Junior subordinated deferrable interest debentures136,270
 137,115
 136,242
 137,115
Subordinated notes payable and other borrowings98,786
 103,625
 98,708
 98,458
Accrued interest payable10,295
 10,295
 7,394
 7,394


June 30, 2020December 31, 2019
Carrying
Amount		Estimated
Fair Value		Carrying
Amount		Estimated
Fair Value
Financial assets:
Level 2 inputs:
Cash and cash equivalents$6,599,568  $6,599,568  $3,788,181  $3,788,181  
Securities held to maturity1,968,954  2,073,441  2,030,005  2,048,675  
Cash surrender value of life insurance policies189,091  189,091  187,156  187,156  
Accrued interest receivable176,522  176,522  183,850  183,850  
Level 3 inputs:
Loans, net17,721,876  17,914,646  14,618,165  14,654,615  
Financial liabilities:
Level 2 inputs:
Deposits32,679,096  32,685,609  27,639,564  27,641,255  
Federal funds purchased and repurchase agreements1,589,384  1,589,384  1,695,342  1,695,342  
Junior subordinated deferrable interest debentures136,328  137,115  136,299  137,115  
Subordinated notes98,943  112,500  98,865  89,077  
Accrued interest payable11,323  11,323  12,393  12,393  
Under ASC Topic 825, entities may choose to measure eligible financial instruments at fair value at specified election dates. The fair value measurement option (i) may be applied instrument by instrument, with certain exceptions, (ii) is generally irrevocable and (iii) is applied only to entire instruments and not to portions of instruments. Unrealized gains and losses on items for which the fair value measurement option has been elected must be reported in earnings at each subsequent reporting date. During the reported periods, we had no0 financial instruments measured at fair value under the fair value measurement option.

39
Note 17 - Accounting Standards Updates
Information about certain recently issued accounting standards updates is presented below. Also refer to Note 20 - Accounting Standards Updates in our 20182019 Form 10-K for additional information related to previously issued accounting standards updates.
ASU 2016-02, “Leases (Topic 842).” ASU 2016-02, among other things, requires lessees to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. We adopted ASU 2016-02, along with several other subsequent codification updates related to lease accounting, as of January 1, 2019. See Note 1 - Significant Accounting Policies for additional information.
ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. In April 2019, ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” was issued to address certain codification improvements and to provide certain accounting policy electives related to accrued interest as well as disclosure related to credit losses, among other things. In May 2019, ASU 2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief,” was issued to provide transition relief in connection with the adoption of ASU 2016-03 whereby entities would have the option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis.We adopted ASU 2016-13, as subsequently updated will be effective onfor certain clarifications, targeted relief and codification improvements, as of 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 Credit 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 working through our implementation plan which includes assessment and documentation of processes, internal controls and data sources; model development, documentation and validation; and system configuration, among other things. We are also in the process of implementing a third-party vendor solution to assist us in the application of ASU 2016-13. The adoption of ASU 2016-13 could 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 for certain debt securities and other financial assets. 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 2017-08, “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 did not change the accounting for callable debt securities held at a discount. We adopted ASU 2017-08 effective January 1, 2019 and recognized a cumulative effect adjustment reducing retained earnings by $12.6 million. See Note 1 - Significant Accounting Policies.Policies for additional information.
ASU 2017-12, “Derivatives and Hedging2020-4, “Reference Rate Reform (Topic 815) - Targeted Improvements to Accounting for Hedging Activities.848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2017-12 amends the hedge2020-4 provides optional expedients and exceptions for accounting recognitionrelated to contracts, hedging relationships and presentation requirements in ASC 815other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to improve the transparencycontracts, hedging relationships, and understandabilityother transactions that reference LIBOR or another reference rate expected to be discontinued because of information conveyedreference rate reform and do not apply to financial statement users about an entity’s risk management activities to better align the entity’s financial reportingcontract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships with those risk management activitiesexisting as of December 31, 2022, that an entity has elected certain optional expedients for and to reducethat are retained through the complexityend of the hedging relationship. ASU 2020-4 was effective upon issuance and simplify the applicationgenerally can be applied through December 31, 2022. The adoption of hedge accounting. ASU 2017-12 became effective for us on January 1, 2019 and2020-4 did not have a significantsignificantly impact on our financial statements. In April 2019, ASU 2019-04 was issued to clarify certain aspects of accounting for hedging activities addressed by ASU 2017-12, among other things.

ASU 2018-16, “Derivatives and Hedging (Topic 815) - Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (“OIS”) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.” The amendments in this update permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct U.S. Treasury obligations, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association (“SIFMA”) Municipal Swap Rate. ASU 2018-16 became effective for us on January 1, 2019 and did not have a significant impact on our financial statements.

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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, 2018,2019, and the other information included in the 20182019 Form 10-K. Operating results for the three and six months ended June 30, 20192020 are not necessarily indicative of the results for the year ending December 31, 20192020 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”), including statements regarding the potential effects of the ongoing COVID-19 pandemic on our business, financial condition, liquidity and results of operations, notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in our future filings with the SEC, in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of Cullen/Frost or its management or Board of Directors, including those relating to products, services or operations; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes”, “anticipates”, “expects”, “intends”, “targeted”, “continue”, “remain”, “will”, “should”, “may” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
•Local, regional, national and international economic conditions and the impact they may have on us and our customers and our assessment of that impact.
•Volatility and disruption in national and international financial and commodity markets.
•Government intervention in the U.S. financial system.
•Changes in the mix of loan geographies, sectors and types or the level of non-performing assets and charge-offs.
•Changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements.
•The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board.
•Inflation, interest rate, securities market and monetary fluctuations.
•The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we and our subsidiaries must comply.
•The soundness of other financial institutions.
•Political instability.
•Impairment of our goodwill or other intangible assets.
•Acts of God or of war or terrorism.
•The timely development and acceptance of new products and services and perceived overall value of these products and services by users.
•Changes in consumer spending, borrowings and savings habits.
•Changes in the financial performance and/or condition of our borrowers.
•Technological changes.
•The cost and effects of failure, interruption, or breach of security of our systems.
•Acquisitions and integration of acquired businesses.
•Our ability to increase market share and control expenses.
•Our ability to attract and retain qualified employees.
•Changes in the competitive environment in our markets and among banking organizations and other financial service providers.
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•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 impact of the ongoing COVID-19 pandemic and any other pandemic, epidemic or health-related crisis.
•The costs and effects of legal and regulatory developments, the resolution of legal proceedings or regulatory or other governmental inquiries, the results of regulatory examinations or reviews and the ability to obtain required regulatory approvals.
•Greater than expected costs or difficulties related to the integration of new products and lines of business.
•Our success at managing the risks involved in the foregoing items.
Further, statements about the potential effects of the ongoing COVID-19 pandemic on our business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, clients, third parties and us.
Forward-looking statements speak only as of the date on which such statements are made. We do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.
Recent Developments Related to COVID-19
Overview. Our business has been, and continues to be, impacted by the recent and ongoing outbreak of COVID-19. In March 2020, COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the President of the United States. Efforts to limit the spread of COVID-19 have led to shelter-in-place orders, the closure of non-essential businesses, travel restrictions, supply chain disruptions and prohibitions on public gatherings, among other things, throughout many parts of the United States and, in particular, the markets in which we operate. As the current pandemic is ongoing and dynamic in nature, there are many uncertainties related to COVID-19 including, among other things, its ultimate geographic spread; its severity; the duration of the outbreak; the impact to our customers, employees and vendors; the impact to the financial services and banking industry; and the impact to the economy as a whole as well as the effect of actions taken, or that may yet be taken, or inaction by governmental authorities to contain the outbreak or to mitigate its impact (both economic and health-related). COVID-19 has negatively affected, and is expected to continue to negatively affect, our business, financial position and operating results. In light of the uncertainties and continuing developments discussed herein, the ultimate adverse impact of COVID-19 cannot be reliably estimated at this time, but it has been and is expected to continue to be material.
Impact on our Operations. In the State of Texas, many jurisdictions have declared health emergencies. The resulting closures and/or limited operations of non-essential businesses and related economic disruption has impacted our operations as well as the operations of our customers. Financial services have been identified as a Critical Infrastructure Sector by the Department of Homeland Security. Accordingly, our business remains open. To address the issues arising as a result of COVID-19, and in order to facilitate the continued delivery of essential services while maintaining a high level of safety for our customers as well as our employees, we have implemented our Business Continuity and Health Emergency Response plans. Among other things, significant actions taken under these plans include:
•Implemented our communications plans to ensure our employees, customers and critical vendors are kept abreast of developments affecting our operations.
•Restricted all non-essential travel and large external gatherings and have instituted a mandatory quarantine period for anyone that has traveled to an impacted area.
•Temporarily closed all of our financial center lobbies and other corporate facilities to non-employees, except for certain limited cases by appointment only. We continue to serve our consumer and business customers through our motor-banks, ATMs, internet banking, mobile app and telephone customer service capabilities.
•Expanded remote-access availability so that nearly all of our work-force has the capability to work from home or other remote locations. All activities are performed in accordance with our compliance and information security policies designed to ensure customer data and other information is properly safeguarded.
•Instituted mandatory social distancing policies for those employees not working remotely. Members of certain operations teams have been split into separate buildings or locations to create redundancy for key functions across the organization.
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Notwithstanding the foregoing actions, the COVID-19 outbreak could still greatly affect our routine and essential operations due to staff absenteeism, particularly among key personnel; further limited access to or closures of our branch facilities and other physical offices; operational, technical or security-related risks arising from a remote work-force; and government or regulatory agency orders, among other things. The business and operations of our third party service providers, many of whom perform critical services for our business, could also be significantly impacted, which in turn could impact us. As a result, we are currently unable to fully assess or predict the extent of the effects of COVID-19 on our operations as the ultimate impact will depend on factors that are currently unknown and/or beyond our control.
Impact on our Financial Position and Results of Operations. Our financial position and results of operations are particularly susceptible to the ability of our loan customers to meet loan obligations, the availability of our workforce, the availability of our vendors and the decline in the value of assets held by us. While its effects continue to materialize, the COVID-19 pandemic has resulted in a significant decrease in commercial activity throughout the State of Texas as well as nationally. This decrease in commercial activity has caused and may continue to cause our customers (including affected businesses and individuals), vendors and counterparties to be unable to meet existing payment or other obligations to us. The national public health crisis arising from the COVID-19 pandemic (and public expectations about it), combined with certain pre-existing factors, including, but not limited to, international trade disputes, inflation risks and oil price volatility, could further destabilize the financial markets and geographies in which we operate. The resulting economic pressure on consumers and uncertainty regarding the sustainability of any economic improvements has impacted the creditworthiness of potential and current borrowers. Borrower loan defaults that adversely affect our earnings correlate with deteriorating economic conditions (such as the unemployment rate), which, in turn, are likely to impact our borrowers' creditworthiness and our ability to make loans. See further information related to the risk exposure of our loan portfolio under the sections captioned “Loans” and “Allowance for Credit Losses” elsewhere in this discussion.
In addition, the economic pressures and uncertainties arising from the COVID-19 pandemic has resulted in and may continue to result in specific changes in consumer and business spending and borrowing and saving habits, affecting the demand for loans and other products and services we offer. Consumers affected by COVID-19 may continue to demonstrate changed behavior even after the crisis is over. For example, consumers may decrease discretionary spending on a permanent or long-term basis, certain industries may take longer to recover (particularly those that rely on travel or large gatherings) as consumers may be hesitant to return to full social interaction, We lend to customers operating in such industries including energy, restaurants, hotels/lodging, aviation, entertainment, retail and commercial real estate, among others, that have been significantly impacted by COVID-19 and we are continuing to monitor these customers closely. To help mitigate the adverse effects of COVID-19, loan customers may apply for a deferral of payments, or portions thereof, for up to 90 days. After 90 days, customers may apply for an additional deferral. Additionally, the temporary closures of bank branches and the safety precautions implemented at re-opened branches could result in consumers becoming more comfortable with technology and devaluing face-to-face interaction. Our business is relationship driven and such changes could necessitate changes to our business practices to accommodate changing consumer behaviors. The potential changes in behaviors driven by COVID-19 also present heightened liquidity risks, for example, arising from increased demand for our products and services (such as unusually high draws on credit facilities) or decreased demand for our products and services (such as idiosyncratic, or broad-based, market or other developments that lead to deposit outflows).
Legislative and Regulatory Developments. Recent actions taken by the federal government and the Federal Reserve and other bank regulatory agencies to mitigate the economic effects of COVID-19 will also have an impact on our financial position and results of operations. These actions are further discussed below.
In an emergency measure aimed at blunting the economic impact of COVID-19, the Federal Reserve lowered the target for the federal funds rate to a range of between zero to 0.25% effective on March 16, 2020. This action by the Federal Reserve followed a prior reduction of the targeted federal funds rates to a range of 1.0% to 1.25% effective on March 4, 2020. Our earnings and cash flows are largely dependent upon our net interest income. Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds. As our balance sheet is more asset sensitive, our earnings are more adversely affected by decreases in market interest rates as the interest rates received on loans and other investments fall more quickly and to a larger degree than the interest rates paid on deposits and other borrowings. The decline in interest rates has already led to new all-time low yields across the US Treasury maturity curve. In June 2020, the Federal Reserve indicated that it expects to maintain the targeted federal funds rate at current levels through 2022. Nonetheless, if the Federal Reserve decreases the targeted federal funds rates even further in response to the economic effects of COVID-19, overall interest rates will decline further, which will negatively impact our net interest income and further compress our net interest margin.
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Other actions taken by the Federal Reserve in an effort to provide monetary stimulus to counteract the economic disruption caused by COVID-19 include:
•Expanded reverse repo operations, adding liquidity to the banking system.
•Restarted quantitative easing.
•Lowered the interest rate on the discount window by 1.5% to 0.25%.
•Reduced reserve requirement ratios to zero percent.
•Encouraged banks to use their capital and liquidity buffers to lend.
•Introduced and expanded several new programs that will operate on a temporary basis to help preserve market liquidity.
The U.S. government has also enacted certain fiscal stimulus measures in several phases to counteract the economic disruption caused by the COVID-19. The Phase 1 legislation, the Coronavirus Preparedness and Response Supplemental Appropriations Act, was enacted on March 6, 2020 and, among other things, authorized funding for research and development of vaccines and allocated money to state and local governments to aid containment and response measures. The Phase 2 legislation, the Families First Coronavirus Response Act, was enacted on March 18, 2020 and provides for paid sick/medical leave, establishes no-cost coverage for coronavirus testing, expands unemployment benefits, expands food assistance, and provides additional funding to states for the ongoing economic consequences of the pandemic, among other provisions. The Phase 3 legislation, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), was enacted on March 27, 2020. Among other provisions, the CARES Act (i) authorizes the Secretary of the Treasury to make loans, loan guarantees and other investments, up to $500 billion, for assistance to eligible businesses, States and municipalities with limited, targeted relief for passenger air carriers, cargo air carriers, and businesses critical to maintaining national security, (ii) creates a $349 billion loan program called the Paycheck Protection Program (the “PPP”) for loans to small businesses for, among other things, payroll, group health care benefit costs and qualifying mortgage, rent and utility payments, (iii) provides certain credits against the 2020 personal income tax for eligible individuals and their dependents, (iv) expands eligibility for unemployment insurance and provides eligible recipients with an additional $600 per week on top of the unemployment amount determined by each State and (v) expands tele-health services in Medicare. The Phase 3.5 legislation, the Paycheck Protection Program and Healthcare Enhancement Act of 2020 (the “PPPHE Act”), was enacted on April 24, 2020. Among other things, the PPPHE Act provided an additional $310 billion of funding for the PPP of which, $30 billion is specifically allocated for use by banks and other insured depository institutions that have assets between $10 billion and $50 billion.
The Paycheck Protection Program Flexibility Act of 2020” (the “PPPF Act”) was enacted in June 2020 and modifies the PPP as follows: (i) establishes a minimum maturity of five years for all loans made after the enactment of the PPPF Act and permits an extension of the maturity of existing loans to five years if the borrower and lender agree; (ii) extends the “covered period” of the CARES Act from June 30, 2020, to December 31, 2020; (iii) extends the eight-week “covered period” for expenditures that qualify for forgiveness to the earlier of 24 weeks following loan origination or December 31, 2020; (iv) extends the deferral period for payment of principal, interest and fees to the date on which the forgiveness amount is remitted to the lender by the SBA; (v) requires the borrower to use at least 60% (down from 75%) of the proceeds of the loan for payroll costs, and up to 40% (up from 25%), for other permitted purposes, as a condition to obtaining forgiveness of the loan; (vi) delays from June 30, 2020 to December 31, 2020 the date by which employees must be rehired to avoid a reduction in the amount of forgiveness of a loan, and creates a “rehiring safe harbor” that allows businesses to remain eligible for loan forgiveness if they make a good-faith attempt to rehire employees or hire similarly qualified employees, but are unable to do so, or are able to document an inability to return to pre-COVID-19 levels of business activity due to compliance with social distancing measures; and (vii) allows borrowers to receive both loan forgiveness under the PPP and the payroll tax deferral permitted under the CARES Act, rather than having to choose which of the two would be more advantageous.
In July 2020, the CARES Act was amended to extend, through August 8, 2020, the SBA’s authority to make commitments under the PPP. The SBA’s existing authority had previously expired on June 30, 2020. We are continuing to monitor the potential development of additional legislation and further actions taken by the U.S. government.
The Federal Reserve has created various additional lending facilities and expanded existing facilities to help provide financing in response to the financial disruptions caused by COVID-19. The programs include, among other things, (i) the PPP Facility, which is intended to extend loans to banks making PPP loans, (ii) the Municipal Liquidity Facility, which is intended to facilitate the purchase of eligible notes from states, and certain counties and cities around the country, and (iii)��the Main Street Lending Program (“MSLP”), which is intended to facilitate credit flows to businesses affected by the COVID-19 pandemic with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. As more fully discussed in the section captioned “Loans” elsewhere in this discussion, we are currently participating in the PPP as a lender. Additionally, we are currently evaluating participation in the MSLP.
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Banks and bank holding companies have been particularly impacted by the COVID-19 pandemic as a result of disruption and volatility in the global capital markets. This disruption has impacted our cost of capital and may adversely affect our ability to access the capital markets if we need or desire to do so and, although the ultimate impact cannot be reliably estimated at this time in light of the uncertainties and ongoing developments noted herein, such impacts could be material. Furthermore, bank regulatory agencies have been (and are expected to continue to be) very proactive in responding to both market and supervisory concerns arising from the COVID-19 pandemic as well as the potential impact on customers, especially borrowers. As shown during and following the financial crisis of 2007-2008, periods of economic and financial disruption and stress have, in the past, resulted in increased scrutiny of banking organizations. We are closely monitoring the potential for new laws and regulations impacting lending and funding practices as well as capital and liquidity standards. Such changes could require us to maintain significantly more capital, with common equity as a more predominant component, or manage the composition of our assets and liabilities to comply with formulaic liquidity requirements. Furthermore, provisions of the CARES Act allow, but do not require, the FDIC to guarantee deposit obligations of banks in non-interest-bearing transaction accounts through December 31, 2020. Participation in any such guarantee program may result in fees and other assessments as the FDIC determines and may include special assessments. Other provisions of the CARES Act as well as actions taken by bank regulators, such as potential relief for working with borrowers who are distressed as a result of the effects of COVID-19, could similarly impact aggregate deposit insurance expense.
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.
As discussed in Note 1 - Summary of Significant Accounting Policies, our policies related to allowances for credit losses changed on January 1, 2020 in connection with the adoption of a new accounting standard update as codified in Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses. In the case of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. 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. 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 2018 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, 2018.statements.
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 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 $93.1 million, or $1.47 per diluted common share, and $140.3 million, or $2.21 per diluted common share, for the three and six months ended June 30, 2020 compared to $109.6 million, or $1.72 per diluted common share, and $224.1 million, or $3.51 per diluted common share, for the three and six months ended June 30, 2019 compared to $109.3 million, or $1.68 per diluted common share, and $213.8 million, or $3.30 per diluted common share, for the three and six months ended June 30, 2018.2019.
Selected data for the comparable periods was as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Taxable-equivalent net interest income$269,722  $277,751  $538,174  $548,930  
Taxable-equivalent adjustment23,911  24,320  47,842  49,030  
Net interest income245,811  253,431  490,332  499,900  
Credit loss expense31,975  6,400  207,172  17,403  
Net interest income after credit loss expense213,836  247,031  283,160  482,497  
Non-interest income77,601  82,638  290,516  179,423  
Non-interest expense199,679  203,209  423,842  405,009  
Income before income taxes91,758  126,460  149,834  256,911  
Income tax expense\(benefit)(1,314) 14,874  2,009  28,829  
Net income93,072  111,586  147,825  228,082  
Preferred stock dividends—  2,015  2,016  4,031  
Redemption of preferred stock—  —  5,514  —  
Net income available to common shareholders$93,072  $109,571  $140,295  $224,051  
Earnings per common share – basic$1.47  $1.73  $2.22  $3.53  
Earnings per common share – diluted1.47  1.72  2.21  3.51  
Dividends per common share0.71  0.71  1.42  1.38  
Return on average assets0.99 %1.40 %0.79 %1.44 %
Return on average common equity9.60  12.60  7.24  13.32  
Average shareholders’ equity to average assets10.30  11.53  11.08  11.27  
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Taxable-equivalent net interest income$277,751
 $260,531
 $548,930
 $513,067
Taxable-equivalent adjustment24,320
 23,261
 49,030
 46,049
Net interest income253,431
 237,270
 499,900
 467,018
Provision for loan losses6,400
 8,251
 17,403
 15,196
Net interest income after provision for loan losses247,031
 229,019
 482,497
 451,822
Non-interest income82,638
 85,066
 179,423
 176,511
Non-interest expense203,209
 188,908
 405,009
 385,519
Income before income taxes126,460
 125,177
 256,911
 242,814
Income taxes14,874
 13,836
 28,829
 24,993
Net income111,586
 111,341
 228,082
 217,821
Preferred stock dividends2,015
 2,015
 4,031
 4,031
Net income available to common shareholders$109,571
 $109,326
 $224,051
 $213,790
Earnings per common share – basic$1.73
 $1.70
 $3.53
 $3.33
Earnings per common share – diluted1.72
 1.68
 3.51
 3.30
Dividends per common share0.71
 0.67
 1.38
 1.24
Return on average assets1.40% 1.43% 1.44% 1.39%
Return on average common equity12.60
 14.03
 13.32
 13.83
Average shareholders’ equity to average assets11.53
 10.63
 11.27
 10.55
Net income available to common shareholders increased $245 thousand,decreased $16.5 million, or 0.2%15.1%, for the three months ended June 30, 20192020 and increased $10.3decreased $83.8 million, or 4.8%37.4%, for the six months ended June 30, 20192020 compared to the same periods in 2018.2019. The increasedecrease during the three months ended June 30, 20192020 was primarily the result of a $16.2$25.6 million increase in credit loss expense, a $7.6 million decrease in net interest income and a $1.9 million decrease in the provision for loan losses partly offset by a $14.3 million increase in non-interest expense, a $2.4$5.0 million decrease in non-interest income andpartly offset by a $1.0$16.2 million increasedecrease in income tax expense and a $3.5 million decrease in non-interest expense. The increasedecrease during the six months ended June 30, 20192020 was primarily the result of a $32.9$189.8 million increase in credit loss expense, an $18.8 million increase in non-interest expense and a $9.6 million decrease in net interest income andpartly offset by a $2.9$111.1 million increase in non-interest income partly offset byand a $19.5$26.8 million decrease in income tax expense. The increase in credit loss expense during the comparable periods resulted from both our adoption of a new credit loss accounting standard and the adverse events impacting our loan portfolio, including those arising from the COVID-19 pandemic and the significant volatility in oil prices. The increase in non-interest expense,income during the six months ended June 30, 2020 was primarily related to a $3.8$109.0 million increase innet gain on securities transactions. Net income tax expense and a $2.2available to common shareholders for the six months ended June 30, 2020 was also impacted by the reclassification of $5.5 million increaseof issuance costs associated with our preferred stock to retained earnings upon redemption of the preferred stock in the provision for loan losses.first quarter.
Details of the changes in the various components of net income are further discussed below.
Net Interest Income
Net interest income is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is our largest source of revenue, representing 73.6%62.8% of total revenue during the first six months of 2019.2020. Excluding the revenue associated with the $109.0 million net gain on securities transactions realized during the first quarter of 2020, net interest income would have represented 73.0% of total revenue during the first six months of 2020. Net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period. The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and net interest margin.
46
The Federal Reserve influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Our loan portfolio is significantly affected by changes in the prime interest rate. The prime rate began 20182019 at 4.50%5.50% and remained at that level until March 2018, when it increased 25decreased 50 basis points to 4.75%. Duringduring the remainderthird quarter of 2018, the prime rate increased an additional 75 basis points2019 (25 basis points in each of June, SeptemberAugust and December)September) and 25 basis points in October 2019 to end 2018the year at 5.50%4.75%. TheDuring 2020, the prime rate did not change during the first six months of 2019.decreased 150 basis points in March to 3.25% where it remained through June 30, 2020. Our loan portfolio is also impacted by changes in the London Interbank Offered Rate (LIBOR). At June 30, 2020, the one-month and three-month U.S. dollar LIBOR interest rates were 0.16% and 0.30%, respectively, while at June 30, 2019, the one-month and three-month U.S. dollar LIBOR interest rates were 2.40% and 2.32%, respectively, while at June 30, 2018, the one-month and three-month U.S. dollar LIBOR interest rates were 2.09% and 2.34%, respectively. The effectivetarget range for the federal funds rate, which is the cost of immediately available overnight funds, began 20182019 at 1.50%2.25% to 2.50% and remained at that level until March 2018, when it increased 25decreased 50 basis points to 1.75%. Duringduring the remainderthird quarter of

2018 the effective federal funds rate increased 75 basis points 2019 (25 basis points in each of June, September,August and December)September) and 25 basis points in October 2019 to end 2018the year at 2.50%1.50 to 1.75%. The effectiveDuring 2020, the target range for the federal funds rate did not change duringdecreased 150 basis points in March to zero to 0.25% where it remained through June 30, 2020. As noted in the first six monthssection captioned “Recent Developments Related to COVID-19” elsewhere in this discussion, the decrease in the target range for the federal funds rate in March 2020 was largely an emergency measure by the Federal Reserve aimed at blunting the economic impact of 2019.COVID-19.
We are primarily funded by core deposits, with non-interest-bearing demand deposits historically being a significant source of funds. This lower-cost funding base is expected to have a positive impact on our net interest income and net interest margin in a rising interest rate environment. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) repealed theThough federal prohibitions on the payment of interest on demand deposits thereby permitting depository institutions to pay interest on business transaction and other accounts beginning July 21, 2011. To date,were repealed in 2011, we have not experienced any significant additional interest costs as a result of the repeal. However, as market interest rates have increased, we have increased the interest rates we pay on most of our interest-bearing deposit products.result. 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.
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 quarters 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
June 30, 2020 vs. June 30, 2019
Increase (Decrease) Due to Change in
RateVolumeNumber of daysTotal
Interest-bearing deposits$(12,981) $6,410  $—  $(6,571) 
Federal funds sold and resell agreements(869) (609) —  (1,478) 
Securities:
Taxable—  (6,964) —  (6,964) 
Tax-exempt222  60  —  282  
Loans, net of unearned discounts(56,038) 37,217  —  (18,821) 
Total earning assets(69,666) 36,114  —  (33,552) 
Savings and interest checking(1,199) 138  —  (1,061) 
Money market deposit accounts(19,163) 1,530  —  (17,633) 
Time accounts(683) 563  —  (120) 
Public funds(1,980) 177  —  (1,803) 
Federal funds purchased and repurchase agreements(4,951) 217  —  (4,734) 
Junior subordinated deferrable interest debentures(491) 1  —  (490) 
Subordinated notes—  —  —  —  
Federal home loan bank advances—  318  —  318  
Total interest-bearing liabilities(28,467) 2,944  —  (25,523) 
Net change$(41,199) $33,170  $—  $(8,029) 
47
Three Months Ended Six Months Ended
June 30, 2019 vs. June 30, 2018 June 30, 2019 vs. June 30, 2018Six Months Ended
Increase (Decrease) Due to Change in   Increase (Decrease) Due to Change in  June 30, 2020 vs. June 30, 2019
    Increase (Decrease) Due to Change in
Rate Volume Total Rate Volume TotalRateVolumeNumber of daysTotal
Interest-bearing deposits$3,998
 $(10,087) $(6,089) $10,126
 $(19,670) $(9,544)Interest-bearing deposits$(22,855) $13,718  $52  $(9,085) 
Federal funds sold and resell agreements387
 (261) 126
 893
 60
 953
Federal funds sold and resell agreements(1,541) (728) 5  (2,264) 
Securities:           Securities:
Taxable4,531
 4,605
 9,136
 6,768
 6,489
 13,257
Taxable1,911  (7,524) —  (5,613) 
Tax-exempt(773) 3,031
 2,258
 (2,341) 8,740
 6,399
Tax-exempt876  (1,492) —  (616) 
Loans, net of unearned discounts15,276
 10,538
 25,814
 38,367
 21,730
 60,097
Loans, net of unearned discounts(82,325) 48,331  1,900  (32,094) 
Total earning assets23,419
 7,826
 31,245
 53,813
 17,349
 71,162
Total earning assets(103,934) 52,305  1,957  (49,672) 
Savings and interest checking—
 60
 60
 354
 41
 395
Savings and interest checking(2,329) 188  4  (2,137) 
Money market deposit accounts5,487
 19
 5,506
 18,280
 168
 18,448
Money market deposit accounts(30,722) 2,081  64  (28,577) 
Time accounts2,369
 362
 2,731
 4,387
 516
 4,903
Time accounts(50) 1,339  47  1,336  
Public funds600
 372
 972
 1,487
 572
 2,059
Public funds(2,817) 449  8  (2,360) 
Federal funds purchased and repurchase agreements4,422
 167
 4,589
 8,715
 256
 8,971
Federal funds purchased and repurchase agreements(7,269) 537  19  (6,713) 
Junior subordinated deferrable interest debentures166
 1
 167
 522
 1
 523
Junior subordinated deferrable interest debentures(784) 1  —  (783) 
Subordinated notes payable and other notes(2) 2
 —
 (4) 4
 —
Subordinated notesSubordinated notes—  —  —  —  
Federal home loan bank advancesFederal home loan bank advances—  318  —  318  
Total interest-bearing liabilities13,042
 983
 14,025
 33,741
 1,558
 35,299
Total interest-bearing liabilities(43,971) 4,913  142  (38,916) 
Net change$10,377
 $6,843
 $17,220
 $20,072
 $15,791
 $35,863
Net change$(59,963) $47,392  $1,815  $(10,756) 
Taxable-equivalent net interest income for the three months ended June 30, 2019 increased $17.22020 decreased $8.0 million, or 6.6%2.9%, while taxable-equivalent net interest income for six months ended June 30, 2020 decreased $10.8 million, or 2.0%, compared to the same periods in 2019. Taxable-equivalent net interest income for the six months ended June 30, 2019 increased $35.9 million, or 7.0%,2020 included 182 days compared to 181 days for the same periodsperiod in 2018.2019 as a result of the leap year. The increasesadditional day added approximately $1.8 million to taxable-equivalent net interest income during the six months ended June 30, 2020. Excluding the impact of the additional day results in an effective decrease in taxable-equivalent net interest income of approximately $12.6 million during the six months ended June 30, 2020. The taxable-equivalent net interest margin decreased 72 basis points from 3.85% during the three months ended June 30, 2019 to 3.13% during the three months ended June 30, 2020 while the taxable-equivalent net interest margin decreased 49 basis points from 3.82% during the six months ended June 30, 2019 to 3.33% during the six months ended June 30, 2020.
The decreases in taxable-equivalent net interest income and taxable-equivalent net interest margin during the three and six months ended June 30, 20192020 were primarily related to increasesdecreases in the average yields on loans, interest-bearing deposits and federal funds sold and resell agreements combined with decreases in the average volume of taxable securities (based on amortized cost) and interest-bearing deposits combined with increases in the average volume of interest bearing liabilities, and for the three months ended June 30, 2020, a decrease in the average volumes of loans, tax-exempt securities and taxable securities. The impact of these items was partly offset by increasesdecreases in the average rates paid oncost of interest-bearing deposits and other borrowed funds and a decreasecombined with increases in the average volumevolumes of interest bearingloans and interest-bearing deposits (primarily excess reservesamounts held in an interest-bearing account at the Federal Reserve)., and for the six months ended June 30, 2020, increases in the average yields on taxable and tax-exempt securities.
The average volume of interest-earning assets for the three months ended June 30, 20192020 increased $467.4 million,$6.0 billion, while the average volume of interest-earning assets for the six months ended June 30, 20192020 increased $211.1 million$3.9 billion compared to the same periods in 2018.2019, respectively. The increase in the average volume of interest-earning assets for the three months ended June 30, 20192020 included an $884.9 milliona $3.7 billion increase in average taxable securities, an $838.6 millioninterest-bearing deposits, federal funds sold and resell agreements, a $3.2 billion increase in average loans (of which approximately $2.5 billion related to PPP loans, as further discussed below) and a $509.0$218.6 million increase in average tax-exempt securities partly offset by a $1.8$1.0 billion decrease in average interest-bearing deposits, federal funds sold and resell agreements.taxable securities. The increase in the average volume of interest-earning assets for the six months ended June 30, 20192020 included an $874.4 milliona $2.3 billion increase in average loans, a $630.6 million increase in average taxable securities and a $533.5 million

increase in average tax-exempt securities partly offset by a $1.8 billion decrease in average interest-bearing deposits, federal funds sold and resell agreements,
The taxable-equivalent net interest margin increased 21 basis points from 3.64% during the three months ended June 30, 2018 to 3.85% during the three months ended June 30, 2019 and increased 24 basis points from 3.58% during the six months ended June 30, 2018 to 3.82% during the six months ended June 30, 2019. The increases a $2.0 billion increase in the taxable-equivalent net interest margin during the three and six months ended June 30, 2019 were primarilyaverage loans (of which $1.2 billion related to increasesPPP loans, as further discussed below) and a $228.6 million increase in the average yields on loans; interest-bearing deposits; federal funds sold and resell agreements; and taxabletax-exempt securities partly offset by increases in the average cost of interest-bearing deposits and other borrowed funds and a $544.3 million decrease in the average yield on tax-exempttaxable securities. The taxable-equivalent net interest margin was also positively impacted by a decrease in the relative proportion of interest-earning assets invested in lower-yielding interest-bearing deposits (primarily excess reserves held in an interest-bearing account at the Federal Reserve).
The average taxable-equivalent yield on interest-earning assets increased 40decreased 109 basis points from 3.93% during the three months ended June 30, 2018 to 4.33% during the three months ended June 30, 2019 and increased 48 basis points from 3.82%to 3.24% during the sixthree months ended June 30, 2018 to2020 while the average taxable-equivalent yield on interest-earning assets decreased 78 basis points from 4.30% during the six months ended June 30, 2019.2019 to 3.52% during the six months ended June 30, 2020. The average taxable-equivalent yield on interest-earning assets was primarily impacted by the aforementioned changes in market interest rates and changes in the volume and relative mix of interest-earning assets.
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The average taxable-equivalent yield on loans increased 55decreased 139 basis points from 4.78%5.34% during the sixthree months ended June 30, 20182019 to 3.95% during the three months ended June 30, 2020 while the average taxable-equivalent yield on loans decreased 106 basis points from 5.33% during the six months ended June 30, 2019.2019 to 4.27% during the six months ended June 30, 2020. The average taxable-equivalent yield on loans was positivelynegatively impacted by the increases inlower average market interest rates discussed above.during the three and six months ended June 30, 2020 compared to the same periods in 2019. The average volume of loans for the three and six months ended June 30, 2020 increased $3.2 billion, or 22.1%, and $2.0 billion, or 13.9%, compared to the same periods in 2019. Loans made up approximately 50.0% and 49.4% of average interest-earning assets during the three and six months ended June 30, 2020, respectively, compared to 49.4% and 49.2% during the same periods in 2019 respectively. As discussed in the section captioned “Loans” elsewhere in this discussion, in April 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act. Through June 30, 2020, we have funded approximately $3.2 billion of SBA-approved PPP loans. During the second quarter of 2020, we recognized approximately $19.3 million in PPP loan related deferred processing fees (net of amortization of related deferred origination costs) as a yield adjustment and this amount is included in interest income on loans. As a result of the inclusion of these net fees in interest income, the average yield on PPP loans was approximately 4.13% during the second quarter of 2020 compared to the stated interest rate of 1.0% on these loans. As of June 30, 2020, we expect to recognize additional PPP loan related deferred processing fees (net of deferred origination costs) totaling approximately $77.4 million as a yield adjustment over the remaining terms of these loans.
The average taxable-equivalent yield on securities was 3.53% during the three months ended June 30, 2020, increasing 11 basis points from 3.42% during the same period in 2019 while the average taxable-equivalent yield on securities was 3.49% during the six months ended June 30, 2020, increasing 9 basis points from 3.40% during the same period in 2019. The average taxable-equivalent yield on securities during the three and six months ended June 30, 2020 was positively impacted by increases in the average yields on tax-exempt securities, and for the six months taxable securities, as a result of investments in higher-yielding, longer-duration securities and an increase in the relative proportion tax-exempt securities to total securities.
The average yield on taxable securities remained unchanged at 2.40% during the three months ended June 30, 2020 and 2019 while the average yield on taxable securities increased 8 basis points from 2.30% during the six months ended June 30, 2019 to 2.38% during the six months ended June 30, 2020. This increase during the six months ended June 30, 2020 resulted as the proceeds from the maturity of a significant volume of U.S. Treasury securities during the second half of 2019 were reinvested in higher-yielding residential mortgage-backed securities. The average taxable-equivalent yield on tax-exempt securities increased $874.41 basis point from 4.06% during the three months ended June 30, 2019 to 4.07% during the three months ended June 30, 2020 while the average taxable-equivalent yield on tax-exempt securities increased 2 basis points from 4.05% during the six months ended June 30, 2019 to 4.07% during the six months ended June 30, 2020. Tax exempt securities made up approximately 67.7% and 66.5% of total average securities during the three and six months ended June 30, 2020, respectively, compared to 61.8% and 63.1% during the same respective periods in 2019. The average volume of total securities (based on carrying amount) during the three months ended June 30, 2020 decreased $821.5 million, or 6.5%6.2%, compared to the same period in 2018. Loans2019 while the average volume of total securities (based on carrying amount) during the six months ended June 30, 2020 decreased $315.7 million, or 2.4%, compared to the same period in 2019. Securities made up approximately 49.2%35.6% of average interest-earning assets during the three months ended June 30, 2020 compared to 45.8% during the same period in 2019 while securities made up approximately 38.6% of average interest-earning assets during the six months ended June 30, 20192020 compared to 46.5%44.9% during the same period in 2018.2019. The decreases were partly related to the impact of PPP loans and increased interest-bearing deposits on total average interest-earning assets.
The average taxable-equivalent yield on securities was 3.40% duringAverage interest-bearing deposits, federal funds sold and resell agreements for the sixthree months ended June 30, 2019, increasing 4 basis points compared to the 3.36% during the same period in 2018. The average taxable-equivalent yield on securities during the six months ended June 30, 2019 compared to the same period in 2018 was positively impacted by increases in the average volume of tax-exempt and taxable securities and an increase in the average yield on taxable securities but was negatively impacted by a decrease in the average yield on tax-exempt securities. The average yield on taxable securities2020 increased 30 basis points from 2.00% during the six months ended June 30, 2018 to 2.30% during the six months ended June 30, 2019. The average taxable-equivalent yield on tax-exempt securities decreased 6 basis points from 4.11% during the six months ended June 30, 2018 to 4.05% during the six months ended June 30, 2019. Tax exempt securities made up approximately 63.1% of total average securities during the six months ended June 30, 2019, compared to 64.8% during the same period in 2018. The average volume of total securities during the six months ended June 30, 2019 increased $1.2$3.7 billion, or 9.8%258.5%, compared to the same period in 2018. Securities made up approximately 44.9% of2019 while average interest-earning assets during the six months ended June 30, 2019 compared to 41.2% during the same period in 2018.
Average interest-bearing deposits, federal funds sold and resell agreements for the six months ended June 30, 2019 decreased $1.82020 increased $2.3 billion, or 51.9%133.6%, compared to the same period in 2018.2019. Interest-bearing deposits, federal funds sold and resell agreements made up approximately 5.8%14.5% and 12.0% of average interest-earning assets during the three and six months ended June 30, 2020, respectively, compared to 4.9% and 5.8% during the three and six months ended June 30, 2019, compared to 12.2% during the six months ended June 30, 2018.respectively. The decreaseincreases in the average volume of interest-bearing deposits, federal funds sold and resell agreements was primarily due to a decreasean increase in the average volume of our excess reservesamounts held in an interest-bearing account at the Federal Reserve during the firstthree and six months of 2019ended June 30, 2020 compared to the same periodperiods in 2018 as such funds were invested in higher yielding loans and securities. The volume of interest-bearing deposits, federal funds sold and resell agreements was also impacted by a decrease2019 primarily due to an increase in the average volume of deposits duringand other borrowed funds and the first six monthsproceeds from the sale of 2019 compared to the same period in 2018.securities. The combined average yield on interest-bearing deposits, federal funds sold and resell agreements was 2.53%0.10% and 0.51% during the three and six months ended June 30, 20192020, respectively, compared to 1.73%2.62% and 2.53% during the same periodperiods in 2018. As discussed above, the effective2019, respectively. The average yield on interest-bearing deposits, federal funds rate began 2018 at 1.50%sold and subsequently increased 100 basis points (25 basis points in each of March, June, Septemberresell agreements was negatively impacted by lower average market interest rates for the three and December) to end 2018 at 2.50%, where it remained throughsix months ended June 30, 2020 compared to the same periods in 2019.
The average rate paid on interest-bearing liabilities was 0.81% 0.19% during the three months ended June 30, 2020 decreasing 61 basis points from 0.80% during the same period in 2019 while the average rate paid on interest-bearing liabilities was 0.33%
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during the six months ended June 30, 2019 increasing 402020 decreasing 48 basis points from 0.41%0.81% during the same period in 2018.2019. Average deposits decreased $195.9 million,increased $5.3 billion, or 0.75%20.5%, during the three months ended June 30, 2020 compared to the same period in 2019 and included a $1.7 billion increase in average interest-bearing deposits and a $3.6 billion increase in average non-interest bearing deposits. Average deposits increased $3.3 billion, or 12.7%, during the six months ended June 30, 20192020 compared to the same period in 20182019 and included a $629.5 million decrease$1.2 billion increase in average interest-bearing deposits and a $2.1 billion increase in average non-interest bearing deposits partly offset by a $433.6 million increase in average interest-bearing deposits. The ratio of average interest-bearing deposits to total average deposits was 61.0%56.0% and 58.2% during the three and six months ended June 30, 20192020, respectively, compared to 58.9%61.0% during the same periodperiods in 2018.2019. The average cost of deposits is primarily impacted by changes in market interest rates as well as changes in the volume and relative mix of interest-bearing deposits. The average cost of interest-bearing deposits and total deposits was 0.69%0.14% and 0.42%0.08%, respectively, during the three months ended June 30, 2020 compared to 0.68% and 0.41%, respectively, during the same period in 2019. The average cost of interest-bearing deposits and total deposits was 0.26% and 0.15%, respectively, during the six months ended June 30, 20192020 compared to 0.37%0.69% and 0.22%0.42%, respectively, during the six months ended June 30, 2018.same period in 2019. The average cost of deposits during 2019the first six months of 2020 was impacted by increasesdecreases in the interest rates we pay on

most of our interest-bearing deposit products as a result of the aforementioned increasesdecreases in market interest rates and market competition.rates.
In April 2020, we borrowed an aggregate $1.3 billion from the Federal Home Loan Bank (“FHLB”) to provide additional liquidity in light of our significant PPP lending volume. These advances were subsequently paid-off in May 2020 as we determined additional liquidity resources were not necessary. Average FHLB advances totaled $439.6 million during the second quarter of 2020 while the average cost of these advances was 0.29%. The cost of the advances was partly offset by dividends received on the FHLB stock we were required to purchase in connection with the advances. The FHLB stock was redeemed in connection with the repayment of the advances.
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 3.49%3.19% during the six months ended June 30, 20192020 compared to 3.41%3.49% during same period in 2018.2019. The net interest spread, as well as the net interest margin, will be impacted by future changes in short-term and long-term interest rate levels, as well as the impact from the competitive environment. A discussion of the effects of changing interest rates on net interest income is set forth in Item 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 8 - 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.
Our net interest income and net interest margin have been, and we currently expect them to continue to be, impacted by the aforementioned decreases in market interest rates and the expectation that interest rates will remain at these low levels for some period of time in light of the on-going economic disruption arising from the COVID-19 pandemic. Notwithstanding the foregoing, our participation in the PPP, as discussed above, is expected to continue to positively impact net interest income and net interest margin in the near term.
Provision for Loan Losses
The provision for loan lossesCredit Loss Expense
Credit loss expense is determined by management as the amount to be added to the allowance for loan lossescredit loss accounts for various types of financial instruments including loans, securities and off-balance-sheet credit 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 $6.4 million and $17.4 millioncomponents of credit loss expense were as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Credit loss expense related to:
Loans$27,228  $6,400  $200,153  $17,403  
Off-balance-sheet credit exposures4,775  —  7,062  —  
Securities held to maturity(28) —  (43) —  
Total$31,975  $6,400  $207,172  $17,403  
Credit loss expense for the three and six months ended June 30, 2019 compared to $8.3 million and $15.2 million forwas calculated under the three and six months ended June 30, 2018.prior incurred loss accounting methodology. 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.
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Non-Interest Income
The components of non-interest income were as follows:
Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
2019 2018 2019 20182020201920202019
Trust and investment management fees$30,448
 $29,121
 $62,145
 $58,708
Trust and investment management fees$31,060  $30,448  $65,533  $62,145  
Service charges on deposit accounts21,798
 21,142
 42,588
 41,985
Service charges on deposit accounts17,580  21,798  40,231  42,588  
Insurance commissions and fees10,118
 10,556
 28,524
 26,536
Insurance commissions and fees10,668  10,118  27,153  28,524  
Interchange and debit card transaction fees3,868
 3,446
 7,148
 6,604
Interchange and debit card transaction fees2,966  3,868  6,221  7,148  
Other charges, commissions and fees8,933
 9,273
 17,995
 18,280
Other charges, commissions and fees7,663  8,933  17,028  17,995  
Net gain (loss) on securities transactions169
 (60) 169
 (79)Net gain (loss) on securities transactions—  169  108,989  169  
Other7,304
 11,588
 20,854
 24,477
Other7,664  7,304  25,361  20,854  
Total$82,638
 $85,066
 $179,423
 $176,511
Total$77,601  $82,638  $290,516  $179,423  
Total non-interest income for the three and six months ended June 30, 20192020 decreased $2.4$5.0 million, or 2.9%6.1%, while total non-interest income forand increased $111.1 million, or 61.9%, respectively compared to the same periods in 2019. Excluding $109.0 million and $169 thousand in net gains on securities transaction during the six months ended June 30, 2020 and 2019, respectively, total non-interest income increased $2.9$2.3 million, or 1.6%1.3%, compared toduring the same periods in 2018, respectively.six months ended June 30, 2020. Changes in the various components of non-interest income are discussed in more detail below.
Trust and Investment Management Fees. Trust and investment management fees for the three and six months ended June 30, 20192020 increased $1.3 million,$612 thousand, or 4.6%2.0%, and $3.4 million, or 5.9%5.5%, respectively compared to the same periods in 2018, respectively.2019. Investment fees are the most significant component of trust and investment management fees, making up approximately 82.2%80.2% and 82.4%82.2% of total trust and investment management fees for the first six months of 2020 and 2019, respectively. The increase in trust and 2018, respectively.investment management fees during the three months ended June 30, 2020 was primarily due to increases in trust investment fees (up $699 thousand) and custody fees (up $389 thousand) partly offset by decreases in real estate fees (down $257 thousand) and oil and gas fees (down $102 thousand). The increase in trust and investment management fees during the six months ended June 30, 2020 was primarily due to increases in trust investment fees (up $1.4 million), estate fees (up $1.1 million), real estate fees (up $384 thousand) and oil and gas fees (up $373 thousand). Investment and other custodial account fees are generally based on the market value of assets within a trust account. The increase in trust investment fees was primarily related to an increase in the number of accounts. The fluctuations in estate fees and real estate fees were primarily related to variation in transaction volume. Oil and gas fees during the second quarter of 2020 were impacted by the sharp decline in oil prices in March 2020. Volatility in the equity and bond markets impacts the market value of trust assets and the related investment fees. The increaseInvestor concerns related to the uncertain economic outlook arising from the COVID-19 pandemic have caused significant market volatility resulting in significant declines in market valuations, particularly among equity securities, during the latter part of the first quarter of 2020 and the early part of the second quarter of 2020. While as of June 30, 2020, market valuations have rebounded somewhat from recent declines, the volatility and on-going uncertainty related to the economic effects of COVID-19 impacted trust and investment management fees during the threesecond quarter of 2020. Furthermore, trust and six months ended June 30, 2019 compared to the sameinvestment management fees may be similarly impacted in future periods in 2018 was primarily theas a result of increases indecreased demand and overall transaction volume for our other trust investment fees (up $1.2 million and $2.7 million, respectively) due to higher average equity valuations and an increase in the number of accounts.services.
At June 30, 2019,2020, trust assets, including both managed assets and custody assets, were primarily composed of equity securities (49.6%(49.3% of assets), fixed income securities (36.2%(34.7% of assets) and cash equivalents (8.7%(9.7% of assets). The estimated fair value of these assets was $35.7 billion (including managed assets of $15.8 billion and custody assets of $19.9 billion) at June 30, 2020, compared to $37.8 billion (including managed assets of $16.4 billion and custody assets of $21.4 billion) at December 31, 2019 and $36.2 billion (including managed assets of $15.6 billion and custody assets of $20.5 billion) at June 30, 2019, compared to $33.3 billion (including managed assets of $14.7 billion and custody assets of $18.7 billion) at December 31, 2018 and $33.4 billion (including managed assets of $14.4 billion and custody assets of $19.0 billion) at June 30, 2018.

2019.
Service Charges on Deposit Accounts. Service charges on deposit accounts for the three and six months ended June 30, 2019 increased $656 thousand,2020 decreased $4.2 million, or 3.1%19.4%, and $603 thousand,$2.4 million, or 1.4%5.5%, respectively, compared to the same periods in 2018.2019. The increasesdecreases were primarily related to increasesdecreases in overdraft/insufficient funds charges on consumer and commercial accounts (up $1.1 million and $1.9 million, respectively) partly offset by decreases in commercial service charges (down $395 thousand and $1.3 million, respectively).accounts. Overdraft/insufficient funds charges totaled $5.6 million ($4.5 million consumer and $1.2 million commercial) during the three months ended June 30, 2020 compared to $10.3 million ($8.1 million consumer and $2.2 million commercial) during the threesame period in 2019. Overdraft/insufficient funds charges totaled $16.1 million ($12.6 million consumer and $3.6 million commercial) during the six months ended June 30, 20192020 compared to $9.2 million ($7.1 million consumer and $2.1 million) during the same period in 2018. Overdraft/insufficient funds charges totaled $19.9 million ($15.5 million consumer and $4.4 million commercial) during the same period in 2019. Consumer overdraft/insufficient funds charges decreased $3.6 million and $3.0 million during the three months and six months ended June 30, 2019 compared to $18.02020, respectively, while commercial overdrafts/insufficient funds charges decreased $1.0 million ($13.8 million consumer and $4.2 million commercial)$812 thousand during the same period in 2018.respective periods. The increasesdecreases in overdraft/insufficient funds
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charges were partly due to increased transaction volumes during the three and six months ended June 30, 2019 compared2020 were primarily related to a decrease in the volume of overdrafts relative to the same periods in 2018. Overdraft/insufficient funds2019.
Commercial service charges were also impacted by a change in the fee scheduleincreased $722 thousand and $2.0 million during the second quarter of 2019.three and six months ended June 30, 2020, respectively. The decreasesincreases in commercial service charges were partly related toimpacted by a higherlower earnings credit rate.rate partly offset by decreases in the volume of billable services. The earnings credit rate is the value given to deposits maintained by treasury management customers. Because average market interest rates in 2019 were higher compared to 2018, deposit balances have become more valuable and are yielding a higher earnings credit rate. Earnings credits applied to customer deposit balances offset service fees that would otherwise be charged. Because average market interest rates in 2020 were lower compared to 2019, deposit balances have become less valuable and are yielding a lower earnings credit rate.
Insurance Commissions and Fees. Insurance commissions and fees for the three months ended June 30, 2019 decreased $4382020 increased $550 thousand, or 4.1%5.4%, compared to the same period in 2018. The decrease was related to decreases in commission income (down $305 thousand) and contingent income (down $133 thousand). Insurancewhile insurance commissions and fees for the six months ended June 30, 2019 increased $2.02020 decreased $1.4 million, or 7.5%4.8%, compared to the same periodperiods in 2018.2019. The increase in insurance commissions and fees during the three months ended June 30, 2020 was related to an increasethe result of increases in commission income (up $2.3 million) partly offset by a decrease in$495 thousand) and contingent income (down $322(up $55 thousand). The decreaseincrease in commission income during the three months ended June 30, 20192020 was primarily related to increases in commercial lines and, to a lesser extent, personal lines property and casualty commissions resulting from increased rates combined with increased coverage levels. The decrease in benefit planinsurance commissions due to fluctuations in business volumes. The increase in commission incomeand fees during the six months ended June 30, 20192020 was the result of decreases in commission income (down $835 thousand) and contingent income (down $535 thousand). The decrease in commission income was primarily related to increases in benefit plan commissions; commissions on property and casualty policies; and life insurance commissions. The increasesdecreases in benefit plan commissions and life insurance commissions partly offset by increases in both commercial lines and personal lines property and casualty commissions. The decrease in benefit plan commissions was related to decreased business volumes, premium reductions and flat to lower market rates. The decrease in life insurance commissions was related to a decrease business volumes. The increases in commercial lines and personal lines property and casualty commissions were related to increased business volumes and market rates. The increase in life insurance commissions was related to increasedrates, partly offset by decreased business volumes.
Contingent income totaled $359$414 thousand and $3.6$3.0 million during the three and six months ended June 30, 2019,2020, respectively, compared to $492$359 thousand and $3.9$3.6 million during the same periods in 2018.2019. Contingent income primarily consists of amounts received from various property and casualty insurance carriers related to the loss performance of insurance policies previously placed. These performance related contingent payments are seasonal in nature and are mostly received during the first quarter of each year. This performance related contingent income totaled $2.7$2.1 million and $3.0$2.7 million during the six months ended June 30, 20192020 and 2018,2019, respectively. The decrease in performance related contingent income during 20192020 was related to lower growth within the portfolio partly offset by the impact of improvementcombined with a deterioration in the loss performance of insurance policies previously placed. 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 $262$378 thousand and $865$986 thousand during the three and six months ended June 30, 2019,2020, respectively, and $313compared to $262 thousand and $865 thousand during the same periods in 2018.2019.
Notwithstanding normal seasonal variation, commission income during the second quarter of 2020 was partly impacted by reduced business volumes resulting from the COVID-19 pandemic, relative to the first quarter of 2020. Commission income in future periods may be similarly impacted. Benefit plan commissions may be particularly impacted by the effects of temporary furloughs and permanent layoffs. The COVID-19 pandemic has also given rise to a hard insurance market characterized by decreased capacity for most types of insurance coupled with more stringent underwriting standards among insurers. This may cause clients to drop or adjust coverage choices as part of expense control measures. Reduced business volumes may also adversely impact the level of contingent commissions we receive in 2021.

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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 debit card usage, point of sale income from PIN-based debit card transactions and ATM service fees. Interchange and debit card transaction fees are reported net of related network costs.
A comparison of gross and net interchange and debit card transaction fees for the reported periods is presented in the table below:
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Income from debit card transactions$5,974
 $5,467
 $11,379
 $10,591
ATM service fees1,086
 1,016
 2,067
 1,963
Gross interchange and debit card transaction fees7,060
 6,483
 13,446
 12,554
Network costs3,192
 3,037
 6,298
 5,950
Net interchange and debit card transaction fees$3,868
 $3,446
 $7,148
 $6,604
The increase inbelow. Revenue from interchange and debit card transactions was impacted by reduced transaction fees during 2019, on a net basis, was primarily related to increased transaction volumes.volumes and fee waivers resulting from the COVID-19 pandemic. We currently expect that revenue from interchange and debit card transactions will be similarly impacted in future periods.
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Income from debit card transactions$5,527  $5,974  $11,332  $11,379  
ATM service fees753  1,086  1,680  2,067  
Gross interchange and debit card transaction fees6,280  7,060  13,012  13,446  
Network costs3,314  3,192  6,791  6,298  
Net interchange and debit card transaction fees$2,966  $3,868  $6,221  $7,148  
Federal Reserve rules applicable to financial institutions that have assets of $10 billion or more provide that the maximum permissible interchange fee for an electronic debit transaction is the sum of 21 cents per transaction and 5 basis points multiplied

by the value of the transaction. An upward adjustment of no more than 1 cent to an issuer's debit card interchange fee is allowed if the card issuer develops and implements policies and procedures reasonably designed to achieve certain fraud-prevention standards. The Federal Reserve also has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product.
Other Charges, Commissions and Fees. Other charges, commissions and fees for the three months ended June 30, 20192020 decreased $340 thousand,$1.3 million, or 3.7%14.2%, compared to the same period in 2018.2019. The decrease was primarily related toincluded decreases in income from capital markets advisory services (down $412 thousand) and processing fees (down $336 thousand) partly offset by increases in income from the sale of money market accounts (up $312(down $551 thousand) and letter of credit fees (up $112mutual funds (down $134 thousand).; funds transfer service charges (down $157 thousand); and merchant services rebates (down $134 thousand); among other things. Other charges, commissions and fees for the six months ended June 30, 20192020 decreased $285$967 thousand, or 1.6%5.4%, compared to the same period in 2018.2019. The decrease was primarily related toincluded decreases in processingletter of credit fees (down $410$403 thousand),; income from the sale of life insurance (down $384 thousand) and money market accounts (down $298 thousand thousand); income from capital markets advisory services (down $356$223 thousand), income from the sale of mutual; funds transfer service charges (down $140 thousand); and annuitiesmerchant service rebates (down $279 thousand and $204 thousand, respectively) and brokerage commissions (down $241$115 thousand) mostly; among other things. The decreases in these items were partly offset by increases in income from the sale of money market accounts and life insurance (up $628 thousand and $396 thousand, respectively) and letter of credit feesmutual funds (up $278 thousand) and annuities (up $166 thousand) and an increase in brokerage commissions (up $115 thousand). The aforementioned revenue streams were adversely impacted by reduced transaction volumes during the second quarter of 2020 resulting from the COVID-19 pandemic. We currently expect that these revenue streams will be similarly impacted in future periods.
Net Gain/Loss on Securities Transactions. During the six months ended June 30, 2019,2020 and 2018,2019, we sold certain available-for-sale U.S Treasury securities with amortized costs totaling $2.4$1.1 billion and $10.9$3.3 billion, respectively. We realized a net gain of $3$109.0 million on the 2020 sales and a net gain of $169 thousand on the 2019 salessales. During the first quarter of 2020, we sold $483.1 million of residential mortgage-backed securities and realized a net lossgain of $79 thousand$1.9 million on the 2018those sales. The proceeds from these sales were primarily relatedreinvested into other residential mortgage-backed securities that had lower pre-payment rates. We also sold $519.1 million of 30-year U.S Treasury securities during the first quarter of 2020 and realized a net gain of $107.1 million on those sales. These U.S. Treasury securities were purchased during the fourth quarter of 2019 to hedge, in effect, against falling interest rates. Prior to their sale, these securities had significant unrealized holding gains as a result of decreases in market interest rates during the first quarter of 2020. We elected to sell these securities to provide liquidity and realize the gains.
During the first six months of 2019, we purchased and subsequently sold in the same period$2.4 billion of their purchaseU.S. Treasury securities in connection with our tax planning strategies related to the Texas franchise tax. The gross proceeds from the sales of these securities outside of Texas are included in total revenues/receipts from all sources reported for Texas franchise tax purposes, which results in a reduction in the overall percentage of revenues/receipts apportioned to Texas and subjected to taxation under the Texas franchise tax.
During the second quarter We realized a net gain of 2019, we$3 thousand on those sales. We also sold certain available-for-sale U.S. Treasury securities with an amortized cost totaling $548.9 million and certain available-for-sale municipal securities with an amortized cost totaling $310.7 million. We realized a net gain of $166 thousand on those sales. The proceeds from the sales provided short-term liquidity and were subsequently reinvested in other higher yielding securities.

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Other Non-Interest IncomeIncome. . Other non-interest income for the three months ended June 30, 2019 decreased $4.3 million,2020 increased $360 thousand, or 37.0%4.9%, compared to the same period in 2018.2019. The increase was primarily related to an increase in public finance underwriting fees (up $759 thousand) partly offset by a decrease duringin income from customer foreign exchange transactions (down $362 thousand). Changes in these items were primarily due to an fluctuations in business volumes. Other non-interest income for the threesix months ended June 30, 20192020 increased $4.5 million, or 21.6%, compared to the same period in 2019. Other non-interest income during the six months ended June 30, 2020 included approximately $6.0 million in gains realized on the sale of certain non-hedge related, short-term put options on U.S. Treasury securities with an aggregate notional amount of $500 million. The put options were not exercised and expired in March 2020. The increase in other non-interest income during the six months ended June 30, 2020 was primarilyalso partly related to decreasesan increase in income from customer derivative and trading activities (up $1.6 million), primarily due to an increase in business volume, an increase in sundry and other miscellaneous income (down $2.8(up $1.2 million), and an increase in public finance underwriting fees (up $677 thousand). Sundry and other miscellaneous income included $2.6 million and $931 thousand related to the recovery of prior write-offs in 2020 and 2019, respectively, among other things. The aforementioned items were partly offset by a decrease in gains on the sale of foreclosed and other assets (down $837 thousand) and public finance underwriting fees (down $666 thousand)$4.6 million). Other non-interest income for the six months ended June 30, 2019 decreased $3.6 million, or 14.8%, compared to the same period in 2018. The decrease during the six months ended June 30, 2019 was primarily related to decreases in sundry2020 and other miscellaneous income (down $2.0 million), income from customer derivative and trading activities (down $999 thousand) and gains on the sale of foreclosed and other assets (down $726 thousand). Sundry income during the six months ended June 30, 2019 included $931 thousand related to the recovery of prior write-offs and $250 thousand related to a settlement, among other things, while sundry income for the same period in 2018 included $2.4 million related to the recovery of prior write-offs and $1.2 million related to a distribution from a private equity investment, among other things. The fluctuations in public finance underwriting fees income and income from customer derivative and trading activities during the three and six months ended June 30, 2019 were primarily related to changes in business volumes. Other non-interest income also included gains on the sale of various branch and operational facilities totaling $4.0$758 thousand and $5.4 million, during the six months ended June 30, 2019 and $4.2 million during the same period in 2018.respectively, among other things.
Non-Interest Expense
The components of non-interest expense were as follows:
Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
2019 2018 2019 20182020201920202019
Salaries and wages$90,790
 $85,204
 $183,266
 $171,887
Salaries and wages$90,350  $90,790  $189,162  $183,266  
Employee benefits20,051
 17,907
 43,577
 39,902
Employee benefits18,861  20,051  43,750  43,577  
Net occupancy21,133
 19,455
 40,400
 39,195
Net occupancy25,266  21,133  50,650  40,400  
Technology, furniture and equipment22,157
 20,459
 43,821
 40,138
Technology, furniture and equipment26,046  22,157  51,286  43,821  
Deposit insurance2,453
 4,605
 5,261
 9,484
Deposit insurance2,800  2,453  5,424  5,261  
Intangible amortization305
 369
 630
 757
Intangible amortization241  305  498  630  
Other46,320
 40,909
 88,054
 84,156
Other36,115  46,320  83,072  88,054  
Total$203,209
 $188,908
 $405,009
 $385,519
Total$199,679  $203,209  $423,842  $405,009  
Total non-interest expense for the three and six months ended June 30, 2019 increased $14.32020 decreased $3.5 million, or 7.6%1.7%, and $19.5$18.8 million, or 5.1%4.7%, respectively, compared to the same periods in 2018, respectively.2019. Changes in the various components of non-interest expense are discussed below.
Salaries and Wages. Salaries and wages for the three and six months ended June 30, 20192020 decreased $440 thousand, or 0.5%, and increased $5.6$5.9 million, or 6.6%, and $11.4 million, or 6.6%3.2%, compared to the same periods in 2018.2019. The increases weredecrease during the three months ended June 30, 2020 was primarily related to increasesan increase in salary costs deferred as loan origination costs in connection with the high volume of PPP loan originations during the second quarter of 2020. These deferred salary costs, which totaled $5.5 million, will be recognized as a yield adjustment component of interest income over the remaining terms of these loans. The decrease was also partly related to a decrease in stock-based compensation expense. The impact of these items was mostly offset by an increase in salaries due to an increase in the number of employees and normal, annual merit and market increases. The increase in salaries and wages during the six months ended June 30, 2020 was primarily related to an increase in salaries, due to an increase in the number of employees and normal, annual merit and market increases, partly offset the aforementioned increase in salary costs deferred as well as increasesloan origination costs and a decrease in incentivestock-based compensation and stock compensation.expense.
Employee Benefits. Employee benefits expense for the three and six months ended June 30, 2019 increased $2.12020 decreased $1.2 million, or 12.0%5.9%, and $3.7 million,increased $173 thousand, or 9.2%0.4%, compared to the same periods in 2018, respectively.2019. The increases weredecrease in employee benefits expense during the three months ended June 30, 2020 was primarily related to decreases in certain discretionary benefit plan expenses partly offset by an increase in medical benefits expense and payroll taxes, among other things. The increase in employee benefits expense during the six months ended June 30, 2020 was primarily due to increases in medical benefits expense (up $562 thousand and $1.2 million, respectively), expenses related to our defined benefit retirement plans (up $585 thousand and $1.2 million, respectively), expenses related to our 401(k) plan (up $505 thousand and $891 thousand, respectively) and payroll taxes (up $376 thousand and $297 thousand, respectively).mostly offset by a decreases in certain discretionary benefit plan expenses.
During the three and six months ended June 30, 2019, we recognized a combined net periodic pension expense of $331 thousand and $662 thousand, respectively, related to our defined benefit retirement plans compared to a combined net periodic pension benefit of $254 thousand and $508 thousand during the same periods in 2018. Our defined benefit retirement and restoration plans were frozen effective as of December 31, 2001 and were replaced by a profit sharing plan (which was merged with and into our 401(k) plan during 2019). Management believes these actions helped to reduce the volatility in retirement plan expense. However, we still have funding obligations related to the defined benefit and restoration plans and could recognize retirement expense related to these plans in future years, which would be dependent on the return earned on plan assets, the level of interest rates and employee turnover. A prolonged negative impact on the value of stocks and other asset classes due to the COVID-19 pandemic could result in a significant reduction to pension plan asset values
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and expected returns, which could impact the level of future funding and expense. See Note 12 - Defined Benefit Plans for additional information related to our net periodic pension benefit/cost.
Net Occupancy. Net occupancy expense for the three and six months ended June 30, 20192020 increased $1.7$4.1 million, or 8.6%19.6%, and $1.2increased $10.3 million, or 3.1%25.4%, respectively, compared to the same periods in 2018.2019. The increases during the three and six months ended June 30, 2019 were primarily related to increases in lease expense (up $1.8$2.1 million and $2.2$4.9 million, respectively), depreciation on leasehold improvements (up $226$1.3 million and $2.3 million respectively), property taxes (up $809 thousand and $456$1.6 million, respectively) and building depreciation (up $466 thousand and $964 thousand, respectively) and, among other things. The increases from these items were partly offset by decreases in repairs and maintenance/service contracts expense (up $458(down $1.1 million and $600 thousand, and $238 thousand, respectively) partly offset by decreases in property taxes (down $749 thousand and $1.5 million, respectively). Fluctuations in the foregoing categories of netNet occupancy expense were primarily related towas impacted by the commencement of the lease of our new corporate headquarters building in San Antonio andin June 2019, as well as renewals of other leases related to existing facilities and new locations, in part related to our expansion within the Houston market area.
Technology, Furniture and Equipment. Technology, furniture and equipment expense for the three and six months ended June 30, 20192020 increased $1.7$3.9 million, or 8.3%17.6%, and $3.7increased $7.5 million, or 9.2%17.0%, respectively, compared to the same periods in 2018.2019. The increases were primarily related to increases in cloud services expense (up $2.4 million and $3.9 million, respectively), depreciation of furniture and equipment (up $961 thousand and $2.0 million, respectively) and software maintenance (up $1.5$523 thousand and $1.8 million respectively).
Deposit Insurance. Deposit insurance expense totaled $2.8 million and $3.1$5.4 million for the three and six months ended June 30, 2019, respectively), software amortization (up $249 thousand and $456 thousand for the three and six months ended June 30, 2019, respectively) and depreciation (up $46 thousand and $334 thousand for the three and six months ended June 30, 2019, respectively).
Deposit Insurance. Deposit insurance expense totaled2020 compared to $2.5 million and $5.3 million for the three and six months ended June 30, 2019 compared2019. Provisions of the CARES Act allow, but do not require, the FDIC to $4.6 million and $9.5 million for the three and six months ended June 30, 2018. The decrease inexpand deposit insurance expense during 2019 was primarily related to the terminationcoverage for non-interest-bearing transaction accounts through December 31, 2020. Such action could result in additional deposit insurance expense. Other provisions of the quarterly Deposit Insurance Fund surcharge in the fourth quarter of 2018, as further discussed below.
In August 2016, the Federal Deposit Insurance Corporation (“FDIC”) announced that the Deposit Insurance Fund 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 was terminated in the fourth quarter of 2018 as the Deposit Insurance Fund reserve ratio as of September 30, 2018 exceeded the statutory minimum of 1.35% required by the Dodd-Frank Act.
Intangible Amortization. Intangible amortization is primarily related to core deposit intangibles and, to a lesser extent, intangibles related to customer relationships and non-compete agreements. Intangible amortization for the three and six months ended June 30, 2019 decreased $64 thousand, or 17.3%, and $127 thousand, or 16.8%, respectively, compared to the same periods in 2018. The decrease in amortization during 2019 was primarily related to the completion of amortization of certain previously recognized intangible assetsCARES Act as well as actions taken by bank regulators, such as potential relief for working with borrowers who are distressed as a reduction in the annual amortization rate of certain previously recognized intangible assets as we use an accelerated amortization approach which results in higher amortization rates during the earlier yearsresult of the useful liveseffects of intangible assets.COVID-19, could similarly impact aggregate deposit insurance expense.

Other Non-Interest Expense. Other non-interest expense for the three and six months ended June 30, 2019 increased $5.42020 decreased $10.2 million, or 13.2%22.0%, and $3.9decreased $5.0 million, or 4.6%5.7%, respectively, compared to the same periods in 2018.2019. The increasesdecrease in other non-interest expense during the three months ended June 30, 2020 included decreases in advertising/promotions expense (down $3.1 million); travel, meals and entertainment expense (down $3.0 million); and business development expense (down $806 thousand), among other things. The decrease in other non-interest expense during the three months ended June 30, 2020 was also partly due to an increase in costs deferred as loan origination costs in connection with the high volume of PPP loan originations during the second quarter of 2020. These deferred costs, which totaled $1.8 million, will be recognized as a yield adjustment component of interest income over the remaining terms of these loans. The decrease in other non-interest expense during the six months ended June 30, 20192020 included decreases in travel, meals and entertainment expense (down $3.0 million); advertising/promotions expense (down $2.5 million); and business development expense (down $435 thousand), among other things. The decrease in other non-interest expense during the six months ended June 30, 2020 was also partly due to the aforementioned increase in costs deferred as loan origination costs in connection with the high volume of PPP loan originations during the second quarter of 2020. The decreases in these items were partly offset by increases in advertising/promotionsdonations expense partly related to new sponsorship arrangements (up $3.3 million and $6.8 million, respectively)$859 thousand); telephone/data communications expense (up $777 thousand); platform fees related to investment services (up $1.0 million and $1.5 million)$777 thousand); and travel, meals and entertainment expense (up $1.0 million and $1.2 million). The increase during the three months ended June 30, 2019 also included an increase in professional services expense (up $773$511 thousand). The increases from these items, among other things, were partly offset by decreases in donations expense, which was impacted by a significant contribution to our charitable foundation in 2018 (down $434 thousand and $4.1 million, respectively); and sundry and other miscellaneous expense (down $723 thousand and $1.1 million, respectively)expenses (up $465 thousand).
Results of Segment Operations
Our operations are managed along two primary operating segments: Banking and Frost Wealth Advisors. A description of each business and the methodologies used to measure financial performance is described in Note 15 - Operating Segments in the accompanying notes to consolidated financial statements included elsewhere in this report. Net income (loss) by operating segment is presented below:
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Banking$92,492  $110,893  $144,516  $223,810  
Frost Wealth Advisors3,925  4,897  9,512  11,297  
Non-Banks(3,345) (4,204) (6,203) (7,025) 
Consolidated net income$93,072  $111,586  $147,825  $228,082  

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 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Banking$110,893
 $109,276
 $223,810
 $212,917
Frost Wealth Advisors4,897
 5,901
 11,297
 11,535
Non-Banks(4,204) (3,836) (7,025) (6,631)
Consolidated net income$111,586
 $111,341
 $228,082
 $217,821
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Banking
Net income for the three and six months ended June 30, 2019 increased $1.62020 decreased $18.4 million, or 1.5%16.6%, and increased $10.9decreased $79.3 million, or 5.1%35.4%, respectively, compared to the same periods in 2018.2019. The increasedecrease during the three months ended June 30, 20192020 was primarily the result of a $16.3$25.6 million increase in credit loss expense, a $7.7 million decrease in net interest income and a $1.9 million decrease in the provision for loan losses partly offset by an $11.4 million increase in non-interest expense, a $4.0$4.9 million decrease in non-interest income andpartly offset by a $1.2$15.9 million increasedecrease in income tax expense and a $3.9 million decrease in non-interest expense. The increasedecrease during the six months ended June 30, 20192020 was primarily the result of a $33.4$189.8 million increase in credit loss expense, a $13.8 million increase in non-interest expense and a $9.9 million decrease in net interest income partly offset by a $15.6$108.1 million increase in non-interest expense,income and a $3.7$26.0 million increasedecrease in income tax expense, a $2.2 million increase in the provision for loan losses and a $1.0 million decrease in non-interest income.expense.
Net interest income for the three and six months ended June 30, 2019 increased $16.32020 decreased $7.7 million, or 6.8%3.0%, and $33.4decreased $9.9 million, or 7.1%2.0%, compared to the same periods in 2018.2019. The increasesdecreases were primarily related to increasesdecreases in the average yields on loans, interest-bearing deposits and federal funds sold and resell agreements combined with decreases in the average volumes of taxable securities (based on amortized cost) and increases in the average volume of interest bearing liabilities, and for the three months ended June 30, 2020, a decrease in the average volume of tax-exempt securities. The impact of these items was partly offset by decreases in the average cost of interest-bearing deposits and other borrowed funds combined with increases in the average volumes of loans tax-exempt securities and taxable securities. The impact of these items were partly offset by increases in the average rates paid on interest-bearing deposits and other borrowed funds and decreases in the average volume of interest bearing deposits (primarily excess reservesamounts held in an interest-bearing account at the Federal Reserve)., and for the six months ended June 30, 2020, increases in the average yields on taxable and tax-exempt securities. Net interest income for the first six months of 2020 was also positively impacted by the additional day as a result of leap year. 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 six months ended June 30, 20192020 totaled $32.0 million and $207.2 million compared to $6.4 million and $17.4 million compared to $8.3 million and $15.2 million for the same periods in 2018.2019. The increases resulted from both our adoption of a new credit loss accounting standard and the adverse events impacting our loan portfolio, including those arising from the COVID-19 pandemic and the significant decline in oil prices. See the analysis of the provision for loan losses included in the sectionsections captioned “Credit Loss Expense” and “Allowance for LoanCredit Losses” included elsewhere in this discussion.discussion for further analysis of credit loss expense related to loans and off-balance-sheet commitments.
Non-interest income for the three and six months ended June 30, 20192020 decreased $4.0$4.9 million, or 7.7%,10.2% and $1.0increased $108.1 million, or 0.9%99.9%, respectively, compared to the same periods in 2018.2019. The decrease during the three months ended June 30, 20192020 was primarily due to decreases in other non-interest income,services charges on deposit accounts, interchange and debit card transaction fees, and other charges, commissions and fees and insurance commissions and fees partly offset by increases in service charges on deposit accountsinsurance commissions and interchangefees and debit card transaction fees.other non-interest income. The decreaseincrease during the six months ended June 30, 20192020 was primarily due to a $109.0 million net gain on securities transactions. Excluding the net gain on securities transactions during the six months ended June 30, 2020, total non-interest income for the Banking segment decreased $702 thousand, or 0.6%, compared to the same period in 2019. This decrease was primarily due to decreases in other non-interest income,services charges on deposit accounts, insurance commissions and fees, interchange and debit card transaction fees, and other charges, commissions and fees partly offset by increasesan increase in insurance commissions and fees, serviceother non-interest income. The decreases in services charges on deposit accounts and interchange and debit card transaction fees. The decreases in other non-interest income during the three and six months ended June 30, 20192020 were primarily related to decreases in sundryoverdraft/insufficient funds charges on consumer and other miscellaneous income, gains oncommercial accounts due to decreases in transaction volumes. The decreases in interchange and debit card transactions fees during the sale of foreclosedthree and other assets, public finance underwriting feessix months ended June 30, 2020 were impacted by reduced transaction volumes and incomefee waivers resulting from customer derivative and trading activities.the COVID-19 pandemic. The decreasesdecrease in other charges, commissions and fees during the three and six months ended June 30, 2019 were primarily related to2020 included decreases in funds transfer service charges; merchant services rebates; income from capital markets advisory servicesservices; and processingletter of credit fees; among other things. The increase in other non-interest income during the three months ended June 30, 2020 was primarily related to increases in public finance underwriting fees and income from customer derivative and trading activities partly offset by increasesa decrease in letterincome from customer foreign exchange transactions. Changes in these items were primarily due to fluctuations in business volumes. The increase in other non-interest income during the six months ended June 30, 2020 included approximately $6.0 million in gains realized on the sale of creditcertain non-hedge related, short-term put options on U.S. Treasury securities with an aggregate notional amount of $500 million. The put options were not exercised and expired in March 2020. The increase in other non-interest income during the six months ended June 30, 2020 was also partly related to an increase in income from customer derivative and trading activities, primarily due to an increase in business volume, an increase in sundry and other miscellaneous income and an increase in public finance underwriting fees. The decreasefluctuations in insurance commissions and fees during the three months ended June 30, 2019 was primarily related to a decrease in business volumes and a decrease in contingent income. The increase in insurance commission and fees during the six months ended June 30, 2019 was primarily related2020 are further discussed below in relation to increased business volumes and market rates partly offset by a decrease in contingent income. The increase in service

charges on deposit accounts during 2019 was primarily related to an increase in overdraft/insufficient funds charges on consumer and commercial accounts partly offset by a decrease in commercial service charges. The increase in interchange and debit card transaction fees during 2019 was primarily related to increased transaction volumes.Frost Insurance Agency. See the analysis of these categories of non-interest income included in the section captioned “Non-Interest Income” included elsewhere in this discussion.
Non-interest expense decreased $3.9 million, or 2.3%, for the three months ended June 30, 2020 and increased $13.8 million, or 4.0%, for the six months ended June 30, 2020, compared to the same periods in 2019. The decrease during the three months ended was primarily due to decreases in other non-interest expense, employee benefits and salaries and wages partly
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offset by increases in technology, furniture and equipment expense and net occupancy expense. The increase during the six months ended was primarily related to increases in technology, furniture and equipment expense, net occupancy expense and salaries and wages partly offset by a decrease in other non-interest expense. The decrease in other non-interest expense during the three months ended June 30, 2020 included decreases in advertising/promotions expense; travel, meals and entertainment expense; business development expense, and professional service expense, among other things. The decrease in other non-interest expense during the six months ended June 30, 2020 included decreases in travel, meals and entertainment expense; advertising/promotions expense; and business development expense, among other things. The decreases in these items were partly offset by increases in donations expense; telephone/data communications expense; professional services expense; and sundry and other miscellaneous expenses. The decreases in other non-interest expense during the three and six months ended June 30, 2019 increased $11.4 million, or 7.2%, and $15.6 million, or 4.8%, compared2020 were also partly due to an increase in costs deferred as loan origination costs in connection with the same periodshigh volume of PPP loan originations during the second quarter of 2020. The decrease in 2018. The increases wereemployee benefits expense during the three months ended June 30, 2020 was primarily related to increasesdecreases in salaries and wages, employee benefits, other non-interest expense, technology, furniture and equipment expense and net occupancy expensecertain benefit plan expenses partly offset by decreasesan increase in deposit insurance expense.medical benefits expense and payroll taxes, among other things. The increasesdecrease in salaries and wages during 2019 werethe three months ended June 30, 2020 was primarily related to an increase in salary costs deferred as loan origination costs in connection with the high volume of PPP loan originations during the second quarter of 2020. The increase in salaries and wages during the six months ended June 30, 2020 was primarily related to an increase in salaries, due to an increase in the number of employees and normal annual merit and market increases, partly offset the aforementioned increase in salary costs deferred as well as increasesloan origination costs and a decrease in incentivestock-based compensation and stock compensation.expense. The increases in employee benefits were primarily related to increases in medical benefits expense, expenses related to our defined benefit retirement plans, expenses related to our 401(k) plantechnology, furniture and payroll taxes. The increases in other non-interestequipment expense during the three and six months ended June 30, 2019 compared to the same periods in 20182020 were primarily related to increases in advertising/promotionscloud services expense, and travel, meals and entertainment expense partly offset by decreases in donations expense and sundry and other miscellaneous expense. The increase in other non-interest expense during the three months ended June 30, 2019 also included an increase in professional services expense. The increases in technology,depreciation of furniture and equipment expense during 2019 were primarily related to increases inand software maintenance, software amortization and depreciation.maintenance. The increases in net occupancy expense during 2019the three and six months ended June 30, 2020 were primarily related to increases in lease expense, depreciation on leasehold improvements, property taxes and building depreciation, among other things. The increases from these items were partly offset by decreases in repairs and maintenance/service contracts expense partly offset by decreases in property taxes. The decreases in deposit insurance expense during 2019 were primarily related to the termination of the quarterly Deposit Insurance Fund surcharge in the fourth quarter of 2018.expense. 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 $10.7 million and $27.2 million during the three and six months ended June 30, 2020 compared to $10.1 million and $28.7 million during the three and six months ended June 30, 2019 compared to $10.6 million2019. The increase in insurance commissions and $26.7 million during the three and six months ended June 30, 2018. The decreasefees during the three months ended June 30, 20192020 was primarily the result of increases in commission income, primarily related to increases in commercial lines and, to a lesser extent, personal lines property and casualty commissions resulting from increased rates combined with increased in coverage levels. The decrease in business volumesinsurance commissions and a decrease in contingent income. The increasefees during the six months ended June 30, 20192020 was the result of decreases in commission income and contingent income. The decrease in commission income was primarily related to increaseddecreases in benefit plan commissions (related to decreased business volumes, premium reductions and flat to lower market rates) and life insurance commissions (related to decreased business volumes) partly offset by increases in both commercial lines and personal lines property and casualty commissions (related to increased rates, partly offset by a decrease in contingent income.decreased business volumes). Business volumes during the second quarter of 2020 were adversely impacted the COVID-19 pandemic. The decrease in contingent income during 2019the six months ended June 30, 2020 was primarilypartly due to decreases in performance related contingent income related to lower growth within the portfolio partly offset by the impact of improvementand a deterioration 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 six months ended June 30, 20192020 decreased $1.0$972 thousand, or 19.8%, and decreased $1.8 million, or 17.0%15.8%, and $238 thousand, or 2.1%,respectively, compared to the same periods in 2018.2019. The decrease during three months ended was primarily related to a $672 thousand increase in non-interest expense, a $412 thousand decrease in net interest income and a $148 thousand decrease in non-interest income partly offset by a $258 thousand decrease in income tax expense. The decrease during the six months ended June 30, 2020 was primarily related to a $5.0 million increase in non-interest expense and a $488 thousand decrease in net interest income partly offset by a $3.2 million increase in non-interest income and $474 thousand decrease in income tax expense.
Net interest income for the three and six months ended June 30, 2020 decreased $412 thousand, or 37.6%, and $488 thousand, or 23.8%, respectively, compared to the same periods in 2019. These decreases were primarily relateddue to increasesdecreases in non-interest expense (up $2.9 million and $4.2 million, respectively) partly offsetthe average funds transfer prices allocated to the funds provided by increasesFrost Wealth Advisors. The decreases in non-interestthe average funds transfer prices were primarily due to decreases in market interest rates. See the analysis of net interest income (up $1.6 million and $3.9 million, respectively).included in the section captioned “Net Interest Income” included elsewhere in this discussion.
Non-interest income for the three and six months ended June 30, 20192020 decreased $148 thousand, or 0.4%, and increased $1.6$3.2 million, or 4.8%4.5%, and $3.9 million, or 5.7%,respectively, compared to the same periods in 2018.2019. The increases weredecrease during the three months ended June 30, 2020 was primarily related to increasesa decrease in other charges, commissions and fees mostly offset by an increase in trust and investment management feesfees. The increase during the six months end June 30, 2020 was primarily related to an increase in trust and other charges, commissions andinvestment management fees. Trust and investment management fee income is the most significant income component
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for Frost Wealth Advisors. Investment fees are the most significant component of trust and investment management fees, making up approximately 82.2%80.2% of total trust and investment management fees for the first six months of 2019. Investment and other custodial account fees are generally based on the market value of assets within a trust account. Volatility in the equity and bond markets impacts the market value of trust assets and the related investment fees. 2020.
The increases in trust and investment management fees during the three and six months ended June 30, 2019 compared to the same periods in 2018 were primarily the result of increases in trust investment fees due to higher average equity valuations and an increase in the number of accounts. The increasesdecrease in other charges, commissions and fees during the three and six months ended June 30, 2019 were primarily due to increasesincluded decreases in income from the sale of money market accounts and life insurancemutual funds, among other things. The increase in trust and investment management fees during the three months ended June 30, 2020 was primarily due to increases in trust investment fees and custody fees partly offset by decreases in income fromreal estate fees and oil and gas fees. The increase in trust and investment management fees during the sale of mutual fundssix months ended June 30, 2020 was primarily due to increases in trust investment fees, estate fees, real estate fees and annuitiesoil and brokerage commissions.gas fees. See the analysis of trust and investment management fees, particularly as it relates to the effects of the COVID-19 pandemic, 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 six months ended June 30, 20192020 increased $2.9$672 thousand, or 2.2%, and $5.0 million, or 10.8%8.4%, and $4.2 million, or 7.7%,respectively, compared to the same periods in 2018.2019. The increase during the three months ended June 30, 2020 was primarily due to an increase in net occupancy expense partly offset by a decrease in other non-interest expense. The increase during the six months ended June 30, 2020 was primarily due to increases in net occupancy expense and salaries and wages. The increases in net occupancy expense during the three and six months end June 30, 2020 were primarily related to increases in other non-interest expense, salaries and wages and net occupancylease expense. The increasesdecrease in other non-interest expense during 2019 werethe three months ended June 30, 2020 was primarily due to increases in platform fees related to investment services, professional service expense anddecreases in travel, meals and entertainment expense, among other things, partly offset by decreases in outside computer services,professional service expense and management fee expense, among other things. The increasesincrease in salaries and wages during 2019 werethe six months ended June 30, 2020 was primarily due to an increase in the number of employees and normal, annual merit and market increases,

as well as increases in incentive compensation. The increases in net occupancy expense during 2019 were partly related to increases in lease expense and lease overhead allocations.increases.
Non-Banks
The Non-Banks operating segment had net losses of $4.2$3.3 million and $7.0$6.2 million during the three and six months ended June 30, 2019,2020, respectively, compared to a net losses of $3.8$4.2 million and $6.6$7.0 million during the same respective periods in 2018.2019. The increaseddecreases in the net losses for the three and six months ended June 30, 20192020 were primarily due to increasesdecreases in net interest expense, dueprimarily related to increasesdecreases in the interest rateaverage rates paid on our long-termlong term borrowings, and increases in income tax benefit. The net loss during the three months ended June 30, 2020 was also partly reduced by a decrease in other non-interest expense partly offset by decreasesexpense. This decrease was primarily related to a decrease in salariestravel, meals and wages compared to the same periods in 2018.entertainment expense.
Income Taxes
WeDuring the three months ended June 30, 2020, we recognized an income tax benefit of $1.3 million, for an effective tax rate of negative 1.4%, compared to income tax expense of $14.9 million, andfor an effective tax rate of 11.8%, during the same period in 2019. During the six months ended June 30, 2020, we recognized income tax expense of $2.0 million, for an effective tax rate of 1.3%, compared to income tax expense of $28.8 million, for an effective tax rate of 11.8% and 11.2%, for the three and six months ended June 30, 2019 compared to $13.8 million and $25.0 million, for an effective tax rate of 11.1% and 10.3% for the three and six months ended June 30, 2018. same period in 2019.
The effective income tax rates differed from the U.S. statutory federal income tax ratesrate of 21% during 20192020 and 20182019 primarily due to the effect of tax-exempt income from 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 decreases in the effective tax rates during 2020 were primarily related to a decrease in pre-tax net income. The effective tax rates during 2020 were also impacted by a one-time, discrete tax benefit associated with an asset contribution to a charitable trust during the second quarter.
Average Balance Sheet
Average assets totaled $31.4$35.7 billion for the six months ended June 30, 20192020 representing an increase of $450.5 million,$4.3 billion, or 1.5%13.7%, compared to average assets for the same period in 2018.2019. Earning assets increased $211.1 million,$3.9 billion, or 0.7%13.5%, during the first six months of 20192020 compared to the same period in 2018.2019. The increase in earning assets was primarily related to an $874.4 milliona $2.3 billion increase in average loans, a $630.6 million increase in average taxable securities and a $533.5 million increase in average tax-exempt securities mostly offset by a $1.8 billion decrease in average interest-bearing deposits, federal funds sold and resell agreements.agreements; a $2.0 billion increase in average loans; and a $228.6 million increase in average tax-exempt securities partly offset by a $544.3 million decrease in average taxable securities. Average premises and equipment increased $244.8$261.4 million, or 46.4%33.9%, primarily resulting fromin part due to the adoptioncommencement of a new accounting standard which required the recognition of our operating leaseslease on our balance sheet (See Note 1 - Significant Accounting Policiesnew downtown San Antonio headquarters in the accompanying Notes to Financial Statements).second quarter of 2019 as well as the commencement of other new leases associated with various new branch locations. Average deposits decreased $195.9 million,increased $3.3 billion, or 0.7%12.7%, during the first six months of 20192020 compared to the same period in 2018.2019. The decreaseincrease included a $629.5 million decrease$2.1 billion increase in non-interest bearing deposits partly offset byand a $433.6 million$1.2 billion increase in interest-bearing deposit accounts. Average non-interest bearing deposits made up 39.0%41.8% and 41.1%39.0% of average total deposits during the first six months of 20192020 and 2018,2019, respectively.
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Loans
Loans were as follows as of the dates indicated:
June 30,
2019		 
Percentage
of Total
 December 31,
2018		 
Percentage
of Total
June 30,
2020		Percentage
of Total		December 31,
2019		Percentage
of Total
Commercial and industrial$5,380,487
 37.2% $5,111,957
 36.3%Commercial and industrial$5,004,229  27.9 %$5,187,466  35.2 %
Energy:       Energy:
Production1,197,717
 8.3
 1,309,314
 9.3
Production1,162,673  6.5  1,348,900  9.2  
Service173,473
 1.2
 168,775
 1.2
Service164,597  0.9  192,996  1.3  
Other110,159
 0.7
 124,509
 0.9
Other97,610  0.5  110,986  0.8  
Total energy1,481,349
 10.2
 1,602,598
 11.4
Total energy1,424,880  7.9  1,652,882  11.2  
Paycheck Protection ProgramPaycheck Protection Program3,162,279  17.6  —  —  
Commercial real estate:       Commercial real estate:
Commercial mortgages4,291,781
 29.7
 4,121,966
 29.2
Commercial mortgages5,042,546  28.1  4,594,113  31.1  
Construction1,323,040
 9.2
 1,267,717
 9.0
Construction1,265,550  7.0  1,312,659  8.9  
Land299,435
 2.1
 306,755
 2.2
Land316,839  1.8  289,467  2.0  
Total commercial real estate5,914,256
 41.0
 5,696,438
 40.4
Total commercial real estate6,624,935  36.9  6,196,239  42.0  
Consumer real estate:       Consumer real estate:
Home equity loans356,754
 2.5
 353,924
 2.5
Home equity loans346,210  1.9  375,596  2.6  
Home equity lines of credit349,061
 2.4
 337,168
 2.4
Home equity lines of credit395,099  2.2  354,671  2.4  
Other453,083
 3.1
 427,898
 3.0
Other508,876  2.8  464,146  3.1  
Total consumer real estate1,158,898
 8.0
 1,118,990
 7.9
Total consumer real estate1,250,185  6.9  1,194,413  8.1  
Total real estate7,073,154
 49.0
 6,815,428
 48.3
Total real estate7,875,120  43.8  7,390,652  50.1  
Consumer and other524,159
 3.6
 569,750
 4.0
Consumer and other505,429  2.8  519,332  3.5  
Total loans$14,459,149
 100.0% $14,099,733
 100.0%Total loans$17,971,937  100.0 %$14,750,332  100.0 %
Loans increased $359.4 million,$3.2 billion, or 2.5%21.8%, compared to December 31, 2018.2019. As further discussed below, during the second quarter of 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act. Excluding PPP loans, total loans would have otherwise increased $59.3 million, or 0.4%, from December 31, 2019, and decreased $528.6 million, or 3.4%, from total loans of $15.3 billion at March 31, 2020. 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 37.2% and 36.3% of total loans at June 30, 2019 and December 31, 2018, respectively, while energy loans made up 10.2% and 11.4% of total loans, respectively, and real estate loans made up 49.0% and 48.3% 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 20182019 Form 10-K for a more detailed discussion of our loan origination and risk management processes. Other than in connection with our making PPP loans as described below, it is possible that the effects of COVID-19 could continue to result in less demand for our loan products.
Commercial and industrial. Commercial and industrial loans increased $268.5decreased $183.2 million, or 5.3%3.5%, during the first six months of 2019.2020. 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 decreased $121.2$228.0 million, or 7.6%13.8%, during the first six months of 20192020 compared to December 31, 2018.2019. The average loan size, the significance of the portfolio and the specialized nature of the energy industry requires a highly prescriptive underwriting policy. Exceptions to this policy are rarely granted. Due to the large borrowing requirements of this customer base, the energy loan portfolio includes participations and SNCs.
Purchased Shared National Credits. Purchased shared national credits are participations purchased from upstream financial organizations and tend to be larger in size than our originated portfolio. Our purchased SNC portfolio totaled $832.5$935.5 million at June 30, 2019, increasing $75.02020, decreasing $13.3 million, or 9.9%1.4%, from $757.5$948.8 million at December 31, 2018.2019. At June 30, 2019, 46.4%2020, 40.4% of outstanding purchased SNCs were related to the energy industry and 17.8%while 17.7% were related to the construction industry, 10.4% were related to the real estate management industry and 10.1% were related to the financial services 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
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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 $5.9$6.6 billion at June 30, 2019,2020, increasing $217.8$428.7 million, or 3.8%6.9%, compared to $5.7$6.2 billion at December 31, 2018.2019. At such dates, commercial real estate loans represented 83.6%84.1% and 83.8% of total real estate loans.loans, respectively. The majority of this 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 June 30, 2019,2020, approximately 49%46% of the outstanding principal balance of our commercial real estate loans were secured by owner-occupied properties.
Consumer Real Estate and Other Consumer Loans. The consumer loan portfolio, including all consumer real estate and consumer installment loans, totaled $1.8 billion at June 30, 2020 and $1.7 billion at both June 30, 2019 and December 31, 2018.2019. Consumer real estate loans increased $39.9$55.8 million, or 3.6%4.7%, from December 31, 2018.2019. Combined, home equity loans and lines of credit made up 60.9%59.3% and 61.8%61.1% of the consumer real estate loan total at June 30, 20192020 and December 31, 2018,2019, respectively. We offer home equity loans up to 80% of the estimated value of the personal residence of the borrower, less the value of existing mortgages and home improvement loans. In general, we do not originate 1-4 family mortgage loans; however, from time to time, we may invest in such loans to meet the needs of our customers or for other regulatory compliance purposes. Consumer and other loans decreased $45.6$13.9 million, or 8.0%2.7%, from December 31, 2018.2019. 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. In April 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act. Loans covered by the PPP may be eligible for loan forgiveness for certain costs incurred related to payroll, group health care benefit costs and qualifying mortgage, rent and utility payments. The remaining loan balance after forgiveness of any amounts is still fully guaranteed by the SBA. Terms of the PPP loans include the following (i) maximum amount limited to the lesser of $10 million or an amount calculated using a payroll-based formula, (ii) maximum loan term of five years, (iii) interest rate of 1.00%, (iv) no collateral or personal guarantees are required, (v) no payments are required until the date on which the forgiveness amount relating to the loan is remitted to the lender and (vi) loan forgiveness up to the full principal amount of the loan and any accrued interest, subject to certain requirements including that no more than 40% of the loan forgiveness amount may be attributable to non-payroll costs. In return for processing and booking the loan, the SBA will pay the lender a processing fee tiered by the size of the loan (5% for loans of not more than $350 thousand; 3% for loans of more than $350 thousand and less than $2 million; and 1% for loans of at least $2 million).
Through June 30, 2020, we have funded approximately $3.2 billion of SBA-approved PPP loans. During the second quarter of 2020, we recognized approximately $19.3 million in PPP loan related deferred processing fees (net of amortization of related deferred origination costs) as a yield adjustment and this amount is included in interest income on loans. As a result of the inclusion of these net fees in interest income, the average yield on PPP loans was approximately 4.13% during the second quarter of 2020 compared to the stated interest rate of 1.0% on these loans. As of June 30, 2020, we expect to recognize additional PPP loan related deferred processing fees (net of deferred origination costs) totaling approximately $77.4 million as a yield adjustment over the remaining terms of these loans.


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Non-Performing Assets
Non-performing assets and 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.
June 30,
2019		 December 31,
2018		June 30,
2020		December 31,
2019
Non-accrual loans:   Non-accrual loans:
Commercial and industrial$18,768
 $9,239
Commercial and industrial$27,146  $26,038  
Energy40,228
 46,932
Energy36,239  65,761  
Paycheck Protection ProgramPaycheck Protection Program—  —  
Commercial real estate:   Commercial real estate:
Buildings, land and other10,437
 15,268
Buildings, land and other12,154  8,912  
Construction—
 —
Construction1,869  665  
Consumer real estate669
 892
Consumer real estate2,035  922  
Consumer and other1,419
 1,408
Consumer and other18  5  
Total non-accrual loans71,521
 73,739
Total non-accrual loans79,461  102,303  
Restructured loans3,973
 —
Restructured loans4,932  6,098  
Foreclosed assets:   Foreclosed assets:
Real estate907
 1,175
Real estate806  1,084  
Other—
 —
Other—  —  
Total foreclosed assets907
 1,175
Total foreclosed assets806  1,084  
Total non-performing assets$76,401
 $74,914
Total non-performing assets$85,199  $109,485  
   
Ratio of non-performing assets to:   Ratio of non-performing assets to:
Total loans and foreclosed assets0.53% 0.53%Total loans and foreclosed assets0.47 %0.74 %
Total loans, excluding PPP loans, and foreclosed assetsTotal loans, excluding PPP loans, and foreclosed assets0.58  0.74  
Total assets0.24
 0.23
Total assets0.22  0.32  
Accruing past due loans:   Accruing past due loans:
30 to 89 days past due$71,411
 $59,595
30 to 89 days past due$69,999  $50,784  
90 or more days past due15,647
 20,468
90 or more days past due20,997  7,421  
Total accruing past due loans$87,058
 $80,063
Total accruing past due loans$90,996  $58,205  
Ratio of accruing past due loans to total loans:   Ratio of accruing past due loans to total loans:
30 to 89 days past due0.49% 0.42%30 to 89 days past due0.39 %0.34 %
90 or more days past due0.11
 0.15
90 or more days past due0.12  0.05  
Total accruing past due loans0.60% 0.57%Total accruing past due loans0.51 %0.39 %
Ratio of accruing past due loans to total loans, excluding PPP loans:Ratio of accruing past due loans to total loans, excluding PPP loans:
30 to 89 days past due30 to 89 days past due0.47 %0.34 %
90 or more days past due90 or more days past due0.14  0.05  
Total accruing past due loansTotal accruing past due loans0.61 %0.39 %
Non-performing assets include non-accrual loans, troubled debt restructurings and foreclosed assets. Non-performing assets at June 30, 2019 increased $1.52020 decreased $24.3 million from December 31, 2018 reflecting increases in non-accrual commercial and industrial loans and restructured loans partly offset by decreases2019 primarily due to a decrease in non-accrual energy loans, and commercial real estate loans. There were no non-accrual commercial and industrial loans in excesswhich, for the most part, was related to the recognition of $5.0 million at June 30, 2019 or December 31, 2018. Non-accrual energy loans included one credit relationship in excess of $5 million totaling $34.4 million at June 30, 2019. This credit relationship was previously reportedcharge-offs as non-accrual with an aggregate balance of $37.6 million at December 31, 2018. Non-accrual energy loans included one other credit relationship in excess of $5 million totaling $6.4 million at December 31, 2018. Non-accrual real estate loans primarily consist of land development, 1-4 family residential construction credit relationships and loans secured by office buildings and religious facilities. There were no non-accrual commercial real estate loans in excess of $5.0 million at June 30, 2019. Non-accrual commercial real estate loans included one relationship in excess of $5.0 million totaling $12.2 million at December 31, 2018.further discussed below.
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 $8.4 million at June 30, 2020. This credit relationship was previously reported as non-accrual with an aggregate balance of $8.4 million at December 31, 2019. Non-accrual energy loans included two credit relationships in excess of $5 million totaling $35.9 million at June 30, 2020 and two credit relationships in excess of $5 million totaling $61.7 million at December 31, 2019. During the six months ended June 30, 2020, we charged off $68.8 million related to energy loans. Of that amount, $48.8 million related to credit relationships previously reported as non-accrual as of December 31, 2019. Non-accrual real estate loans primarily consist of land development, 1-4 family residential construction credit relationships and loans secured by office buildings and religious facilities. There were no non-accrual commercial real estate loans in excess of $5.0 million at June 30, 2020 or December 31, 2019.
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Restructured loans totaled $4.0$4.9 million at June 30, 20192020 and consisted of four notes related to a single credit relationship including commercial and industrial loans, a commercial real estate loan and a consumer loan. Restructured loans at December 31, 2019 totaled $6.1 million and consisted of three credit relationships primarily related to commercial real estate. There were no restructured loans at December 31, 2018.
Foreclosed assets represent property acquired as the result of borrower defaults on loans. Foreclosed assets are recorded at estimated fair value, less estimated selling costs, at the time of foreclosure. Write-downs occurring at foreclosure are charged

against the allowance for loan losses. Regulatory guidelines require us to reevaluate the fair value of foreclosed assets on at least an annual basis. Our policy is to comply with the regulatory guidelines. Write-downs are provided for subsequent declines in value and are included in other non-interest expense along with other expenses related to maintaining the properties. ThereWrite-downs of foreclosed assets totaled $231 thousand during the six months ended June 30, 2020, while there were no write-downs of foreclosed assets during the six months ended June 30, 2019 while write-downs of foreclosed assets totaled $473 thousand during the six months ended2019.
Accruing past due loans at June 30, 2018.2020 increased $32.8 million compared to December 31, 2019. The increase was primarily related to increases in all loan portfolio segments with the largest increases in past due commercial and industrial loans (up $16.8 million), consumer real estate (up $5.8 million) and commercial real estate loans (up $4.2 million).
Potential problem loans consist of loans that are performing in accordance with contractual terms but for which management has concerns about the ability of an obligor to continue to comply with repayment terms because of the obligor’s potential operating or financial difficulties. Management monitors these loans closely and reviews their performance on a regular basis. At June 30, 20192020 and December 31, 2018,2019, we had $56.9$105.0 million and $63.4 million in loans of this type which are not included in any one of the non-performing non-accrual, restructured or 90 days past due loan categories. At June 30, 2019,2020, potential problem loans consisted of eight12 credit relationships. Of the total outstanding balance at June 30, 2019, 32.0%2020, 54.3% was related to the restaurantenergy industry, 26.1%24.2% was related to the leasingmanufacturing industry and 21.4%13.9% was related to the energyrestaurant industry. Weakness in these organizations’ operating performance and financial condition, among other factors, have caused us to heighten the attention given to these credits.
Certain borrowers are currently unable to meet their contractual payment obligations because of the adverse effects of COVID-19. In an effort to mitigate these effects, loan customers may apply for a deferral of payments, or portions thereof, for up to 90 days. After 90 days, customers may apply for an additional deferral. In the absence of other intervening factors, such short-term modifications made on a good faith basis are not categorized as troubled debt restructurings, nor are loans granted payment deferrals related to COVID-19 reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral). The COVID-19 pandemic has contributed to an increased risk of delinquencies, defaults and foreclosures. As a result of the COVID-19 pandemic, a significant number and amount of our loans have experienced ratings downgrades, credit deterioration and defaults. We have a significant amount of loans in certain industries that have been particularly impacted. These include energy, aviation, restaurants, hotels/lodging, entertainment, retail and commercial real estate, among others. See additional information about the effects of and risks associated with the COVID-19 pandemic in the section captioned “Recent Developments Related to COVID-19” elsewhere in this discussion and Part II. Other Information, Item 1A. Risk Factors elsewhere in this report.
Allowance for LoanCredit Losses
TheAs discussed in Note 1 - Summary of Significant Accounting Policies in the accompanying notes to consolidated financial statements, our policies and procedures related to accounting for credit losses changed on January 1, 2020 in connection with the adoption of a new accounting standard update as codified in Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses. In the case of loans and securities, allowances for credit losses are contra-asset valuation accounts, calculated in accordance with ASC 326, that are deducted from the amortized cost basis of these assets to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance for loancredit losses is a reserve established throughliability account, calculated in accordance with ASC 326, reported as a provision for loan losses charged to expense, whichcomponent of accrued interest payable and other liabilities in our consolidated balance sheets. The amount of each allowance account represents management’smanagement's best estimate of inherentcurrent expected credit losses that have been incurred 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. For additional information regarding critical accounting policies, refer to Note 1 - Summary of Significant Accounting Policies and Note 3 - Loans in the judgmentaccompanying notes to consolidated financial statements.
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Table 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 2018 Form 10-K, follows the accounting guidance set forth in U.S. generally accepted accounting principles and the Interagency Policy Statement on the Contents
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:
June 30,
2020		March 31,
2020		Post ASC 326 Adoption on January 1,
2020		December 31,
2019
Commercial and industrial$98,536  $92,152  $72,856  $51,593  
Energy40,817  103,201  26,929  37,382  
Commercial real estate93,425  52,319  17,518  31,037  
Consumer real estate8,998  8,170  6,505  4,113  
Consumer and other8,285  8,039  5,794  8,042  
Total$250,061  $263,881  $129,602  $132,167  
 June 30,
2019		 December 31,
2018
Commercial and industrial$57,714
 $48,580
Energy25,818
 29,052
Commercial real estate35,914
 38,777
Consumer real estate5,637
 6,103
Consumer and other9,846
 9,620
Total$134,929
 $132,132
Upon the adoption of ASC 326 on January 1, 2020, the total amount of the allowance for credit losses on loans estimated using the CECL methodology decreased $2.6 million compared to the total amount of the allowance for credit losses on loans estimated as of December 31, 2019 using the prior incurred loss model. Fluctuations in the estimated allowances by portfolio segment offset one another, for the most part, and, as a result, the overall estimated amount of allowance for credit losses did not significantly change as a result of the change in methodology. The manner in which credit loss allowances are allocated to the individual portfolio segments was partly impacted by a change in the way the underlying loans within each segment are pooled for modeling purposes. The impact of varying economic conditions and portfolio stress factors are now a component of the credit loss models applied to each modeling pool. In that regard, the amounts allocated to the underlying pools of loans within each portfolio segment more directly reflect the economic variables and portfolio stress factors that correlate with credit losses within each portfolio. Under the prior methodology, allocations in excess of those derived from historical loss rates were recognized as an overlay on each of the various portfolios based upon management judgment. Nonetheless, despite fluctuations in the allocation of portions of the overall allowance to the various portfolio segments, the entire allowance is available to absorb any credit losses within the entire loan portfolio. The remainder of this discussion focuses on expected credit losses estimated as of June 30, 2020 compared to the post ASC 326 estimate of expected credit losses as of January 1, 2020 and, in some cases, March 31, 2020.
The reserveallowance allocated to commercial and industrial loans totaled $98.5 million, or 1.97% of total commercial and industrial loans, at June 30, 2019 increased $9.12020 increasing $25.7 million, or 35.2%, compared to December 31, 2018. The increase was primarily due$72.9 million, or 1.40% of total commercial and industrial loans, post ASC 326 adoption on January 1, 2020. Modeled expected credit losses increased $28.8 million while Q-Factor adjustments related to increases in historical valuation allowancescommercial and specific valuation allowances partly offset by a decrease in macroeconomic valuation allowances. Historical valuation allowancesindustrial loans decreased $7.3 million. Specific allocations for commercial and industrial loans that were evaluated for expected credit losses on an individual basis increased $6.3from $7.9 million from $25.4 million at December 31, 2018post ASC 326 adoption on January 1, 2020 to $31.7$12.1 million at June 30, 2019.2020. The increase was primarilyallowance allocated to energy loans totaled $40.8 million, or 2.86% of total energy loans, at June 30, 2020 increasing $13.9 million, or 51.6%, compared to $26.9 million, or 1.63% of total energy loans, post ASC 326 adoption on January 1, 2020. Modeled expected credit losses related to energy loans increased $12.1 million while Q-Factor adjustments related to energy loans increased $19.8 million. Specific allocations for energy loans that were evaluated for expected credit losses on an individual basis totaled $20.2 million post ASC 326 adoption on January 1, 2020. The loans to which these specific allocations were related were subsequently charged off and there were $2.3 million of specific allocations related to energy loans at June 30, 2020. The allowance allocated to commercial real estate loans totaled $93.4 million, or 1.41% of total commercial real estate loans, at June 30, 2020 increasing $75.9 million, or 433.3%, compared to $17.5 million, or 0.28% of total commercial real estate loans, post ASC 326 adoption on January 1, 2020. Modeled expected credit losses related to commercial real estate loans increased $106.6 million while Q-Factor adjustments related to commercial real estate loans decreased $31.7 million. Specific allocations for commercial real estate loans that were evaluated for expected credit losses on an individual basis increased from $383 thousand post ASC 326 adoption on January 1, 2020 to $1.3 million at June 30, 2020. The allowance allocated to consumer real estate loans totaled $9.0 million, or 0.72% of total consumer real estate loans, at June 30, 2020 increasing $2.5 million, or 38.3%, compared to $6.5 million, or 0.54% of total consumer real estate loans, post ASC 326 adoption on January 1, 2020. Modeled expected credit losses related to consumer real estate loans increased $3.0 million while Q-Factor adjustments related to consumer real estate loans decreased $458 thousand. The allowance allocated to consumer loans totaled $8.3 million, or 1.64% of total consumer loans, at June 30, 2020 increasing $2.5 million, or 43.0%, compared to $5.8 million, or 1.12% of total consumer loans, post ASC 326 adoption on January 1, 2020. Modeled expected credit losses related to consumer loans increased $2.6 million while Q-Factor adjustments related to consumer loans decreased $111 thousand.
As more fully described in Note 3 - Loans in the accompanying consolidated financial statements, we measure expected credit losses over the life of each loan utilizing a combination of models which measure probability of default and loss given default, among other things. The measurement of expected credit losses is impacted by loan/borrower attributes and certain
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macroeconomic variables. Models are adjusted to reflect 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 June 30, 2020, we utilized the Moody’s Analytics June 2020 CF Consensus Scenario (the “CF Scenario”) to forecast the macroeconomic variables used in our models. The CF Scenario is based on the review of a variety of surveys of baseline forecasts of the U.S. economy. The CF Scenario projections include, among other things, (i) a 36.9% decline in the U.S. Gross Domestic Product (“GDP”) in the second quarter of 2020 followed by a 23.5% rebound in the third quarter of 2020; (ii) a U.S. unemployment rate of 15.8% for in the second quarter of 2020 improving to 9.6% by the fourth quarter of 2020 and 6.5% by the end of the forecast period in the second quarter of 2022 with Texas unemployment rates slightly less at those dates; and (iii) an average 10 year Treasury rate of 0.67% in the second quarter of 2020, dropping to a low of 0.34% in the second quarter of 2021 and increasing to 0.91% by the end of the forecast period in the second quarter of 2022. The CF Scenario also projects average oil prices of $26 per barrel in the second quarter of 2020, $32 per barrel in the fourth quarter of 2020, $42 per barrel on average for the year in 2021 and $50 in the second quarter of 2022. For our March 31, 2020 estimate of expected credit losses, our outlook for oil prices was significantly more negative as a result of the assumed persistence of the oil price war between Saudi Arabia and Russia and increasing oil supplies in the face of decreasing global demand resulting from the COVID-19 pandemic. As a result, we used significant qualitative adjustments in the determination of the allowance for credit losses on energy loans. Though less as of June 30, 2020, we continue to make qualitative adjustments related to the impact of oil price volatility in the determination of the allowance for credit losses on energy loans, as further discussed below.
In estimating expected credit losses as of March 31, 2020, we utilized the Moody’s Analytics March 2020 S8 Low Oil Price Scenario (the “S8 Scenario”) to forecast the macroeconomic variables used in our models. The S8 scenario used the Moody’s Baseline forecast, updated during the week of March 16, 2020, adjusted to assume that the price per barrel of West Texas Intermediate (“WTI”) crude oil will remain at $35 flat for two years. The S8 Scenario also assumed the persistence of the oil price war between Saudi Arabia and Russia and increasing oil supplies in the face of decreasing global demand. At that time, the S8 Scenario forecasted declines in the U.S. Gross Domestic Product and the Texas Gross State Product in the second quarter of 2020, a flat U.S. unemployment rate for the remainder of 2020 and the 10-yr Treasury rate dropping to 0.49% in second quarter of 2020 and remaining below 1.0% until the second quarter of 2021. The low oil prices incorporated in the S8 Scenario also resulted in a forecasted gradual increase in the volumeTexas unemployment rate, from 3.6% in the first quarter of classified loans graded2020 to 6.2% by the first quarter of 2022, exceeding the forecasted U.S. unemployment rate of 4.1% for the first quarter of 2022 and reflecting the impact of oil prices on the overall Texas economy. In late March and early April 2020, Moody's updated various macroeconomic variables in Moody's Baseline forecast subsequent to our modeling processes in order to incorporate the expected economic impact of recent developments related to the COVID-19 pandemic. Given the level of economic disruption and uncertainty within the State of Texas and the nation as "substandard - accrual" (risk grade 11)a whole, arising from the COVID-19 pandemic and volatility and declines in oil and gas prices driven by decreased demand and increased supply, we qualitatively adjusted the model results for these and other risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools as further discussed below.
The economic forecast used in our initial estimate of expected credit losses under ASC 326 on January 1, 2020 projected that the Texas unemployment rate would remain below 4.0% through 2021. The increases in modeled expected credit losses across all of our loan portfolios as of June 30, 2020 compared to the modeled expected credit losses as of our initial adoption of ASC 326 on January 1, 2020 were primarily the result of changes in our economic forecast, particularly forecasts related to unemployment and the gross domestic product, as well as non-classifiedchanges in portfolio volumes and risk attributes, as discussed below.
The overall loan portfolio, excluding PPP loans which are fully guaranteed by the SBA, increased $59.3 million, or 0.4%, which included a $428.7 million, or 6.9%, increase in commercial real estate loans and a $55.8 million, or 4.7%, increase in consumer real estate loans mostly offset by a $183.2 million, or 3.5%, decrease in commercial and industrial loans, a $228.0 million, or 13.8%, decrease in energy loans and a $13.9 million, or 2.7% decrease in consumer and other loans. The weighted average risk grade for commercial and industrial loans did not significantly change totaling 6.45 at June 30, 2020 compared to 6.44 at December 31, 2019. Commercial and industrial loans graded "watch"“watch” and “special mention” (risk grade 9) combined with increases ingrades 9 and 10) increased $51.9 million during the historical loss allocation factors applied to these loan grades.first six months of 2020 while classified commercial and industrial loans increased $14.9 million. Classified loans consist of loans having a risk grade of 11, 12 or 13. Classified commercial and industrial loans totaled $112.9 million at June 30, 2019 compared to $78.9 million at December 31, 2018. The weighted-average risk grade of commercial and industrialfor energy loans was 6.37increased to 7.24 at June 30, 2019 compared to 6.302020 from 6.39 at December 31, 2018. Commercial loan net charge-offs totaled $4.4 million during the first six months of 2019 compared to $11.2 million during the first six months of 2018. Charge-offs in 2018 included $8.2 million related to two credit relationships. Specific valuation allowances for commercial and industrial loans increased $3.7 million from $2.6 million at December 31, 2018 to $6.3 million at June 30, 2019. The increase was mostly related to new specific valuation allowances totaling $3.8 million on three credit relationships which had an aggregate outstanding balance totaling $9.8 million at June 30, 2019. Macroeconomic valuation allowances for commercial and industrial loans decreased $1.1 million from $10.6 million at December 31, 2018 to $9.5 million at June 30, 2019. The decreasein the weighted average risk grade was primarily related to a $49.2 million increase in classified energy loans and a $204.6 million increase in energy loans graded “watch” and “special mention,” while pass grade energy loans decreased $481.9 million. The weighted average risk grade for commercial real estate loans increased to 7.30 at June 30, 2020 from 7.07 at December 31, 2019. Commercial real estate loans graded as “watch” and “special mention” increased $342.8 million while classified commercial real estate loans increased $18.3 million.
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As noted above our credit loss models utilized the economic forecasts in the Moody’s CF Consensus Scenario for June 2020 in the second quarter of 2020 and the Moody's S8 Low Oil Scenario for March 2020 in the first quarter of 2020. We qualitatively adjust the model results based on this scenario for various risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These Q-Factor adjustments are discussed below.
Q-Factor adjustments are based upon management judgment and current assessment as to the impact of risks related to changes in lending policies and procedures; economic and business conditions; loan portfolio attributes and credit concentrations; and external factors, among other things, that are not already captured within the modeling inputs, assumptions and other processes. Management assesses the potential impact of such items within a range of severely negative impact to positive impact and adjusts the modeled expected credit loss by an aggregate adjustment percentage based upon the assessment. As a result of this assessment as of June 30, 2020, modeled expected credit losses were adjusted upwards by a weighted-average Q-Factor adjustment of approximately 0.7%. This weighted-average Q-Factor adjustment was based on a positive expected impact related to changes in lending policies, procedures and underwriting standards; a limited negative expected impact associated with changes in loan portfolio attributes and concentrations, changes in risk grades, changes in the volumes and severity of loan delinquencies and adverse classifications and potential deterioration of collateral values; and a severely negative impact from other risk factors associated with our commercial real estate construction and land portfolios, particularly the risks related to expected extensions.
In connection with our assessment of Q-Factor adjustments for our initial estimate of expected credit losses upon the adoption of ASC 326 on January 1, 2020, modeled expected credit losses were adjusted upwards by a weighted-average Q-Factor adjustment of approximately 12.9%, which included a 10% upward adjustment to modeled expected credit losses related to risks associated with model uncertainty and under-prediction. This adjustment was based upon the results of certain back testing procedures performed on our credit loss models. The Q-Factor adjustment as of June 30, 2020 did not include this additional 10% upward adjustment related to risks associated with model uncertainty and under-prediction. While management believes this adjustment is appropriate in a relatively benign or moderately stressful economic environment, management nonetheless believes this adjustment is not currently appropriate given the extreme levels and volatility in macroeconomic indicators under the current economic conditions and the fact that such conditions are expected to persist for the foreseeable future. The weighted-average Q-Factor adjustment totaled approximately 17.9% as of March 31, 2020 and included the 10% adjustment related to risks associated with model uncertainty and under-prediction. The decrease in the generalQ-Factor adjustment since March 31, 2020 reflects the fact that much of these expected credit losses are now captured in our credit loss models as a result of updates in policies and procedures related to managing the effects of COVID-19 on our loan customers, risk-grade migrations and updated macroeconomic forecasts.
Management also made certain other qualitative adjustments for loans within certain industries that are expected to be more significantly impacted by the COVID-19 pandemic and oil price volatility and declines as described below.
In early March 2020, Saudi Arabia announced significant price discounts on oil which resulted in a sharp decrease in global oil prices including the benchmark WTI. Saudi Arabia further announced that it would significantly increase its production leading Russia to respond in kind. These actions arose in the face of increasing global supplies and decreasing global demand. The subsequent worsening global economic outlook and decreased demand resulting from the COVID-19 pandemic resulted in further decreases in energy prices. The WTI price per barrel of crude oil was approximately $39 as of June 30, 2020 up from $20 per barrel as of March 31, 2020 but still down from approximately $61 per barrel as of December 31, 2019. In late March 2020, we established a special Energy Oversight Council to oversee and assess the credit quality of our energy loan portfolio.
As of June 30, 2020, we provided an additional $20.5 million of qualitative adjustments for our energy loan portfolio. This amount is down from $85.0 million as of March 31, 2020. In assessing the energy portfolio for the additional qualitative adjustments during the second quarter, we updated our borrowing base determinations for nearly all of our energy production loans using current engineering valuations and an oil price deck of $30 in 2020. Through this process, we estimated an aggregate borrowing base deficiency on energy production loans totaling approximately $36 million at June 30, 2020 compared to an aggregate borrowing base deficiency of approximately $106 million at March 31, 2020. The March 31, 2020 estimated aggregate borrowing base deficiency was based on a stress testing exercise using an oil price deck of $9 for 2020 and included an analysis of our customers' secondary sources of capital. Management believes that the aggregate borrowing base deficiency amount should serve as the appropriate level of expected credit losses for energy production loans. Accordingly, we provided an additional qualitative adjustment of $15.5 million at June 30, 2020 for energy production loans. This amount is down from $84.0 million at March 31, 2020 in part due to the rebound in oil prices and the recognition of $35.0 million of charge-offs related to three large energy production credit relationships during the second quarter of 2020.

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We performed a separate assessment of other energy loans which are primarily made up of borrowers associated with oilfield services such as transportation and logistics; equipment manufacturing and other services, among other things. Business activity among oilfield service firms has experienced significant contraction since March 2020 and there are indications of further worsening of conditions due to significant declines in equipment utilization and operating margins. Furthermore, there has been a significant decrease in the number of active oil rigs in Texas since March 2020, while the aforementioned rebound in oil prices during the second quarter has not had any apparent impact on stemming the decline. As a result, we expect that the revenues and operating margins of our oilfield services customers will be significantly impacted. Accordingly, we provided an additional qualitative adjustment of $5.0 million for our other, non-production energy loans portfolio at June 30, 2020. This amount is up from $1.0 million at March 31, 2020.
In late June 2020, we established a special Commercial Real Estate Oversight Council to oversee and assess the credit quality of our non-owner occupied and construction commercial real estate portfolios. Due to the adverse economic effects of the COVID-19 pandemic, management believes these portfolios have an elevated level of risk that requires a higher level of oversight, particularly as it relates to monitoring risk grades, payment deferrals, covenant modifications and structuring issues, among other things.
In estimating current expected credit losses as of June 30, 2020, we determined that our credit loss models for our owner occupied commercial real estate portfolio were overly sensitive to the volatility of the forecasted Texas unemployment rate and the forecasted U.S. GDP. The modeled loss rate for this portfolio was nearly 170% higher than the modeled loss rate for our commercial and industrial loan portfolio. Management believes that the loss rates for our owner occupied commercial real estate loan portfolio and our commercial and industrial loan portfolio should be similar due to the fact that that the loans within both portfolios are underwritten with the assumption that the primary repayment source is the cash flow from the operations of the borrower. This differs from non-owner occupied real estate where the primary repayment source is the cash flow generated by the underlying real estate being financed. Furthermore, our owner occupied commercial real estate loan portfolio and our commercial and industrial loan portfolio have a similar customer base. The loans within our owner occupied commercial real estate portfolio generally have a longer term than the loans within our commercial and industrial loan portfolio, which increases the modeled loss rate of the portfolio, despite the fact that this portfolio generally experiences lower losses in the case of default due to higher collateral valuations relative to the amount of the underlying loans. In light of the foregoing, management reduced the modeled loss allocation (down $1.1 million),for owner occupied commercial real estate by $53.1 million as of June 30, 2020. Of this amount, $8.6 million was reallocated to the non-owner occupied commercial real estate portfolio and $2.8 million was reallocated to the commercial real estate construction portfolio. Additional qualitative adjustments were made for these portfolios as we believe our borrowers' ability to access the capital markets for the sale or refinancing of assets, including those under construction, may be impaired for a significant amount of time. This would require secondary sources of capital and liquidity to support completed projects, access to which may take considerably longer to stabilize than was expected at the time the loans to these borrowers were originally underwritten. Additionally, management reallocated an additional $10.9 million for specific industries within the commercial real estate portfolio that have been particularly impacted by the economic effects of the COVID-19 pandemic, as further discussed below. General valuation allowancesThe net effect of these additional qualitative adjustments, when combined with the aforementioned 0.7% Q-Factor adjustment, was an overall negative qualitative adjustment to the allowance for credit losses on commercial real estate loans totaling $29.9 million.
The COVID-19 pandemic has resulted in a significant decrease in commercial activity throughout the State of Texas as well as nationally. Efforts to limit the spread of COVID-19 have led to the closure of non-essential businesses, travel restrictions, supply chain disruptions and prohibitions on public gatherings, among other things, throughout many parts of the United States and, in particular, the markets in which we operate. Aside from the energy industry, which is discussed above, we lend to customers operating in certain other industries that have been, and are expected to be, more significantly impacted by the effects of the COVID-19 pandemic. These industries are presented in the following table and include amounts reported as both commercial and industrial loans did not significantly fluctuate, increasing $165 thousand from $10.1 million at December 31, 2018and commercial real estate loans while PPP loans are excluded.
 Outstanding Balance at June 30, 2020Percentage of Total Loans, Excluding PPP LoansAllocated AllowanceAllocated Allowance as a Percentage of Outstanding Balance
Retail$783,229  5.29 %$16,101  2.06 %
Hotels/lodging261,343  1.76  3,171  1.21  
Restaurants224,492  1.52  9,744  4.34  
Aviation193,801  1.31  5,408  2.79  
Entertainment120,327  0.81  5,511  4.58  
Total$1,583,192  10.69 %$39,935  2.52 %

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We are continuing to $10.2 million atmonitor customers in these industries closely. In assessing these portfolios for an additional qualitative adjustment as of June 30, 2019.
The reserve allocated2020, we performed a comprehensive review of the financial condition and overall outlook of the borrowers within these portfolios. Based on this analysis, we determined that there continues to energy loans at June 30, 2019 decreased $3.2 million comparedbe an elevated level of risk due to December 31, 2018.state and nationwide restrictions impacting each of these industries. As a result, reserveswe provided an additional qualitative adjustment of $10.9 million, all of which was allocated to energycommercial real estate loans. This amount is up from $8.8 million at March 31, 2020, of which $7.8 million was allocated to commercial real estate loans as a percentage of total energyand $1.0 million was allocated to commercial and industrial loans.
Activity in the allowance for credit losses on loans totaled 1.74% at June 30, 2019 compared to 1.81% atis presented in the following table.

Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Balance at beginning of period$263,881  $136,350  $132,167  $132,132  
Impact of adopting ASC 326—  —  (2,565) —  
Credit loss expense27,228  6,400  200,153  17,403  
Charge-offs:
Commercial and industrial(1,841) (3,389) (6,210) (6,077) 
Energy(35,042) (2,000) (68,842) (2,000) 
Commercial real estate(3,511) (557) (3,584) (617) 
Consumer real estate(135) (601) (420) (2,379) 
Consumer and other(4,178) (5,103) (9,183) (10,800) 
Total charge-offs(44,707) (11,650) (88,239) (21,873) 
Recoveries:
Commercial and industrial891  935  2,606  1,685  
Energy—  29  66  76  
Commercial real estate30  29  143  119  
Consumer real estate611  315  991  404  
Consumer and other2,127  2,521  4,739  4,983  
Total recoveries3,659  3,829  8,545  7,267  
Net charge-offs(41,048) (7,821) (79,694) (14,606) 
Balance at end of period$250,061  $134,929  $250,061  $134,929  
Ratio of allowance for credit losses on loans to:
Total loans1.39 %0.93 %1.39 %0.93 %
Total loans - excluding PPP loans1.69  0.93  1.69  0.93  
Non-accrual loans314.70  188.66  314.70  188.66  
Ratio of annualized net charge-offs to:
Average total loans0.94  0.22  0.98  0.21  
Average total loans - excluding PPP loans1.10  0.22  1.07  0.21  
December 31, 2018. This decrease was primarilyCredit loss expense related to decreases in general valuation allowances, macroeconomic valuation allowances and historical valuation allowances. General valuation allowances for energy loans decreased $1.5 million from $6.0 million at December 31, 2018 to $4.5 million at June 30, 2019. The decrease was primarily related to decreases in the allocations for highly-leveraged transactions and excessive industry concentrations partly offset by a decrease in the adjustment for recoveries. Macroeconomic valuation allowances related to energy loans decreased $1.1 million from $3.7 million at December 31, 2018 to $2.5 million at June 30, 2019, due to a decrease in the environmental risk adjustment (down $695 thousand), as a result of decreases in the environmental adjustment factor and the historical loss valuation allowances to which the environmental risk adjustment factor is applied, and a decrease in the general macroeconomic risk allocation (down $452 thousand), as further discussed below. Historical valuation allowances decreased $610 thousand from $9.7 million at December 31, 2018 to $9.1 million at June 30, 2019. The decrease was partly related to decreases in the historical loss allocation factors for both non-classified energy loans and classified energy loans. The decrease was also partly related to decreases in the volume of non-classified energy loans graded as "pass"(risk grades below 9) (down $146.1 million) and "special mention" (risk grade 10) (down $40.9 million) partly offset by increases in the volume of non-classified energy loans graded as "watch" (risk grade 9) (up $46.6 million) and classified energy loans graded as "substandard - accrual" (risk grade 11) (up $25.9 million). Total classified energy loans increased $19.2 million from $72.4 million at December 31, 2018 to $91.6 million at June 30, 2019. The weighted-average risk grade of energy loans increased to 6.35 at June 30, 2019 from 6.22 at December 31, 2018. Specific valuation allowances for energy loans totaled $9.7 million at June 30, 2019 and related to a single credit relationship totaling $33.9 million while specific valuation allowances for energy loans totaled $9.7 million at December 31, 2018 and related to four credit relationships totaling $39.9 million. We had net charge-offs of energy loans totaling $1.9$182.8 million during the six months ended June 30, 20192020 compared to net charge-offs of $4.9 million during the same period in 2018.
The reserve allocated to commercial real estate loans at June 30, 2019 decreased $2.9 million compared to December 31, 2018. The decrease was primarily2019. Credit loss expense related to decreases in macroeconomic valuation allowances and specific valuation allowances. Macroeconomic valuation allowances decreased $1.6 million from $11.0 million at December 31, 2018 to $9.4 million at June 30, 2019. The decrease was primarily related to a decrease in the general macroeconomic risk allocation (down $1.1 million), as further discussed below, and a decrease in the environmental risk adjustment (down $457 thousand), primarily resulting from a decrease in the environmental risk adjustment factor. Specific valuation allowances for commercial real estate loans totaled $1.4 million at June 30, 2019 decreasing $1.2 million from $2.6 million at December 31, 2018. Specific valuation allowances at December 31, 2018 primarily related to a single credit relationship totaling $12.2 million. This relationship was sold during the second quarter of 2019. We recognized net charge-offs totaling $266 thousand in connection with the sale. Specific valuation allowances for commercial real estate loans at June 30, 2019 related to two credit relationships totaling $4.8 million. Historical valuation allowances related to commercial real estate loans increased $162 thousand from $20.8 million at December 31, 2018 to $21.0 million at June 30, 2019. Classified commercial real estate loans decreased $19.7 million from $118.3 million at December 31, 2018 to $98.6 million at June 30, 2019 while non-classified commercial real estate loans increased $237.5 million from $5.6 billion at December 31, 2018 to $5.8 billion at June 30, 2019. The weighted-average risk grade of commercial real estate loans was 7.03 and 7.05 at June 30, 2019 and December 31, 2018, respectively. General valuation allowances for commercial real estate loans decreased $261 thousand from $4.4 million at December 31, 2018 to $4.1 million at June 30, 2019.
The reserve allocated to consumer real estate loans at June 30, 2019 decreased $466 thousand compared to December 31, 2018. This decrease was primarily due to a $286 thousand decrease in macroeconomic valuation allowances, as further discussed below, and a $111 thousand decrease in general valuation allowances, which was primarily related to a decrease in the allocation for loans not reviewed by concurrence partly offset by a decrease in the adjustment for recoveries.
The reserve allocated to consumer and other loans at June 30, 2019 increased $226 thousand compared to December 31, 2018. The increase was primarily related to a $747 thousand increase in historical valuation allowances primarily due to an increase in the historical loss allocation factor. This increase was partly offset by a decrease in general valuation allowances (down $384 thousand), primarily related to a decrease in the allocation for loans not reviewed by concurrence and an increase in the adjustment for recoveries, and a decrease in macroeconomic valuation allowances (down $149 thousand), primarily related to a decrease in the general macroeconomic risk allocation, as further discussed below.
As more fully discussed in our 2018 Form 10-K, under our allowance methodology, we allocate additional reserves for general macroeconomic risk in excess of our minimum calculated need using our allowance model. These additional reserves are based upon management's assessment of current and expected economic conditions, trends and other quantitative and qualitative portfolio risk factors that are external to us or that are not otherwise captured in our allowance modeling process but impact the credit risk or inherent losses within our loan portfolio segments. These additional reserves are allocated to our various portfolio segments based upon management judgment.

Activity in the allowance for loan losses is presented in the following table.
 Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,
 2019 2018 2019 2018
Balance at beginning of period$136,350
 $149,885
 $132,132
 $155,364
Provision for loan losses6,400
 8,251
 17,403
 15,196
Charge-offs:       
Commercial and industrial(3,389) (4,153) (6,077) (13,405)
Energy(2,000) (2,689) (2,000) (5,539)
Commercial real estate(557) (614) (617) (619)
Consumer real estate(601) (482) (2,379) (1,201)
Consumer and other(5,103) (3,994) (10,800) (7,966)
Total charge-offs(11,650) (11,932) (21,873) (28,730)
Recoveries:       
Commercial and industrial935
 605
 1,685
 2,182
Energy29
 613
 76
 614
Commercial real estate29
 218
 119
 306
Consumer real estate315
 318
 404
 511
Consumer and other2,521
 2,268
 4,983
 4,783
Total recoveries3,829
 4,022
 7,267
 8,396
Net charge-offs(7,821) (7,910) (14,606) (20,334)
Balance at end of period$134,929
 $150,226
 $134,929
 $150,226
        
Ratio of allowance for loan losses to:       
Total loans0.93% 1.10% 0.93% 1.10%
Non-accrual loans188.66
 126.05
 188.66
 126.05
Ratio of annualized net charge-offs to average total loans0.22
 0.23
 0.21
 0.31
The provision for loan losses increased $2.2 million, or 14.5%, during the six months ended June 30, 2019 compared to2020 primarily reflects the same periodincrease in 2018. The provision for loanexpected credit losses duringresulting from a deterioration in forecasted economic conditions and the six months ended June 30, 2019 primarilycurrent and uncertain future impacts associated with the COVID-19 pandemic and recent volatility in oil prices. Credit loss expense also reflects the level of net charge-offs, the deterioration of credit quality and specific valuation allowances as well as the impact of an increase in classified loans and the overall growth inother changes within the loan portfolio since December 31, 2018. Net charge-offs totaled $14.6 million forduring the six months ended June 30, 2019 compared to $20.3 million for the same period in 2018. Specific valuation allowances totaled $18.8 million at June 30, 2019 compared to $16.2 million at December 31, 2018 and $24.7 million at June 30, 2018. Classified energy, commercial and industrial and commercial real estate loans totaled $303.0 million at June 30, 2019 compared to $269.6 million at December 31, 2018 and $324.9 million at June 30, 2018. The overall weighted-average risk gradefirst quarter of our energy, commercial and industrial and commercial real estate loan portfolios was 6.68 at June 30, 2019 compared to 6.63 at December 31, 2018 and 6.71 at June 30, 2018.
2020. The ratio of the allowance for loancredit losses on loans to total loans was 0.93%1.39% (1.69% excluding PPP loans) at June 30, 20192020 compared to 0.94%0.90% at December 31, 2018.2019. Management believes the recorded amount of the allowance for loancredit losses on loans is appropriate based upon management’s best estimate of probablecurrent expected credit losses that have been incurred within the existing portfolio of loans. Should any of the factors considered by management in evaluating the appropriate level of the allowance for loan lossesmaking this estimate change, our estimate of probable loancurrent expect credit losses could also change, which could affect the level of future provisionscredit loss expense related to loans.
Allowance for loan losses.Credit Losses - Off-Balance-Sheet Credit Exposures. Upon the adoption of ASC 326 on January 1, 2020, the total amount of the allowance for credit losses on off-balance-sheet credit exposures estimated using the CECL methodology increased $39.4 million compared to the total amount of the allowance for credit losses on off-balance-sheet credit exposures estimated as of December 31, 2019 using the prior incurred loss model. The increase reflects the impact of assuming portions of all of these commitments will fund in the future and applying our credit loss modeling processes to such amounts as if such amounts were funded loans. Previously, we only recognized a liability for estimated incurred credit losses on off-balance-sheet
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credit exposures when the borrowers to which such commitments were extended exceeded certain risk grades and had not violated any underlying covenants that would relieve us of any obligation to fund additional amounts under the commitment. Subsequent to the adoption of ASC 326 on January 1, 2020, we recognized credit loss expense related to off-balance-sheet credit exposures totaling $7.1 million during the first six months of 2020 to increase the amount of the related allowance for credit losses on off-balance-sheet credit exposures to $46.9 million as of June 30, 2020. The increase primarily reflects changes in underlying risk grades and expected utilization of available funds, an increase in overall off-balance-sheet credit exposures and a deterioration in forecasted economic conditions and the current and uncertain future impacts associated with COVID-19. Further information regarding our policies and methodology used to estimate the allowance for credit losses on off-balance-sheet credit exposures is presented in Note 6 - Off-Balance-Sheet Arrangements, Commitments, Guarantees and Contingencies in the accompanying notes to consolidated financial statements.
Capital and Liquidity
Capital. Shareholders’ equity totaled $3.7$4.0 billion at June 30, 20192020 and $3.4$3.9 billion December 31, 2018.2019. In addition to net income of $228.1$147.8 million, other sources of capital during the six months ended June 30, 20192020 included other comprehensive income, net of tax, of $283.0$220.9 million; $8.0$5.8 million related to stock-based compensation and $7.8$4.8 million in proceeds from stock option exercises. Additionally, we issued $2.8 million of common stock held in treasury to our 401(k) plan. During the second quarter of 2020, we began to issue shares of our common stock directly to our 401(k) plan in connection with matching contributions. Previously, we contributed the matching contributions in cash which were then utilized to purchase shares of our common stock on the open market. Uses of capital during the six months ended June 30, 20192020 included $91.5a $150.0 million redemption of preferred stock, $91.8 million of dividends paid on preferred and common stock, $50.5 million of treasury stock purchases and $12.6$29.3 million related to the cumulative effect of adopting a new accounting principle adopted during the first quarterand $14.0 million of 2019.treasury stock purchases. See Note 1 - Significant Accounting Policies.
The accumulated other comprehensive income/loss component of shareholders’ equity totaled a net, after-tax, unrealized gain of $219.4$488.3 million at June 30, 20192020 compared to a net, after-tax, unrealized loss of $63.6$267.4 million at December 31, 2018.2019. The change was primarily due to a $281.3$219.3 million net, after-tax, changeincrease in the net unrealized gain/lossgain on 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 7 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report.
We paid a quarterly dividend of $0.67 and $0.71 per common share during the first and second quarters of 2019, respectively,both 2020 and a quarterly dividend of $0.57 and $0.67 per common share during the first and second quarters of 2018, respectively.2019. This equates to a common stock dividend payout ratio of 39.0%64.0% and 37.2%39.0% during the first six months of 20192020 and 2018,2019, 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 described in Note 7 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report.
Preferred Stock. On March 16, 2020, we redeemed all 6,000,000 shares of our 5.375% Non-Cumulative Perpetual Preferred Stock, Series A, (“Series A Preferred Stock”) at a redemption price of $25 per share, or an aggregate redemption of $150.0 million. When issued, the net proceeds of the Series A Preferred Stock totaled $144.5 million after deducting $5.5 million of issuance costs including the underwriting discount and professional service fees, among other things. Upon redemption, these issuance costs were reclassified to retained earnings and reported as a reduction of net income available to common shareholders.
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 24, 2017, our board of directors authorized a $150.0 million stock repurchase program, allowing us to repurchase shares of our common stock over a two-year period from time to time at various prices in the open market or through private transactions. We repurchased 496,307 shares under this plan at a total cost of $50.0 million during the second quarter of 2019 while we repurchased 1,027,292 shares at a total cost of $100.0 million during the fourth quarter of 2018. On July 24, 2019, our board of directors authorized a $100.0 million stock repurchase program, allowing us to repurchase shares of our common stock over a one-year period from time to time at various prices in the open market or through private transactions. We repurchased 177,834 shares at a total cost of $13.7 million during the first quarter of 2020 and 202,724 shares at a total cost of $17.2 million during the third quarter of 2019. No further repurchases were made under this plan prior to its expiration on July 24, 2020. See Note 7 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements and Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds, each included elsewhere in this report.
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Liquidity. As more fully discussed in our 20182019 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 June 30, 2019, management is not aware2020, we had approximately $5.0 billion held in an interest-bearing account at the Federal Reserve. We also have the ability to borrow funds as a member of any eventsthe Federal Home Loan Bank (“FHLB”). As of June 30, 2020, based upon available, pledgeable collateral, our total borrowing capacity with the FHLB was approximately $2.7 billion. Furthermore, at June 30, 2020, we had approximately $8.8 billion in securities that are reasonably likelywere unencumbered by a pledge and could be used to have a material adverse effect on our liquidity, capital resourcessupport additional borrowings through repurchase agreements or operations.the Federal Reserve discount window, as needed.
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 7 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report regarding such dividends. At June 30, 2019,2020, Cullen/Frost had liquid assets, including cash and resell agreements, totaling $221.9$184.8 million.
Accounting Standards Updates
See Note 17 - 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.

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Consolidated Average Balance Sheets and Interest Income Analysis - Quarter To Date
(Dollars in thousands - taxable-equivalent basis)
June 30, 2019 June 30, 2018June 30, 2020June 30, 2019
Average
Balance		 Interest
Income/
Expense		 Yield/
Cost		 Average
Balance		 Interest
Income/
Expense		 Yield/
Cost		Average
Balance		Interest
Income/
Expense		Yield/
Cost		Average
Balance		Interest
Income/
Expense		Yield/
Cost
Assets:           Assets:
Interest-bearing deposits$1,171,139
 $7,828
 2.64% $2,885,455
 $13,917
 1.93%Interest-bearing deposits$4,986,273  $1,257  0.10 %$1,171,139  $7,828  2.64 %
Federal funds sold and resell agreements245,554
 1,541
 2.48
 296,335
 1,415
 1.92
Federal funds sold and resell agreements91,987  63  0.27  245,554  1,541  2.48  
Securities:           Securities:
Taxable5,082,573
 30,324
 2.40
 4,197,627
 21,188
 2.01
Taxable4,042,418  23,360  2.40  5,082,573  30,324  2.40  
Tax-exempt8,239,595
 81,536
 4.06
 7,730,597
 79,278
 4.10
Tax-exempt8,458,214  81,818  4.07  8,239,595  81,536  4.06  
Total securities13,322,168
 111,860
 3.42
 11,928,224
 100,466
 3.36
Total securities12,500,632  105,178  3.53  13,322,168  111,860  3.42  
Loans, net of unearned discounts14,375,154
 191,228
 5.34
 13,536,590
 165,414
 4.90
Loans, net of unearned discounts17,549,539  172,407  3.95  14,375,154  191,228  5.34  
Total Earning Assets and Average Rate Earned29,114,015
 312,457
 4.33
 28,646,604
 281,212
 3.93
Total Earning Assets and Average Rate Earned35,128,431  278,905  3.24  29,114,015  312,457  4.33  
Cash and due from banks484,085
     476,212
    Cash and due from banks521,578  484,085  
Allowance for loan losses(138,349)     (150,551)    
Allowance for credit losses on loans and securitiesAllowance for credit losses on loans and securities(266,201) (138,349) 
Premises and equipment, net809,088
     531,410
    Premises and equipment, net1,045,069  809,088  
Accrued interest and other assets1,222,246
     1,254,506
    Accrued interest and other assets1,409,470  1,222,246  
Total Assets$31,491,085
     $30,758,181
    Total Assets$37,838,347  $31,491,085  
           
Liabilities:           Liabilities:
Non-interest-bearing demand deposits:           Non-interest-bearing demand deposits:
Commercial and individual$9,640,935
     $10,062,771
    Commercial and individual$13,072,768  $9,640,935  
Correspondent banks201,779
     190,879
    Correspondent banks236,856  201,779  
Public funds304,897
     374,817
    Public funds475,147  304,897  
Total non-interest-bearing demand deposits10,147,611
     10,628,467
    Total non-interest-bearing demand deposits13,784,771  10,147,611  
Interest-bearing deposits:           Interest-bearing deposits:
Private accounts           Private accounts
Savings and interest checking6,774,143
 1,364
 0.08
 6,687,540
 1,304
 0.08
Savings and interest checking7,615,390  303  0.02  6,774,143  1,364  0.08  
Money market deposit accounts7,588,056
 19,529
 1.03
 7,577,963
 14,023
 0.74
Money market deposit accounts8,230,050  1,896  0.09  7,588,056  19,529  1.03  
Time accounts969,668
 4,021
 1.66
 787,450
 1,290
 0.66
Time accounts1,117,852  3,901  1.40  969,668  4,021  1.66  
Public funds513,272
 1,930
 1.51
 387,141
 958
 0.99
Public funds564,663  127  0.09  513,272  1,930  1.51  
Total interest-bearing deposits15,845,139
 26,844
 0.68
 15,440,094
 17,575
 0.46
Total interest-bearing deposits17,527,955  6,227  0.14  15,845,139  26,844  0.68  
Total deposits25,992,750
     26,068,561
    Total deposits31,312,726   25,992,750   
Federal funds purchased and repurchase agreements1,242,246
 5,220
 1.69
 1,019,961
 631
 0.25
Federal funds purchased and repurchase agreements1,295,425  486  0.15  1,242,246  5,220  1.69  
Junior subordinated deferrable interest debentures136,265
 1,478
 4.34
 136,208
 1,311
 3.85
Junior subordinated deferrable interest debentures136,323  988  2.90  136,265  1,478  4.34  
Subordinated notes payable and other notes98,772
 1,164
 4.71
 98,615
 1,164
 4.72
Subordinated notesSubordinated notes98,929  1,164  4.71  98,772  1,164  4.71  
Federal Home Loan Bank advancesFederal Home Loan Bank advances439,560  318  0.29  —  —  —  
Total Interest-Bearing Funds and Average Rate Paid17,322,422
 34,706
 0.80
 16,694,878
 20,681
 0.50
Total Interest-Bearing Funds and Average Rate Paid19,498,192  9,183  0.19  17,322,422  34,706  0.80  
Accrued interest and other liabilities388,680
     164,995
    Accrued interest and other liabilities656,738  388,680  
Total Liabilities27,858,713
     27,488,340
    Total Liabilities33,939,701  27,858,713  
Shareholders’ Equity3,632,372
     3,269,841
    Shareholders’ Equity3,898,646  3,632,372  
Total Liabilities and Shareholders’ Equity$31,491,085
     $30,758,181
    Total Liabilities and Shareholders’ Equity$37,838,347  $31,491,085  
Net interest income  $277,751
     $260,531
  Net interest income$269,722  $277,751  
Net interest spread    3.53%     3.43%Net interest spread3.05 %3.53 %
Net interest income to total average earning assets    3.85%     3.64%Net interest income to total average earning assets3.13 %3.85 %
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.



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Consolidated Average Balance Sheets and Interest Income Analysis - Year To Date
(Dollars in thousands - taxable-equivalent basis)
June 30, 2019 June 30, 2018June 30, 2020June 30, 2019
Average
Balance		 Interest
Income/
Expense		 Yield/
Cost		 Average
Balance		 Interest
Income/
Expense		 Yield/
Cost		Average
Balance		Interest
Income/
Expense		Yield/
Cost		Average
Balance		Interest
Income/
Expense		Yield/
Cost
Assets:           Assets:
Interest-bearing deposits$1,448,520
 $18,467
 2.54% $3,281,979
 $28,011
 1.72%Interest-bearing deposits$3,785,983  $9,382  0.49 %$1,448,520  $18,467  2.54 %
Federal funds sold and resell agreements247,738
 3,129
 2.51
 241,610
 2,176
 1.82
Federal funds sold and resell agreements176,061  865  0.97  247,738  3,129  2.51  
Securities:           Securities:
Taxable4,813,190
 55,003
 2.30
 4,182,596
 41,746
 2.00
Taxable4,268,913  49,390  2.38  4,813,190  55,003  2.30  
Tax-exempt8,234,541
 164,011
 4.05
 7,701,055
 157,612
 4.11
Tax-exempt8,463,098  163,395  4.07  8,234,541  164,011  4.05  
Total securities13,047,731
 219,014
 3.40
 11,883,651
 199,358
 3.36
Total securities12,732,011  212,785  3.49  13,047,731  219,014  3.40  
Loans, net of unearned discounts14,290,642
 377,878
 5.33
 13,416,282
 317,781
 4.78
Loans, net of unearned discounts16,272,357  345,784  4.27  14,290,642  377,878  5.33  
Total Earning Assets and Average Rate Earned29,034,631
 618,488
 4.30
 28,823,522
 547,326
 3.82
Total Earning Assets and Average Rate Earned32,966,412  568,816  3.52  29,034,631  618,488  4.30  
Cash and due from banks503,286
     493,981
    Cash and due from banks532,234  503,286  
Allowance for loan losses(136,011)     (153,518)    
Allowance for credit losses on loans and securitiesAllowance for credit losses on loans and securities(198,759) (136,011) 
Premises and equipment, net772,293
     527,515
    Premises and equipment, net1,033,741  772,293  
Accrued interest and other assets1,216,706
     1,248,863
    Accrued interest and other assets1,359,453  1,216,706  
Total Assets$31,390,905
     $30,940,363
    Total Assets$35,693,081  $31,390,905  
           
Liabilities:           Liabilities:
Non-interest-bearing demand deposits:           Non-interest-bearing demand deposits:
Commercial and individual$9,637,530
     $10,171,916
    Commercial and individual$11,595,976  $9,637,530  
Correspondent banks203,746
     207,813
    Correspondent banks237,872  203,746  
Public funds328,551
     419,585
    Public funds427,149  328,551  
Total non-interest-bearing demand deposits10,169,827
     10,799,314
    Total non-interest-bearing demand deposits12,260,997  10,169,827  
Interest-bearing deposits:           Interest-bearing deposits:
Private accounts           Private accounts
Savings and interest checking6,774,003
 2,836
 0.08
 6,661,661
 2,441
 0.07
Savings and interest checking7,322,838  699  0.02  6,774,003  2,836  0.08  
Money market deposit accounts7,641,488
 40,169
 1.06
 7,584,045
 21,721
 0.58
Money market deposit accounts8,052,248  11,592  0.29  7,641,488  40,169  1.06  
Time accounts932,771
 7,177
 1.55
 782,905
 2,274
 0.59
Time accounts1,113,464  8,513  1.54  932,771  7,177  1.55  
Public funds533,730
 3,836
 1.45
 419,773
 1,777
 0.85
Public funds602,436  1,476  0.49  533,730  3,836  1.45  
Total interest-bearing deposits15,881,992
 54,018
 0.69
 15,448,384
 28,213
 0.37
Total interest-bearing deposits17,090,986  22,280  0.26  15,881,992  54,018  0.69  
Total deposits26,051,819
     26,247,698
    Total deposits29,351,983  26,051,819  
Federal funds purchased and repurchase agreements1,211,376
 10,236
 1.70
 1,035,101
 1,265
 0.25
Federal funds purchased and repurchase agreements1,277,365  3,523  0.55  1,211,376  10,236  1.70  
Junior subordinated deferrable interest debentures136,258
 2,976
 4.37
 136,200
 2,453
 3.60
Junior subordinated deferrable interest debentures136,316  2,193  3.22  136,258  2,976  4.37  
Subordinated notes payable and other notes98,752
 2,328
 4.71
 98,596
 2,328
 4.72
Subordinated notesSubordinated notes98,909  2,328  4.71  98,752  2,328  4.71  
Federal Home Loan Bank advancesFederal Home Loan Bank advances219,780  318  0.29  —  —  —  
Total Interest-Bearing Funds and Average Rate Paid17,328,378
 69,558
 0.81
 16,718,281
 34,259
 0.41
Total Interest-Bearing Funds and Average Rate Paid18,823,356  30,642  0.33  17,328,378  69,558  0.81  
Accrued interest and other liabilities355,551
     160,089
    Accrued interest and other liabilities655,133  355,551  
Total Liabilities27,853,756
     27,677,684
    Total Liabilities31,739,486  27,853,756  
Shareholders’ Equity3,537,149
     3,262,679
    Shareholders’ Equity3,953,595  3,537,149  
Total Liabilities and Shareholders’ Equity$31,390,905
     $30,940,363
    Total Liabilities and Shareholders’ Equity$35,693,081  $31,390,905  
Net interest income  $548,930
     $513,067
  Net interest income$538,174  $548,930  
Net interest spread    3.49%     3.41%Net interest spread3.19 %3.49 %
Net interest income to total average earning assets    3.82%     3.58%Net interest income to total average earning assets3.33 %3.82 %
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.



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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 20182019 Form 10-K. There has been no significant change in the types of market risks we face since December 31, 2018.2019.
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 June 30, 2020, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of 1.4% and 4.0%, respectively, relative to the flat-rate case over the next 12 months, while a 25 basis point ratable decrease in interest rates would result in a negative variance in net interest income of 1.8% relative to the flat-rate case over the next 12 months. The June 30, 2020 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 third quarter of 2020, as further discussed below. For modeling purposes, as of June 30, 2019, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of 0.4% and 1.7%, respectively, relative to the flat-rate case over the next 12 months, while 100 and 200 basis point ratable decreases in interest rates would result in negative variances in net interest income of 3.0% and 8.2%, respectively, relative to the flat-rate case over the next 12 months. The June 30, 2019 model simulations for increased interest rates were impacted by the assumption, for modeling purposes, that we willwould begin to pay interest on commercial demand deposits (those not already receiving an earnings credit rate) in the third quarter of 2019, as further discussed below. For modeling purposes,The likelihood of a decrease in interest rates beyond 25 basis points as of June 30, 2018, the2020 was considered remote given prevailing interest rate levels.
The model simulations as of June 30, 2020 indicate that our projected that 100balance sheet is more asset sensitive in comparison to our balance sheet as of June 30, 2019. The shift to a more asset sensitive position was primarily due to an increase in the relative proportion of interest-bearing deposits and 200 basis point ratable increasesfederal funds sold to projected average interest-earning assets. Interest-bearing deposits and federal funds sold are more immediately impacted by changes in interest rates would result in positive variancescomparison to our other categories of earning assets. The shift to a more asset sensitive position was also partly due to a decrease in netthe assumed interest income of 0.5% and 1.8%, respectively, relative to the flat-rate case over the next 12 months, while 100 and 200 basis point ratable decreases in interest rates would result in negative variances in net interest income of 3.2% and 8.6%, respectively, relative to the flat-rate case over the next 12 months. The June 30, 2018 model simulations for increased interest rates were impacted by the assumption, for modeling purposes, that we would begin to pay interestrate paid on projected commercial demand deposits (those not already receiving an earnings credit rate) in the third quarter of 2018,, as further discussed below. The model simulations as of June 30, 2019 indicate that our balance sheet is in a similar asset sensitive position in comparison to our balance sheet as of June 30, 2018.
We do not currently pay interest on a significant portion of our commercial demand deposits. If we began to pay interest on commercial demand deposits (those not already receiving an earnings credit rate), our balance sheet would likely become less asset sensitive. Any interest rate that would ultimately be paid on these commercial demand deposits would likely depend upon a variety of factors, some of which are beyond our control. ForOur modeling purposes, we havesimulation as of June 30, 2020 assumed a moderate pricing structure with regards to interest payments on commercial demand deposits (those not already receiving an earnings credit) with interest payments assumed to begin in the third quarter of 2020. This moderate pricing structure on commercial demand deposits assumes a deposit pricing beta of 25%. The pricing beta is a measure of how much deposit rates reprice, up or down, given a defined change in market rates. Our modeling simulation as of June 30, 2019 assumed a much more aggressive pricing structure with regards to interest payments for commercial demand deposits (those not already receiving anand earnings credit) beginningwith interest payments assumed to begin in the third quartersquarter of 2018 and2019. We modified our assumed pricing structure during 2020 compared to 2019 respectively, for each simulation. Shouldbased upon our market observations during the actualmost recent 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.cycle.
As of June 30, 2019,2020, the effects of a 200 basis point increase and a 20025 basis point decrease in interest rates on our derivative holdings would not result in a significant variance in our net interest income.
The effects of hypothetical fluctuations in interest rates on our securities classified as “trading” under ASC Topic 320, “Investments—Debt and Equity Securities,” are not significant, and, as such, separate quantitative disclosure is not presented.
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Item 4. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out 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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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 inRefer to the risk factors disclosed under Item 1A. of our 20182019 Form 10-K.10-K for a discussion of certain material risks and uncertainties that management believed affect our business. The following risk factors are provided to supplement that discussion.

Our business, financial condition, liquidity and results of operations have been, and will likely continue to be, adversely affected by the COVID-19 pandemic.
The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, our business, financial condition, liquidity and results of operations. The extent to which the COVID-19 pandemic will continue to negatively affect our business, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic (including the possibility of resurgence of COVID-19 after initial abatement), the effectiveness of our Business Continuity and Health Emergency Response plans, the direct and indirect impact of the pandemic on our employees, customers, clients, counterparties and service providers, as well as other market participants, and actions taken, or that may yet be taken, or inaction by governmental authorities and other third parties in response to the pandemic.
The COVID-19 pandemic has contributed to:
•Increased unemployment and business disruption and decreased consumer and business confidence and consumer and commercial activity generally, leading to an increased risk of delinquencies, defaults and foreclosures.
•Higher and more volatile credit loss expense and potential for increased charge-offs, particularly as customers may need to draw on their committed credit lines to help finance their businesses and activities.
•Ratings downgrades, credit deterioration and defaults in many industries, particularly energy and natural resources, restaurants, hospitality, entertainment, transportation and commercial real estate.
•A sudden and significant reduction in the valuation of the equity, fixed-income and commodity markets and the significant increase in the volatility of those markets.
•A decrease in the rates and yields on U.S. Treasury securities, which may lead to decreased net interest income.
•Increased demands on capital and liquidity, leading us to cease repurchases of our common stock in order to preserve capital and provide added liquidity.
•A reduction in the value of the assets that we manage or otherwise administer or service for others, affecting related fee income and demand for our services.
•Heightened cybersecurity, information security and operational risks as a result of work-from-home arrangements and impacts on our service providers.
Any disruption to our ability to deliver financial products or services to, or interact with, our clients and customers could result in losses or increased operational costs, regulatory fines, penalties and other sanctions, or harm our reputation.
As noted in the section captioned “Recent Developments Related to COVID-19” in Part I. Financial Information, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations elsewhere in this report, the Federal Reserve has taken various actions and the U.S. government has enacted several fiscal stimulus measures to counteract the economic disruption caused by the COVID-19 pandemic and provide economic assistance to individual households and businesses, stabilize the markets and support economic growth. The success of these measures is unknown and they may not be sufficient to fully mitigate the negative impact of the COVID-19 pandemic. We face an increased risk of litigation and governmental, regulatory and third-party scrutiny as a result of the effects of COVID-19 on market and economic conditions and actions governmental authorities take in response to those conditions. Furthermore, various governmental programs such as the PPP are complex and our participation may lead to additional litigation and governmental, regulatory and third-party scrutiny, negative publicity and damage to our reputation. For example, our participation in the PPP as a lender may adversely affect our revenue and results of operations depending on the timing and amount of forgiveness, if any, to which our borrowers will be entitled.
The length of the pandemic and the efficacy of the extraordinary measures being put in place to address it are unknown. Until the pandemic subsides, we expect continued draws on lines of credit, reduced fee income and revenues related to investment management, insurance and brokerage operations and increased customer and client defaults, including defaults of
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unsecured loans. Even after the pandemic subsides, the U.S. economy may continue to experience a recession, and we anticipate our businesses would be materially and adversely affected by a prolonged recession. To the extent the pandemic adversely affects our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in the section entitled “Risk Factors” in our 2019 Form 10-K and subsequent Quarterly Reports on Form 10-Q. See the section captioned “Recent Developments Related to COVID-19” in Part I. Financial Information, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations elsewhere in this report for further discussion.
We Are Subject To Volatility Risk In Crude Oil Prices
As of June 30, 2020, we had $1.4 billion of energy loans which comprised approximately 7.9% of our loan portfolio at that date. Furthermore, energy production and related industries represent a large part of the economies in some of our primary markets. In recent years, actions by certain members of the Organization of Petroleum Exporting Countries (“OPEC”) impacting crude oil production levels have led to increased global oil supplies, which has resulted in significant declines in market oil prices. Decreased market oil prices compressed margins for many U.S. and Texas-based oil producers, particularly those that utilize higher-cost production technologies such as hydraulic fracking and horizontal drilling, as well as oilfield service providers, energy equipment manufacturers and transportation suppliers, among others. In March of 2020, disagreements between members of OPEC signaled that production levels would rise and led to a significant decline in market oil prices. While oil prices have recovered from recent lows, on-going oil price volatility and depressed market oil prices, are expected to continue due to the uncertainties and economic impacts of COVID-19. See the section captioned “Recent Developments Related to COVID-19” in Part I. Financial Information, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations elsewhere in this report for further discussion. The price per barrel of crude oil was approximately $39 as of June 30, 2020 down from $61 as of December 31, 2019. We have experienced increased losses within our energy portfolio recently as a result of depressed oil prices and increased oil price volatility, relative to our historical experience. Continued and further depressed oil prices and increased oil price volatility could have further negative impacts on the U.S. economy, in particular, the economies of energy-dominant states such as Texas, and our borrowers and customers.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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 June 30, 2019.2020. 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
April 1, 2020 to April 30, 2020— $— — $69,153 
May 1, 2020 to May 31, 2020— — — 69,153 
June 1, 2020 to June 30, 2020— — — 69,153 
Total— — 

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
April 1, 2019 to April 30, 2019150,708
 $101.27
 150,708
 $50,000
May 1, 2019 to May 31, 2019345,599
 100.51
 345,599
 34,737
June 1, 2019 to June 30, 2019—
 —
 —
 —
Total496,307
 $100.74
 496,307
  

Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
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Item 6. Exhibits
(a) Exhibits
Exhibit

Number
Description
10.1+
10.1(1)
31.1
31.2
32.1++
32.1(2)
32.2++
32.2(2)
101
101.INS(3)
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(4)
Cover Page Interactive Data File - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
+Management contract or compensatory plan or arrangement.
++This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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

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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:July 25, 201930, 2020By:/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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