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: September 30, 2021March 31, 2022
Or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ________________ to ________________
Commission file number: 001-13221
Cullen/Frost Bankers, Inc.
(Exact name of registrant as specified in its charter)
Texas74-1751768
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
111 W. Houston Street,San Antonio,Texas78205
(Address of principal executive offices)(Zip code)
(210)220-4011
(Registrant's telephone number, including area code)
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
Common Stock, $.01 Par ValueCFRNew York Stock Exchange
Depositary Shares, each representing a 1/40th interest in a share of 4.450% Non-Cumulative Perpetual Preferred Stock, Series BCFR.PrBNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      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 filerAccelerated filer
Non-accelerated filerSmaller 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 OctoberApril 21, 20212022 there were 63,715,00864,097,017 shares of the registrant’s Common Stock, $.01 par value, outstanding.



Cullen/Frost Bankers, Inc.
Quarterly Report on Form 10-Q
September 30, 2021March 31, 2022
Table of Contents
 Page
Item 1.
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
2

Table of Contents
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Cullen/Frost Bankers, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
September 30,
2021
December 31,
2020
March 31,
2022
December 31,
2021
Assets:Assets:Assets:
Cash and due from banksCash and due from banks$638,296 $529,454 Cash and due from banks$772,095 $555,778 
Interest-bearing depositsInterest-bearing deposits15,601,647 9,758,624 Interest-bearing deposits13,684,988 15,985,244 
Federal funds soldFederal funds sold6,125 775 Federal funds sold— 34,075 
Resell agreementsResell agreements7,903 — Resell agreements— 7,903 
Total cash and cash equivalentsTotal cash and cash equivalents16,253,971 10,288,853 Total cash and cash equivalents14,457,083 16,583,000 
Securities held to maturity, net of allowance for credit losses of $158 at September 30, 2021 and $160 at December 31, 20201,759,270 1,945,673 
Securities held to maturity, net of allowance for credit losses of $158 at March 31, 2022 and $158 at December 31, 2021Securities held to maturity, net of allowance for credit losses of $158 at March 31, 2022 and $158 at December 31, 20211,665,465 1,749,179 
Securities available for sale, at estimated fair valueSecurities available for sale, at estimated fair value11,731,222 10,437,565 Securities available for sale, at estimated fair value16,184,539 13,924,628 
Trading account securitiesTrading account securities25,292 24,456 Trading account securities29,518 25,162 
Loans, net of unearned discountsLoans, net of unearned discounts15,832,670 17,481,309 Loans, net of unearned discounts16,542,537 16,336,397 
Less: Allowance for credit losses on loansLess: Allowance for credit losses on loans(250,150)(263,177)Less: Allowance for credit losses on loans(246,835)(248,666)
Net loansNet loans15,582,520 17,218,132 Net loans16,295,702 16,087,731 
Premises and equipment, netPremises and equipment, net1,023,170 1,045,578 Premises and equipment, net1,046,410 1,050,331 
GoodwillGoodwill654,952 654,952 Goodwill654,952 654,952 
Other intangible assets, netOther intangible assets, net1,019 1,563 Other intangible assets, net720 866 
Cash surrender value of life insurance policiesCash surrender value of life insurance policies189,941 189,984 Cash surrender value of life insurance policies189,471 190,139 
Accrued interest receivable and other assetsAccrued interest receivable and other assets638,968 584,561 Accrued interest receivable and other assets772,191 612,502 
Total assetsTotal assets$47,860,325 $42,391,317 Total assets$51,296,051 $50,878,490 
Liabilities:Liabilities:Liabilities:
Deposits:Deposits:Deposits:
Non-interest-bearing demand depositsNon-interest-bearing demand deposits$17,151,583 $15,117,051 Non-interest-bearing demand deposits$18,114,430 $18,423,018 
Interest-bearing depositsInterest-bearing deposits22,461,184 19,898,710 Interest-bearing deposits26,316,499 24,272,678 
Total depositsTotal deposits39,612,767 35,015,761 Total deposits44,430,929 42,695,696 
Federal funds purchasedFederal funds purchased27,200 48,850 Federal funds purchased35,200 25,925 
Repurchase agreementsRepurchase agreements2,200,029 2,068,147 Repurchase agreements1,842,618 2,740,799 
Junior subordinated deferrable interest debentures, net of unamortized issuance costsJunior subordinated deferrable interest debentures, net of unamortized issuance costs136,400 136,357 Junior subordinated deferrable interest debentures, net of unamortized issuance costs123,026 123,011 
Subordinated notes, net of unamortized issuance costsSubordinated notes, net of unamortized issuance costs99,139 99,021 Subordinated notes, net of unamortized issuance costs99,217 99,178 
Accrued interest payable and other liabilitiesAccrued interest payable and other liabilities1,412,428 730,165 Accrued interest payable and other liabilities988,769 754,326 
Total liabilitiesTotal liabilities43,487,963 38,098,301 Total liabilities47,519,759 46,438,935 
Shareholders’ Equity:Shareholders’ Equity:Shareholders’ Equity:
Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; 150,000 Series B shares ($1,000 liquidation preference) issued at September 30, 2021 and December 31, 2020145,452 145,452 
Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,236,306 shares issued at September 30, 2021 and December 31, 2020642 642 
Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; 150,000 Series B shares ($1,000 liquidation preference) issued at March 31, 2022 and December 31, 2021Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; 150,000 Series B shares ($1,000 liquidation preference) issued at March 31, 2022 and December 31, 2021145,452 145,452 
Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,236,306 shares issued at March 31, 2022 and December 31, 2021Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,236,306 shares issued at March 31, 2022 and December 31, 2021642 642 
Additional paid-in capitalAdditional paid-in capital1,004,924 997,168 Additional paid-in capital1,012,033 1,009,921 
Retained earningsRetained earnings2,920,074 2,750,723 Retained earnings3,002,642 2,956,966 
Accumulated other comprehensive income (loss), net of taxAccumulated other comprehensive income (loss), net of tax350,283 512,970 Accumulated other comprehensive income (loss), net of tax(371,790)347,318 
Treasury stock, at cost; 568,570 shares at September 30, 2021 and 1,225,066 shares at December 31, 2020(49,013)(113,939)
Treasury stock, at cost; 142,099 shares at March 31, 2022 and 250,070 shares at December 31, 2021Treasury stock, at cost; 142,099 shares at March 31, 2022 and 250,070 shares at December 31, 2021(12,687)(20,744)
Total shareholders’ equityTotal shareholders’ equity4,372,362 4,293,016 Total shareholders’ equity3,776,292 4,439,555 
Total liabilities and shareholders’ equityTotal liabilities and shareholders’ equity$47,860,325 $42,391,317 Total liabilities and shareholders’ equity$51,296,051 $50,878,490 
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
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
202120202021202020222021
Interest income:Interest income:Interest income:
Loans, including feesLoans, including fees$168,779 $169,002 $518,957 $512,444 Loans, including fees$149,977 $167,483 
Securities:Securities:Securities:
TaxableTaxable20,736 22,560 61,366 71,950 Taxable43,058 20,028 
Tax-exemptTax-exempt56,882 58,073 169,656 175,968 Tax-exempt56,866 56,663 
Interest-bearing depositsInterest-bearing deposits5,830 1,512 11,877 10,894 Interest-bearing deposits6,343 2,433 
Federal funds soldFederal funds sold13 721 Federal funds sold13 
Resell agreementsResell agreements14 11 163 Resell agreements
Total interest incomeTotal interest income252,235 251,166 761,880 772,140 Total interest income256,261 246,611 
Interest expense:Interest expense:Interest expense:
DepositsDeposits3,677 5,397 10,693 27,677 Deposits4,912 3,517 
Federal funds purchasedFederal funds purchased24 92 Federal funds purchased12 
Repurchase agreementsRepurchase agreements632 475 1,597 3,913 Repurchase agreements518 395 
Junior subordinated deferrable interest debenturesJunior subordinated deferrable interest debentures631 700 1,915 2,893 Junior subordinated deferrable interest debentures584 646 
Subordinated notesSubordinated notes1,164 1,164 3,492 3,492 Subordinated notes1,164 1,164 
Federal Home Loan Bank advances— — — 318 
Total interest expenseTotal interest expense6,113 7,743 17,721 38,385 Total interest expense7,190 5,730 
Net interest incomeNet interest income246,122 243,423 744,159 733,755 Net interest income249,071 240,881 
Credit loss expenseCredit loss expense— 20,302 63 227,474 Credit loss expense— 63 
Net interest income after credit loss expenseNet interest income after credit loss expense246,122 223,121 744,096 506,281 Net interest income after credit loss expense249,071 240,818 
Non-interest income:Non-interest income:Non-interest income:
Trust and investment management feesTrust and investment management fees37,381 31,469 110,569 97,002 Trust and investment management fees38,656 35,314 
Service charges on deposit accountsService charges on deposit accounts21,216 19,812 61,058 60,043 Service charges on deposit accounts22,740 19,993 
Insurance commissions and feesInsurance commissions and fees11,748 11,456 39,834 38,609 Insurance commissions and fees16,608 17,313 
Interchange and card transaction feesInterchange and card transaction fees4,490 3,503 13,224 9,724 Interchange and card transaction fees4,226 4,093 
Other charges, commissions and feesOther charges, commissions and fees9,785 8,370 26,729 25,398 Other charges, commissions and fees9,627 8,304 
Net gain (loss) on securities transactionsNet gain (loss) on securities transactions— — — 108,989 Net gain (loss) on securities transactions— — 
OtherOther8,569 8,991 26,258 34,352 Other9,533 8,219 
Total non-interest incomeTotal non-interest income93,189 83,601 277,672 374,117 Total non-interest income101,390 93,236 
Non-interest expense:Non-interest expense:Non-interest expense:
Salaries and wagesSalaries and wages99,463 93,323 289,956 282,485 Salaries and wages111,329 93,458 
Employee benefitsEmployee benefits21,576 16,074 62,840 59,824 Employee benefits24,220 22,536 
Net occupancyNet occupancy27,208 25,466 79,909 76,116 Net occupancy27,411 26,051 
Technology, furniture and equipmentTechnology, furniture and equipment28,494 26,482 84,508 77,768 Technology, furniture and equipment29,157 28,016 
Deposit insuranceDeposit insurance3,088 2,372 8,893 7,796 Deposit insurance3,633 2,928 
Intangible amortizationIntangible amortization157 212 544 710 Intangible amortization146 202 
OtherOther38,017 38,221 116,749 121,293 Other42,836 36,951 
Total non-interest expenseTotal non-interest expense218,003 202,150 643,399 625,992 Total non-interest expense238,732 210,142 
Income before income taxesIncome before income taxes121,308 104,572 378,369 254,406 Income before income taxes111,729 123,912 
Income taxesIncome taxes13,333 9,516 36,311 11,525 Income taxes12,627 7,897 
Net incomeNet income107,975 95,056 342,058 242,881 Net income99,102 116,015 
Preferred stock dividendsPreferred stock dividends1,668 — 5,488 2,016 Preferred stock dividends1,669 2,151 
Redemption of preferred stock— — — 5,514 
Net income available to common shareholdersNet income available to common shareholders$106,307 $95,056 $336,570 $235,351 Net income available to common shareholders$97,433 $113,864 
Earnings per common share:Earnings per common share:Earnings per common share:
BasicBasic$1.66 $1.50 $5.25 $3.72 Basic$1.51 $1.78 
DilutedDiluted1.65 1.50 5.22 3.71 Diluted1.50 1.77 
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
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
202120202021202020222021
Net incomeNet income$107,975 $95,056 $342,058 $242,881 Net income$99,102 $116,015 
Other comprehensive income (loss), before tax: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:Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the periodChange in net unrealized gain/loss during the period(80,668)20,332 (209,779)406,959 Change in net unrealized gain/loss during the period(910,795)(159,779)
Change in net unrealized gain on securities transferred to held to maturityChange in net unrealized gain on securities transferred to held to maturity(237)(294)(741)(979)Change in net unrealized gain on securities transferred to held to maturity(209)(259)
Reclassification adjustment for net (gains) losses included in net incomeReclassification adjustment for net (gains) losses included in net income— — — (108,989)Reclassification adjustment for net (gains) losses included in net income— — 
Total securities available for sale and transferred securitiesTotal securities available for sale and transferred securities(80,905)20,038 (210,520)296,991 Total securities available for sale and transferred securities(911,004)(160,038)
Defined-benefit post-retirement benefit plans: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)Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)1,529 1,330 4,587 3,989 Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)741 1,529 
Total defined-benefit post-retirement benefit plansTotal defined-benefit post-retirement benefit plans1,529 1,330 4,587 3,989 Total defined-benefit post-retirement benefit plans741 1,529 
Other comprehensive income (loss), before taxOther comprehensive income (loss), before tax(79,376)21,368 (205,933)300,980 Other comprehensive income (loss), before tax(910,263)(158,509)
Deferred tax expense (benefit)Deferred tax expense (benefit)(16,669)4,487 (43,246)63,205 Deferred tax expense (benefit)(191,155)(33,287)
Other comprehensive income (loss), net of taxOther comprehensive income (loss), net of tax(62,707)16,881 (162,687)237,775 Other comprehensive income (loss), net of tax(719,108)(125,222)
Comprehensive income (loss)Comprehensive income (loss)$45,268 $111,937 $179,371 $480,656 Comprehensive income (loss)$(620,006)$(9,207)
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
TotalPreferred
Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
Treasury
Stock
Total
Three months ended:Three months ended:Three months ended:
September 30, 2021
March 31, 2022March 31, 2022
Balance at beginning of periodBalance at beginning of period$145,452 $642 $1,002,939 $2,862,966 $412,990 $(51,172)$4,373,817 Balance at beginning of period$145,452 $642 $1,009,921 $2,956,966 $347,318 $(20,744)$4,439,555 
Net incomeNet income— — — 107,975 — — 107,975 Net income— — — 99,102 — — 99,102 
Other comprehensive income (loss), net of taxOther comprehensive income (loss), net of tax— — — — (62,707)— (62,707)Other comprehensive income (loss), net of tax— — — — (719,108)— (719,108)
Stock option exercises/stock unit conversions (21,968 shares)— — — (1,085)— 2,213 1,128 
Stock option exercises/stock unit conversions (115,430 shares)Stock option exercises/stock unit conversions (115,430 shares)— — — (3,314)— 9,053 5,739 
Stock-based compensation expense recognized in earningsStock-based compensation expense recognized in earnings— — 1,985 — — — 1,985 Stock-based compensation expense recognized in earnings— — 2,112 — — — 2,112 
Purchase of treasury stock (478 shares)— — — — — (54)(54)
Purchase of treasury stock (7,459 shares)Purchase of treasury stock (7,459 shares)— — — — — (996)(996)
Cash dividends – Series B preferred stock (approximately $11.13 per share which is equivalent to approximately $0.28 per depositary share)Cash dividends – Series B preferred stock (approximately $11.13 per share which is equivalent to approximately $0.28 per depositary share)— — — (1,668)— — (1,668)Cash dividends – Series B preferred stock (approximately $11.13 per share which is equivalent to approximately $0.28 per depositary share)— — — (1,669)— — (1,669)
Cash dividends – common stock ($0.75 per share)Cash dividends – common stock ($0.75 per share)— — — (48,114)— — (48,114)Cash dividends – common stock ($0.75 per share)— — — (48,443)— — (48,443)
Balance at end of periodBalance at end of period$145,452 $642 $1,004,924 $2,920,074 $350,283 $(49,013)$4,372,362 Balance at end of period$145,452 $642 $1,012,033 $3,002,642 $(371,790)$(12,687)$3,776,292 
September 30, 2020
March 31, 2021March 31, 2021
Balance at beginning of periodBalance at beginning of period$— $642 $989,034 $2,678,686 $488,264 $(147,825)$4,008,801 Balance at beginning of period$145,452 $642 $997,168 $2,750,723 $512,970 $(113,939)$4,293,016 
Net incomeNet income— — — 95,056 — — 95,056 Net income— — — 116,015 — — 116,015 
Other comprehensive income (loss), net of taxOther comprehensive income (loss), net of tax— — — — 16,881 — 16,881 Other comprehensive income (loss), net of tax— — — — (125,222)— (125,222)
Stock option exercises/stock unit conversions (53,425 shares)— — — (2,502)— 5,200 2,698 
Stock option exercises/stock unit conversions (513,824 shares)Stock option exercises/stock unit conversions (513,824 shares)— — — (21,342)— 50,739 29,397 
Stock-based compensation expense recognized in earningsStock-based compensation expense recognized in earnings— — 2,443 — — — 2,443 Stock-based compensation expense recognized in earnings— — 2,526 — — — 2,526 
Purchase of treasury stock (400 shares)— — — — — (27)(27)
Treasury stock issued to the 401(k) stock purchase plan (58,900 shares)— — — (1,602)— 5,733 4,131 
Cash dividends – common stock ($0.71 per share)— — — (44,957)— — (44,957)
Purchase of treasury stock (11,625 shares)Purchase of treasury stock (11,625 shares)— — — — — (1,288)(1,288)
Treasury stock issued to the 401(k) stock purchase plan (18,555 shares)Treasury stock issued to the 401(k) stock purchase plan (18,555 shares)— — — (57)— 1,806 1,749 
Cash dividends – Series B preferred stock (approximately $14.34 per share which is equivalent to approximately $0.36 per depositary share)Cash dividends – Series B preferred stock (approximately $14.34 per share which is equivalent to approximately $0.36 per depositary share)— — — (2,151)— — (2,151)
Cash dividends – common stock ($0.72 per share)Cash dividends – common stock ($0.72 per share)— — — (46,124)— — (46,124)
Balance at end of periodBalance at end of period$— $642 $991,477 $2,724,681 $505,145 $(136,919)$4,085,026 Balance at end of period$145,452 $642 $999,694 $2,797,064 $387,748 $(62,682)$4,267,918 
See accompanying Notes to Consolidated Financial Statements

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Table of Contents
Cullen/Frost Bankers, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
(Dollars in thousands, except per share amounts)
Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
Treasury
Stock
Total
Nine months ended:
September 30, 2021
Balance at beginning of period$145,452 $642 $997,168 $2,750,723 $512,970 $(113,939)$4,293,016 
Net income— — — 342,058 — — 342,058 
Other comprehensive income (loss), net of tax— — — — (162,687)— (162,687)
Stock option exercises/stock unit conversions (650,044 shares)— — — (26,652)— 64,462 37,810 
Stock-based compensation expense recognized in earnings— — 7,756 — — — 7,756 
Purchase of treasury stock (12,103 shares)— — — — — (1,342)(1,342)
Treasury stock issued to the 401(k) stock purchase plan (18,555 shares)— — — (57)— 1,806 1,749 
Cash dividends – Series B preferred stock (approximately $36.59 per share which is equivalent to approximately $0.91 per depositary share)— — — (5,488)— — (5,488)
Cash dividends – common stock ($2.19 per share)— — — (140,510)— — (140,510)
Balance at end of period$145,452 $642 $1,004,924 $2,920,074 $350,283 $(49,013)$4,372,362 
September 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— — — 242,881 — — 242,881 
Other comprehensive income (loss), net of tax— — — — 237,775 — 237,775 
Stock option exercises/stock unit conversions (196,948 shares)— — — (11,627)— 19,171 7,544 
Stock-based compensation expense recognized in earnings— — 8,227 — — — 8,227 
Redemption of series A preferred stock (6,000,000 shares)(144,486)— — (5,514)— — (150,000)
Purchase of treasury stock (182,225 shares)— — — — — (14,000)(14,000)
Treasury stock issued to the 401(k) stock purchase plan (97,843 shares)— — — (2,563)— 9,524 6,961 
Cash dividends – series A preferred stock (approximately $0.34 per share)— — — (2,016)— — (2,016)
Cash dividends – common stock ($2.13 per share)— — — (134,762)— — (134,762)
Balance at end of period$— $642 $991,477 $2,724,681 $505,145 $(136,919)$4,085,026 
See accompanying Notes to Consolidated Financial Statements

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Table of Contents
Cullen/Frost Bankers, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Nine Months Ended
September 30,
Three Months Ended
March 31,
2021202020222021
Operating Activities:Operating Activities:Operating Activities:
Net incomeNet income$342,058 $242,881 Net income$99,102 $116,015 
Adjustments to reconcile net income to net cash from operating activities:Adjustments to reconcile net income to net cash from operating activities:Adjustments to reconcile net income to net cash from operating activities:
Credit loss expenseCredit loss expense63 227,474 Credit loss expense— 63 
Deferred tax expense (benefit)Deferred tax expense (benefit)4,672 (8,803)Deferred tax expense (benefit)(432)4,172 
Accretion of loan discountsAccretion of loan discounts(9,879)(11,905)Accretion of loan discounts(2,945)(3,425)
Securities premium amortization (discount accretion), netSecurities premium amortization (discount accretion), net90,017 93,080 Securities premium amortization (discount accretion), net27,654 30,598 
Net (gain) loss on securities transactionsNet (gain) loss on securities transactions— (108,989)Net (gain) loss on securities transactions— — 
Depreciation and amortizationDepreciation and amortization51,550 47,752 Depreciation and amortization17,551 16,941 
Net (gain) loss on sale/write-down of assets/foreclosed assetsNet (gain) loss on sale/write-down of assets/foreclosed assets(1,885)(6)Net (gain) loss on sale/write-down of assets/foreclosed assets130 (134)
Stock-based compensationStock-based compensation7,756 8,227 Stock-based compensation2,112 2,526 
Net tax benefit from stock-based compensationNet tax benefit from stock-based compensation4,505 694 Net tax benefit from stock-based compensation1,244 3,136 
Earnings on life insurance policiesEarnings on life insurance policies(1,901)(2,895)Earnings on life insurance policies(533)(740)
Net change in:Net change in:Net change in:
Trading account securitiesTrading account securities(421)(197)Trading account securities139 (2,153)
Lease right-of-use assetsLease right-of-use assets17,566 17,419 Lease right-of-use assets5,970 5,889 
Accrued interest receivable and other assetsAccrued interest receivable and other assets(65,849)(52,842)Accrued interest receivable and other assets(55,232)73,164 
Accrued interest payable and other liabilitiesAccrued interest payable and other liabilities114,361 23,208 Accrued interest payable and other liabilities238,065 (26,287)
Net cash from operating activitiesNet cash from operating activities552,613 475,098 Net cash from operating activities332,825 219,765 
Investing Activities:Investing Activities:Investing Activities:
Securities held to maturity:Securities held to maturity:Securities held to maturity:
PurchasesPurchases— (1,500)Purchases(31,545)— 
Maturities, calls and principal repaymentsMaturities, calls and principal repayments171,969 63,333 Maturities, calls and principal repayments111,211 120,029 
Securities available for sale:Securities available for sale:Securities available for sale:
PurchasesPurchases(4,105,085)(8,324,364)Purchases(3,356,279)(455,091)
SalesSales— 1,162,352 Sales— — 
Maturities, calls and principal repaymentsMaturities, calls and principal repayments3,125,786 8,162,036 Maturities, calls and principal repayments236,032 351,612 
Net change in loansNet change in loans1,649,429 (3,551,650)Net change in loans(209,490)(406,836)
Benefits received on life insurance policiesBenefits received on life insurance policies1,944 903 Benefits received on life insurance policies1,201 968 
Proceeds from sales of premises and equipmentProceeds from sales of premises and equipment7,033 3,054 Proceeds from sales of premises and equipment
Purchases of premises and equipmentPurchases of premises and equipment(37,088)(81,866)Purchases of premises and equipment(12,374)(12,814)
Proceeds from sales of repossessed propertiesProceeds from sales of repossessed properties809 73 Proceeds from sales of repossessed properties1,543 100 
Net cash from investing activitiesNet cash from investing activities814,797 (2,567,629)Net cash from investing activities(3,259,700)(402,029)
Financing Activities:Financing Activities:Financing Activities:
Net change in depositsNet change in deposits4,597,006 5,859,939 Net change in deposits1,735,233 1,909,419 
Net change in short-term borrowingsNet change in short-term borrowings110,232 (86,675)Net change in short-term borrowings(888,906)(193,573)
Proceeds from Federal Home Loan Bank advances— 1,250,000 
Principal payments on Federal Home Loan Bank advances— (1,250,000)
Redemption of Series A preferred stock— (150,000)
Proceeds from stock option exercisesProceeds from stock option exercises37,810 7,544 Proceeds from stock option exercises5,739 29,397 
Purchase of treasury stockPurchase of treasury stock(1,342)(14,000)Purchase of treasury stock(996)(1,288)
Cash dividends paid on preferred stockCash dividends paid on preferred stock(5,488)(2,016)Cash dividends paid on preferred stock(1,669)(2,151)
Cash dividends paid on common stockCash dividends paid on common stock(140,510)(134,762)Cash dividends paid on common stock(48,443)(46,124)
Net cash from financing activitiesNet cash from financing activities4,597,708 5,480,030 Net cash from financing activities800,958 1,695,680 
Net change in cash and cash equivalentsNet change in cash and cash equivalents5,965,118 3,387,499 Net change in cash and cash equivalents(2,125,917)1,513,416 
Cash and cash equivalents at beginning of periodCash and cash equivalents at beginning of period10,288,853 3,788,181 Cash and cash equivalents at beginning of period16,583,000 10,288,853 
Cash and cash equivalents at end of periodCash and cash equivalents at end of period$16,253,971 $7,175,680 Cash and cash equivalents at end of period$14,457,083 $11,802,269 

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, 2020,2021, included in our Annual Report on Form 10-K filed with the SEC on February 5, 20214, 2022 (the “2020“2021 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:
Nine Months Ended
September 30,
Three Months Ended
March 31,
2021202020222021
Cash paid for interestCash paid for interest$23,722 $41,634 Cash paid for interest$8,069 $9,719 
Cash paid for income taxesCash paid for income taxes28,043 44,140 Cash paid for income taxes— — 
Significant non-cash transactions:Significant non-cash transactions:Significant non-cash transactions:
Unsettled securities transactionsUnsettled securities transactions600,874 6,698 Unsettled securities transactions78,769 21,957 
Loans foreclosed and transferred to other real estate owned and foreclosed assets3,464 140 
Right-of-use lease assets obtained in exchange for lessee operating lease liabilitiesRight-of-use lease assets obtained in exchange for lessee operating lease liabilities4,045 18,284 Right-of-use lease assets obtained in exchange for lessee operating lease liabilities4,013 1,326 
Treasury stock issued to 401(k) stock purchase planTreasury stock issued to 401(k) stock purchase plan1,749 6,961 Treasury stock issued to 401(k) stock purchase plan— 1,749 
Accounting Changes, Reclassifications and Restatements. Certain items in prior financial statements have been reclassified to conform to the current presentation.
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, 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 our 2020 Form 10-K.
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Note 2 - Securities
Securities - Held to Maturity. A summary of the amortized cost, fair value and allowance for credit losses related to securities held to maturity as of September 30, 2021March 31, 2022 and December 31, 20202021 is presented below.
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Allowance
for Credit
Losses
Net
Carrying
Amount
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Allowance
for Credit
Losses
Net
Carrying
Amount
September 30, 2021
March 31, 2022March 31, 2022
Residential mortgage-backed securitiesResidential mortgage-backed securities$527,649 $24,332 $— $551,981 $— $527,649 Residential mortgage-backed securities$526,969 $— $17,519 $509,450 $— $526,969 
States and political subdivisionsStates and political subdivisions1,230,279 41,840 32 1,272,087 (158)1,230,121 States and political subdivisions1,137,154 3,622 11,717 1,129,059 (158)1,136,996 
OtherOther1,500 — — 1,500 — 1,500 Other1,500 — 16 1,484 — 1,500 
TotalTotal$1,759,428 $66,172 $32 $1,825,568 $(158)$1,759,270 Total$1,665,623 $3,622 $29,252 $1,639,993 $(158)$1,665,465 
December 31, 2020
December 31, 2021December 31, 2021
Residential mortgage-backed securitiesResidential mortgage-backed securities$528,784 $41,742 $— $570,526 $— $528,784 Residential mortgage-backed securities$527,264 $18,766 $— $546,030 $— $527,264 
States and political subdivisionsStates and political subdivisions1,415,549 65,321 — 1,480,870 (160)1,415,389 States and political subdivisions1,220,573 41,141 101 1,261,613 (158)1,220,415 
OtherOther1,500 — — 1,500 — 1,500 Other1,500 — — 1,500 — 1,500 
TotalTotal$1,945,833 $107,063 $— $2,052,896 $(160)$1,945,673 Total$1,749,337 $59,907 $101 $1,809,143 $(158)$1,749,179 
All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. The carrying value of held-to-maturity securities pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law was $553.1$252.0 million and $659.2$642.3 million at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. Accrued interest receivable on held-to-maturity securities totaled $10.8$10.0 million and $21.7$18.4 million at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively and is included in accrued interest receivable and other assets in the accompanying consolidated balance sheets.
From time to time, we have reclassified certain securities from available for sale to held to maturity. The net unamortized, unrealized gain remaining on transferred securities included in accumulated other comprehensive income in the accompanying balance sheet totaled $2.8$2.3 million ($2.21.8 million, net of tax) at September 30, 2021March 31, 2022 and $3.5$2.5 million ($2.82.0 million, net of tax) at December 31, 2020.2021. This amount will be amortized out of accumulated other comprehensive income over the remaining life of the underlying securities as an adjustment of the yield on those securities.
The following table summarizes Moody's and/or Standard & Poor's bond ratings for our portfolio of held-to-maturity securities issued by States and political subdivisions and other securities as of September 30, 2021March 31, 2022 and December 31, 2020:2021:
States and Political SubdivisionsStates and Political Subdivisions
Not Guaranteed or Pre-RefundedGuaranteed by the Texas PSFPre-RefundedTotalOther
Securities
Not Guaranteed or Pre-RefundedGuaranteed by the Texas PSFPre-RefundedTotalOther
Securities
September 30, 2021
March 31, 2022March 31, 2022
Aaa/AAAAaa/AAA$95,820 $466,028 $562,320 $1,124,168 $— Aaa/AAA$91,034 $467,039 $471,183 $1,029,256 $— 
Aa/AAAa/AA106,111 — — 106,111 — Aa/AA107,898 — — 107,898 — 
A— — — — — 
Not ratedNot rated— — — — 1,500 Not rated— — — — 1,500 
TotalTotal$201,931 $466,028 $562,320 $1,230,279 $1,500 Total$198,932 $467,039 $471,183 $1,137,154 $1,500 
December 31, 2020
December 31, 2021December 31, 2021
Aaa/AAAAaa/AAA$115,016 $659,999 $470,745 $1,245,760 $— Aaa/AAA$92,379 $460,648 $563,251 $1,116,278 $— 
Aa/AAAa/AA107,065 — — 107,065 — Aa/AA104,295 — — 104,295 — 
A62,724 — — 62,724 — 
Not ratedNot rated— — — — 1,500 Not rated— — — — 1,500 
TotalTotal$284,805 $659,999 $470,745 $1,415,549 $1,500 Total$196,674 $460,648 $563,251 $1,220,573 $1,500 
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The following table details activity in the allowance for credit losses on held-to-maturity securities during the three and nine months ended September 30, 2021March 31, 2022 and 2020.2021.
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
202120202021202020222021
Beginning balanceBeginning balance$158 $172 $160 $— Beginning balance$158 $160 
Impact of adopting ASC 326— — — 215 
Credit loss expense (benefit)Credit loss expense (benefit)— (12)(2)(55)Credit loss expense (benefit)— (2)
Ending balanceEnding balance$158 $160 $158 $160 Ending balance$158 $158 
Securities - Available for Sale. A summary of the amortized cost, fair value and allowance for credit losses related to securities available for sale as of September 30, 2021March 31, 2022 and December 31, 20202021 is presented below.
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance
for Credit
Losses
Estimated
Fair Value
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance
for Credit
Losses
Estimated
Fair Value
September 30, 2021
March 31, 2022March 31, 2022
U.S. TreasuryU.S. Treasury$1,670,692 $20,609 $6,080 $— $1,685,221 U.S. Treasury$3,658,506 $1,883 $152,643 $— $3,507,746 
Residential mortgage-backed securitiesResidential mortgage-backed securities2,467,915 37,910 14,671 — 2,491,154 Residential mortgage-backed securities5,696,906 7,246 328,113 — 5,376,039 
States and political subdivisionsStates and political subdivisions7,049,872 471,883 9,266 — 7,512,489 States and political subdivisions7,218,821 135,206 95,634 — 7,258,393 
OtherOther42,358 — — — 42,358 Other42,361 — — — 42,361 
TotalTotal$11,230,837 $530,402 $30,017 $— $11,731,222 Total$16,616,594 $144,335 $576,390 $— $16,184,539 
December 31, 2020
December 31, 2021December 31, 2021
U.S. TreasuryU.S. Treasury$1,084,542 $35,091 $— $— $1,119,633 U.S. Treasury$2,165,702 $23,333 $9,602 $— $2,179,433 
Residential mortgage-backed securitiesResidential mortgage-backed securities1,916,581 71,102 — 1,987,679 Residential mortgage-backed securities4,059,692 31,662 25,089 — 4,066,265 
States and political subdivisionsStates and political subdivisions6,683,927 603,975 — — 7,287,902 States and political subdivisions7,178,135 463,810 5,374 — 7,636,571 
OtherOther42,351 — — — 42,351 Other42,359 — — — 42,359 
TotalTotal$9,727,401 $710,168 $$— $10,437,565 Total$13,445,888 $518,805 $40,065 $— $13,924,628 
All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. At September 30, 2021,March 31, 2022, all of the securities in our available for sale municipal bond portfolio were issued by the State of Texas or political subdivisions or agencies within the State of Texas, of which approximately 76.9%75.7% 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 $4.9$4.8 billion and $4.4$5.8 billion at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. Accrued interest receivable on available-for-sale securities totaled $69.0$80.8 million and $111.0$120.5 million at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, and is included in accrued interest receivable and other assets in the accompanying consolidated balance sheets.
The table below summarizes, as of September 30, 2021,March 31, 2022, 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 MonthsTotalLess than 12 MonthsMore than 12 MonthsTotal
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
U.S. TreasuryU.S. Treasury$687,535 $6,080 $— $— $687,535 $6,080 U.S. Treasury$3,220,375 $152,643 $— $— $3,220,375 $152,643 
Residential mortgage-backed securitiesResidential mortgage-backed securities984,236 14,671 — — 984,236 14,671 Residential mortgage-backed securities4,583,657 286,421 402,940 41,692 4,986,597 328,113 
States and political subdivisionsStates and political subdivisions636,776 9,266 — — 636,776 9,266 States and political subdivisions1,233,614 93,136 13,602 2,498 1,247,216 95,634 
TotalTotal$2,308,547 $30,017 $— $— $2,308,547 $30,017 Total$9,037,646 $532,200 $416,542 $44,190 $9,454,188 $576,390 
As of September 30, 2021, 0March 31, 2022, 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 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
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and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost. The
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unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline.
Contractual Maturities. The following table summarizes the maturity distribution schedule of securities held to maturity and securities available for sale as of September 30, 2021.March 31, 2022. Mortgage-backed securities are included in maturity categories based on their stated maturity date. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Other securities classified as available for sale include stock in the Federal Reserve Bank and the Federal Home Loan Bank, which have no maturity date. These securities have been included in the total column only.
Within 1 Year1 - 5 Years5 - 10 YearsAfter 10 YearsTotalWithin 1 Year1 - 5 Years5 - 10 YearsAfter 10 YearsTotal
Held To MaturityHeld To MaturityHeld To Maturity
Amortized CostAmortized CostAmortized Cost
Residential mortgage-backed securitiesResidential mortgage-backed securities$65 $— $515,356 $12,228 $527,649 Residential mortgage-backed securities$16 $— $514,842 $12,111 $526,969 
States and political subdivisionsStates and political subdivisions456,778 181,302 88,862 503,337 1,230,279 States and political subdivisions429,852 118,516 56,735 532,051 1,137,154 
OtherOther1,500 — — — 1,500 Other— 1,500 — — 1,500 
TotalTotal$458,343 $181,302 $604,218 $515,565 $1,759,428 Total$429,868 $120,016 $571,577 $544,162 $1,665,623 
Estimated Fair ValueEstimated Fair ValueEstimated Fair Value
Residential mortgage-backed securitiesResidential mortgage-backed securities$65 $— $539,142 $12,774 $551,981 Residential mortgage-backed securities$16 $— $498,078 $11,356 $509,450 
States and political subdivisionsStates and political subdivisions464,067 187,495 90,295 530,230 1,272,087 States and political subdivisions431,961 119,698 56,973 520,427 1,129,059 
OtherOther1,500 — — — 1,500 Other— 1,484 — — 1,484 
TotalTotal$465,632 $187,495 $629,437 $543,004 $1,825,568 Total$431,977 $121,182 $555,051 $531,783 $1,639,993 
Available For SaleAvailable For SaleAvailable For Sale
Amortized CostAmortized CostAmortized Cost
U. S. TreasuryU. S. Treasury$499,857 $533,532 $445,697 $191,606 $1,670,692 U. S. Treasury$— $2,033,995 $1,432,731 $191,780 $3,658,506 
Residential mortgage-backed securitiesResidential mortgage-backed securities743 16,678 22,146 2,428,348 2,467,915 Residential mortgage-backed securities102 12,917 19,060 5,664,827 5,696,906 
States and political subdivisionsStates and political subdivisions82,366 1,392,877 863,687 4,710,942 7,049,872 States and political subdivisions194,416 1,563,829 888,489 4,572,087 7,218,821 
OtherOther— — — — 42,358 Other— — — — 42,361 
TotalTotal$582,966 $1,943,087 $1,331,530 $7,330,896 $11,230,837 Total$194,518 $3,610,741 $2,340,280 $10,428,694 $16,616,594 
Estimated Fair ValueEstimated Fair ValueEstimated Fair Value
U. S. TreasuryU. S. Treasury$501,489 $548,216 $440,328 $195,188 $1,685,221 U. S. Treasury$— $1,978,865 $1,350,553 $178,328 $3,507,746 
Residential mortgage-backed securitiesResidential mortgage-backed securities772 17,559 22,743 2,450,080 2,491,154 Residential mortgage-backed securities103 13,212 19,327 5,343,397 5,376,039 
States and political subdivisionsStates and political subdivisions83,932 1,492,026 919,808 5,016,723 7,512,489 States and political subdivisions197,231 1,603,985 899,602 4,557,575 7,258,393 
OtherOther— — — — 42,358 Other— — — — 42,361 
TotalTotal$586,193 $2,057,801 $1,382,879 $7,661,991 $11,731,222 Total$197,334 $3,596,062 $2,269,482 $10,079,300 $16,184,539 
Sales of Securities. Sales of securitiesNoheld to maturity or available for sale securities were as follows:sold during the three months ended March 31, 2022 or 2021.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Proceeds from sales$— $— $— $1,162,352 
Gross realized gains— — — 108,989 
Gross realized losses— — — — 
Tax (expense) benefit of securities gains/losses— — ��� (22,888)
Premiums and Discounts. Premium amortization and discount accretion included in interest income on securities was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Premium amortization$(30,240)$(31,540)$(92,016)$(94,873)
Discount accretion657 637 1,999 1,793 
Net (premium amortization) discount accretion$(29,583)$(30,903)$(90,017)$(93,080)
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Three Months Ended
March 31,
20222021
Premium amortization$(29,060)$(31,235)
Discount accretion1,406 637 
Net (premium amortization) discount accretion$(27,654)$(30,598)
Trading Account Securities. Trading account securities, at estimated fair value, were as follows:
September 30,
2021
December 31,
2020
March 31,
2022
December 31,
2021
U.S. TreasuryU.S. Treasury$24,087 $23,996 U.S. Treasury$23,939 $24,237 
States and political subdivisionsStates and political subdivisions1,205 460 States and political subdivisions5,579 925 
TotalTotal$25,292 $24,456 Total$29,518 $25,162 
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Net gains and losses on trading account securities were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
202120202021202020222021
Net gain on sales transactionsNet gain on sales transactions$314 $159 $716 $933 Net gain on sales transactions$340 $109 
Net mark-to-market gains (losses)Net mark-to-market gains (losses)(2)(71)94 Net mark-to-market gains (losses)(168)(69)
Net gain (loss) on trading account securitiesNet gain (loss) on trading account securities$312 $160 $645 $1,027 Net gain (loss) on trading account securities$172 $40 
Note 3 - Loans
Loans were as follows:
September 30,
2021
Percentage
of Total
December 31,
2020
Percentage
of Total
March 31,
2022
December 31,
2021
Commercial and industrialCommercial and industrial$4,929,656 31.1 %$4,955,341 28.4 %Commercial and industrial$5,584,117 $5,364,954 
Energy:Energy:Energy:
ProductionProduction774,753 4.9 976,473 5.6 Production820,107 878,436 
ServiceService107,585 0.7 116,825 0.7 Service113,708 105,901 
OtherOther95,873 0.6 141,900 0.8 Other102,764 93,455 
Total energyTotal energy978,211 6.2 1,235,198 7.1 Total energy1,036,579 1,077,792 
Paycheck Protection ProgramPaycheck Protection Program827,820 5.2 2,433,849 13.9 Paycheck Protection Program207,669 428,882 
Commercial real estate:Commercial real estate:Commercial real estate:
Commercial mortgagesCommercial mortgages5,648,541 35.7 5,478,806 31.3 Commercial mortgages5,918,011 5,867,062 
ConstructionConstruction1,266,633 8.0 1,223,814 7.0 Construction1,421,878 1,304,271 
LandLand335,849 2.1 317,847 1.8 Land458,510 405,277 
Total commercial real estateTotal commercial real estate7,251,023 45.8 7,020,467 40.1 Total commercial real estate7,798,399 7,576,610 
Consumer real estate:Consumer real estate:Consumer real estate:
Home equity loansHome equity loans320,597 2.0 329,390 1.9 Home equity loans321,842 324,157 
Home equity lines of creditHome equity lines of credit478,978 3.0 452,854 2.6 Home equity lines of credit544,822 519,098 
OtherOther563,464 3.6 548,530 3.1 Other566,961 567,535 
Total consumer real estateTotal consumer real estate1,363,039 8.6 1,330,774 7.6 Total consumer real estate1,433,625 1,410,790 
Total real estateTotal real estate8,614,062 54.4 8,351,241 47.7 Total real estate9,232,024 8,987,400 
Consumer and otherConsumer and other482,921 3.1 505,680 2.9 Consumer and other482,148 477,369 
Total loansTotal loans$15,832,670 100.0 %$17,481,309 100.0 %Total loans$16,542,537 $16,336,397 
Concentrations of Credit. Most of our lending activity occurs within the State of Texas, including the four largest metropolitan areas of Austin, Dallas/Ft. Worth, Houston and San Antonio, as well as other markets. The majority of our loan portfolio consists of commercial and industrial and commercial real estate loans. As of September 30, 2021,March 31, 2022, there were no concentrations of loans related to any single industry in excess of 10% of total loans. The largest industry concentration was related to the energy industry, which totaled 6.2%6.3% of total loans or 6.5%(also 6.3% excluding PPP loans.loans). Unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled $1.0 billion$862.2 million and $63.7$76.0 million, respectively, as of September 30, 2021.March 31, 2022.
Foreign Loans. We have U.S. dollar denominated loans and commitments to borrowers in Mexico. The outstanding balance of these loans and the unfunded amounts available under these commitments were not significant at September 30, 2021March 31, 2022 or December 31, 2020.2021.
Related Party Loans. In the ordinary course of business, we have granted loans to certain directors, executive officers and their affiliates (collectively referred to as “related parties”). Such loans totaled $318.8$346.5 million at September 30, 2021March 31, 2022 and $353.1$350.5 million at December 31, 2020.2021.
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Accrued Interest Receivable. Accrued interest receivable on loans totaled $39.0$39.5 million and $48.7$40.0 million at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively and is included in accrued interest receivable and other assets in the accompany consolidated balance sheets.
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COVID-19 Loan Deferments. Certain borrowers have been unable to meet their contractual payment obligations becauseTable of the adverse effects of COVID-19. To help mitigate these effects, loan customers were able to apply for a deferral of payments, or portions thereof, for up to 90 days. After 90 days, customers were able to apply for an additional deferral, and a small proportion of our customers requested such an additional deferral. In the absence of other intervening factors, such short-term modifications made on a good faith basis have not been categorized as troubled debt restructurings, nor have loans granted payment deferrals related to COVID-19 been 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). As of September 30, 2021, the amount of loans remaining in COVID-19 related deferment was not significant.Contents
Non-Accrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions.
Non-accrual loans, segregated by class of loans, were as follows:
September 30, 2021December 31, 2020March 31, 2022December 31, 2021
Total Non-AccrualNon-Accrual with No Credit Loss AllowanceTotal Non-AccrualNon-Accrual with No Credit Loss AllowanceTotal Non-AccrualNon-Accrual with No Credit Loss AllowanceTotal Non-AccrualNon-Accrual with No Credit Loss Allowance
Commercial and industrialCommercial and industrial$19,349 $11,611 $19,849 $4,479 Commercial and industrial$16,693 $6,135 $22,582 $4,701 
EnergyEnergy23,347 7,224 23,168 639 Energy12,271 6,912 14,433 8,533 
Paycheck Protection ProgramPaycheck Protection Program— — — — Paycheck Protection Program— — — — 
Commercial real estate:Commercial real estate:Commercial real estate:
Buildings, land and otherBuildings, land and other12,247 8,770 15,737 14,116 Buildings, land and other19,003 17,005 15,297 13,817 
ConstructionConstruction1,632 664 1,684 1,684 Construction583 583 948 — 
Consumer real estateConsumer real estate480 178 993 993 Consumer real estate416 114 440 138 
Consumer and otherConsumer and other— — 18 — Consumer and other— — 13 13 
TotalTotal$57,055 $28,447 $61,449 $21,911 Total$48,966 $30,749 $53,713 $27,202 
The following table presents non-accrual loans as of September 30, 2021March 31, 2022 by class and year of origination.
20212020201920182017PriorRevolving LoansRevolving Loans Converted to TermTotal20212020201920182017PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial and industrialCommercial and industrial$315 $7,922 $4,211 $676 $882 $370 $2,067 $2,906 $19,349 Commercial and industrial$— $478 $4,101 $3,910 $1,552 $1,033 $2,038 $3,581 $16,693 
EnergyEnergy— 477 6,467 1,513 — 323 12,170 2,397 23,347 Energy— — — 5,039 1,137 — 5,997 98 12,271 
Paycheck Protection ProgramPaycheck Protection Program— — — — — — — — — Paycheck Protection Program— — — — — — — — — 
Commercial real estate:Commercial real estate:Commercial real estate:
Buildings, land and otherBuildings, land and other2,096 1,723 2,811 824 2,051 2,742 — — 12,247 Buildings, land and other— 8,407 296 1,199 394 2,932 — 5,775 19,003 
ConstructionConstruction— 1,632 — — — — — — 1,632 Construction— — 583 — — — — — 583 
Consumer real estateConsumer real estate— — — — — 443 — 37 480 Consumer real estate— — — — — 390 — 26 416 
Consumer and otherConsumer and other— — — — — — — — — Consumer and other— — — — — — — — — 
TotalTotal$2,411 $11,754 $13,489 $3,013 $2,933 $3,878 $14,237 $5,340 $57,055 Total$— $8,885 $4,980 $10,148 $3,083 $4,355 $8,035 $9,480 $48,966 
Had non-accrual loans performed in accordance with their original contract terms, we would have recognized additional interest income, net of tax, of approximately $474$407 thousand and $1.4 million for the three and nine months ended September 30, 2021,March 31, 2022, and approximately $670$453 thousand and $2.3 million for the three and nine months ended September 30, 2020.
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March 31, 2021.
An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of September 30, 2021March 31, 2022 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
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 industrialCommercial and industrial$42,705 $8,634 $51,339 $4,878,317 $4,929,656 $7,522 Commercial and industrial$13,016 $8,042 $21,058 $5,563,059 $5,584,117 $4,166 
EnergyEnergy1,237 13,233 14,470 963,741 978,211 965 Energy— 6,382 6,382 1,030,197 1,036,579 287 
Paycheck Protection ProgramPaycheck Protection Program— — — 827,820 827,820 — Paycheck Protection Program671 8,377 9,048 198,621 207,669 8,377 
Commercial real estate:Commercial real estate:Commercial real estate:
Buildings, land and otherBuildings, land and other20,910 19,190 40,100 5,944,290 5,984,390 12,224 Buildings, land and other21,542 11,546 33,088 6,343,433 6,376,521 1,046 
ConstructionConstruction— — — 1,266,633 1,266,633 — Construction1,988 — 1,988 1,419,890 1,421,878 — 
Consumer real estateConsumer real estate4,148 2,101 6,249 1,356,790 1,363,039 1,985 Consumer real estate4,210 2,409 6,619 1,427,006 1,433,625 2,103 
Consumer and otherConsumer and other3,678 1,029 4,707 478,214 482,921 1,029 Consumer and other6,393 593 6,986 475,162 482,148 593 
TotalTotal$72,678 $44,187 $116,865 $15,715,805 $15,832,670 $23,725 Total$47,820 $37,349 $85,169 $16,457,368 $16,542,537 $16,572 
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Troubled Debt Restructurings. TroubledThere were no loans modified as troubled debt restructurings during the ninethree months ended September 30, 2021March 31, 2022 and 2020 are set forth in the following table.
Nine Months Ended
September 30, 2021
Nine Months Ended
September 30, 2020
Balance at
Restructure
Balance at
Period-End
Balance at
Restructure
Balance at
Period-End
Commercial and industrial$1,312 $1,237 $3,660 $1,415 
Energy3,817 3,566 — — 
Commercial real estate:
Buildings, land and other1,888 1,875 6,606 6,585 
Construction— — 1,192 1,181 
Consumer and other— — 1,104 104 
$7,017 $6,678 $12,562 $9,285 
2021. 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 didModifications have not significantlygenerally had a significant impact on our determination of the allowance for credit losses on loans.
Additional information related to restructured loans Information as of or for the ninethree months ended September 30,March 31, 2022 and 2021 and 2020related to loans restructured during the last twelve months is set forth in the following table.
September 30, 2021September 30, 2020March 31, 2022March 31, 2021
Restructured loans past due in excess of 90 days at period-end: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 loansNumber of loansNumber of loans
Dollar amount of loansDollar amount of loans$306 $3,682 Dollar amount of loans$572 $1,392 
Restructured loans on non-accrual status at period end5,072 5,353 
Charge-offs of restructured loans:Charge-offs of restructured loans:Charge-offs of restructured loans:
Recognized in connection with restructuring— — 
Recognized on previously restructured loansRecognized on previously restructured loans1,433 2,188 Recognized on previously restructured loans723 1,433 
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 (iv) 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 20202021 Form 10-K. We monitor portfolio credit quality by the weighted-average risk grade of each class of commercial loan. Individual relationship managers, under the oversight of credit administration, review updated financial information for all pass grade loans to reassess the risk grade on at least an annual basis. When a loan has a risk grade of 9, it is still considered a pass grade loan; however, it is considered to be
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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 and year of origination/renewal as of September 30, 2021.March 31, 2022. Paycheck Protection Program (“PPP”) loans are excluded as such loans are fully guaranteed by the Small Business Administration (“SBA”).
20212020201920182017PriorRevolving LoansRevolving Loans Converted to TermTotalW/A Risk Grade20222021202020192018PriorRevolving LoansRevolving Loans Converted to TermTotalW/A Risk Grade
Commercial and industrialCommercial and industrialCommercial and industrial
Risk grades 1-8Risk grades 1-8$1,009,752 $730,976 $405,216 $201,578 $160,431 $149,611 $1,875,496 $65,603 $4,598,663 6.04 Risk grades 1-8$836,152 $894,663 $592,780 $305,667 $160,622 $243,869 $2,255,878 $44,778 $5,334,409 6.18 
Risk grade 9Risk grade 99,569 35,274 30,953 26,216 12,258 18,329 70,412 5,272 208,283 9.00 Risk grade 94,702 34,513 6,562 11,434 21,841 8,319 54,008 4,721 146,100 9.00 
Risk grade 10Risk grade 1028,117 6,546 1,871 4,653 1,358 112 12,954 1,652 57,263 10.00 Risk grade 103,500 22,084 6,527 1,039 4,007 578 13,899 1,198 52,832 10.00 
Risk grade 11Risk grade 111,326 8,603 9,644 4,160 3,098 279 7,189 11,799 46,098 11.00 Risk grade 11— 1,926 6,672 9,679 1,697 2,200 5,958 5,951 34,083 11.00 
Risk grade 12Risk grade 12135 7,922 3,263 676 411 370 962 1,974 15,713 12.00 Risk grade 12— 478 2,644 3,510 1,488 619 941 2,015 11,695 12.00 
Risk grade 13Risk grade 13180 — 948 — 471 — 1,105 932 3,636 13.00 Risk grade 13— — 1,457 400 64 414 1,097 1,566 4,998 13.00 
$1,049,079 $789,321 $451,895 $237,283 $178,027 $168,701 $1,968,118 $87,232 $4,929,656 6.29 $844,354 $953,664 $616,642 $331,729 $189,719 $255,999 $2,331,781 $60,229 $5,584,117 6.34 
W/A risk gradeW/A risk grade5.97 6.35 6.91 7.04 6.20 5.94 6.17 7.60 6.29 W/A risk grade6.16 6.87 6.17 6.75 7.00 5.80 6.14 7.82 6.34 
EnergyEnergyEnergy
Risk grades 1-8Risk grades 1-8$350,757 $10,562 $10,339 $7,060 $3,958 $4,518 $392,527 $68,437 $848,158 5.94 Risk grades 1-8$279,051 $125,435 $7,519 $8,444 $4,068 $5,665 $509,657 $59,424 $999,263 5.71 
Risk grade 9Risk grade 932,434 712 1,831 270 — 737 10,136 2,574 48,694 9.00 Risk grade 91,425 103 508 1,407 96 — 5,668 43 9,250 9.00 
Risk grade 10Risk grade 10— 115 703 668 — — 860 478 2,824 10.00 Risk grade 10— — 90 580 351 — — 515 1,536 10.00 
Risk grade 11Risk grade 1111,517 1,168 17,711 1,607 — 573 19,133 3,479 55,188 11.00 Risk grade 119,097 265 512 3,256 951 178 — — 14,259 11.00 
Risk grade 12Risk grade 12— 34 4,777 90 — 323 4,641 99 9,964 12.00 Risk grade 12— — — 3,708 58 — 3,215 98 7,079 12.00 
Risk grade 13Risk grade 13— 443 1,690 1,423 — — 7,529 2,298 13,383 13.00 Risk grade 13— — — 1,331 1,079 — 2,782 — 5,192 13.00 
$394,708 $13,034 $37,051 $11,118 $3,958 $6,151 $434,826 $77,365 $978,211 6.55 $289,573 $125,803 $8,629 $18,726 $6,603 $5,843 $521,322 $60,080 $1,036,579 5.89 
W/A risk gradeW/A risk grade6.37 8.13 9.98 8.77 7.19 7.84 6.26 6.76 6.55 W/A risk grade6.36 5.77 7.73 9.34 9.24 7.16 5.41 6.31 5.89 
Commercial real estate:
Buildings, land, other
Risk grades 1-8$1,153,181 $1,146,764 $862,629 $578,768 $517,822 $842,409 $44,525 $75,360 $5,221,458 6.90 
Risk grade 913,873 143,504 70,218 48,372 29,691 34,746 4,669 6,858 351,931 9.00 
Risk grade 1014,376 16,956 69,882 51,903 65,363 55,732 — — 274,212 10.00 
Risk grade 113,995 19,766 11,351 7,615 32,698 40,245 3,000 5,872 124,542 11.00 
Risk grade 121,896 1,723 2,511 824 2,051 2,492 — — 11,497 12.00 
Risk grade 13200 — 300 — — 250 — — 750 13.00 
$1,187,521 $1,328,713 $1,016,891 $687,482 $647,625 $975,874 $52,194 $88,090 $5,984,390 7.27 
W/A risk grade7.21 7.27 7.40 7.37 7.38 7.04 7.30 7.15 7.27 
Construction
Risk grades 1-8$429,990 $284,149 $299,927 $20,457 $— $2,593 $144,950 $— $1,182,066 7.03 
Risk grade 937,113 32,002 — — 513 — 13,307 — 82,935 9.00 
Risk grade 10— — — — — — — — — 10.00 
Risk grade 11— — — — — — — — — 11.00 
Risk grade 12— 1,432 — — — — — — 1,432 12.00 
Risk grade 13— 200 — — — — — — 200 13.00 
$467,103 $317,783 $299,927 $20,457 $513 $2,593 $158,257 $— $1,266,633 7.16 
W/A risk grade7.13 6.87 7.46 7.45 9.00 6.79 7.24 — 7.16 
Total commercial real estate$1,654,624 $1,646,496 $1,316,818 $707,939 $648,138 $978,467 $210,451 $88,090 $7,251,023 7.25 
W/A risk grade7.19 7.19 7.41 7.38 7.38 7.04 7.26 7.15 7.25 
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20222021202020192018PriorRevolving LoansRevolving Loans Converted to TermTotalW/A Risk Grade
Commercial real estate:
Buildings, land, other
Risk grades 1-8$607,883 $1,554,611 $1,113,230 $809,206 $498,477 $1,057,840 $72,704 $96,924 $5,810,875 6.89 
Risk grade 96,163 20,766 108,943 53,448 23,459 45,034 5,516 2,618 265,947 9.00 
Risk grade 1046,125 22,716 7,310 66,821 24,539 57,602 — — 225,113 10.00 
Risk grade 11— 260 1,293 7,328 6,788 36,699 3,215 — 55,583 11.00 
Risk grade 12— 8,081 296 1,199 394 2,932 — 5,775 18,677 12.00 
Risk grade 13— 326 — — — — — — 326 13.00 
$660,171 $1,606,760 $1,231,072 $938,002 $553,657 $1,200,107 $81,435 $105,317 $6,376,521 7.14 
W/A risk grade7.08 7.22 7.04 7.32 7.27 6.97 7.06 6.99 7.14 
Construction
Risk grades 1-8$202,413 $634,897 $195,127 $141,510 $636 $1,842 $207,182 $3,666 $1,387,273 6.96 
Risk grade 9171 28,069 5,359 — — 423 — — 34,022 9.00 
Risk grade 10— — — — — — — — — 10.00 
Risk grade 11— — — — — — — — — 11.00 
Risk grade 12— — 583 — — — — — 583 12.00 
Risk grade 13— — — — — — — — — 13.00 
$202,584 $662,966 $201,069 $141,510 $636 $2,265 $207,182 $3,666 $1,421,878 7.01 
W/A risk grade6.83 7.28 6.38 7.98 6.22 7.17 6.28 8.00 7.01 
Total commercial real estate$862,755 $2,269,726 $1,432,141 $1,079,512 $554,293 $1,202,372 $288,617 $108,983 $7,798,399 7.11 
W/A risk grade7.02 7.24 6.95 7.41 7.27 6.97 6.50 7.03 7.11 
In the table above, certain energy loans are reported as 20212022 originations and have risk grades of 11 or higher. These loans were, for the most part, first originated in various years prior to 20212022 but were renewed in the current year.
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The following tables present weighted average risk grades for all commercial loans by class as of December 31, 2020.2021. Refer to our 20202021 Form 10-K for details of these loans by year of origination/renewal.
Commercial and IndustrialEnergyCommercial Real Estate - Buildings, Land and OtherCommercial Real Estate - ConstructionTotal Commercial Real EstateCommercial 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 GradeLoansW/A Risk GradeLoansW/A Risk GradeLoansW/A Risk GradeLoansW/A Risk GradeLoansW/A Risk GradeLoans
Risk grades 1-8Risk grades 1-86.13 $4,506,121 5.99 $968,144 6.97 $5,047,873 6.99 $1,110,025 6.98 $6,157,898 Risk grades 1-86.01 $5,063,847 5.78 $1,008,370 6.91 $5,574,922 6.99 $1,262,200 6.92 $6,837,122 
Risk grade 9Risk grade 99.00 256,198 9.00 133,547 9.00 325,227 9.00 72,287 9.00 397,514 Risk grade 99.00 187,870 9.00 36,622 9.00 321,533 9.00 41,123 9.00 362,656 
Risk grade 10Risk grade 1010.00 125,977 10.00 46,427 10.00 258,454 10.00 38,962 10.00 297,416 Risk grade 1010.00 59,137 10.00 1,773 10.00 269,447 10.00 — 10.00 269,447 
Risk grade 11Risk grade 1111.00 47,196 11.00 63,912 11.00 149,362 11.00 856 11.00 150,218 Risk grade 1111.00 31,518 11.00 16,594 11.00 91,140 11.00 — 11.00 91,140 
Risk grade 12Risk grade 1212.00 14,528 12.00 13,741 12.00 15,224 12.00 1,684 12.00 16,908 Risk grade 1212.00 12,535 12.00 8,953 12.00 15,097 12.00 748 12.00 15,845 
Risk grade 13Risk grade 1313.00 5,321 13.00 9,427 13.00 513 13.00 — 13.00 513 Risk grade 1313.00 10,047 13.00 5,480 13.00 200 13.00 200 13.00 400 
TotalTotal6.45 $4,955,341 6.85 $1,235,198 7.34 $5,796,653 7.22 $1,223,814 7.32 $7,020,467 Total6.22 $5,364,954 6.06 $1,077,792 7.22 $6,272,339 7.06 $1,304,271 7.19 $7,576,610 
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Information about the payment status of consumer loans, segregated by portfolio segment and year of origination, as of September 30, 2021March 31, 2022 was as follows:
20212020201920182017PriorRevolving LoansRevolving Loans Converted to TermTotal20222021202020192018PriorRevolving LoansRevolving Loans Converted to TermTotal
Consumer real estate:Consumer real estate:Consumer real estate:
Past due 30-89 daysPast due 30-89 days$396 $34 $277 $370 $326 $1,187 $174 $1,384 $4,148 Past due 30-89 days$— $303 $55 $465 $309 $1,587 $60 $1,431 $4,210 
Past due 90 or more daysPast due 90 or more days— — 110 11 226 645 967 142 2,101 Past due 90 or more days— — — 297 854 1,004 250 2,409 
Total past dueTotal past due396 34 387 381 552 1,832 1,141 1,526 6,249 Total past due— 303 59 465 606 2,441 1,064 1,681 6,619 
Current loansCurrent loans235,725 283,853 111,449 62,416 54,827 132,108 464,440 11,972 1,356,790 Current loans51,321 322,814 225,921 86,664 48,481 149,677 533,182 8,946 1,427,006 
TotalTotal$236,121 $283,887 $111,836 $62,797 $55,379 $133,940 $465,581 $13,498 $1,363,039 Total$51,321 $323,117 $225,980 $87,129 $49,087 $152,118 $534,246 $10,627 $1,433,625 
Consumer and other:Consumer and other:Consumer and other:
Past due 30-89 daysPast due 30-89 days$1,527 $283 $182 $89 $63 $18 $481 $1,035 $3,678 Past due 30-89 days$1,470 $385 $53 $69 $54 $24 $2,344 $1,994 $6,393 
Past due 90 or more daysPast due 90 or more days576 10 — 90 — — — 353 1,029 Past due 90 or more days— 499 — 23 — 13 — 58 593 
Total past dueTotal past due2,103 293 182 179 63 18 481 1,388 4,707 Total past due1,470 884 53 92 54 37 2,344 2,052 6,986 
Current loansCurrent loans39,156 20,924 10,442 3,268 1,844 1,391 374,993 26,196 478,214 Current loans21,692 34,798 13,127 4,936 2,207 2,520 371,266 24,616 475,162 
TotalTotal$41,259 $21,217 $10,624 $3,447 $1,907 $1,409 $375,474 $27,584 $482,921 Total$23,162 $35,682 $13,180 $5,028 $2,261 $2,557 $373,610 $26,668 $482,148 
Revolving loans that converted to term during the three and nine months ended September 30,March 31, 2022 and 2021 and 2020 were as follows:
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended March 31,
202120202021202020212020
Commercial and industrialCommercial and industrial$12,009 $10,224 $39,551 $25,340 Commercial and industrial$5,763 $11,843 
EnergyEnergy52,055 7,144 57,871 38,642 Energy— 5,928 
Commercial real estate:Commercial real estate:Commercial real estate:
Buildings, land and otherBuildings, land and other6,012 637 37,093 8,094 Buildings, land and other47 23,303 
ConstructionConstruction— — — — Construction3,666 — 
Consumer real estateConsumer real estate330 421 1,172 2,132 Consumer real estate858 793 
Consumer and otherConsumer and other1,523 5,494 7,017 15,338 Consumer and other4,222 3,861 
TotalTotal$71,929 $23,920 $142,704 $89,546 Total$14,556 $45,728 
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 20202021 Form 10-K, totaled 130.4141.2 at AugustMarch 31, 2021 (most recent date available)2022 and 118.1135.9 at December 31, 2020.2021. A higher TLI value implies more favorable economic conditions.

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Allowance For Credit Losses - Loans. The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectibility over the loans' contractual terms, adjusted for expected prepayments when appropriate. Credit loss expense related to loans reflects the totality of actions taken on all loans for a particular period including any necessary increases or decreases in the allowance related to changes in credit loss expectations associated with specific loans or pools of loans. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications. Our allowance methodology is more fully described in our 20202021 Form 10-K.
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The following table presents details of the allowance for credit losses on loans segregated by loan portfolio segment as of September 30, 2021March 31, 2022 and December 31, 2020.2021. No allowance for credit losses has been recognized for PPP loans as such loans are fully guaranteed by the SBA.
September 30, 2021Commercial
and
Industrial
EnergyCommercial
Real Estate
Consumer
Real Estate
Consumer
and Other
Total
March 31, 2022March 31, 2022Commercial
and
Industrial
EnergyCommercial
Real Estate
Consumer
Real Estate
Consumer
and Other
Total
Modeled expected credit lossesModeled expected credit losses$45,395 $6,962 $17,033 $5,934 $6,412 $81,736 Modeled expected credit losses$46,635 $5,971 $17,110 $6,260 $7,634 $83,610 
Q-Factor and other qualitative adjustmentsQ-Factor and other qualitative adjustments14,081 104 134,071 59 1,440 149,755 Q-Factor and other qualitative adjustments33,916 4,260 111,518 63 1,440 151,197 
Specific allocationsSpecific allocations4,290 13,383 950 36 — 18,659 Specific allocations6,475 5,191 326 36 — 12,028 
TotalTotal$63,766 $20,449 $152,054 $6,029 $7,852 $250,150 Total$87,026 $15,422 $128,954 $6,359 $9,074 $246,835 
December 31, 2020
December 31, 2021December 31, 2021
Modeled expected credit lossesModeled expected credit losses$65,645 $8,910 $125,126 $7,926 $6,945 $214,552 Modeled expected credit losses$46,946 $6,363 $16,676 $6,484 $6,397 $82,866 
Q-Factor and other qualitative adjustmentsQ-Factor and other qualitative adjustments2,877 21,216 9,253 — — 33,346 Q-Factor and other qualitative adjustments14,609 5,374 127,860 65 1,440 149,348 
Specific allocationsSpecific allocations5,321 9,427 513 — 18 15,279 Specific allocations10,536 5,480 400 36 — 16,452 
TotalTotal$73,843 $39,553 $134,892 $7,926 $6,963 $263,177 Total$72,091 $17,217 $144,936 $6,585 $7,837 $248,666 
The following table details activity in the allowance for credit losses on loans by portfolio segment for the three and nine months ended September 30, 2021March 31, 2022 and 2020.2021. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. No allowance for credit losses has been recognized for PPP loans as such loans are fully guaranteed by the SBA.
Commercial
and
Industrial
EnergyCommercial
Real Estate
Consumer
Real Estate
Consumer
and Other
Total
Three months ended:
September 30, 2021
Beginning balance$65,271 $28,010 $147,993 $6,154 $7,860 $255,288 
Credit loss expense (benefit)(1,020)(7,720)4,007 (982)2,692 (3,023)
Charge-offs(1,611)— — — (5,073)(6,684)
Recoveries1,126 159 54 857 2,373 4,569 
Net charge-offs(485)159 54 857 (2,700)(2,115)
Ending balance$63,766 $20,449 $152,054 $6,029 $7,852 $250,150 
September 30, 2020
Beginning balance$98,536 $40,817 $93,425 $8,998 $8,285 $250,061 
Credit loss expense (benefit)(18,547)13,814 25,368 1,794 1,161 23,590 
Charge-offs(8,605)— (242)(1,088)(4,219)(14,154)
Recoveries1,121 — 42 573 2,242 3,978 
Net charge-offs(7,484)— (200)(515)(1,977)(10,176)
Ending balance$72,505 $54,631 $118,593 $10,277 $7,469 $263,475 
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Commercial
and
Industrial
EnergyCommercial
Real Estate
Consumer
Real Estate
Consumer
and Other
TotalCommercial
and
Industrial
EnergyCommercial
Real Estate
Consumer
Real Estate
Consumer
and Other
Total
Nine months ended:
September 30, 2021
Three months ended:Three months ended:
March 31, 2022March 31, 2022
Beginning balanceBeginning balance$73,843 $39,553 $134,892 $7,926 $6,963 $263,177 Beginning balance$72,091 $17,217 $144,936 $6,585 $7,837 $248,666 
Credit loss expense (benefit)Credit loss expense (benefit)(8,886)(19,048)16,583 (3,093)7,042 (7,402)Credit loss expense (benefit)17,561 (2,044)(15,609)(26)4,582 4,464 
Charge-offsCharge-offs(4,485)(1,433)(137)(672)(13,015)(19,742)Charge-offs(3,455)(371)(702)(231)(5,771)(10,530)
RecoveriesRecoveries3,294 1,377 716 1,868 6,862 14,117 Recoveries829 620 329 31 2,426 4,235 
Net (charge-offs) recoveries(1,191)(56)579 1,196 (6,153)(5,625)
Net charge-offsNet charge-offs(2,626)249 (373)(200)(3,345)(6,295)
Ending balanceEnding balance$63,766 $20,449 $152,054 $6,029 $7,852 $250,150 Ending balance$87,026 $15,422 $128,954 $6,359 $9,074 $246,835 
September 30, 2020
March 31, 2021March 31, 2021
Beginning balanceBeginning balance$51,593 $37,382 $31,037 $4,113 $8,042 $132,167 Beginning balance$73,843 $39,553 $134,892 $7,926 $6,963 $263,177 
Impact of adopting ASC 32621,263 (10,453)(13,519)2,392 (2,248)(2,565)
Credit loss expense (benefit)Credit loss expense (benefit)10,737 96,478 104,716 3,716 8,096 223,743 Credit loss expense (benefit)(1,965)(5,801)8,922 (2,722)1,566 — 
Charge-offsCharge-offs(14,815)(68,842)(3,826)(1,508)(13,402)(102,393)Charge-offs(2,189)(1,433)— (284)(4,060)(7,966)
RecoveriesRecoveries3,727 66 185 1,564 6,981 12,523 Recoveries1,203 1,153 626 716 2,349 6,047 
Net (charge-offs) recoveries(11,088)(68,776)(3,641)56 (6,421)(89,870)
Net charge-offsNet charge-offs(986)(280)626 432 (1,711)(1,919)
Ending balanceEnding balance$72,505 $54,631 $118,593 $10,277 $7,469 $263,475 Ending balance$70,892 $33,472 $144,440 $5,636 $6,818 $261,258 
The following table presents loans that were evaluated for expected credit losses on an individual basis and the related specific allocations, by loan portfolio segment as of September 30, 2021March 31, 2022 and December 31, 2020.2021.
September 30, 2021December 31, 2020March 31, 2022December 31, 2021
Loan
Balance
Specific AllocationsLoan
Balance
Specific AllocationsLoan
Balance
Specific AllocationsLoan
Balance
Specific Allocations
Commercial and industrialCommercial and industrial$22,717 $4,290 $21,287 $5,321 Commercial and industrial$21,529 $6,475 $24,523 $10,536 
EnergyEnergy25,671 13,383 22,888 9,427 Energy11,931 5,191 16,393 5,480 
Paycheck Protection ProgramPaycheck Protection Program— — — — Paycheck Protection Program— — — — 
Commercial real estate:Commercial real estate:Commercial real estate:
Buildings, land and otherBuildings, land and other28,619 750 34,057 513 Buildings, land and other28,806 326 24,670 200 
ConstructionConstruction1,632 200 1,684 — Construction— — 948 200 
Consumer real estateConsumer real estate302 36 561 — Consumer real estate302 36 303 36 
Consumer and otherConsumer and other— — 18 18 Consumer and other— — — — 
TotalTotal$78,941 $18,659 $80,495 $15,279 Total$62,568 $12,028 $66,837 $16,452 
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Note 4 - Goodwill and Other Intangible Assets
Goodwill and other intangible assets are presented in the table below.
September 30,
2021
December 31,
2020
March 31,
2022
December 31,
2021
GoodwillGoodwill$654,952 $654,952 Goodwill$654,952 $654,952 
Other intangible assets:Other intangible assets:Other intangible assets:
Core depositsCore deposits$845 $1,296 Core deposits$591 $718 
Customer relationshipsCustomer relationships174 267 Customer relationships129 148 
$1,019 $1,563 $720 $866 
The estimated aggregate future amortization expense for intangible assets remaining as of September 30, 2021March 31, 2022 is as follows:
Remainder of 2021$153 
2022481 
Remainder of 2022Remainder of 2022$335 
20232023282 2023282 
2024202487 202487 
2025202511 202511 
20262026
ThereafterThereafterThereafter— 
$1,019 $720 
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Note 5 - Deposits
Deposits were as follows:
September 30,
2021
Percentage
of Total
December 31,
2020
Percentage
of Total
March 31,
2022
December 31,
2021
Non-interest-bearing demand deposits:
Commercial and individual$15,997,472 40.4 %$13,914,754 39.7 %
Correspondent banks223,466 0.6 242,225 0.7 
Public funds930,645 2.3 960,072 2.8 
Total non-interest-bearing demand deposits17,151,583 43.3 15,117,051 43.2 
Non-interest-bearing demand depositsNon-interest-bearing demand deposits$18,114,430 $18,423,018 
Interest-bearing deposits:Interest-bearing deposits:Interest-bearing deposits:
Private accounts:
Savings and interest checkingSavings and interest checking10,326,315 26.1 9,132,789 26.1 Savings and interest checking12,484,308 11,930,959 
Money market accountsMoney market accounts10,381,703 26.2 8,977,585 25.6 Money market accounts12,490,612 11,228,815 
Time accountsTime accounts1,086,894 2.7 1,135,575 3.3 Time accounts1,341,579 1,112,904 
Total private accounts21,794,912 55.0 19,245,949 55.0 
Public funds:
Savings and interest checking580,174 1.5 597,503 1.7 
Money market accounts61,028 0.1 50,070 0.1 
Time accounts25,070 0.1 5,188 — 
Total public funds666,272 1.7 652,761 1.8 
Total interest-bearing depositsTotal interest-bearing deposits22,461,184 56.7 19,898,710 56.8 Total interest-bearing deposits26,316,499 24,272,678 
Total depositsTotal deposits$39,612,767 100.0 %$35,015,761 100.0 %Total deposits$44,430,929 $42,695,696 
The following table presents additional information about our deposits:
September 30,
2021
December 31,
2020
March 31,
2022
December 31,
2021
Deposits from the Certificate of Deposit Account Registry Service (CDARS) deposits$— $372 
Deposits from foreign sources (primarily Mexico)Deposits from foreign sources (primarily Mexico)1,007,416 884,169 Deposits from foreign sources (primarily Mexico)$1,092,302 $993,479 
Non-interest-bearing public funds depositsNon-interest-bearing public funds deposits746,097 1,235,026 
Interest-bearing public funds depositsInterest-bearing public funds deposits975,511 810,863 
Total deposits not covered by deposit insuranceTotal deposits not covered by deposit insurance21,419,285 18,694,320 Total deposits not covered by deposit insurance25,213,248 24,125,359 
Time deposits not covered by deposit insuranceTime deposits not covered by deposit insurance239,598 237,298 Time deposits not covered by deposit insurance357,529 238,608 

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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 20202021 Form 10-K, these transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. We minimize our exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.
Financial instruments with off-balance-sheet risk were as follows:
September 30,
2021
December 31,
2020
March 31,
2022
December 31,
2021
Commitments to extend creditCommitments to extend credit$10,262,077 $9,814,475 Commitments to extend credit$10,356,196 $10,420,142 
Standby letters of creditStandby letters of credit225,311 241,345 Standby letters of credit236,798 238,690 
Deferred standby letter of credit feesDeferred standby letter of credit fees1,935 1,723 Deferred standby letter of credit fees1,704 2,072 
Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures. The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. Off-balance-sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit detailed in the table above. The amount of the allowance represents management's best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment. Our allowance methodology is more fully described in our 20202021 Form 10-K.
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The following table details activity in the allowance for credit losses on off-balance-sheet credit exposures.
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
202120202021202020222021
Beginning balanceBeginning balance$48,596 $46,939 $44,152 $500 Beginning balance$50,314 $44,152 
Impact of adopting ASC 326— — — 39,377 
Credit loss expense3,023 (3,276)7,467 3,786 
Credit loss expense (benefit)Credit loss expense (benefit)(4,464)65 
Ending balanceEnding balance$51,619 $43,663 $51,619 $43,663 Ending balance$45,850 $44,217 
Lease Commitments. We lease certain office facilities and office equipment under operating leases. The components of total lease expense were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
202120202021202020222021
Amortization of lease right-of-use assetsAmortization of lease right-of-use assets$8,172 $8,521 $24,584 $24,545 Amortization of lease right-of-use assets$8,105 $8,283 
Short-term lease expenseShort-term lease expense384 172 1,118 1,343 Short-term lease expense613 204 
Non-lease components (including taxes, insurance, common maintenance, etc.)Non-lease components (including taxes, insurance, common maintenance, etc.)2,864 2,586 8,205 8,410 Non-lease components (including taxes, insurance, common maintenance, etc.)3,020 3,004 
TotalTotal$11,420 $11,279 $33,907 $34,298 Total$11,738 $11,491 
Right-of-use lease assets totaled $278.6$279.5 million at September 30, 2021March 31, 2022 and $292.1$281.4 million at December 31, 20202021 and are reported as a component of premises and equipment on our accompanying consolidated balance sheets. The related lease liabilities totaled $310.3$311.8 million at September 30, 2021March 31, 2022 and $323.0$313.4 million at December 31, 20202021 and are reported as a component of accrued interest payable and other liabilities in the accompanying consolidated balance sheets. Lease payments under operating leases that were applied to our operating lease liability totaled $7.9 million and $24.0$8.0 million during the three and nine months ended September 30, 2021March 31, 2022 and $8.0 million and $23.8$8.1 million during the three and nine months ended September 30, 2020.March 31, 2021. There has been no significant change in our expected future minimum lease payments since December 31, 2020.2021. See the 20202021 Form 10-K for information regarding these commitments.
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.

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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 other factors.
Cullen/Frost’s and Frost Bank’s Common Equity Tier 1 capital (“CET1”) includes common stock and related paid-in capital, net of treasury stock, and retained earnings. In connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include most components of accumulated other comprehensive income in CET1. We also elected to exclude the effects of credit loss accounting under CECL from CET1 for a five-year transitional period, as further discussed in our 20202021 Form 10-K. This CECL transitional adjustment totaled $62.3$46.2 million and $63.7$61.6 million at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. CET1 is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities. Frost Bank's CET1 is also reduced by its equity investment in its financial subsidiary, Frost Insurance Agency (“FIA”).
Tier 1 capital includes CET1 and additional Tier 1 capital. For Cullen/Frost, additional Tier 1 capital included $145.5 million of 4.450% non-cumulative perpetual preferred stock at September 30, 2021March 31, 2022 and December 31, 2020,2021, the details of which are further discussed below. Frost Bank did 0t have any additional Tier 1 capital beyond Common Equity Tier 1 at September 30, 2021March 31, 2022 or December 31, 2020.
2021. Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital for both Cullen/Frost and Frost Bank includes a permissible portion of the allowances for credit losses on securities, loans and off-balance-sheet credit exposures. Tier 2 capital for Cullen/Frost also includes $100.0 millionthe permissible portion of qualified subordinated debt (which decreases 20.0% per year during the final five years of the term of the notes) totaling $80.0 million at March 31, 2022 and $133.0$100.0 million ofat December 31, 2021 and trust preferred securities totaling $120.0 million at both September 30, 2021March 31, 2022 and December 31, 2020. All $13.0 million of the trust preferred securities issued by WNB Capital Trust I were redeemed in October 2021.
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The following table presents actual and required capital ratios as of September 30, 2021March 31, 2022 and December 31, 20202021 for Cullen/Frost and Frost Bank under the Basel III Capital Rules. 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 20202021 Form 10-K for a more detailed discussion of the Basel III Capital Rules.
ActualMinimum Capital Required - Basel IIIRequired to be
Considered Well
Capitalized
Capital
Amount
RatioCapital
Amount
RatioCapital
Amount
Ratio
September 30, 2021
Common Equity Tier 1 to Risk-Weighted Assets
Cullen/Frost$3,300,979 13.42 %$1,722,459 7.00 %$1,599,426 6.50 %
Frost Bank3,215,116 13.09 1,719,451 7.00 1,596,633 6.50 
Tier 1 Capital to Risk-Weighted Assets
Cullen/Frost3,446,431 14.01 2,091,558 8.50 1,968,525 8.00 
Frost Bank3,215,116 13.09 2,087,905 8.50 1,965,087 8.00 
Total Capital to Risk-Weighted Assets
Cullen/Frost3,911,272 15.90 2,583,689 10.50 2,460,656 10.00 
Frost Bank3,446,957 14.03 2,579,177 10.50 2,456,359 10.00 
Leverage Ratio
Cullen/Frost3,446,431 7.52 1,833,156 4.00 2,291,445 5.00 
Frost Bank3,215,116 7.02 1,832,498 4.00 2,290,623 5.00 
December 31, 2020
Common Equity Tier 1 to Risk-Weighted Assets
Cullen/Frost$3,058,447 12.86 %$1,664,867 7.00 %$1,545,948 6.50 %
Frost Bank3,030,093 12.77 1,661,620 7.00 1,542,933 6.50 
Tier 1 Capital to Risk-Weighted Assets
Cullen/Frost3,203,899 13.47 2,021,624 8.50 1,902,705 8.00 
Frost Bank3,030,093 12.77 2,017,682 8.50 1,898,995 8.00 
Total Capital to Risk-Weighted Assets
Cullen/Frost3,672,912 15.44 2,497,300 10.50 2,378,381 10.00 
Frost Bank3,266,106 13.76 2,492,430 10.50 2,373,743 10.00 
Leverage Ratio
Cullen/Frost3,203,899 8.07 1,589,004 4.00 1,986,255 5.00 
Frost Bank3,030,093 7.63 1,588,200 4.00 1,985,250 5.00 
ActualMinimum Capital Required - Basel IIIRequired to be
Considered Well
Capitalized
Capital
Amount
RatioCapital
Amount
RatioCapital
Amount
Ratio
March 31, 2022
Common Equity Tier 1 to Risk-Weighted Assets
Cullen/Frost$3,412,080 12.78 %$1,869,007 7.00 %$1,735,506 6.50 %
Frost Bank3,301,515 12.39 1,865,304 7.00 1,732,068 6.50 
Tier 1 Capital to Risk-Weighted Assets
Cullen/Frost3,557,532 13.32 2,269,508 8.50 2,136,007 8.00 
Frost Bank3,301,515 12.39 2,265,012 8.50 2,131,776 8.00 
Total Capital to Risk-Weighted Assets
Cullen/Frost3,998,333 14.97 2,803,510 10.50 2,670,009 10.00 
Frost Bank3,542,316 13.29 2,797,956 10.50 2,664,720 10.00 
Leverage Ratio
Cullen/Frost3,557,532 7.08 2,010,897 4.00 2,513,621 5.00 
Frost Bank3,301,515 6.57 2,009,767 4.00 2,512,209 5.00 
December 31, 2021
Common Equity Tier 1 to Risk-Weighted Assets
Cullen/Frost$3,371,043 13.13 %$1,796,549 7.00 %$1,668,224 6.50 %
Frost Bank3,261,532 12.72 1,795,221 7.00 1,666,991 6.50 
Tier 1 Capital to Risk-Weighted Assets
Cullen/Frost3,516,495 13.70 2,181,523 8.50 2,053,198 8.00 
Frost Bank3,261,532 12.72 2,179,911 8.50 2,051,681 8.00 
Total Capital to Risk-Weighted Assets
Cullen/Frost3,966,244 15.45 2,694,823 10.50 2,566,498 10.00 
Frost Bank3,491,281 13.61 2,692,831 10.50 2,564,601 10.00 
Leverage Ratio
Cullen/Frost3,516,495 7.34 1,917,533 4.00 2,396,917 5.00 
Frost Bank3,261,532 6.80 1,917,679 4.00 2,397,099 5.00 
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As of September 30, 2021,March 31, 2022, capital levels at Cullen/Frost and Frost Bank exceed all capital adequacy requirements under the Basel III Capital Rules. Based on the ratios presented above, capital levels as of September 30, 2021March 31, 2022 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 September 30, 2021,March 31, 2022, 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. On November 19, 2020, we issuedOutstanding preferred stock includes 150,000 shares, or $150.0 million in aggregate liquidation preference, of our 4.450% Non-Cumulative Perpetual Preferred Stock, Series B, par value $0.01 and liquidation preference $1,000 per share (“Series B Preferred Stock”). Each share of Series B Preferred Stock issued and outstanding is represented by 40 depositary shares, each representing a 1/40th ownership interest in a share of the Series B Preferred Stock (equivalent to a liquidation preference of $25 per share). Dividends on the Series B Preferred Stock will be non-cumulative and, if declared, accrue and are payable quarterly, in arrears, at a rate of 4.450% per annum. The Series B Preferred Stock qualifies as Tier 1 capital for the purposes of the regulatory capital calculations. The net proceeds from the issuance and sale of the Series B Preferred Stock,
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after deducting $4.5 million of issuance costs including the underwriting discount and professional service fees, among other things, were approximately $145.5 million. Refer to our 2021 Form 10-K for additional details related to our Series B Preferred Stock.
Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. On January 27, 2021,26, 2022, 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. NaNNo shares werehave been repurchased under this plan or the prior plan during the first nine months of 2021. Under a prior plan, we repurchased 177,834 shares at a total cost of $13.7 million during the first quarter of 2020.reported periods. Under the Basel III Capital Rules, Cullen/Frost may not repurchase or redeem any of its 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 September 30, 2021,March 31, 2022, Frost Bank could pay aggregate dividends of up to $445.8$325.0 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, 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.
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, swaptions 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 20202021 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 methods 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 zero as of September 30, 2021March 31, 2022 and December 31, 2020.
September 30, 2021December 31, 2020
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 – liabilities2,758 $(59)3,724 $(134)
Non-hedging interest rate derivatives:
Financial institution counterparties:
Loan/lease interest rate swaps – assets127,420 641 — — 
Loan/lease interest rate swaps – liabilities997,411 (22,874)1,173,173 (33,812)
Loan/lease interest rate caps – assets405,163 2,915 356,601 1,241 
Customer counterparties:
Loan/lease interest rate swaps – assets997,411 49,630 1,173,173 84,424 
Loan/lease interest rate swaps – liabilities127,420 (1,761)— — 
Loan/lease interest rate caps – liabilities405,163 (2,915)356,601 (1,241)
2021.
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March 31, 2022December 31, 2021
Notional
Amount
Estimated
Fair Value
Notional
Amount
Estimated
Fair Value
Derivatives designated as hedges of fair value:
Financial institution counterparties:
Loan/lease interest rate swaps – assets$1,807 $$— $— 
Loan/lease interest rate swaps – liabilities280 (3)2,426 (34)
Non-hedging interest rate derivatives:
Financial institution counterparties:
Loan/lease interest rate swaps – assets697,834 15,311 247,592 1,207 
Loan/lease interest rate swaps – liabilities447,742 (6,184)928,756 (19,142)
Loan/lease interest rate caps – assets265,930 8,110 270,431 3,239 
Customer counterparties:
Loan/lease interest rate swaps – assets447,742 10,275 928,756 39,864 
Loan/lease interest rate swaps – liabilities697,834 (25,437)247,592 (2,846)
Loan/lease interest rate caps – liabilities265,930 (8,110)270,431 (3,239)
The weighted-average rates paid and received for interest rate swaps outstanding at September 30, 2021March 31, 2022 were as follows:
Weighted-AverageWeighted-Average
Interest
Rate
Paid
Interest
Rate
Received
Interest
Rate
Paid
Interest
Rate
Received
Interest rate swaps:Interest rate swaps:Interest rate swaps:
Fair value hedge loan/lease interest rate swapsFair value hedge loan/lease interest rate swaps2.75 %0.09 %Fair value hedge loan/lease interest rate swaps2.11 %0.26 %
Non-hedging interest rate swaps – financial institution counterpartiesNon-hedging interest rate swaps – financial institution counterparties3.78 1.87 Non-hedging interest rate swaps – financial institution counterparties3.69 2.07 
Non-hedging interest rate swaps – customer counterpartiesNon-hedging interest rate swaps – customer counterparties1.87 3.78 Non-hedging interest rate swaps – customer counterparties2.07 3.69 
The weighted-average strike rate for outstanding interest rate caps was 3.12%3.27% at September 30, 2021.March 31, 2022.
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 methods with observable market data inputs to value our commodity derivative positions.
September 30, 2021December 31, 2020March 31, 2022December 31, 2021
Notional
Units
Notional
Amount
Estimated
Fair Value
Notional
Amount
Estimated
Fair Value
Notional
Units
Notional
Amount
Estimated
Fair Value
Notional
Amount
Estimated
Fair Value
Financial institution counterparties:Financial institution counterparties:Financial institution counterparties:
Oil – assetsOil – assetsBarrels5,632 $21,271 3,056 $8,341 Oil – assetsBarrels2,988 $9,735 4,809 $14,721 
Oil – liabilitiesOil – liabilitiesBarrels12,228 (147,576)6,391 (32,112)Oil – liabilitiesBarrels9,767 (189,416)7,032 (73,594)
Natural gas – assetsNatural gas – assetsMMBTUs18,908 3,312 9,281 1,529 Natural gas – assetsMMBTUs14,564 1,813 15,947 4,143 
Natural gas – liabilitiesNatural gas – liabilitiesMMBTUs39,901 (53,923)15,079 (3,265)Natural gas – liabilitiesMMBTUs27,474 (50,244)29,446 (21,249)
Customer counterparties:Customer counterparties:Customer counterparties:
Oil – assetsOil – assetsBarrels12,276 148,742 6,391 32,670 Oil – assetsBarrels9,767 190,776 7,046 74,437 
Oil – liabilitiesOil – liabilitiesBarrels5,584 (21,245)3,056 (8,264)Oil – liabilitiesBarrels2,988 (9,710)4,796 (14,294)
Natural gas – assetsNatural gas – assetsMMBTUs39,901 54,202 17,636 3,451 Natural gas – assetsMMBTUs27,474 50,423 29,446 21,456 
Natural gas – liabilitiesNatural gas – liabilitiesMMBTUs18,908 (3,310)6,724 (1,458)Natural gas – liabilitiesMMBTUs14,564 (1,811)15,947 (4,124)
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
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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:
 September 30, 2021December 31, 2020 March 31, 2022December 31, 2021
Notional
Currency
Notional
Amount
Estimated
Fair Value
Notional
Amount
Estimated
Fair Value
Notional
Currency
Notional
Amount
Estimated
Fair Value
Notional
Amount
Estimated
Fair Value
Financial institution counterparties:Financial institution counterparties:Financial institution counterparties:
Forward contracts – assetsForward contracts – assetsEUR2,400 $18 1,900 $29 
Forward contracts – assetsForward contracts – assetsCAD— — 658 — 
Forward contracts – liabilitiesForward contracts – liabilitiesEUR6,500 (111)— — 
Forward contracts – liabilitiesForward contracts – liabilitiesCAD658 (6)— — 
Customer counterparties:Customer counterparties:
Forward contracts – assetsForward contracts – assetsCAD658 $— — Forward contracts – assetsEUR6,500 122 — — 
Forward contracts – assetsForward contracts – assetsCAD658 10 658 
Forward contracts – liabilitiesForward contracts – liabilitiesEUR2,400 (14)1,900 (55)
Customer counterparties:
Forward contracts – assetsCAD658 — — 
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
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
202120202021202020222021
Commercial loan/lease interest rate swaps:Commercial loan/lease interest rate swaps:Commercial loan/lease interest rate swaps:
Amount of gain (loss) included in interest income on loansAmount of gain (loss) included in interest income on loans$(21)$(36)$(74)$(79)Amount of gain (loss) included in interest income on loans$(13)$(28)
Amount of (gain) loss included in other non-interest expenseAmount of (gain) loss included in other non-interest expenseAmount of (gain) loss included in other non-interest expense(3)
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 three months 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-hedge related derivative instruments are presented in the table below.
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
202120202021202020222021
Non-hedging interest rate derivatives:Non-hedging interest rate derivatives:Non-hedging interest rate derivatives:
Other non-interest incomeOther non-interest income$946 $280 $2,674 $2,615 Other non-interest income$516 $1,587 
Other non-interest expenseOther non-interest expense— (1)Other non-interest expense— (1)
Non-hedging commodity derivatives:Non-hedging commodity derivatives:Non-hedging commodity derivatives:
Other non-interest incomeOther non-interest income1,143 379 3,266 1,057 Other non-interest income929 1,154 
Non-hedging foreign currency derivatives:Non-hedging foreign currency derivatives:Non-hedging foreign currency derivatives:
Other non-interest incomeOther non-interest income10 34 28 Other non-interest income18 30 
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 $227.4$238.4 million at September 30, 2021.March 31, 2022. This credit exposure is partly mitigated as transactions with customers are generally secured by the collateral, if any, securing the underlying transaction being hedged. Our credit exposure, net of collateral pledged, relating to interest rate swaps, commodity swaps/options and foreign currency forward contracts with upstream financial institution counterparties was approximately $12.5$35.7 million at September 30, 2021.March 31, 2022. This amount was primarily related to initial margin payments to the CME and excess collateral we
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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. At September 30, 2021,March 31, 2022, we had $200.9$247.3 million in cash collateral related to derivative contracts on deposit with other financial institution counterparties.
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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 September 30, 2021March 31, 2022 is presented in the following tables.
Gross Amount
Recognized
Gross Amount
Offset
Net Amount
Recognized
Gross Amount
Recognized
Gross Amount
Offset
Net Amount
Recognized
September 30, 2021
March 31, 2022March 31, 2022
Financial assets:Financial assets:Financial assets:
Derivatives:Derivatives:Derivatives:
Loan/lease interest rate swaps and capsLoan/lease interest rate swaps and caps$3,556 $— $3,556 Loan/lease interest rate swaps and caps$23,422 $— $23,422 
Commodity swaps and optionsCommodity swaps and options24,583 — 24,583 Commodity swaps and options11,548 — 11,548 
Foreign currency forward contractsForeign currency forward contracts— Foreign currency forward contracts18 — 18 
Total derivativesTotal derivatives28,141 — 28,141 Total derivatives34,988 — 34,988 
Resell agreementsResell agreements7,903 — 7,903 Resell agreements— — — 
TotalTotal$36,044 $— $36,044 Total$34,988 $— $34,988 
Financial liabilities:Financial liabilities:Financial liabilities:
Derivatives:Derivatives:Derivatives:
Loan/lease interest rate swaps and capsLoan/lease interest rate swaps and caps$22,933 $— $22,933 Loan/lease interest rate swaps and caps$6,187 $— $6,187 
Commodity swaps and optionsCommodity swaps and options201,499 — 201,499 Commodity swaps and options239,660 — 239,660 
Foreign currency forward contractsForeign currency forward contracts117 — 117 
Total derivativesTotal derivatives224,432 — 224,432 Total derivatives245,964 — 245,964 
Repurchase agreementsRepurchase agreements2,200,029 — 2,200,029 Repurchase agreements1,842,618 — 1,842,618 
TotalTotal$2,424,461 $— $2,424,461 Total$2,088,582 $— $2,088,582 
Gross Amounts Not OffsetGross Amounts Not Offset
Net Amount
Recognized
Financial
Instruments
CollateralNet
Amount
Net Amount
Recognized
Financial
Instruments
CollateralNet
Amount
September 30, 2021
March 31, 2022March 31, 2022
Financial assets:Financial assets:Financial assets:
Derivatives:Derivatives:Derivatives:
Counterparty ACounterparty A$$(4)$— $— Counterparty A$32 $(32)$— $— 
Counterparty BCounterparty B12,537 (12,537)— — Counterparty B11,998 (11,998)— — 
Other counterpartiesOther counterparties15,600 (15,600)— — Other counterparties22,958 (16,251)(6,707)— 
Total derivativesTotal derivatives28,141 (28,141)— — Total derivatives34,988 (28,281)(6,707)— 
Resell agreementsResell agreements7,903 — (7,903)— Resell agreements— — — — 
TotalTotal$36,044 $(28,141)$(7,903)$— Total$34,988 $(28,281)$(6,707)$— 
Financial liabilities:Financial liabilities:Financial liabilities:
Derivatives:Derivatives:Derivatives:
Counterparty ACounterparty A$4,577 $(4)$(4,573)$— Counterparty A$2,635 $(32)$(2,603)$— 
Counterparty BCounterparty B77,110 (12,537)(60,860)3,713 Counterparty B46,953 (11,998)(34,955)— 
Counterparty CCounterparty C19 — (19)— Counterparty C— (3)— 
Other counterpartiesOther counterparties142,726 (15,600)(122,984)4,142 Other counterparties196,373 (16,251)(180,122)— 
Total derivativesTotal derivatives224,432 (28,141)(188,436)7,855 Total derivatives245,964 (28,281)(217,683)— 
Repurchase agreementsRepurchase agreements2,200,029 — (2,200,029)— Repurchase agreements1,842,618 — (1,842,618)— 
TotalTotal$2,424,461 $(28,141)$(2,388,465)$7,855 Total$2,088,582 $(28,281)$(2,060,301)$— 
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Information about financial instruments that are eligible for offset in the consolidated balance sheet as of December 31, 20202021 is presented in the following tables.
Gross Amount
Recognized
Gross Amount
Offset
Net Amount
Recognized
Gross Amount
Recognized
Gross Amount
Offset
Net Amount
Recognized
December 31, 2020
December 31, 2021December 31, 2021
Financial assets:Financial assets:Financial assets:
Derivatives:Derivatives:Derivatives:
Loan/lease interest rate swaps and capsLoan/lease interest rate swaps and caps$1,241 $— $1,241 Loan/lease interest rate swaps and caps$4,446 $— $4,446 
Commodity swaps and optionsCommodity swaps and options9,870 — 9,870 Commodity swaps and options18,864 — 18,864 
Total derivativesTotal derivatives11,111 — 11,111 Total derivatives23,339 — 23,339 
Resell agreementsResell agreements— — — Resell agreements7,903 — 7,903 
TotalTotal$11,111 $— $11,111 Total$31,242 $— $31,242 
Financial liabilities:Financial liabilities:Financial liabilities:
Derivatives:Derivatives:Derivatives:
Loan/lease interest rate swaps and capsLoan/lease interest rate swaps and caps$33,946 $— $33,946 Loan/lease interest rate swaps and caps$19,176 $— $19,176 
Commodity swaps and optionsCommodity swaps and options35,377 — 35,377 Commodity swaps and options94,843 — 94,843 
Total derivativesTotal derivatives69,323 — 69,323 Total derivatives114,019 — 114,019 
Repurchase agreementsRepurchase agreements2,068,147 — 2,068,147 Repurchase agreements2,740,799 — 2,740,799 
TotalTotal$2,137,470 $— $2,137,470 Total$2,854,818 $— $2,854,818 
Gross Amounts Not OffsetGross Amounts Not Offset
Net Amount
Recognized
Financial
Instruments
CollateralNet
Amount
Net Amount
Recognized
Financial
Instruments
CollateralNet
Amount
December 31, 2020
December 31, 2021December 31, 2021
Financial assets:Financial assets:Financial assets:
Derivatives:Derivatives:Derivatives:
Counterparty ACounterparty A$$(2)$— $— Counterparty A$$(6)$— $— 
Counterparty BCounterparty B5,838 (5,838)— — Counterparty B7,655 (7,655)— — 
Other counterpartiesOther counterparties5,271 (5,271)— — Other counterparties15,678 (15,678)— — 
Total derivativesTotal derivatives11,111 (11,111)— — Total derivatives23,339 (23,339)— — 
Resell agreementsResell agreements— — — — Resell agreements7,903 — (7,903)— 
TotalTotal$11,111 $(11,111)$— $— Total$31,242 $(23,339)$(7,903)$— 
Financial liabilities:Financial liabilities:Financial liabilities:
Derivatives:Derivatives:Derivatives:
Counterparty ACounterparty A$6,430 $(2)$(6,428)$— Counterparty A$3,870 $(6)$(3,864)$— 
Counterparty BCounterparty B20,722 (5,838)(14,700)184 Counterparty B28,130 (7,655)(20,475)— 
Counterparty CCounterparty C71 — (71)— Counterparty C— (9)— 
Other counterpartiesOther counterparties42,100 (5,271)(35,832)997 Other counterparties82,010 (15,678)(66,225)107 
Total derivativesTotal derivatives69,323 (11,111)(57,031)1,181 Total derivatives114,019 (23,339)(90,573)107 
Repurchase agreementsRepurchase agreements2,068,147 — (2,068,147)— Repurchase agreements2,740,799 — (2,740,799)— 
TotalTotal$2,137,470 $(11,111)$(2,125,178)$1,181 Total$2,854,818 $(23,339)$(2,831,372)$107 
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Repurchase Agreements. We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. We monitor collateral levels on a continuous basis. We may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.
The remaining contractual maturity of repurchase agreements in the consolidated balance sheets as of September 30, 2021March 31, 2022 and December 31, 20202021 is presented in the following tables.
Remaining Contractual Maturity of the AgreementsRemaining Contractual Maturity of the Agreements
Overnight and ContinuousUp to 30 Days30-90 DaysGreater than 90 DaysTotalOvernight and ContinuousUp to 30 Days30-90 DaysGreater than 90 DaysTotal
September 30, 2021
March 31, 2022March 31, 2022
Repurchase agreements:Repurchase agreements:Repurchase agreements:
U.S. TreasuryU.S. Treasury$1,122,968 $— $— $— $1,122,968 U.S. Treasury$876,879 $— $— $— $876,879 
Residential mortgage-backed securitiesResidential mortgage-backed securities1,077,061 — — — 1,077,061 Residential mortgage-backed securities965,739 — — — 965,739 
Total borrowingsTotal borrowings$2,200,029 $— $— $— $2,200,029 Total borrowings$1,842,618 $— $— $— $1,842,618 
Gross amount of recognized liabilities for repurchase agreementsGross amount of recognized liabilities for repurchase agreements$2,200,029 Gross amount of recognized liabilities for repurchase agreements$1,842,618 
Amounts related to agreements not included in offsetting disclosures aboveAmounts related to agreements not included in offsetting disclosures above$— Amounts related to agreements not included in offsetting disclosures above$— 
December 31, 2020
December 31, 2021December 31, 2021
Repurchase agreements:Repurchase agreements:Repurchase agreements:
U.S. TreasuryU.S. Treasury$692,860 $— $— $— $692,860 U.S. Treasury$1,342,591 $— $— $— $1,342,591 
Residential mortgage-backed securitiesResidential mortgage-backed securities1,375,287 — — — 1,375,287 Residential mortgage-backed securities1,398,208 — — — 1,398,208 
Total borrowingsTotal borrowings$2,068,147 $— $— $— $2,068,147 Total borrowings$2,740,799 $— $— $— $2,740,799 
Gross amount of recognized liabilities for repurchase agreementsGross amount of recognized liabilities for repurchase agreements$2,068,147 Gross amount of recognized liabilities for repurchase agreements$2,740,799 
Amounts related to agreements not included in offsetting disclosures aboveAmounts related to agreements not included in offsetting disclosures above$— Amounts related to agreements not included in offsetting disclosures above$— 

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Note 10 - Stock-Based Compensation
A combined summary of activity in our active stock plans is presented in the table.table below. Performance stock units outstanding are presented assuming attainment of the maximum payout rate as set forth by the performance criteria. As of September 30, 2021,March 31, 2022, there were 917,440794,493 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
Deferred
Stock Units
Outstanding
Non-Vested
Stock Units
Outstanding
Performance
Stock Units
Outstanding
Stock 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
Number
of Units
Weighted-
Average
Fair Value
at Grant
Number
of Units
Weighted-
Average
Fair Value
at Grant
Number
of Units
Weighted-
Average
Fair Value
at Grant
Number
of Shares
Weighted-
Average
Exercise
Price
Balance, January 1, 202152,860 $75.47 470,359 $86.24 201,257 $77.18 1,739,559 $66.11 
Balance, January 1, 2022Balance, January 1, 202256,301 $79.21 449,337 $93.05 202,460 $84.71 877,681 $69.02 
AuthorizedAuthorized— — — — — — — — Authorized— — — — — — — — 
GrantedGranted5,940 117.90 — — — — — — Granted— — 1,038 145.32 — — — — 
Exercised/vestedExercised/vested(2,499)92.03 (1,213)98.90 (35,131)92.27 (611,201)61.86 Exercised/vested— — — — (25,180)87.18 (90,250)63.59 
Forfeited/expiredForfeited/expired— — (26,439)87.08 (9,752)75.70 — — Forfeited/expired— — (1,786)89.50 (16,058)87.18 — — 
Balance, September 30, 202156,301 $79.21 442,707 $86.16 156,374 $73.88 1,128,358 $68.41 
Balance, March 31, 2022Balance, March 31, 202256,301 79.21 448,589 93.19 161,222 84.08 787,431 69.64 
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Shares issued in connection with stock compensation awards are issued from available treasury shares. If no treasury shares are available, new shares are issued from available authorized shares. Shares issued in connection with stock compensation awards along with other related information were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
202120202021202020222021
New shares issued from available authorized sharesNew shares issued from available authorized shares— — — — New shares issued from available authorized shares— — 
Shares issued from available treasury stockShares issued from available treasury stock21,968 53,425 650,044 196,948 Shares issued from available treasury stock115,430 513,824 
Total21,968 53,425 650,044 196,948 
Proceeds from stock option exercisesProceeds from stock option exercises$1,128 $2,698 $37,810 $7,544 Proceeds from stock option exercises$5,739 $29,397 
Stock-based compensation expense is recognized ratably over the requisite service period for all awards. For most stock option awards, the service period generally matches the vesting period. For stock options granted to certain executive officers and for non-vested stock units granted to all participants, the service period does not extend past the date the participant reaches 65 years of age. Deferred stock units granted to non-employee directors generally have immediate vesting and the related expense is fully recognized on the date of grant. For performance stock units, the service period generally matches the three-year performance period specified by the award, however, the service period does not extend past the date the participant reaches 65 years of age. Expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued.
Stock-based compensation expense or benefit and the related income tax benefit is presented in the following table. The service period for performance stock units granted each year begins on January 1 of the following year.
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
202120202021202020222021
Non-vested stock awards/stock units$1,559 $1,999 $5,210 $6,325 
Director deferred stock units— — 700 770 
Non-vested stock unitsNon-vested stock units$2,358 $1,883 
Performance stock unitsPerformance stock units426 444 1,846 1,132 Performance stock units(246)643 
TotalTotal$1,985 $2,443 $7,756 $8,227 Total$2,112 $2,526 
Income tax benefitIncome tax benefit$281 $450 $1,162 $1,539 Income tax benefit$708 $367 
Unrecognized stock-based compensation expense at September 30, 2021March 31, 2022 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$10,91816,063 
Performance stock units4,4508,664 
Total$15,36824,727 
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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 20202021 Form 10-K. The following table presents a reconciliation of net income available to common shareholders, net earnings allocated to common stock and the number of shares used in the calculation of basic and diluted earnings per common share.
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
202120202021202020222021
Net incomeNet income$107,975 $95,056 $342,058 $242,881 Net income$99,102 $116,015 
Less: Preferred stock dividendsLess: Preferred stock dividends1,668 — 5,488 2,016 Less: Preferred stock dividends1,669 2,151 
Redemption of preferred stock— — — 5,514 
Net income available to common shareholdersNet income available to common shareholders106,307 95,056 336,570 235,351 Net income available to common shareholders97,433 113,864 
Less: Earnings allocated to participating securitiesLess: Earnings allocated to participating securities932 877 3,228 2,236 Less: Earnings allocated to participating securities849 1,162 
Net earnings allocated to common stockNet earnings allocated to common stock$105,375 $94,179 $333,342 $233,115 Net earnings allocated to common stock$96,584 $112,702 
Distributed earnings allocated to common stockDistributed earnings allocated to common stock$47,740 $44,546 $139,224 $133,511 Distributed earnings allocated to common stock$48,051 $45,660 
Undistributed earnings allocated to common stockUndistributed earnings allocated to common stock57,635 49,633 194,118 99,604 Undistributed earnings allocated to common stock48,533 67,042 
Net earnings allocated to common stockNet earnings allocated to common stock$105,375 $94,179 $333,342 $233,115 Net earnings allocated to common stock$96,584 $112,702 
Weighted-average shares outstanding for basic earnings per common shareWeighted-average shares outstanding for basic earnings per common share63,652,020 62,726,542 63,522,884 62,655,393 Weighted-average shares outstanding for basic earnings per common share64,051,202 63,306,493 
Dilutive effect of stock compensationDilutive effect of stock compensation444,636 193,116 489,219 263,028 Dilutive effect of stock compensation409,705 509,290 
Weighted-average shares outstanding for diluted earnings per common shareWeighted-average shares outstanding for diluted earnings per common share64,096,656 62,919,658 64,012,103 62,918,421 Weighted-average shares outstanding for diluted earnings per common share64,460,907 63,815,783 
Note 12 - Defined Benefit Plans
The components of the combined net periodic expense (benefit) for our defined benefit pension plans are presented in the table below.
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
202120202021202020222021
Expected return on plan assets, net of expensesExpected return on plan assets, net of expenses$(3,210)$(3,073)$(9,630)$(9,217)Expected return on plan assets, net of expenses$(3,491)$(3,210)
Interest cost on projected benefit obligationInterest cost on projected benefit obligation835 1,252 2,506 3,757 Interest cost on projected benefit obligation1,004 835 
Net amortization and deferralNet amortization and deferral1,529 1,330 4,587 3,989 Net amortization and deferral741 1,529 
Net periodic expense (benefit)Net periodic expense (benefit)$(846)$(491)$(2,537)$(1,471)Net periodic expense (benefit)$(1,746)$(846)
Our non-qualified defined benefit pension plan is not funded. No contributions to the qualified defined benefit pension plan were made during the ninethree months ended September 30, 2021.March 31, 2022. We do not expect to make any contributions to the qualified defined benefit plan during the remainder of 2021.2022.

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Note 13 - Income Taxes
Income tax expense was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
202120202021202020222021
Current income tax expense (benefit)Current income tax expense (benefit)$13,849 $(33,614)$31,639 $20,328 Current income tax expense (benefit)$13,059 $3,725 
Deferred income tax expense (benefit)Deferred income tax expense (benefit)(516)43,130 4,672 (8,803)Deferred income tax expense (benefit)(432)4,172 
Income tax expense, as reportedIncome tax expense, as reported$13,333 $9,516 $36,311 $11,525 Income tax expense, as reported$12,627 $7,897 
Effective tax rateEffective tax rate11.0 %9.1 %9.6 %4.5 %Effective tax rate11.3 %6.4 %
We had a net deferred tax asset totaling $110.3 million at March 31, 2022 and a net deferred tax liability totaling $78.9 million at September 30, 2021 and $117.5$81.2 million at December 31, 2020.2021. No valuation allowance for deferred tax assets was recorded at September 30, 2021March 31, 2022 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, discrete tax benefit associated with an asset contribution to a charitable trust during the second quarter. There were no unrecognized tax benefits during any of the reported periods.
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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 2017.2018.
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
September 30, 2021
Three Months Ended
September 30, 2020
Before Tax
Amount
Tax  Expense,
(Benefit)
Net of  Tax
Amount
Before Tax
Amount
Tax  Expense,
(Benefit)
Net of  Tax
Amount
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period$(80,668)$(16,941)$(63,727)$20,332 $4,269 $16,063 
Change in net unrealized gain on securities transferred to held to maturity(237)(49)(188)(294)(62)(232)
Reclassification adjustment for net (gains) losses included in net income— — — — — — 
Total securities available for sale and transferred securities(80,905)(16,990)(63,915)20,038 4,207 15,831 
Defined-benefit post-retirement benefit plans:
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)1,529 321 1,208 1,330 280 1,050 
Total defined-benefit post-retirement benefit plans1,529 321 1,208 1,330 280 1,050 
Total other comprehensive income (loss)$(79,376)$(16,669)$(62,707)$21,368 $4,487 $16,881 
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Nine Months Ended
September 30, 2021
Nine Months Ended
September 30, 2020
Three Months Ended
March 31, 2022
Three Months Ended
March 31, 2021
Before Tax
Amount
Tax  Expense,
(Benefit)
Net of  Tax
Amount
Before Tax
Amount
Tax  Expense,
(Benefit)
Net of  Tax
Amount
Before Tax
Amount
Tax  Expense,
(Benefit)
Net of  Tax
Amount
Before Tax
Amount
Tax  Expense,
(Benefit)
Net of  Tax
Amount
Securities available for sale and transferred securities:Securities available for sale and transferred securities:Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the periodChange in net unrealized gain/loss during the period$(209,779)$(44,054)$(165,725)$406,959 $85,462 $321,497 Change in net unrealized gain/loss during the period$(910,795)$(191,267)$(719,528)$(159,779)$(33,554)$(126,225)
Change in net unrealized gain on securities transferred to held to maturityChange in net unrealized gain on securities transferred to held to maturity(741)(155)(586)(979)(206)(773)Change in net unrealized gain on securities transferred to held to maturity(209)(44)(165)(259)(54)(205)
Reclassification adjustment for net (gains) losses included in net incomeReclassification adjustment for net (gains) losses included in net income— — — (108,989)(22,888)(86,101)Reclassification adjustment for net (gains) losses included in net income— — — — — — 
Total securities available for sale and transferred securitiesTotal securities available for sale and transferred securities(210,520)(44,209)(166,311)296,991 62,368 234,623 Total securities available for sale and transferred securities(911,004)(191,311)(719,693)(160,038)(33,608)(126,430)
Defined-benefit post-retirement benefit plans:Defined-benefit post-retirement benefit plans:Defined-benefit post-retirement benefit plans:
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)4,587 963 3,624 3,989 837 3,152 
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic expense (benefit)Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic expense (benefit)741 156 585 1,529 321 1,208 
Total defined-benefit post-retirement benefit plansTotal defined-benefit post-retirement benefit plans4,587 963 3,624 3,989 837 3,152 Total defined-benefit post-retirement benefit plans741 156 585 1,529 321 1,208 
Total other comprehensive income (loss)Total other comprehensive income (loss)$(205,933)$(43,246)$(162,687)$300,980 $63,205 $237,775 Total other comprehensive income (loss)$(910,263)$(191,155)$(719,108)$(158,509)$(33,287)$(125,222)
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, 2022Balance January 1, 2022$380,209 $(32,891)$347,318 
Other comprehensive income (loss) before reclassificationsOther comprehensive income (loss) before reclassifications(719,693)— (719,693)
Reclassification of amounts included in net incomeReclassification of amounts included in net income— 585 585 
Net other comprehensive income (loss) during periodNet other comprehensive income (loss) during period(719,693)585 (719,108)
Balance at March 31, 2022Balance at March 31, 2022$(339,484)$(32,306)$(371,790)
Securities
Available
For Sale
Defined
Benefit
Plans
Accumulated
Other
Comprehensive
Income
Balance January 1, 2021Balance January 1, 2021$563,801 $(50,831)$512,970 Balance January 1, 2021$563,801 $(50,831)$512,970 
Other comprehensive income (loss) before reclassificationsOther comprehensive income (loss) before reclassifications(166,311)— (166,311)Other comprehensive income (loss) before reclassifications(126,430)— (126,430)
Reclassification of amounts included in net incomeReclassification of amounts included in net income— 3,624 3,624 Reclassification of amounts included in net income— 1,208 1,208 
Net other comprehensive income (loss) during periodNet other comprehensive income (loss) during period(166,311)3,624 (162,687)Net other comprehensive income (loss) during period(126,430)1,208 (125,222)
Balance at September 30, 2021$397,490 $(47,207)$350,283 
Balance January 1, 2020$313,304 $(45,934)$267,370 
Other comprehensive income (loss) before reclassifications320,724 — 320,724 
Reclassification of amounts included in net income(86,101)3,152 (82,949)
Net other comprehensive income (loss) during period234,623 3,152 237,775 
Balance at September 30, 2020$547,927 $(42,782)$505,145 
Balance at March 31, 2021Balance at March 31, 2021$437,371 $(49,623)$387,748 

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Note 15 – Operating Segments
We are managed under a matrix organizational structure whereby our 2 primary operating segments, Banking and Frost Wealth Advisors, overlap a regional reporting structure. See our 20202021 Form 10-K for additional information regarding our operating segments. Summarized operating results by segment were as follows:
BankingFrost  Wealth
Advisors
Non-BanksConsolidatedBankingFrost  Wealth
Advisors
Non-BanksConsolidated
Three months ended:Three months ended:Three months ended:
September 30, 2021
March 31, 2022March 31, 2022
Net interest income (expense)Net interest income (expense)$250,119 $700 $(1,748)$249,071 
Credit loss expense (benefit)Credit loss expense (benefit)(1)— — 
Non-interest incomeNon-interest income58,706 43,229 (545)101,390 
Non-interest expenseNon-interest expense206,538 30,910 1,284 238,732 
Income (loss) before income taxesIncome (loss) before income taxes102,288 13,018 (3,577)111,729 
Income tax expense (benefit)Income tax expense (benefit)11,014 2,734 (1,121)12,627 
Net income (loss)Net income (loss)91,274 10,284 (2,456)99,102 
Preferred stock dividendsPreferred stock dividends— — 1,669 1,669 
Net income (loss) available to common shareholdersNet income (loss) available to common shareholders$91,274 $10,284 $(4,125)$97,433 
Revenues from (expenses to) external customersRevenues from (expenses to) external customers$308,825 $43,929 $(2,293)$350,461 
March 31, 2021March 31, 2021
Net interest income (expense)Net interest income (expense)$247,381 $536 $(1,795)$246,122 Net interest income (expense)$242,205 $486 $(1,810)$240,881 
Credit loss expenseCredit loss expense(6)— — Credit loss expense63 — — 63 
Non-interest incomeNon-interest income51,279 42,369 (459)93,189 Non-interest income53,780 39,609 (153)93,236 
Non-interest expenseNon-interest expense185,891 31,086 1,026 218,003 Non-interest expense179,151 29,937 1,054 210,142 
Income (loss) before income taxesIncome (loss) before income taxes112,775 11,813 (3,280)121,308 Income (loss) before income taxes116,771 10,158 (3,017)123,912 
Income tax expense (benefit)Income tax expense (benefit)12,029 2,481 (1,177)13,333 Income tax expense (benefit)7,177 2,133 (1,413)7,897 
Net income (loss)Net income (loss)100,746 9,332 (2,103)107,975 Net income (loss)109,594 8,025 (1,604)116,015 
Preferred stock dividendsPreferred stock dividends— — 1,668 1,668 Preferred stock dividends— — 2,151 2,151 
Net income (loss) available to common shareholdersNet income (loss) available to common shareholders$100,746 $9,332 $(3,771)$106,307 Net income (loss) available to common shareholders$109,594 $8,025 $(3,755)$113,864 
Revenues from (expenses to) external customersRevenues from (expenses to) external customers$298,660 $42,905 $(2,254)$339,311 Revenues from (expenses to) external customers$295,985 $40,095 $(1,963)$334,117 
September 30, 2020
Net interest income (expense)$244,685 $602 $(1,864)$243,423 
Credit loss expense (benefit)20,300 — 20,302 
Non-interest income49,170 34,680 (249)83,601 
Non-interest expense170,290 30,052 1,808 202,150 
Income (loss) before income taxes103,265 5,228 (3,921)104,572 
Income tax expense (benefit)9,758 1,098 (1,340)9,516 
Net income (loss) available to common shareholders$93,507 $4,130 $(2,581)$95,056 
Revenues from (expenses to) external customers$293,855 $35,282 $(2,113)$327,024 
Nine months ended:
September 30, 2021
Net interest income (expense)$748,036 $1,530 $(5,407)$744,159 
Credit loss expense57 — 63 
Non-interest income154,003 124,512 (843)277,672 
Non-interest expense548,151 91,037 4,211 643,399 
Income (loss) before income taxes353,831 34,999 (10,461)378,369 
Income tax expense (benefit)32,811 7,350 (3,850)36,311 
Net income (loss)321,020 27,649 (6,611)342,058 
Preferred stock dividends— — 5,488 5,488 
Net income (loss) available to common shareholders$321,020 $27,649 $(12,099)$336,570 
Revenues from (expenses to) external customers$902,039 $126,042 $(6,250)$1,021,831 
September 30, 2020
Net interest income (expense)$737,977 $2,163 $(6,385)$733,755 
Credit loss expense227,474 — — 227,474 
Non-interest income265,492 109,330 (705)374,117 
Non-interest expense525,882 94,225 5,885 625,992 
Income (loss) before income taxes250,113 17,268 (12,975)254,406 
Income tax expense (benefit)12,090 3,626 (4,191)11,525 
Net income (loss)238,023 13,642 (8,784)242,881 
Preferred stock dividends— — 2,016 2,016 
Redemption of preferred stock— — 5,514 5,514 
Net income (loss) available to common shareholders$238,023 $13,642 $(16,314)$235,351 
Revenues from (expenses to) external customers$1,003,469 $111,493 $(7,090)$1,107,872 

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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 20202021 Form 10-K for additional information regarding the fair value hierarchy and a description of our valuation techniques.
Financial Assets and Financial Liabilities. The tables below summarize financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2021March 31, 2022 and December 31, 2020,2021, segregated by the level of the valuation inputs within the fair value hierarchy of ASC Topic 820 utilized to measure fair value.
Level 1 InputsLevel 2 InputsLevel 3 InputsTotal Fair ValueLevel 1 InputsLevel 2 InputsLevel 3 InputsTotal Fair Value
September 30, 2021
March 31, 2022March 31, 2022
Securities available for sale:Securities available for sale:Securities available for sale:
U.S. TreasuryU.S. Treasury$1,685,221 $— $— $1,685,221 U.S. Treasury$3,507,746 $— $— $3,507,746 
Residential mortgage-backed securitiesResidential mortgage-backed securities— 2,491,154 — 2,491,154 Residential mortgage-backed securities— 5,376,039 — 5,376,039 
States and political subdivisionsStates and political subdivisions— 7,512,489 — 7,512,489 States and political subdivisions— 7,258,393 — 7,258,393 
OtherOther— 42,358 — 42,358 Other— 42,361 — 42,361 
Trading account securities:Trading account securities:Trading account securities:
U.S. TreasuryU.S. Treasury24,087 — — 24,087 U.S. Treasury23,939 — — 23,939 
States and political subdivisionsStates and political subdivisions— 1,205 — 1,205 States and political subdivisions— 5,579 — 5,579 
Derivative assets:Derivative assets:Derivative assets:
Interest rate swaps, caps and floorsInterest rate swaps, caps and floors— 53,186 — 53,186 Interest rate swaps, caps and floors— 33,697 — 33,697 
Commodity swaps and optionsCommodity swaps and options— 227,527 — 227,527 Commodity swaps and options— 252,747 — 252,747 
Foreign currency forward contractsForeign currency forward contracts— — Foreign currency forward contracts150 — — 150 
Derivative liabilities:Derivative liabilities:Derivative liabilities:
Interest rate swaps, caps and floorsInterest rate swaps, caps and floors— 27,609 — 27,609 Interest rate swaps, caps and floors— 39,734 — 39,734 
Commodity swaps and optionsCommodity swaps and options— 226,054 — 226,054 Commodity swaps and options— 251,181 — 251,181 
Foreign currency forward contractsForeign currency forward contracts131 — — 131 
December 31, 2021December 31, 2021
Securities available for sale:Securities available for sale:
U.S. TreasuryU.S. Treasury$2,179,433 $— $— $2,179,433 
Residential mortgage-backed securitiesResidential mortgage-backed securities— 4,066,265 — 4,066,265 
States and political subdivisionsStates and political subdivisions— 7,636,571 — 7,636,571 
OtherOther— 42,359 — 42,359 
Trading account securities:Trading account securities:
U.S. TreasuryU.S. Treasury24,237 — — 24,237 
States and political subdivisionsStates and political subdivisions— 925 — 925 
Derivative assets:Derivative assets:
Interest rate swaps, caps and floorsInterest rate swaps, caps and floors— 44,310 — 44,310 
Commodity swaps and optionsCommodity swaps and options— 114,757 — 114,757 
Foreign currency forward contractsForeign currency forward contracts33 — — 33 
Derivative liabilities:Derivative liabilities:
Interest rate swaps, caps and floorsInterest rate swaps, caps and floors— 25,261 — 25,261 
Commodity swaps and optionsCommodity swaps and options— 113,261 — 113,261 
Foreign currency forward contractsForeign currency forward contracts55 — — 55 
December 31, 2020
Securities available for sale:
U.S. Treasury$1,119,633 $— $— $1,119,633 
Residential mortgage-backed securities— 1,987,679 — 1,987,679 
States and political subdivisions— 7,287,902 — 7,287,902 
Other— 42,351 — 42,351 
Trading account securities:
U.S. Treasury23,996 — — 23,996 
States and political subdivisions— 460 — 460 
Derivative assets:
Interest rate swaps, caps and floors— 85,665 — 85,665 
Commodity swaps and options— 45,535 456 45,991 
Derivative liabilities:
Interest rate swaps, caps and floors— 35,187 — 35,187 
Commodity swaps and options— 45,099 — 45,099 

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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. Financial assets measured at fair value on a non-recurring basis during the reported periods include certain collateral dependent loans reported at the fair value of the underlying collateral if repayment is expected solely from the collateral.
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The following table presents collateral dependent loans that were remeasured and reported at fair value through a specific allocation of the allowance for credit losses on loans based upon the fair value of the underlying collateral during the reported periods.
Nine Months Ended
September 30, 2021
Nine Months Ended
September 30, 2020
Three Months Ended
March 31, 2022
Three Months Ended
March 31, 2021
Level 2Level 3Level 2Level 3Level 2Level 3Level 2Level 3
Carrying value before allocationsCarrying value before allocations$3,329 $15,274 $6,388 $8,660 Carrying value before allocations$2,064 $5,711 $100 $15,013 
Specific (allocations) reversals of prior allocationsSpecific (allocations) reversals of prior allocations(336)(4,791)(930)14,928 Specific (allocations) reversals of prior allocations(126)3,965 — 600 
Fair valueFair value$2,993 $10,483 $5,458 $23,588 Fair value$1,938 $9,676 $100 $15,613 
Non-Financial Assets and Non-Financial Liabilities. We do not have any non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Non-financialFrom time to time, non-financial assets measured at fair value on a non-recurring basis during the reported periods may include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for loan losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other non-interest expense. The following table presents foreclosed assets thatThere were remeasured and reported atno such fair value measurements during the reported periods:periods.
Nine Months Ended
September 30,
20212020
Foreclosed assets remeasured subsequent to initial recognition:
Carrying value of foreclosed assets prior to remeasurement$— $328 
Write-downs included in other non-interest expense— (231)
Fair value$— $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:
September 30, 2021December 31, 2020March 31, 2022December 31, 2021
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Financial assets:Financial assets:Financial assets:
Level 2 inputs:Level 2 inputs:Level 2 inputs:
Cash and cash equivalentsCash and cash equivalents$16,253,971 $16,253,971 $10,288,853 $10,288,853 Cash and cash equivalents$14,457,083 $14,457,083 $16,583,000 $16,583,000 
Securities held to maturitySecurities held to maturity1,759,270 1,825,568 1,945,673 2,052,896 Securities held to maturity1,665,465 1,639,993 1,749,179 1,809,143 
Cash surrender value of life insurance policiesCash surrender value of life insurance policies189,941 189,941 189,984 189,984 Cash surrender value of life insurance policies189,471 189,471 190,139 190,139 
Accrued interest receivableAccrued interest receivable119,232 119,232 181,432 181,432 Accrued interest receivable131,370 131,370 179,111 179,111 
Level 3 inputs:Level 3 inputs:Level 3 inputs:
Loans, netLoans, net15,582,520 15,656,269 17,218,132 17,390,683 Loans, net16,295,702 16,053,955 16,087,731 16,079,454 
Financial liabilities:Financial liabilities:Financial liabilities:
Level 2 inputs:Level 2 inputs:Level 2 inputs:
DepositsDeposits39,612,767 39,613,343 35,015,761 35,018,185 Deposits44,430,929 44,422,700 42,695,696 41,343,426 
Federal funds purchasedFederal funds purchased27,200 27,200 48,850 48,850 Federal funds purchased35,200 35,200 25,925 25,925 
Repurchase agreementsRepurchase agreements2,200,029 2,200,029 2,068,147 2,068,147 Repurchase agreements1,842,618 1,842,618 2,740,799 2,740,799 
Junior subordinated deferrable interest debenturesJunior subordinated deferrable interest debentures136,400 137,115 136,357 137,115 Junior subordinated deferrable interest debentures123,026 123,712 123,011 123,712 
Subordinated notesSubordinated notes99,139 113,223 99,021 115,717 Subordinated notes99,217 105,740 99,178 111,430 
Accrued interest payableAccrued interest payable2,126 2,126 8,127 8,127 Accrued interest payable2,147 2,147 3,026 3,026 
Under ASC Topic 825, entities may choose to measure eligible financial instruments at fair value at specified election dates. The fair value measurement option (i) may be applied instrument by instrument, with certain exceptions, (ii) is generally irrevocable and (iii) is applied only to entire instruments and not to portions of instruments. Unrealized gains and losses on items for which the fair value measurement option has been elected must be reported in earnings at each subsequent reporting date. During the reported periods, we had no financial instruments measured at fair value under the fair value measurement option.

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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 20202021 Form 10-K for additional information related to previously issued accounting standards updates.
ASU 2020-04, “Reference Rate Reform2022-01, “Derivatives and Hedging (Topic 848)815): FacilitationFair Value Hedging - Portfolio Layer Method.” Under prior guidance, entities can apply the last-of-layer hedging method to hedge the exposure of a closed portfolio of prepayable financial assets to fair value changes due to changes in interest rates for a portion of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactionsportfolio that reference LIBOR or another reference rateis not expected to be discontinued becauseaffected by prepayments, defaults, and other events affecting the timing and amount of reference rate reform and do not applycash flows. ASU 2022-01 expands the last-of-layer method, which permits only one hedge layer, to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing asallow multiple hedged layers of December 31, 2022,a single closed portfolio. To reflect that an entity has elected certain optional expedients for and that are retained throughexpansion, the endlast-of-layer method is renamed the portfolio layer method. ASU 2022-01 also (i) expands the scope of the portfolio layer method to include non-prepayable financial assets, (ii) specifies eligible hedging relationship. ASU 2020-04 was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2020-04 did not significantly impact our financial statements.
ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs.” ASU 2020-08 clarifiesinstruments in a single-layer hedge, (iii) provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the amortization of purchase premiumsportfolio layer method and (iv) specifies how hedge basis adjustments should be considered when determining credit losses for callable debt securities with multiple call dates.the assets included in the closed portfolio. ASU 2020-08 became2022-01 will be effective for us on January 1, 2021 and did2023 though early adoption is permitted. The adoption of ASU 2022-01 is not expected to have a significant impact on our financial statements.
ASU 2020-09, “Debt2022-02, “Financial Instruments - Credit Losses (Topic 470)326): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762.Troubled Debt Restructurings and Vintage Disclosures.ASU 2020-09 amends2022-02 eliminates the ASC to reflect the issuance of an SEC rule related to financialaccounting guidance for troubled debt restructurings in Accounting Standards Codification (“ASC”) Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for subsidiary issuerscertain loan refinancings and guarantorsrestructurings by creditors when a borrower is experiencing financial difficulty. Additionally, ASU 2022-02 requires entities to disclose current-period gross write-offs by year of registered debt securitiesorigination for financing receivables and affiliates whose securities are pledged as collateral for registered securities.net investments in leases within the scope of ASC Subtopic 3126-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. ASU 2020-09 became2022-02 will be effective for us on January 4, 2021, concurrent with the effective date1, 2023 though early adoption is permitted. The adoption of the SEC release, and didASU 2022-02 is not expected to have a significant impact on our financial statements.
ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” ASU 2021-01 clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU 2021-01 was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2021-01 did not significantly impact our financial statements.
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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, 2020,2021, and the other information included in the 20202021 Form 10-K. Operating results for the three and nine months ended September 30, 2021March 31, 2022 are not necessarily indicative of the results for the year ending December 31, 20212022 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) and their application 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 potential impact of climate change.
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 and the speed of digital transformation.changes.
The cost and effects of cyber incidents or other failures, interruptions or security breaches of our systems or those of our outside providers and our customers.
Our customers' vulnerability to internal and external fraud (including fraudulent e-mail and other communications).customers or third-party providers.
Acquisitions and integration of acquired businesses.
Our ability to increase market share and control expenses.
Our ability to attract and retain qualified employees.
Changes in the competitive environment in our markets and among banking organizations and other financial service providers.
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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.
In addition, financial markets and global supply chains may be adversely affected by the current or anticipated impact of military conflict, including the current Russian invasion of Ukraine, terrorism or other geopolitical events.
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 Effects and Actions
Our business has been, and continues to be, impacted by the effects of the COVID-19 pandemic. As the pandemic is ongoing and dynamic in nature, there areThere remains many uncertainties related to COVID-19 including, among other things, the ongoing 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 containmitigate both the outbreak or to mitigate its impact (both economic and health-related).health-related effects of COVID-19. Refer to our 20202021 Form 10-K for further information regarding (i) the impact of the COVID-19 pandemic on our operations and our results thereof, as well as the impact on our financial position and (ii) legislative and regulatory actions taken related to the COVID-19 pandemic, particularly as they relate to the banking and financial services industry.
Recent actions taken by the U.S. government to further 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.
During the first quarter of 2021, President Biden signed a number of executive orders relating to stimulus and relief measures. These orders include, among other things, (i) an extension, through March 31, 2021, of the moratorium on evictions and foreclosures, (ii) an extension, through September 30, 2021, of the deferral of federal student loan payments and interest and (iii) an extension, through June 30, 2021, of certain mortgage forbearance programs and guidelines.
On March 11 2021, the American Rescue Plan Act of 2021 (the “ARP Act”) was enacted, implementing a $1.9 trillion package of stimulus and relief proposals. Among other things, the ARP Act provides (i) additional funding for the PPP program and an expansion of the program for the benefit of certain nonprofits, (ii) funding for the Small Business Administration (“SBA”) to make targeted grants for restaurants and similar establishments, (iii) direct cash payments of up to $1,400 to individuals, subject to income provisions, (iv) an increase in the maximum annual Child Tax Credit, subject to income limitation provisions, (v) $300 a week in expanded unemployment insurance lasting through September 6, 2021 and makes $10,200 in unemployment benefits tax free for households, subject to income limitation provisions, (vi) tax relief making any student loan forgiveness incurred between December 31, 2020, and January 1, 2026 non-taxable income, and (vii) funding to support state and local governments; K-12 schools and higher education; the Centers for Disease Control; public transit; rental assistance; child care; and airline industry workers.
On March 27, 2021, the COVID-19 Bankruptcy Relief Extension Act of 2021 was enacted, extending the bankruptcy relief provisions enacted in the CARES Act of 2020 bill until March 27, 2022. These provisions provide financially distressed small businesses and individuals greater access to bankruptcy relief. We are continuing to monitor the potential development of additional legislation and further actions taken by the U.S. government.

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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 credit 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. In the case of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. The amount of each allowance account represents management's best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term
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of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. Refer to the 20202021 Form 10-K for additional information regarding critical accounting policies.

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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.
Results of Operations
Net income available to common shareholders totaled $106.3$97.4 million, or $1.65 per diluted common share, and $336.6 million, or $5.22$1.50 per diluted common share, for the three and nine months ended September 30, 2021March 31, 2022 compared to $95.1$113.9 million, or $1.50 per diluted common share, and $235.4 million, or $3.71$1.77 per diluted common share, for the three and nine months ended September 30, 2020.March 31, 2021.
Selected data for the comparable periods was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
202120202021202020222021
Taxable-equivalent net interest incomeTaxable-equivalent net interest income$269,321 $267,041 $813,266 $805,216 Taxable-equivalent net interest income$272,194 $263,949 
Taxable-equivalent adjustmentTaxable-equivalent adjustment23,199 23,618 69,107 71,461 Taxable-equivalent adjustment23,123 23,068 
Net interest incomeNet interest income246,122 243,423 744,159 733,755 Net interest income249,071 240,881 
Credit loss expenseCredit loss expense— 20,302 63 227,474 Credit loss expense— 63 
Net interest income after credit loss expenseNet interest income after credit loss expense246,122 223,121 744,096 506,281 Net interest income after credit loss expense249,071 240,818 
Non-interest incomeNon-interest income93,189 83,601 277,672 374,117 Non-interest income101,390 93,236 
Non-interest expenseNon-interest expense218,003 202,150 643,399 625,992 Non-interest expense238,732 210,142 
Income before income taxesIncome before income taxes121,308 104,572 378,369 254,406 Income before income taxes111,729 123,912 
Income tax expense\(benefit)13,333 9,516 36,311 11,525 
Income taxesIncome taxes12,627 7,897 
Net incomeNet income107,975 95,056 342,058 242,881 Net income99,102 116,015 
Preferred stock dividendsPreferred stock dividends1,668 — 5,488 2,016 Preferred stock dividends1,669 2,151 
Redemption of preferred stockRedemption of preferred stock— — — 5,514 Redemption of preferred stock— — 
Net income available to common shareholdersNet income available to common shareholders$106,307 $95,056 $336,570 $235,351 Net income available to common shareholders$97,433 $113,864 
Earnings per common share – basicEarnings per common share – basic$1.66 $1.50 $5.25 $3.72 Earnings per common share – basic$1.51 $1.78 
Earnings per common share – dilutedEarnings per common share – diluted1.65 1.50 5.22 3.71 Earnings per common share – diluted1.50 1.77 
Dividends per common shareDividends per common share0.75 0.71 2.19 2.13 Dividends per common share0.75 0.72 
Return on average assetsReturn on average assets0.90 %0.96 %1.00 %0.85 %Return on average assets0.79 %1.09 %
Return on average common equityReturn on average common equity9.87 9.30 10.72 7.95 Return on average common equity9.58 11.13 
Average shareholders’ equity to average assetsAverage shareholders’ equity to average assets9.44 10.31 9.65 10.80 Average shareholders’ equity to average assets8.48 10.10 
Net income available to common shareholders increased $11.3decreased $16.4 million, or 11.8%14.4%, for the three months ended September 30, 2021 and increased $101.2 million, or 43.0%, for the nine months ended September 30, 2021March 31, 2022 compared to the same periodsperiod in 2020.2021. The increasedecrease during the three months ended September 30, 2021March 31, 2022 was primarily the result of a $20.3 million decrease in credit loss expense, a $9.6 million increase in non-interest income and a $2.7 million increase in net interest income partly offset by a $15.9$28.6 million increase in non-interest expense and a $3.8$4.7 million increase in income tax expense. The increase during the nine months ended September 30, 2021 was primarily the result of a $227.4 million decrease in credit loss expense and a $10.4partly offset by an $8.2 million increase in net interest income partly offset by a $96.4 million decrease in non-interest income, a $24.8 million increase in income tax expense and a $17.4an $8.2 million increase in non-interest expense. Credit loss expense during 2020 was impacted by 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. Non-interest income during 2020 was impacted by a $109.0 million net gain on securities transactions during the first quarter. Net income available to common shareholders during 2020 was also impacted by the reclassification of $5.5 million of issuance costs associated with our preferred stock to retained earnings upon redemption of the preferred stock.
income. Details of the changes in the various components of net income are further discussed below.
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Net Interest Income
Net interest income is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is our largest source of revenue, representing 72.8%71.1% of total revenue during the first ninethree months of 2021.2022. Net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period. The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and net interest margin.
The Federal Reserve influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Our loan portfolio is significantly affected by changes in the prime interest rate. The prime rate began 2020remained at 4.75% and decreased 1503.25% during 2021. During 2022, the prime rate increased 25 basis points in March 2020 to 3.25% where it remained through September 30, 2021.end the first quarter at 3.50%. Our loan portfolio is also impacted by changes in the London Interbank Offered Rate (LIBOR)(“LIBOR”). At September 30,March 31, 2022, the one-month and three-month U.S. dollar LIBOR interest rates were 0.45% and 0.96%, respectively, while at March 31, 2021, the one-month and three-month U.S. dollar LIBOR interest rates were 0.08%0.11% and 0.13%, respectively, while at September 30, 2020, the one-month and three-month U.S. dollar LIBOR interest rates were 0.15% and 0.23%0.19%, respectively. We discontinued originating LIBOR-based loans effective December 31, 2021 and have begun to negotiate loans using our preferred replacement index, the American Interbank Offered Rate (“AMERIBOR”), a benchmark developed by the American Financial Exchange, the Secured Overnight Financing Rate (“SOFR”) or a benchmark developed by Bloomberg Index Services (“BSBY”). For our currently outstanding LIBOR-based loans, the timing and manner in which each customer’s contract transitions from LIBOR to another rate will vary on a case-by-case basis. We expect to complete all transitions by the first quarter of 2023.
The target range for the federal funds rate, which is the cost of immediately available overnight funds, began 2020remained at 1.50%zero to 1.75% and decreased 1500.25% during 2021. During 2022, the target fed funds rate was increased 25 basis points in March 2020 to zeroend the quarter at 0.25 to 0.25% where it remained through September 30, 2021. As noted in our 2020 Form 10-K,0.50%. In March 2022, the decrease inFederal Reserve released projections whereby the midpoint of the projected appropriate target range for the federal funds rate in March 2020 was largely an emergency measurewould rise to 1.9% by the Federal Reserve aimed at bluntingend of 2022 and to 2.8% by the economic impactend of COVID-19.2023. While there can be no such assurance that any increases in the federal funds rate will occur, these projections imply six 25 basis point increases in the federal funds rate during the remainder of 2022, followed by an additional four 25 basis point increases in 2023.
We are primarily funded by core deposits, with non-interest-bearing demand deposits historically being a significant source of funds. This lower-cost funding base is expected to have a positive impact on our net interest income and net interest margin in a rising interest rate environment. See Item 3. Quantitative and Qualitative Disclosures About Market Risk elsewhere in this report for information about our sensitivity to interest rates. Further analysis of the components of our net interest margin is presented below.
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The following table presents an analysis of net interest income and net interest spread for the periods indicated, including average outstanding balances for each major category of interest-earning assets and interest-bearing liabilities, the interest earned or paid on such amounts, and the average rate earned or paid on such assets or liabilities, respectively. The table also sets forth the net interest margin on average total interest-earning assets for the same periods. For these computations: (i) average balances are presented on a daily average basis, (ii) information is shown on a taxable-equivalent basis assuming a 21% tax rate, (iii) average loans include loans on non-accrual status, and (iv) average securities include unrealized gains and losses on securities available for sale, while yields are based on average amortized cost.
March 31, 2022March 31, 2021
Average
Balance
Interest
Income/
Expense
Yield/
Cost
Average
Balance
Interest
Income/
Expense
Yield/
Cost
Assets:
Interest-bearing deposits$13,766,486 $6,343 0.18 %$9,864,811 $2,433 0.10 %
Federal funds sold13,892 13 0.37 4,963 0.24 
Resell agreements5,835 0.27 2,636 0.15 
Securities:
Taxable9,000,677 43,058 1.90 4,017,748 20,028 2.06 
Tax-exempt8,165,462 78,898 4.03 8,229,643 78,576 4.09 
Total securities17,166,139 121,956 2.88 12,247,391 98,604 3.41 
Loans, net of unearned discounts16,386,458 151,068 3.74 17,683,917 168,638 3.87 
Total Earning Assets and Average Rate Earned47,338,810 279,384 2.39 39,803,718 269,679 2.78 
Cash and due from banks651,124 530,954 
Allowance for credit losses on loans and securities(248,801)(267,233)
Premises and equipment, net1,050,735 1,045,943 
Accrued interest and other assets1,531,609 1,416,614 
Total Assets$50,323,477 $42,529,996 
Liabilities:
Non-interest-bearing demand deposits17,961,221 15,309,375 
Interest-bearing deposits:
Savings and interest checking11,954,465 410 0.01 9,713,591 356 0.01 
Money market deposit accounts11,858,775 3,651 0.12 9,244,763 1,679 0.07 
Time accounts1,187,458 851 0.29 1,138,240 1,482 0.53 
Total interest-bearing deposits25,000,698 4,912 0.08 20,096,594 3,517 0.07 
Total deposits42,961,919 0.05 35,405,969 0.04 
Federal funds purchased27,759 12 0.17 40,614 0.08 
Repurchase agreements2,051,577 518 0.10 1,839,982 395 0.09 
Junior subordinated deferrable interest debentures123,020 584 1.90 136,366 646 1.89 
Subordinated notes99,203 1,164 4.69 99,046 1,164 4.70 
Total Interest-Bearing Funds and Average Rate Paid27,302,257 7,190 0.11 22,212,602 5,730 0.10 
Accrued interest and other liabilities790,092 713,002 
Total Liabilities46,053,570 38,234,979 
Shareholders’ Equity4,269,907 4,295,017 
Total Liabilities and Shareholders’ Equity$50,323,477 $42,529,996 
Net interest income$272,194 $263,949 
Net interest spread2.28 %2.68 %
Net interest income to total average earning assets2.33 %2.72 %
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The following table presents the changes in taxable-equivalent net interest income and identifies the changes due to differences in the average volume of earning assets and interest-bearing liabilities and the changes due to changes in the average interest rate on those assets and liabilities. The changes in net interest income due to changes in both average volume and average interest rate have been allocated to the average volume change or the average interest rate change in proportion to the absolute amounts of the change in each. The comparison between the 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
September 30, 2021 vs. September 30, 2020
Increase (Decrease) Due to Change in
RateVolumeNumber of daysTotal
Interest-bearing deposits$1,030 $3,288 $— $4,318 
Federal funds sold(6)— (3)
Resell agreements(9)— (8)
Securities:
Taxable(1,857)33 — (1,824)
Tax-exempt(802)(796)— (1,598)
Loans, net of unearned discounts18,752 (18,987)— (235)
Total earning assets17,127 (16,477)— 650 
Savings and interest checking(147)142 — (5)
Money market deposit accounts404 311 — 715 
Time accounts(2,382)(50)— (2,432)
Public funds— — 
Federal funds purchased(1)— 
Repurchase agreements(38)195 — 157 
Junior subordinated deferrable interest debentures(69)— — (69)
Subordinated notes— — — — 
Total interest-bearing liabilities(2,229)599 — (1,630)
Net change$19,356 $(17,076)$— $2,280 
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Nine Months EndedThree Months Ended
September 30, 2021 vs. September 30, 2020March 31, 2022 vs. March 31, 2021
Increase (Decrease) Due to Change inIncrease (Decrease) Due to Change in
RateVolumeNumber of daysTotalRateVolumeTotal
Interest-bearing depositsInterest-bearing deposits$(9,821)$10,844 $(40)$983 Interest-bearing deposits$2,617 $1,293 $3,910 
Federal funds soldFederal funds sold(331)(375)(2)(708)Federal funds sold10 
Resell agreementsResell agreements(76)(75)(1)(152)Resell agreements
Securities:Securities:Securities:
TaxableTaxable(8,901)(1,683)— (10,584)Taxable(1,684)24,714 23,030 
Tax-exemptTax-exempt— (8,617)— (8,617)Tax-exempt(1,208)1,530 322 
Loans, net of unearned discountsLoans, net of unearned discounts3,221 5,126 (1,883)6,464 Loans, net of unearned discounts(5,518)(12,052)(17,570)
Total earning assetsTotal earning assets(15,908)5,220 (1,926)(12,614)Total earning assets(5,788)15,493 9,705 
Savings and interest checkingSavings and interest checking(428)435 (4)Savings and interest checking— 54 54 
Money market deposit accountsMoney market deposit accounts(9,025)2,061 (49)(7,013)Money market deposit accounts1,413 559 1,972 
Time accountsTime accounts(8,576)67 (42)(8,551)Time accounts(695)64 (631)
Public funds(1,627)209 (5)(1,423)
Federal funds purchasedFederal funds purchased(73)(1)(68)Federal funds purchased(3)
Repurchase agreementsRepurchase agreements(3,668)1,366 (14)(2,316)Repurchase agreements60 63 123 
Junior subordinated deferrable interest debenturesJunior subordinated deferrable interest debentures(979)— (978)Junior subordinated deferrable interest debentures(65)(62)
Subordinated notesSubordinated notes(6)— — Subordinated notes(2)— 
Federal home loan bank advances— (318)— (318)
Total interest-bearing liabilitiesTotal interest-bearing liabilities(24,382)3,833 (115)(20,664)Total interest-bearing liabilities786 674 1,460 
Net changeNet change$8,474 $1,387 $(1,811)$8,050 Net change$(6,574)$14,819 $8,245 
Taxable-equivalent net interest income for the three months ended September 30, 2021March 31, 2022 increased $2.3$8.2 million, or 0.9%, while taxable-equivalent net interest income for the nine months ended September 30, 2021 increased $8.1 million, or 1.0%3.1%, compared to the same periods in 2020. Taxable-equivalent net interest income for the nine months ended September 30, 2021 included 273 days compared to 274 days for the same period in 2020 as a result of the leap year. The additional day added approximately $1.8 million to taxable-equivalent net interest income during the nine months ended September 30, 2020. Excluding the impact of the additional day results in an effective increase in taxable-equivalent net interest income of approximately $9.9 million during the nine months ended September 30, 2021. The taxable-equivalent net interest margin decreased 48 basis points from 2.95% during the three months ended September 30, 2020 to 2.47% during the three months ended September 30, 2021 while the taxable-equivalent net interest margin decreased 59 basis points from 3.20% during the nine months ended September 30, 2020 to 2.61% during the nine months ended September 30, 2021.
The increase in taxable-equivalent net interest income during the three months ended September 30, 2021March 31, 2022 was primarily related to an increase in the average taxable-equivalent yield on loansvolume of taxable securities and, interest bearingto a much lesser extent, increases in the average volumes of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and decreasestax-exempt securities; and an increase in the average costs of interest-bearing deposit liabilities and other borrowed funds combined with increases in the average volumes ofyield on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve). The impact of these items was partly offset by decreasesa decrease in the average volume of loans and tax-exempt securities combined with a decrease in the average yield on taxable and tax-exempt securities. The increase in taxable-equivalent net interest income during the nine months ended September 30, 2021 was primarily related to decreases in the average costs of interest-bearing deposit liabilities and other borrowed funds combined with increases in the average volumes of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and loans and an increase in the average taxable-equivalent yield on loans. The positive impact of these items was partly offset by decreases in the average yields on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) andloans, taxable securities combined with decreases in the average volumes ofand tax-exempt and taxable securities and increases in the average volumescost and average volume of interest-bearingmoney market deposit liabilities and repurchase agreements. The decreases inaccounts. As a result of these fluctuations, the taxable-equivalent net interest margin during the three and nine months ended September 30, 2021 were primarily related to increases in the relative proportion of average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) to average total interest-earning assets combined with the aforementioned decreases in market interest rates. Interest-bearing deposits made up approximately 34.7% of average interest-earning assetsdecreased 39 basis points from 2.72% during the three months ended September 30,March 31, 2021 compared to 16.0%2.33% during the same period in 2020 while interest-bearing deposits made up approximately 30.4% of average interest-earning assets during the ninethree months ended September 30, 2021 compared to 13.1% during the same period in 2020.
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March 31, 2022.
The average volume of interest-earning assets for the three months ended September 30, 2021March 31, 2022 increased $7.2 billion while the average volume of interest-earning assets for the nine months ended September 30, 2021 increased $8.0$7.5 billion compared to the same periodsperiod in 2020.2021. The increase in the average volume of interest-earning assets during the three months ended September 30, 2021 includedprimarily related to a $9.4$5.0 billion increase in average taxable securities and a $3.9 billion increase in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) partly offset by a $2.0$1.3 billion decrease in average loans (of which approximately $1.8$2.5 billion related to PPP loans, as further discussed below), a $123.4 million decrease in average tax-exempt securities, a $54.0 million decrease in average taxable securities, a $12.1 million decrease in average resell agreements and a $9.5 million decrease in average federal funds sold. The increase in the average volume of interest-earning assets during the nine months ended September 30, 2021 included an $8.4 billion increase in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve), a $131.9 million increase in average loans (of which approximately $369.2 million related to PPP loans, as further discussed below) partly offset by a $231.0 million decrease in average tax-exempt securities, a $134.7 million decrease in average taxable securities, a $95.1 million decrease in average federal funds sold and a $16.8 million decrease in average resell agreements.
The average taxable-equivalent yield on interest-earning assets decreased 51 basis points from 3.04% during the three months ended September 30, 2020 to 2.53% during the three months ended September 30, 2021 while the average taxable-equivalent yield on interest-earning assets decreased 68 basis points from 3.35% during the nine months ended September 30, 2020 to 2.67% during the nine months ended September 30, 2021. The average taxable-equivalent yield on interest-earning assets during 2021 was impacted by the aforementioned changes in market interest rates and changes in the volume and relative mix of interest-earning assets..
The average taxable-equivalent yield on loans increased 43decreased 13 basis points from 3.73%3.87% during the three months ended September 30, 2020March 31, 2021 to 4.16%3.74% during the three months ended September 30, 2021 while theMarch 31, 2022. The average taxable-equivalent yield on loans increased 2 basis points from 4.08% during the nine months ended September 30, 2020 to 4.10% during the nine months ended September 30, 2021. The average taxable-equivalent yields on loans during the three and nine months ended September 30,March 31, 2021 werewas positively impacted by a higher average yields onproportion of higher-yielding PPP loans but negatively impacted by lower average market interest ratesto total loans compared to the same periods in 2020.three months ended March 31, 2022. The average volume of loans for the three and nine months ended September 30, 2021March 31, 2022 decreased $2.0$1.3 billion, or 10.8%7.3%, and increased $131.9 million, or 0.8%, respectively, compared to the same periods in 2020. The decrease in average loans during the three months ended September 30, 2021 compared to the same period in 20202021. The decrease was primarily due to an increasea $2.5 billion decrease in the average volume of PPP loans. Excluding PPP loans, forgiven by the SBA during the three months ended September 30, 2021 compared to the same period in 2020.average loans would have increased $1.2 billion, or 8.3%. Loans made up approximately 36.8% and 40.3%34.6% of average interest-earning assets during the three and nine months ended September 30, 2021, respectively,March 31, 2022, compared to 49.4%44.4% during each of the same respective periodsperiod in 2020.2021.
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. In 2020, we funded $3.3 billion of PPP loans of which approximately $3.2 billion were funded during the second quarter of 2020. As of September 30, 2021, approximately $3.1 billion of these 2020 originated PPP loans have been forgiven by the SBA or repaid by the customer. During the first nine months of 2021, we funded an additional $1.4 billion of PPP loans, most of which was during the first quarter. As of September 30, 2021, approximately $703.9 million of these 2021 originated PPP loans have been forgiven by the SBA or repaid by the customer. During the three and nine months ended September 30, 2021,March 31, 2022, we recognized $26.5approximately $2.6 million and $88.9 million, respectively, in PPP loan related deferred processing fees (net of amortization of related deferred origination costs) as a yield adjustment and this amount is included in interest income on loans. During the three and nine months ended September 30, 2020,March 31, 2021, we recognized approximately $21.1$23.5 million and $40.4 million, respectively, in PPP loan related deferred processing fees (net of amortization of related deferred origination costs). As a result of the inclusion of
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these net fees in interest income, the average yields on PPP loans were 8.72% and 6.23%was 4.45% during the three and nine months ended September 30, 2021, respectively,March 31, 2022, and 3.65% and 3.86%4.39% during the three and nine months ended September 30, 2020, respectively,March 31, 2021, compared to the stated interest rate of 1.0% on these loans.
The increase in the average yield on PPP Loans during the three and nine months ended September 30, 2021 compared to the same periods in 2020 was primarily due to a decrease in the average expected lives of the PPP loans funded in 2021 compared to 2020. Furthermore, the average fee percentage for 2021 originations was higher due to a smaller average loan size relative to 2020. In return for processing and booking a PPP loan, the SBA paid lenders a processing fee tiered by the size of the loan (5% for loans of not more than $350 thousand; 3% for loans of more than $350 thousand and less than $2 million; and 1% for loans of at least $2 million). For PPP loans funded through September 30, 2021, we expect to recognize additional PPP loan related deferred processing fees (net of deferred origination costs) totaling approximately $11.5 million as a yield adjustment over the remaining expected lives of these loans. Of this amount, we expect to recognize approximately 75% in 2021 and the remainder in 2022.
The average taxable-equivalent yield on securities was 3.35%2.88% during the three months ended September 30, 2021,March 31, 2022, decreasing 953 basis points from 3.44%3.41% during the same period in 2020 while the average taxable-equivalent yield on securities
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was 3.37% during the nine months ended September 30, 2021, decreasing 11 basis points from 3.48% during the same period in 2020.2021. The average yield on taxable securities decreased 1816 basis points from 2.21%2.06% during the three months ended September 30, 2020March 31, 2021 to 2.03%1.90% during the three months ended September 30, 2021 while the average yield on taxable securities decreased 29 basis points from 2.32% during the nine months ended September 30, 2020 to 2.03% during the nine months ended September 30, 2021.
March 31, 2022. The average taxable-equivalent yield on tax-exempt securities decreased 46 basis points from 4.08%4.09% during the three months ended September 30, 2020March 31, 2021 to 4.04%4.03% during the three months ended September 30, 2021 while the average taxable-equivalent yield on tax-exempt securities remained flat at 4.07% during both the nine months ended September 30, 2021 and 2020.March 31, 2022. Tax exempt securities made up approximately 66.8% and 66.7%47.6% of total average securities during the three and nine months ended September 30, 2021, respectively,March 31, 2022 compared to 66.9% and 66.6%67.2% during the same respective periodsperiod in 2020.2021. The average volume of total securities during the three months ended September 30, 2021 decreased $177.4 million,March 31, 2022 increased $4.9 billion, or 1.4%40.2%, compared to the same period in 2020 while the average volume of total securities during the nine months ended September 30, 2021 decreased $365.7 million, or 2.9%, compared to the same period in 2020.2021. Securities made up approximately 28.4%36.3% of average interest-earning assets during the three months ended September 30, 2021March 31, 2022 compared to 34.5%30.8% during the same period in 2020 while securities made up approximately 29.2% of average interest-earning assets during the nine months ended September 30, 2021 compared to 37.1% during the same period in 2020.2021. The decreasesincrease during the three and nine months ended September 30, 2021 wereMarch 31, 2022 was primarily related to an increasethe increased investment of funds in the relative proportion of interest-earning assets invested in interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve).taxable securities.
Average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) for the three months ended September 30, 2021March 31, 2022 increased $9.4$3.9 billion, or 159.5%39.6%, compared to the same period in 2020 while average2021. Interest-bearing deposits (primarily amounts held in an interest-bearing deposits foraccount at the nine months ended September 30, 2021 increased $8.4 billion, or 186.1%, compared to the same period in 2020. Interest-bearing depositsFederal Reserve) made up approximately 34.7%29.1% of average interest-earning assets during the three months ended September 30, 2021March 31, 2022 compared to 16.0%24.8% during the same period in 2020 while interest-bearing deposits made up approximately 30.4% of average interest-earning assets during the nine months ended September 30, 2021 compared to 13.1% during the same period in 2020.2021. The increasesincrease in the average volume of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) during the three and nine months ended September 30, 2021March 31, 2022 compared to the same periodsperiod in 2020 were2021 was primarily due to increases in the average volume of customer deposits and, to a lesser extent, repurchase agreements.deposits. The average yield on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) was 0.15% and 0.12%0.18% during the three and nine months ended September 30, 2021, respectively,March 31, 2022 compared to 0.10% and 0.32 % during the same periodsperiod in 2020.2021. The average yieldsyield on interest-bearing deposits during 2021 and during the second and third quarters of 2020 were negativelythree months ended March 31, 2022 was impacted by a decrease in thehigher interest rate paid on excess reserves held at the Federal Reserve, to 0.10% during March 2020, although this rate ultimately increased 5 basis points to 0.15% in June 2021.
Average federal funds sold and average resell agreements for the three months ended September 30, 2021 decreased $9.5 million, or 85.0%, and $12.1 million, or 60.5%, respectively, compared to the same period in 2020 while average federal funds sold and average resell agreements for the nine months ended September 30, 2021 decreased $95.1 million, or 91.1%, and $16.8 million, or 73.2%, respectively, compared to the same period in 2020. Federal funds sold and resell agreements were not a significant component of interest-earning assets during the comparable periods. The average yields on federal funds sold and resell agreements were 0.48% and 0.29%, respectively, during the three months ended September 30, 2021, compared to 0.18% and 0.27%, respectively, during the same period in 2020 while the average yields on federal funds sold and resell agreements were 0.18% and 0.24%, respectively, during the nine months ended September 30, 2021, compared to 0.91% and 0.93%, respectively, during the same period in 2020. The average yields on federal funds sold and resell agreements during 2021 were negatively impacted by lower average market interest rates.2021.
The average rate paid on interest-bearing liabilities was 0.10%0.11% during the three months ended September 30, 2021, decreasing 5March 31, 2022, increasing one basis pointspoint from 0.15%0.10% during the same period in 2020 while the average rate paid on interest-bearing liabilities was 0.10% during the nine months ended September 30, 2021, decreasing 17 basis points from 0.27% during the same period in 2020.2021. Average deposits increased $6.2$7.6 billion, or 19.0%21.3%, during the three months ended September 30, 2021March 31, 2022 compared to the same period in 20202021 and included a $3.8$4.9 billion increase in average interest-bearing deposits and a $2.4 billion increase in average non-interest bearing deposits. Average deposits increased $7.1 billion, or 23.2%, during the nine months ended September 30, 2021 compared to the same period in 2020 and included a $3.9 billion increase in average interest-bearing deposits and a $3.2$2.7 billion increase in average non-interest bearing deposits. The ratio of average interest-bearing deposits to total average deposits was 56.5% and58.2% during the three months ended March 31, 2022 compared to 56.8% during the three and nine months ended September 30, 2021, respectively, compared to 55.6% and 57.3% during the same respective periodsperiod in 2020.2021. The average cost of deposits is primarily impacted by changes in market interest rates as well as changes in the volume and relative mix of interest-bearing deposits. The average cost of interest-bearing deposits and total deposits was 0.07%0.08% and 0.04%0.05%, respectively, during the three months ended September 30, 2021March 31, 2022 compared to 0.12%0.07% and 0.07%0.04%, respectively, during the same period in 2020. The average cost of interest-
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bearing deposits and total deposits was 0.07% and 0.04%, respectively, during the nine months ended September 30, 2021 compared to 0.21% and 0.12%, respectively, during the same period in 2020.2021. The average cost of deposits during 2020 and 2021 were2022 was impacted by decreasesan increase in the interest rates we pay on most of our interest-bearing deposit products as a result of the aforementioned decreasesincrease in market interest 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 $146.0 million during the nine months ended September 30, 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 2.43% and 2.57%2.28% during the three and nine months ended September 30, 2021, respectively,March 31, 2022 compared to 2.89% and 3.08%2.68% during the same periodsperiod in 2020.2021. The net interest spread, as well as the net interest margin, will be impacted by future changes in short-term and long-term interest rate levels, as well as the impact from the competitive environment. A discussion of the effects of changing interest rates on net interest income is set forth in Item 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
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Credit Loss Expense
Credit loss expense is determined by management as the amount to be added to the allowance for credit 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 allowances to a level which, in management’s best estimate, is necessary to absorb expected credit losses over the lives of the respective financial instruments. The components of credit loss expense were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
202120202021202020222021
Credit loss expense (benefit) related to:Credit loss expense (benefit) related to:Credit loss expense (benefit) related to:
LoansLoans$(3,023)$23,590 $(7,402)$223,743 Loans$4,464 $— 
Off-balance-sheet credit exposuresOff-balance-sheet credit exposures3,023 (3,276)7,467 3,786 Off-balance-sheet credit exposures(4,464)65 
Securities held to maturitySecurities held to maturity— (12)(2)(55)Securities held to maturity— (2)
TotalTotal$— $20,302 $63 $227,474 Total$— $63 
See the section captioned “Allowance for Credit Losses” elsewhere in this discussion for further analysis of credit loss expense related to loans and off-balance-sheet credit exposures.
Non-Interest Income
Total non-interest income for the three and nine months ended September 30, 2021March 31, 2022 increased $9.6$8.2 million, or 11.5%8.7%, and decreased $96.4 million, or 25.8%, respectively, compared to the same periodsperiod in 2020. Excluding the $109.0 million in net gains on securities transactions during the nine months ended September 30, 2020, total non-interest income increased $12.5 million, or 4.7%, during the nine months ended September 30, 2021. Changes in the various components of non-interest income are discussed in more detail below.
Trust and Investment Management Fees. Trust and investment management fees for the three and nine months ended September 30, 2021March 31, 2022 increased $5.9$3.3 million, or 18.8%9.5%, and increased $13.6 million, or 14.0%, respectively, compared to the same periodsperiod in 2020.2021. Investment management fees are the most significant component of trust and investment management fees, making up approximately 82.4%81.6% and 82.7%84.1% of total trust and investment management fees for the first ninethree months of
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2021 2022 and 2020,2021, respectively. The increase in trust and investment management fees during the three months ended September 30, 2021 was primarily due to increases in investment management fees (up $3.6$1.8 million, or 13.1%6.2%), oil and gas fees (up $1.6 million)$771 thousand) and custodyreal estate fees (up $519$626 thousand). The increase in trust and investment management fees during the nine months ended September 30, 2021 was primarily due to increases in investment management fees (up $10.9 million, or 13.7%), oil and gas fees (up $1.4 million) and custody fees (up $1.0 million). Investment management fees and other custodial account fees are generally based on the market value of assets within an account and are thus impacted by volatility in the equity and bond markets. The increasesincrease in investment management fees and custody fees during the three and nine months ended September 30, 2021 werewas primarily related to higher average equity valuations as well as increasesan increase in the number of accounts. Oil and gas fees during the three and nine months ended September 30, 2021 were impacted by an increases in oil and gas prices. The increase in real estate fees was primarily related to an increase in transaction volume.
At September 30, 2021,March 31, 2022, trust assets, including both managed assets and custody assets, were primarily composed of equity securities (47.1%(46.1% of assets), fixed income securities (32.2%(31.4% of assets), alternative investments (6.8% of assets) and cash equivalents (8.5%(9.7% of assets). The estimated fair value of these assets was $41.2$42.4 billion (including managed assets of $18.2$20.8 billion and custody assets of $22.9$21.6 billion) at September 30, 2021,March 31, 2022, compared to $38.6$43.3 billion (including managed assets of $16.9$19.1 billion and custody assets of $21.7$24.2 billion) at December 31, 20202021 and $36.6$39.3 billion (including managed assets of $16.2$17.3 billion and custody assets of $20.4$22.0 billion) at September 30, 2020.March 31, 2021.
Service Charges on Deposit Accounts. Service charges on deposit accounts for the three months ended September 30, 2021March 31, 2022 increased $1.4$2.7 million, or 7.1%, while service charges on deposit accounts for the nine months ended September 30, 2021 increased $1.0 million, or 1.7%13.7%, compared to the same periodsperiod in 2020.2021. The increase during the three months ended September 30, 2021 was primarily related to increases in commercial service charges (up $1.1$1.5 million) and overdraft charges on consumer and commercial accounts (up $517 thousand) partly offset by a decrease in overdraft charges on consumer accounts (down $332 thousand). The increase during the nine months ended September 30, 2021 was primarily related to an increase in commercial service charges (up $2.4 million) partly offset by a decrease in overdraft charges on consumer accounts (down $1.5 million).
Commercial service charges increased $1.1 million$637 thousand and $2.4 million during the three and nine months ended September 30, 2021 compared to the same periods in 2020.$475 thousand, respectively). Commercial service charges during the three and nine months ended September 30, 2021March 31, 2022 were impacted by an increase in the volume of billable services relativecompared to the same periodsperiod in 2020.
2021, partly offset by an increase in the earnings credit rate. The earnings credit rate is the value given to deposits maintained by treasury management customers. Earnings credits applied to customer deposit balances offset service fees that would otherwise be charged. Overdraft charges totaled $7.8$8.7 million ($5.96.7 million consumer and $1.9$2.0 million commercial) during the three months ended September 30, 2021March 31, 2022 compared to $7.6$7.5 million ($6.26.0 million consumer and $1.3$1.5 million commercial) during the same period in 2020. Overdraft charges totaled $22.2 million ($17.3 million consumer and $4.9 million commercial) during the nine months ended September 30, 2021 compared to $23.7 million ($18.8 million consumer and $4.9 million commercial) during the same period in 2020.2021. The fluctuationsincreases in overdraft charges during the three and nine months ended September 30, 2021March 31, 2022 were impacted by fluctuationsincreases in the volumes of fee assessed overdrafts relative to the same periodsperiod in 2020. Furthermore, in April 2021, we implemented a new overdraft grace feature for certain consumer demand deposit accounts whereby no fees will be assessed on overdrafts of $100 or less, subject to certain qualifying conditions such as a minimum direct deposit. This new feature reduced overdraft charges on consumer accounts by approximately $1.0 million and $1.1 million during the second and third quarters of 2021, respectively. The impact on future quarters will depend on future overdraft volumes.2021.
Insurance Commissions and Fees. Insurance commissions and fees for the three and nine months ended September 30, 2021 increased $292March 31, 2022 decreased $705 thousand, or 2.5%4.1%, and $1.2 million, or 3.2%, respectively, compared to the same periodsperiod in 2020.2021. The decrease was the result of a decrease in contingent income (down $1.2 million) partly offset by an increase in commission income (up $525 thousand).
Contingent income totaled $2.4 million during the three months ended September 30, 2021 was the result of increases in commission income (up $168 thousand) and contingent income (up $124 thousand). The increase during the nine months ended September 30, 2021 was the result of increases in contingent income (up $1.1 million) and commission income (up $123 thousand).
The increase in commission income during the three months ended September 30, 2021 was primarily related to an increase in commercial lines property and casualty commissions partly offset by a decrease in benefit plan commissions. The increase in commission income during the nine months ended September 30, 2021 was primarily related to increases in life insurance commissions and commercial lines property and casualty commissions mostly offset by a decrease in benefit plan commissions. The increases in commercial lines property and casualty commissions were related to increased market rates while the increase in life insurance commissions during the nine months ended September 30, 2021 and decreases in benefit plan commissions during the three and nine months ended September 30, 2021 were related to fluctuations in business volumes.
Contingent income totaled $241 thousand and $4.3 million during the three and nine months ended September 30, 2021, respectively,March 31, 2022 compared to $117 thousand and $3.2$3.7 million during the same periodsperiod in 2020.2021. Contingent income primarily consists of amounts received from various property and casualty insurance carriers related to portfolio growth and the loss performance of insurance policies previously placed. These performance related
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contingent payments are seasonal in nature and are mostly received during the first quarter of each year. This performance related contingent income totaled $3.2$1.6 million and $2.1$3.0 million during
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the ninethree months ended September 30,March 31, 2022 and 2021, and 2020, respectively. The increasedecrease in performance related contingent income during 20212022 was related to low growth within the portfolio combined with improvementand a deterioration in the loss performance of insurance policies previously placed. DuringThis deterioration was impacted by a severe weather event in Texas during the first quarter of 2021 a severe weather event in Texasthat resulted in a significant increase in property and casualty claims and losses. This deterioration in loss performance is expected to impact the determination of performance related contingent payments we receive in 2022; however, such impact is not determinable at this time. 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 $201$813 thousand and $1.1 million during the three and nine months ended September 30, 2021, respectively,March 31, 2022 compared to $77$625 thousand and $1.1 million during the same periodsperiod in 2020, respectively.2021.
The increase in commission income during the three months ended March 31, 2022 was primarily related to an increase in commercial lines property and casualty commissions partly offset by a decrease in life insurance commissions. The increase in commercial lines property and casualty commissions was related to increased business volumes and increased market rates while the decrease in life insurance commissions was related to a decrease in business volumes.
Interchange and 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 card transaction fees consist of income from debit and credit card usage, point of sale income from PIN-based card transactions and ATM service fees. Interchange and card transaction fees are reported net of related network costs.
Net interchange and card transaction fees for the three and nine months ended September 30, 2021March 31, 2022 increased $1.0 million,$133 thousand, or 28.2%3.2%, and increased $3.5 million, or 36.0%, respectively, compared to the same periodsperiod in 20202021 primarily due to increasedan increase in transaction volumes as well as the impact of new card products partly offset by increasesan increase in network costs. Transaction volumes during second and third quarters of 2020 were more impacted by the onset of the COVID-19 pandemic. A comparison of gross and net interchange and card transaction fees for the reported periods is presented in the table below.
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,
202120202021202020222021
Income from card transactionsIncome from card transactions$7,721 $6,097 $21,666 $17,429 Income from card transactions$7,481 $6,392 
ATM service feesATM service fees841 842 2,492 2,522 ATM service fees764 785 
Gross interchange and card transaction feesGross interchange and card transaction fees8,562 6,939 24,158 19,951 Gross interchange and card transaction fees8,245 7,177 
Network costsNetwork costs4,072 3,436 10,934 10,227 Network costs4,019 3,084 
Net interchange and card transaction feesNet interchange and card transaction fees$4,490 $3,503 $13,224 $9,724 Net interchange and card transaction fees$4,226 $4,093 
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 September 30, 2021March 31, 2022 increased $1.4$1.3 million, or 16.9%15.9%, compared to the same period in 2020.2021. The increase was primarily related to an increaseincreases in merchant services rebates (up $426 thousand), letter of credit fees (up $325 thousand) and income from the sale of mutual funds (up $1.3 million) and, to a lesser extent, increases in income from the sale of annuities (up $246 thousand), merchant services rebates (up $174 thousand) and funds transfer service charges (up $167 thousand) partly offset by decreases in capital markets advisory fees (down $321 thousand), fees on unused commitments (down $300 thousand) and letter of credit fees (down $236 thousand). Other charges, commissions and fees for the nine months ended September 30, 2021 increased $1.3 million, or 5.2%, compared to the same period in 2020. The increase was primarily related to increases in income from the sale of mutual funds (up $2.6 million), funds transfer service charges (up $474 thousand), merchant services rebates (up $402 thousand) and income from the sale of annuities (up $359 thousand). These items were partly offset by decreases in income from the placement of money market accounts (down $1.7 million), which was impacted by lower average market rates, and a decrease in fees on unused commitments (down $1.3 million), among other things.
Net Gain/Loss on Securities Transactions. No securities were sold during the first nine months of 2021. During the first quarter of 2020, we sold $483.1 million of residential mortgage-backed securities and realized a net gain of $1.9 million on those sales. The proceeds from these sales were reinvested 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.
Other Non-Interest Income. Other non-interest income for the three months ended September 30, 2021 decreased $422 thousand,March 31, 2022 increased $1.3 million, or 4.7%16.0%, compared to the same period in 2020. The decrease2021.The increase was primarily related to decreasesincreases in public finance underwriting fees (up $1.6 million), sundry and other miscellaneous income (up $1.1 million) and income from customer foreign exchange transactions (up $380 thousand) partly offset by decreases in income from customer derivative transactions (down $1.3$1.2 million), among other things. The increases in public finance underwriting fees (down $815 thousand) and earnings onincome from customer foreign exchange transactions were primarily related to increases in transaction volumes. Sundry income during the cashthree months ended March 31, 2022 included $522 thousand related to the recovery of prior write-offs and $458 thousand related to a contract fee. The decrease in income from customer derivative transactions was primarily due to a decrease in transaction volume.
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surrender value of life insurance (down $402 thousand) partly offset by increases in income from customer foreign exchange and derivative transactions (up $1.6 million and $407 thousand, respectively). Other non-interest income for the nine months ended September 30, 2021 decreased $8.1 million, or 23.6%, compared to the same period in 2020. Other non-interest income during the nine months ended September 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 decrease in other non-interest income during the nine months ended September 30, 2021 was also partly related to decreases in sundry and other miscellaneous income (down $3.6 million), public finance underwriting fees (down $1.9 million) and earnings on the cash surrender value of life insurance (down $994 thousand). The decrease from these items was partly offset by an increase in gains on the sales of assets (up $1.2 million) and increases in income from customer derivative and foreign exchange transactions (up $1.9 million and $593 thousand, respectively). Sundry income during the first nine months of 2020 included $2.8 million related to the recovery of prior write-offs, $1.0 million related to a Visa volume-related bonus and $512 thousand related to settlements. The decreases in public finance underwriting fees was primarily due to a decrease in business volume. The decreases in earnings on the cash surrender value of life insurance were due to lower yields on the investments within the bank-owned life insurance portfolio. Gains on the sale of assets include $1.8 million related to the sale of certain parking lots in downtown San Antonio in 2021 and $758 thousand related to the sale of a branch facility in 2020.
Non-Interest Expense
Total non-interest expense for the three and nine months ended September 30, 2021March 31, 2022 increased $15.9$28.6 million, or 7.8%13.6%, and increased $17.4 million, or 2.8%, respectively, compared to the same periodsperiod in 2020.2021. Changes in the various components of non-interest expense are discussed below.
Salaries and Wages. Salaries and wages for the three and nine months ended September 30, 2021March 31, 2022 increased $6.1$17.9 million, or 6.6%19.1%, and $7.5 million, or 2.6%, respectively, compared to the same periodsperiod in 2020.2021. The increasesincrease in salaries and wages during the comparable periods werewas primarily related to an increase in salaries, due to normal, annual merit and market increases as well as the implementation of a $20 per hour minimum wage in December, 2021. Salaries and wages was also impacted by an increase in the number of employees, an increase in incentive compensation and to a lesser extent, decreasesdecrease in salary costs deferred in connection with loan originations as the first quarter of 2021 was impacted by the high volume of PPP loan originations. We are experiencing an increasingly competitive labor market which has resulted in and increasescould continue to result in commissions. The impacts of these items were partly offset by decreasesan increase in salaries, due to a decrease in the number of employees, and decreases in stock-based compensation.our staffing costs.
Employee Benefits. Employee benefits expense for the three and nine months ended September 30, 2021March 31, 2022 increased $5.5$1.7 million, or 34.2%7.5%, and $3.0 million, or 5.0%, respectively, compared to the same periodsperiod in 2020.2021. The increases wereincrease was primarily related to increases in certain discretionary benefitpayroll taxes and 401(k) plan expenses and, to a lesser extent, increases in medical benefits expense, and payroll taxesamong other things, partly offset by decreasesan increase in expensesthe net periodic benefit related to our defined benefit retirement and restoration plans, among other things.plan.
Our defined benefit retirement and restoration plans were frozen in 2001 which has helped to reduce the volatility in retirement plan expense. We nonetheless still have funding obligations related to these plans and could recognize additional expense related to these plans in future years, which would be dependent on the return earned on plan assets, the level of interest rates and employee turnover. See Note 12 - Defined Benefit Plans for additional information related to our net periodic pension benefit/cost.
Net Occupancy. Net occupancy expense for the three and nine months ended September 30, 2021March 31, 2022 increased $1.7$1.4 million, or 6.8%5.2%, and $3.8 million, or 5.0%, respectively, compared to the same periodsperiod in 2020.2021. The increase during the three months ended September 30, 2021 was primarily related to increases in repairs and maintenance/service contracts expense (up $920$737 thousand) and depreciation on buildings and leasehold improvements (up $420 thousand), among other things. The increase during the nine months ended September 30, 2021 was primarily related to increases in repairs and maintenance/service contracts expense (up $1.9 million) and depreciation on leasehold improvements (up $1.6 million), among other things, partly offset by a decrease in lease expense (down $467(together up $355 thousand), among other things. The increases in the aforementioned components of net occupancy expense during the comparable periods were impacted, in part, by our expansion within the Houston and Dallas market area.areas.
Technology, Furniture and Equipment. Technology, furniture and equipment expense for the three and nine months ended September 30, 2021March 31, 2022 increased $2.0$1.1 million, or 7.6%4.1%, and $6.7 million, or 8.7%, respectively, compared to the same periodsperiod in 2020.2021. The increase during the three months ended September 30, 2021 was primarily related to increases in cloud services expense (up $1.4 million)$809 thousand) and depreciation of furniture and equipment (up $604$515 thousand), among other things, partly offset by a decrease in software maintenance (down $298$358 thousand). The increase during the nine months ended September 30, 2021 was primarily related to increases in cloud services expense (up $4.6 million) and depreciation of furniture and equipment (up $1.9 million).

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Deposit Insurance. Deposit insurance expense totaled $3.1 million and $8.9$3.6 million for the three and nine months ended September 30, 2021, respectively,March 31, 2022, compared to $2.4 million and $7.8$2.9 million for the three and nine months ended September 30, 2020.March 31, 2021. The increases wereincrease was primarily related to increasesan increase in total assets partly offset by a decrease in the assessment rate.
Other Non-Interest Expense. Other non-interest expense for the three and nine months ended September 30, 2021 decreased $204 thousand, or 0.5%, and $4.5March 31, 2022 increased $5.9 million, or 3.7%15.9%, respectively, compared to the same periodsperiod in 2020.2021. The decrease during the three months ended September 30, 2021increase included decreasesincreases in outside computer serviceadvertising/promotions expense (down $1.6(up $2.1 million), amortization of deferred costs associated with loan commitments (down $868 thousand) and; professional services expense (up $1.8 million); travel, meals and entertainment (up $1.2 million); and a decrease in costs deferred as loan origination costs (down $742 thousand),$1.1 million); among other things. The impact of the aforementioned items was partly offset by increasesdecreases in donations expense (down $1.5 million), which was impacted by a $1.5 million contribution to the Frost Charitable Foundation in the first quarter of 2021; sundry and other miscellaneous expenses (up $924(down $876 thousand); fraud losses (up $555 thousand); travel, meals and entertainment (up $538 thousand); and advertising/promotions expense (up $332 thousand); among other things.
The decrease in other non-interest expense during the nine months ended September 30, 2021 included decreases in outside computer service expense (down $3.8 million); travel, meals and entertainment expense (down $2.9 million); professional services expense (down $2.6 million); advertising/promotions expense (down $898 thousand); amortization of deferred costs associated with loan commitments (down $805$409 thousand); business development expense (down $799 thousand); and losses on the sale/write-down of foreclosed and other assets (down $627 thousand); among other things. The impact of these items was partly offset by increases in sundry and other miscellaneous expenses (up $3.1 million); donations expense (up $2.6 million); and fraud losses (up $1.9 million), among other things. Donations expense during the first nine months
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Results of Segment Operations
We are managed under a matrix organizational structure whereby our two primary operating segments, Banking and Frost Wealth Advisors, overlap a regional reporting structure. A third operating segment, Non-Banks, is for the most part the parent holding company, as well as certain other insignificant non-bank subsidiaries of the parent that, for the most part, have little or no activity. A description of each segment, the methodologies used to measure segment financial performance and summarized operating results by segment are described in Note 15 - Operating Segments in the accompanying notes to consolidated financial statements included elsewhere in this report. Segment operating results are discussed in more detail below.
Banking
Net income for the three and nine months ended September 30, 2021 increased $7.2March 31, 2022 decreased $18.3 million, or 7.7%16.7%, and $83.0 million, or 34.9%, respectively, compared to the same periodsperiod in 2020.2021. The increase during the three months ended September 30, 2021decrease was primarily the result of a $20.3$27.4 million decreaseincrease in credit lossnon-interest expense and a $2.7$3.8 million increase in income tax expense partly offset by a $7.9 million increase in net interest income and a $2.1$4.9 million increase in non-interest income partly offset by a $15.6 million increase in non-interest expense and a $2.3 million increase in income tax expense. The increase during the nine months ended September 30, 2021 was primarily the result of a $227.4 million decrease in credit loss expense and a $10.1 million increase in net interest income partly offset by a $111.5 million decrease in non-interest income, a $22.3 million increase in non-interest expense, and a $20.7 million increase in income tax expense.income.
Net interest income for the three and nine months ended September 30, 2021March 31, 2022 increased $2.7$7.9 million, or 1.1%3.3%, and $10.1 million, or 1.4%, respectively, compared to the same periodsperiod in 2020.2021. The increase during the three months ended September 30, 2021 was primarily related to an increase in the average taxable-equivalent yield on loansvolume of taxable securities and, interest bearingto a much lesser extent, increases in the average volumes of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and decreasestax-exempt securities; and an increase in the average costs of interest-bearing deposit liabilities and other borrowed funds combined with increases in the average volumes ofyield on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve). The impact of these items was partly offset by decreasesa decrease in the average volume of loans and tax-exempt securities combined with a decrease in the average yield on taxable and tax-exempt securities. The increase in net interest income during the nine months ended September 30, 2021 was primarily related to decreases in the average costs of interest-bearing deposit liabilities and other borrowed funds combined with increases in the average volumes of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and loans and an increase in the average taxable-equivalent yield on loans. The positive impact of these items was partly offset by decreases in the average yields on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) andloans, taxable securities combined with decreases in the average volumes ofand tax-exempt and taxable securities and increases in the average volumescost and average volume of interest-bearingmoney market deposit liabilities and repurchase agreements. Net interest income for the first nine months of 2020 was also positively impacted by the additional day as a result of leap year.accounts. See the analysis of net interest income included in the section captioned “Net Interest Income” included elsewhere in this discussion.
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TheCredit loss expense/benefit was not significant for the Banking segment recorded a credit loss benefit totaling $6 thousand for the three months ended September 30, 2021 compared to a credit loss expense totaling $20.3 million for the same period in 2020. Credit loss expense totaled $57 thousand during the nine months ended September 30, 2021 compared to $227.5 million for the same period in 2020.reported periods. See the sections captioned “Credit Loss Expense” and “Allowance for Credit Losses” elsewhere in this discussion for further analysis of credit loss expense related to loans and off-balance-sheet commitments.
Non-interest income for the three months ended September 30, 2021March 31, 2022 increased $2.1$4.9 million, or 4.3%9.2%, compared to the same period in 2020.2021. The increase was primarily due to increases in service charges on deposit accountsaccounts; other non-interest income; and interchangeother charges, commissions and debit card transactions fees partly offset by a decrease in other non-interest income.insurance commissions and fees. The increase in service charges on deposit accounts was primarily related to increases in commercial service charges, and overdraft charges on commercial accountsdue to an increase in the volume of billable services partly offset by a decrease in the earnings credit rate, and overdraft charges on consumer accounts.and commercial accounts, due to increases in the volumes of fee assessed overdrafts. The increase in interchange and debit card transactions fees was due to increased transaction volumes as well as the impact of new card products partly offset by increases in network costs. The decrease in other non-interest income was primarily related to decreasesincreases in public finance underwriting fees and income from customer foreign exchange transactions, due to increases in transaction volumes, as well as an increase in sundry and other miscellaneous income, public finance underwriting feeswhich was partly impacted by a recovery of prior write-offs and earnings on the cash surrender valuerecognition of life insurancea contract fee. These items were partly offset by increasesa decrease in income from customer foreign exchange and derivative transactions.
Non-interest income for the nine months ended September 30, 2021 decreased $111.5 million, or 42.0%, compared to the same period in 2020. Non-interest income for the nine months ended September 30, 2020 included a $109.0 million net gain on securities transactions, recognized during the first quarter of 2020. Excluding the net gain on securities transactions, total non-interest income for the Banking segment decreased $2.5 million, or 1.6%, during the first nine months of 2021 compared to the same period in 2020. This decrease was primarily due to a decrease in transaction volume, among other non-interest income partly offset by increasesthings. The increase in interchange and card transaction fees, insuranceother charges, commissions and fees was primarily related to increases in merchant services rebates and in service charges on deposit accounts. Other non-interest income during the nine months ended September 30, 2020 included approximately $6.0 million in gains realized on the saleletter of certain non-hedge related, short-term put options on U.S. Treasury securities with an aggregate notional amount of $500 million during the first quarter. The put options were not exercised and expired in March 2020.credit fees, among other things. The decrease in other non-interest income during the nine months ended September 30, 2021 was also partly related to decreases in sundry and other miscellaneous income, public finance underwriting fees and earnings on the cash surrender value of life insurance. The decrease from these items was partly offset by an increase in gains on the sales of assets and increases in income from customer derivative and foreign exchange transactions. The increase in interchange and debit card transactions fees was due to increased transaction volumes as well as the impact of new card products partly offset by increases in network costs. The increase in insurance commissions and fees was the result of an increasea decrease in contingent income and, to a lesser extent,partly offset by an increase in commission income, which is further discussed below in relation to Frost Insurance Agency. The increase in service charges on deposit accounts was primarily related to an increase in commercial service charges partly offset by a decrease in overdraft charges on consumer accounts. See the analysis of these categories of non-interest income included in the section captioned “Non-Interest Income” included elsewhere in this discussion.
Non-interest expense increased $15.6$27.4 million, or 9.2%15.3%, for three months ended September 30, 2021 and $22.3 million, or 4.2%, for the nine months ended September 30, 2021,March 31, 2022 compared to the same periodsperiod in 2020.2021. The increase during the three months ended September 30, 2021 was primarily due to increases in employee benefit expense; salaries and wages; net occupancy expense; and technology, furniture and equipment expense. The increase during the nine months ended September 30, 2021March 31, 2022 was primarily due to increases in salaries and wages; technology, furniturewages and equipment expense; employee benefit expense; and net occupancy expense. The increases in employee benefitsother non-interest expense during the three and nine months ended September 30, 2021 were primarily related to increases in certain discretionary benefit plan expenses and, to a lesser extent, increases in medical benefitsnet occupancy expense; employee benefit expense; technology, furniture and equipment expense and payroll taxes partly offset by decreases in expenses related to our defined benefit retirement and restoration plans, among other things.deposit insurance expense. The increasesincrease in salaries and wages during the three and nine months ended September 30, 2021 werewas primarily related to an increase in salaries, due to normal, annual merit and market increases as well as the implementation of a $20 per hour minimum wage in December, 2021. Salaries and wages was also impacted by an increase in the number of employees, an increase in incentive compensation and to a lesser extent, decreasesdecrease in salary costs deferred in connection with loan originations andas the first quarter of 2021 was impacted by the high volume of PPP loan originations. The increase in other non-interest expense was primarily related to increases in commissions.advertising/promotions expense; professional services expense; travel, meals and entertainment; and a decrease in costs deferred as loan origination costs; among other things. The impactsimpact of thesethe aforementioned items werewas partly offset by decreases in salaries, due to a decrease in the numberdonations expense; sundry and other miscellaneous expenses; and amortization of employees, and decreases in stock-based compensation.deferred costs associated with loan commitments, among other things. The increase in net occupancy expense during the three months ended September 30, 2021 was primarily related to increases in repairs and maintenance/service contracts expense and depreciation on buildings and leasehold improvements, among other things.things, which were impacted, in part, by our expansion within the Houston and Dallas market areas. The increase in net occupancyemployee benefits expense during the nine months ended September 30, 2021 was primarily related to increases in repairspayroll taxes and maintenance/service contracts401(k) plan expense, and depreciation on leasehold improvements, among other things,
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partly offset by a decreasean increase in lease expense, among other things.the net periodic benefit related to our defined benefit retirement plan. The increase in technology, furniture and equipment expense during the three months ended September 30, 2021 was primarily related to increases in cloud services expense and depreciation of furniture and equipment, among other things, partly offset by a decrease in software maintenance. The increase during the nine months ended September 30, 2021in deposit insurance expense was primarily related to increasesan increase in cloud services expense and depreciation of furniture and equipment.total assets partly offset by a decrease in the assessment rate. See the analysis of these categories of non-interest expense included in the section captioned “Non-Interest Expense” included elsewhere in this discussion.
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Frost Insurance Agency, which is included in the Banking operating segment, had gross commission revenues of $11.7$16.7 million and $39.9 million during the three and nine months ended September 30, 2021 compared to $11.5 million and $38.7 million during the three and nine months ended September 30, 2020. The increase in commission income during the three months ended September 30, 2021March 31, 2022 compared to $17.4 million during the same period in 2021. The decrease in gross commission income was primarily related to a decrease in contingent income partly offset by an increase in commission income. The decrease in contingent income was primarily related to a decrease in performance related contingent payments due to low growth within the portfolio and a deterioration in the loss performance of insurance policies previously placed. The decrease in performance related contingent commissions was partly offset by an increase in contingent commissions received from various benefit plan insurance companies. The increase in commission income was primarily related to an increase in commercial lines property and casualty commissions, due to increases in business volumes and market rates, partly offset by a decrease in benefit plan commissions. The increase in commission income during the nine months ended September 30, 2021 was primarily related to increases in life insurance commissions, and commercial lines property and casualty commissions mostly offset bydue to a decrease in benefit plan commissions. The increases in commercial lines property and casualty commissions were related to increased market rates while the increase in life insurance commissions during the nine months ended September 30, 2021 and decreases in benefit plan commissions during the three and nine months ended September 30, 2021 were related to fluctuations in business volumes. See the analysis of insurance commissions and fees included in the section captioned “Non-Interest Income” included elsewhere in this discussion.
Frost Wealth Advisors
Net income for the three and nine months ended September 30, 2021March 31, 2022 increased $5.2$2.3 million, or 126.0%28.1%, and $14.0 million, or 102.7%, respectively, compared to the same periodsperiod in 2020.2021. The increase during the three months ended September 30, 2021 was primarily the result of a $7.7 million increase in non-interest income partly offset by a $1.4 million increase in income tax expense and a $1.0 million increase in non-interest expense. The increase during the nine months ended September 30, 2021 was primarily the result of a $15.2$3.6 million increase in non-interest income and a $3.2 million decrease$214 thousand increase in non-interest expensenet interest income partly offset by a $3.7 million$973 thousand increase in non-interest expense and a $601 thousand increase in income tax expense and a $633 thousand decrease in net interest income.expense.
Net interest income for the three and nine months ended September 30, 2021 decreased $66March 31, 2022 increased $214 thousand, or 11.0%44.0%, and $633 thousand, or 29.3%, respectively, compared to the same periods in 2020. These decreases were2021. The increase was primarily due to decreasesan increase in the average volume of funds provided by Frost Wealth Advisors and an increase in the average funds transfer prices allocated to the funds provided by Frost Wealth Advisors. The decreases in the average funds transfer price was primarily due to decreases in market interest rates.such funds. See the analysis of net interest income included in the section captioned “Net Interest Income” included elsewhere in this discussion.
Non-interest income for the three and nine months ended September 30, 2021March 31, 2022 increased $7.7$3.6 million, or 22.2%9.1%, and $15.2 million, or 13.9%, respectively, compared to the same periods in 2020.2021. The increases wereincrease was primarily due to increasesan increase in trust and investment management fees and, to a lesser extent, increasesan increase in other charges, commissions and fees. Trust and investment management fee income is the most significant income component for Frost Wealth Advisors. Investment management fees are the most significant component of trust and investment management fees, making up approximately 82.4%81.6% of total trust and investment management fees for the first ninethree months of 2021.2022. The increasesincrease in trust and investment management fees during the comparable periods werewas primarily due to increases in investment management fees,fees; oil and gas feesfees; and custodyreal estate fees. The increasesincrease in investment management fees and custody fees during the three and nine months ended September 30, 2021 werewas primarily related to higher average equity valuations as well as increasesan increase in the number of accounts. Oil and gas fees during the three and nine months ended September 30, 2021 were impacted by an increases in oil and gas prices. The increase in real estate fees was primarily related to an increase in transaction volume. The increases in other charges, commissions and fees during the three and nine months September 30, 2021 werewas primarily related to increasesan increase in income from the sale of mutual funds and income from the sale of annuities. The increase in other charges, commissions and fees during the nine months ended September 30, 2021 was partly offset by a decrease in income from the placement of money market accounts, which was impacted by lower average market rates.accounts. See the analysis of trust and investment management fees and other charges, commissions and fees included in the section captioned “Non-Interest Income” included elsewhere in this discussion.
Non-interest expense for the three months ended September 30, 2021March 31, 2022 increased $1.0 million, or 3.4%3.3%, compared to the same period in 2020, while non-interest expense for the nine months ended September 30, 2021 decreased $3.2 million, or 3.4%, compared to the same period in 2020.2021. The increase during the three months ended September 30, 2021 was primarily due to increases in technology, furniture and equipment expense and salaries and wages and employee benefits expense partly offset by a decrease in employee benefits expense. The decrease during the nine months ended September 30, 2021 was primarily due to decreases in other non-interest expense and employee benefit expense partly offset by an increase in technology, furniture and equipment expense.
The increases in technology, furniture and equipment expense during the three and nine months ended September 30, 2021 were primarily related to increases in cloud service expenses partly offset by decreases in service contract expense. The increase in salaries and wages during the three months ended September 30, 2021 was primarily due to an increaseincreases in incentive compensation and commissionscommission expense, and to a lesser extent, an increase in salaries. The increase in employee benefits expense was primarily related to increases in payroll taxes, 401(k) plan expense and medical insurance expense, among other things, partly offset by a decrease in salaries due to a decreasean increase in the number of employees. The decreases in employeenet periodic benefit expense during the three and nine months ended September 30, 2021 were primarily duerelated to decreases in certain discretionaryour defined benefit plan expenses, among other things.retirement plan. The decrease in other non-interest expense during the nine months ended September 30, 2021 was primarily related to a decreasesdecrease in outside computer servicethe corporate overhead expense allocation partly offset by increases in research and platform fees; professional services expense; and travel, meals and entertainment, expense; and professional service expense; partly offset by an increase in subscriptions expense.among other things.

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Non-Banks
The Non-Banks operating segment had a net lossesloss of $2.1 million and $6.6$2.5 million during the three and nine months ended September 30, 2021, respectively,March 31, 2022, compared to a net lossesloss of $2.6 million and $8.8$1.6 million during the same periodsperiod in 2020.2021. The decreasesincrease in the net losses for the three and nine months ended September 30, 2021 wereloss was primarily due to decreases in other non-interest income and the net income tax benefit combined with increases in other non-interest expense and net interest expense. The decreasesdecrease in other non-interest income was partly due to a decrease in mineral interest income as the related mineral interest assets were donated to the Frost Charitable Foundation during the third quarter of 2021. The decrease in other non-interest income was also negatively impacted by a decrease in the gains on sales of assets. The net income tax benefit in 2022 was impacted by the aforementioned donation of mineral interest assets during the third quarter of 2021 due to the elimination of certain related tax deductions. The increase in other non-interest expense werewas primarily due to decreasesincreases in professional servicesservice expense and travel, meals and entertainment expense.entertainment. The decreasesdecrease in net interest expense werewas primarily related to decreasesan increase in the average ratesrate paid on our long term borrowings.borrowings partly offset by the redemption, during the fourth quarter of 2021, of $13.4 million of junior subordinated deferrable interest debentures issued to WNB Capital Trust I.
Income Taxes
During the three months ended September 30, 2021,March 31, 2022, we recognized income tax expense of $13.3$12.6 million, for an effective tax rate of 11.0%11.3%, compared to $9.5$7.9 million, for an effective tax rate of 9.1%6.4%, for the same period in 2020. During the nine months ended September 30, 2021, we recognized income tax expense of $36.3 million, for an effective tax rate of 9.6%, compared to income tax expense of $11.5 million, for an effective tax rate of 4.5%, for the same period in 2020.
2021. The effective income tax rates differed from the U.S. statutory federal income tax rate of 21% during 20212022 and 20202021 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, among other things, and their relative proportion to total pre-tax net income. The increasesincrease in the effective tax ratesrate during 2021 were2022 was primarily related to increasesan increase in projected pre-tax net income partly off-set by the impact of higherand, to a lesser extent, a decrease in discrete tax benefits associated with stock-based compensation. The effective tax rate during the nine months ended September 30, 2020 was 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 $45.0$50.3 billion for the ninethree months ended September 30, 2021March 31, 2022 representing an increase of $8.0$7.8 billion, or 21.8%18.3%, compared to average assets for the same period in 2020.2021. Earning assets increased $8.0$7.5 billion, or 23.4%18.9%, during the first ninethree months of 20212022 compared to the same period in 2020.2021. The increase in earning assets was primarily related to a $8.4$5.0 billion increase in average taxable securities and a $3.9 billion increase in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and a $131.9 million increase in average loans partly offset by a $231.0 million$1.3 billion decrease in average tax-exempt securities, a $134.7 million decrease in average taxable securities, a $95.1 million decrease in average federal funds sold and a $16.8 million decrease in average resell agreements.loans. Average deposits increased $7.1$7.6 billion, or 23.2%21.3%, during the first ninethree months of 20212022 compared to the same period in 2020.2021. Growth in average deposits was related to increased customer balances impacted by the unprecedented amount of stimulus dollars injected into the economy, as well as new customer accounts. The increase included a $3.2$2.7 billion increase in non-interest bearing deposits and a $3.9$4.9 billion increase in interest-bearing deposit accounts. Average non-interest bearing deposits made up 43.2%41.8% and 42.7%43.2% of average total deposits during the first ninethree months of 20212022 and 2020,2021, respectively.
Loans
Details of our loan portfolio are presented in Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report. Loans decreased $1.6 billion,increased $206.1 million, or 9.4%1.3%, from $17.5$16.3 billion at December 31, 20202021 to $15.8$16.5 billion at September 30, 2021.March 31, 2022. As further discussed below, during the second quarter of 2020, we began originating loans to qualified small businesses under the PPPPaycheck Protection Program (“PPP”) administered by the SBA under the provisions of the CARES Act. Excluding PPP loans, total loans would have otherwise decreased $42.6increased $427.4 million, or 0.3%2.7%, from $15.0$15.9 billion at December 31, 20202021 to $15.0 billion at September 30, 2021, and decreased $333.4 million, or 2.2%, from total loans of $15.3$16.3 billion at March 31, 2020, near the beginning of the COVID-19 pandemic.2022. The majority of our loan portfolio is comprised of commercial and industrial loans, energy loans, and real estate loans. Real estate loans include both commercial and consumer balances. Selected details related to our loan portfolio segments are presented below. Refer to our 20202021 Form 10-K for a more detailed discussion of our loan origination and risk management processes.
Commercial and Industrial. Commercial and industrial loans decreased $25.7increased $219.2 million, or 0.5%4.1%, from $5.0$5.4 billion at December 31, 20202021 to $4.9$5.6 billion at September 30, 2021.March 31, 2022. 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).

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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 $257.0$41.2 million, or 20.8%3.8%, from $1.2$1.1 billion at December 31, 20202021 to $978.2 million$1.0 billion at September 30, 2021.March 31, 2022. We have recently made efforts to reduce our exposure to energy loans. Nonetheless energy loans remain our largest industry concentration totaling 6.2%6.3% of total loans (6.5%(also 6.3% excluding PPP loans) at September 30, 2021,March 31, 2022, down from 7.1%6.6% of total loans (8.2%(6.8% excluding PPP loans) at December 31, 2020.2021. The average loan size, the significance of the portfolio and the specialized nature of the energy industry requires a highly prescriptive underwriting policy. Exceptions to this policy are rarely granted. Due to the large borrowing requirements of this customer base, the energy loan portfolio includes participations and 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 $648.7$705.6 million at September 30, 2021, decreasing $139.3March 31, 2022, increasing $7.2 million, or 17.7%1.0%, from $788.1$698.4 million at December 31, 2020.2021. At September 30, 2021, 28.5%March 31, 2022, 25.4% of outstanding purchased SNCs were related to the energyconstruction industry while 23.0%23.2% were related to the constructionenergy industry, 15.0%15.6% were related to the financial services industry and 13.6% were related to the real estate management industry and 13.1% 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 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 increased $230.6$221.8 million, or 3.3%2.9%, from $7.0$7.6 billion at December 31, 20202021 to $7.3$7.8 billion at September 30, 2021.March 31, 2022. Commercial real estate loans represented 84.2%84.5% of total real estate loans at September 30, 2021March 31, 2022 compared to 84.1%84.3% at December 31, 2020.2021. The majority of our commercial real estate loan portfolio consists of commercial real estate mortgages, which includes both permanent and intermediate term loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. At September 30, 2021, approximately 48.8% of the outstanding principal balance of our commercial real estate loans were secured by owner-occupied properties. 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 March 31, 2022, approximately 48.8% 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$1.9 billion at both September 30, 2021March 31, 2022 and December 31, 2020.2021. Consumer real estate loans increased $32.3$22.8 million, or 2.4%1.6%, from December 31, 2020.2021. Combined, home equity loans and lines of credit made up 58.7%60.5% and 58.8%59.8% of the consumer real estate loan total at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. We offer home equity loans up to 80% of the estimated value of the personal residence of the borrower, less the value of existing mortgages and home improvement loans. We have not generally originated 1-4 family mortgage loans since 2000; however, from time to time, we invested in such loans to meet the needs of our customers or for other regulatory compliance purposes. Nonetheless, we expect to begin regular production of 1-4 family mortgage loans for portfolio investment purposes in the second half of 2022. Consumer and other loans decreased $22.8increased $4.8 million, or 4.5%1.0%, from December 31, 2020.2021. The consumer and other loan portfolio primarily consists of automobile loans, overdrafts, unsecured revolving credit products, personal loans secured by cash and cash equivalents and other similar types of credit facilities.
Paycheck Protection Program. We have originated loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act. Loans covered by the PPP may be eligible for loan forgiveness for certain costs incurred related to payroll, group health care benefit costs and qualifying mortgage, rent and utility payments. The remaining loan balance after forgiveness of any amounts is still fully guaranteed by the SBA. Refer to the 20202021 Form 10-K for additional details.
During the three and nine months ended September 30, 2021,March 31, 2022, we recognized approximately $26.5$2.6 million and $88.9 million, respectively, in PPP loan related deferred processing fees (net of amortization of related deferred origination costs) as a yield adjustmentsadjustment and these amounts arethis amount is included in interest income on loans during this period.loans. During the three and nine months ended September 30, 2020,March 31, 2021, we recognized approximately $21.1$23.5 million and $40.4 million, respectively, in PPP loan related deferred net processing fees. As a result of the inclusion of these net fees in interest income, the average yields on PPP loans were 8.72% and 6.23%4.45% during the three and nine months ended September 30, 2021, respectively,March 31, 2022, and 3.65% and 3.86%4.39% during the three and nine months ended September 30, 2020, respectively,March 31, 2021 compared to the stated interest rate of 1.0% on these loans. For PPP loans funded through September 30, 2021, we expect to recognize additional PPP loan related deferred processing fees and deferred origination costs are not expected to significantly impact interest income on loans in future periods.
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(net of deferred origination costs) totaling approximately $11.5 million as a yield adjustment over the remaining expected lives of these loans. Of this amount, we expect to recognize approximately 75% in 2021 and the remainder in 2022.
Accruing Past Due Loans. Accruing past due loans are presented in the following table. Also see Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.
Accruing Loans
30-89 Days Past Due
Accruing Loans
90 or More Days Past Due
Total Accruing
Past Due Loans
Accruing Loans
30-89 Days Past Due
Accruing Loans
90 or More Days Past Due
Total Accruing
Past Due Loans
Total
Loans
AmountPercent of Loans in CategoryAmountPercent of Loans in CategoryAmountPercent of Loans in CategoryTotal
Loans
AmountPercent of Loans in CategoryAmountPercent of Loans in CategoryAmountPercent of Loans in Category
September 30, 2021
March 31, 2022March 31, 2022
Commercial and industrialCommercial and industrial$4,929,656 $41,936 0.85 %$7,522 0.15 %$49,458 1.00 %Commercial and industrial$5,584,117 $12,043 0.22 %$4,166 0.07 %$16,209 0.29 %
EnergyEnergy978,211 1,237 0.13 965 0.10 2,202 0.23 Energy1,036,579 — — 287 0.03 287 0.03 
Paycheck Protection ProgramPaycheck Protection Program827,820 — — — — — — Paycheck Protection Program207,669 671 0.32 8,377 4.03 9,048 4.35 
Commercial real estate:Commercial real estate:Commercial real estate:
Buildings, land and otherBuildings, land and other5,984,390 20,910 0.35 12,224 0.20 33,134 0.55 Buildings, land and other6,376,521 18,527 0.29 1,046 0.02 19,573 0.31 
ConstructionConstruction1,266,633 — — — — — — Construction1,421,878 1,988 0.14 — — 1,988 0.14 
Consumer real estateConsumer real estate1,363,039 3,832 0.28 1,985 0.15 5,817 0.43 Consumer real estate1,433,625 4,150 0.29 2,103 0.15 6,253 0.44 
Consumer and otherConsumer and other482,921 3,678 0.76 1,029 0.21 4,707 0.97 Consumer and other482,148 6,393 1.33 593 0.12 6,986 1.45 
TotalTotal$15,832,670 $71,593 0.45 $23,725 0.15 $95,318 0.60 Total$16,542,537 $43,772 0.26 $16,572 0.10 $60,344 0.36 
Excluding PPP loansExcluding PPP loans$15,004,850 $71,593 0.48 $23,725 0.16 $95,318 0.64 Excluding PPP loans$16,334,868 $43,101 0.26 $8,195 0.05 $51,296 0.31 
December 31, 2020
December 31, 2021December 31, 2021
Commercial and industrialCommercial and industrial$4,955,341 $45,126 0.91 %$5,615 0.11 %$50,741 1.02 %Commercial and industrial$5,364,954 $29,491 0.55 %$7,802 0.15 %$37,293 0.70 %
EnergyEnergy1,235,198 10,037 0.81 3,696 0.30 13,733 1.11 Energy1,077,792 1,353 0.13 215 0.02 1,568 0.15 
Paycheck Protection ProgramPaycheck Protection Program2,433,849 — — — — — — Paycheck Protection Program428,882 4,979 1.16 18,766 4.38 23,745 5.54 
Commercial real estate:Commercial real estate:Commercial real estate:
Buildings, land and otherBuildings, land and other5,796,653 18,959 0.33 1,275 0.02 20,234 0.35 Buildings, land and other6,272,339 37,033 0.59 8,687 0.14 45,720 0.73 
ConstructionConstruction1,223,814 856 0.07 — — 856 0.07 Construction1,304,271 188 0.01 — — 188 0.01 
Consumer real estateConsumer real estate1,330,774 8,084 0.61 2,469 0.19 10,553 0.80 Consumer real estate1,410,790 4,866 0.34 2,177 0.15 7,043 0.49 
Consumer and otherConsumer and other505,680 5,537 1.09 1,233 0.24 6,770 1.33 Consumer and other477,369 4,185 0.88 1,076 0.23 5,261 1.11 
TotalTotal$17,481,309 $88,599 0.51 $14,288 0.08 $102,887 0.59 Total$16,336,397 $82,095 0.50 $38,723 0.24 $120,818 0.74 
Excluding PPP loansExcluding PPP loans$15,047,460 $88,599 0.59 $14,288 0.09 $102,887 0.68 Excluding PPP loans$15,907,515 $77,116 0.48 $19,957 0.13 $97,073 0.61 
Accruing past due loans at September 30, 2021March 31, 2022 decreased $7.6$60.5 million compared to December 31, 2020.2021. The decrease was primarily related to decreases in past due energy loans (down $11.5 million) and past due consumernon-construction related commercial real estate loans (down $4.7 million) and, to a lesser extent, past due consumer and other loans (down $2.1$26.1 million), past due commercial and industrial loans (down $1.3$21.1 million) and past due constructionPPP loans (down $856 thousand) partly offset$14.7 million). PPP loans are fully guaranteed by an increase inthe SBA and we expect to collect all amounts due related to these loans. Excluding PPP loans, accruing past due non-construction related commercial real estate loans (up $12.9 million).decreased $45.8 million.
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Non-Accrual Loans. Non-accrual loans are presented in the tablestable below. Also see in Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.
September 30, 2021December 31, 2020March 31, 2022December 31, 2021
Non-Accrual LoansNon-Accrual LoansNon-Accrual LoansNon-Accrual Loans
Total
Loans
AmountPercent of Loans in CategoryTotal
Loans
AmountPercent of Loans in CategoryTotal
Loans
AmountPercent of Loans in CategoryTotal
Loans
AmountPercent of Loans in Category
Commercial and industrialCommercial and industrial$4,929,656 $19,349 0.39 %$4,955,341 $19,849 0.40 %Commercial and industrial$5,584,117 $16,693 0.30 %$5,364,954 $22,582 0.42 %
EnergyEnergy978,211 23,347 2.39 1,235,198 23,168 1.88 Energy1,036,579 12,271 1.18 1,077,792 14,433 1.34 
Paycheck Protection ProgramPaycheck Protection Program827,820 — — 2,433,849 — — Paycheck Protection Program207,669 — — 428,882 — — 
Commercial real estate:Commercial real estate:Commercial real estate:
Buildings, land and otherBuildings, land and other5,984,390 12,247 0.20 5,796,653 15,737 0.27 Buildings, land and other6,376,521 19,003 0.30 6,272,339 15,297 0.24 
ConstructionConstruction1,266,633 1,632 0.13 1,223,814 1,684 0.14 Construction1,421,878 583 0.04 1,304,271 948 0.07 
Consumer real estateConsumer real estate1,363,039 480 0.04 1,330,774 993 0.07 Consumer real estate1,433,625 416 0.03 1,410,790 440 0.03 
Consumer and otherConsumer and other482,921 — — 505,680 18 — Consumer and other482,148 — — 477,369 13 — 
TotalTotal$15,832,670 $57,055 0.36 $17,481,309 $61,449 0.35 Total$16,542,537 $48,966 0.30 $16,336,397 $53,713 0.33 
Excluding PPP loansExcluding PPP loans$15,004,850 $57,055 0.38 $15,047,460 $61,449 0.41 Excluding PPP loans$16,334,868 $48,966 0.30 $15,907,515 $53,713 0.34 
Allowance for credit losses on loansAllowance for credit losses on loans$250,150 $263,177 Allowance for credit losses on loans$246,835 $248,666 
Ratio of allowance for credit losses on loans to non-accrual loansRatio of allowance for credit losses on loans to non-accrual loans438.44 %428.29 %Ratio of allowance for credit losses on loans to non-accrual loans504.09 %462.95 %
Non-accrual loans at September 30, 2021March 31, 2022 decreased $4.4$4.7 million from December 31, 20202021 primarily due to a decrease in non-accrual non-construction relatedcommercial and industrial loans and energy loans partly offset by an increase in commercial real estate loans. The decrease wasdecreases in commercial were primarily related to principal payments, and loans returning to accrual status.and charge offs.
Generally, loans are placed on non-accrual status if principal or interest payments become 90 days past due and/or management deems the collectibility of the principal and/or interest to be in question, as well as when required by regulatory requirements. Once interest accruals are discontinued, accrued but uncollected interest is charged to current year operations. Subsequent receipts on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Classification of a loan as non-accrual does not preclude the ultimate collection of loan principal or interest. Non-accrualThere were no non-accrual commercial and industrial loans in excess of $5.0 million at March 31, 2022 or December 31, 2021. Non-accrual energy loans included one credit relationship in excess of $5.0$5 million totaling $7.3$8.2 million at September 30, 2021.March 31, 2022. This credit relationship was previously reported as non-accrual with an aggregate balance of $9.0$9.6 million at December 31, 2020. We recognized a charge-off totaling $861 thousand related to this relationship during the third quarter of 2021 while the remainder of the decrease was related to principal payments made by the borrower. Non-accrual energy loans included one credit relationship in excess of $5 million totaling $11.4 million at September 30, 2021. This credit relationship was previously reported as non-accrual with an aggregate balance of $20.1 million at December 31, 2020. The decrease in the aggregate balance of this credit relationship was related to principal payments made by the borrower. 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. ThereNon-accrual commercial real estate loans included one credit relationship in excess of $5.0 million totaling $5.8 million at March 31, 2022 while there were no non-accrual commercial real estate loans in excess of $5.0 million at September 30, 2021 or December 31, 2020.2021.
Allowance for Credit Losses
In the case of loans and securities, allowances for credit losses are contra-asset valuation accounts, calculated in accordance with Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses, that are deducted from the amortized cost basis of these assets 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 (“CECL”) 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
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authorities toward classification of assets. See our 20202021 Form 10-K for additional information regarding our accounting policies related to credit losses.
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Allowance for Credit Losses - Loans. The table below provides, as of the dates indicated, an allocation of the allowance for loan losses by loan portfolio segment; however, allocation of a portion of the allowance to one segment does not preclude its availability to absorb losses in other segments.
Amount of Allowance AllocatedPercent of Loans in Each Category to Total LoansTotal
Loans
Ratio of Allowance Allocated to Loans in Each CategoryAmount of Allowance AllocatedPercent of Loans in Each Category to Total LoansTotal
Loans
Ratio of Allowance Allocated to Loans in Each Category
September 30, 2021
March 31, 2022March 31, 2022
Commercial and industrialCommercial and industrial$63,766 31.1 %$4,929,656 1.29 %Commercial and industrial$87,026 33.8 %$5,584,117 1.56 %
EnergyEnergy20,449 6.2 978,211 2.09 Energy15,422 6.3 1,036,579 1.49 
Paycheck Protection ProgramPaycheck Protection Program— 5.2 827,820 — Paycheck Protection Program— 1.3 207,669 — 
Commercial real estateCommercial real estate152,054 45.8 7,251,023 2.10 Commercial real estate128,954 47.1 7,798,399 1.65 
Consumer real estateConsumer real estate6,029 8.6 1,363,039 0.44 Consumer real estate6,359 8.6 1,433,625 0.44 
Consumer and otherConsumer and other7,852 3.1 482,921 1.63 Consumer and other9,074 2.9 482,148 1.88 
TotalTotal$250,150 100.0 %$15,832,670 1.58 Total$246,835 100.0 %$16,542,537 1.49 
Excluding PPP loansExcluding PPP loans$250,150 $15,004,850 1.67 Excluding PPP loans$246,835 $16,334,868 1.51 %
December 31, 2020
December 31, 2021December 31, 2021
Commercial and industrialCommercial and industrial$73,843 28.4 %$4,955,341 1.49 %Commercial and industrial$72,091 32.9 %$5,364,954 1.34 %
EnergyEnergy39,553 7.1 1,235,198 3.20 Energy17,217 6.6 1,077,792 1.60 
Paycheck Protection ProgramPaycheck Protection Program— 13.9 2,433,849 — Paycheck Protection Program— 2.6 428,882 — 
Commercial real estateCommercial real estate134,892 40.1 7,020,467 1.92 Commercial real estate144,936 46.4 7,576,610 1.91 
Consumer real estateConsumer real estate7,926 7.6 1,330,774 0.60 Consumer real estate6,585 8.6 1,410,790 0.47 
Consumer and otherConsumer and other6,963 2.9 505,680 1.38 Consumer and other7,837 2.9 477,369 1.64 
TotalTotal$263,177 100.0 %$17,481,309 1.51 Total$248,666 100.0 %$16,336,397 1.52 
Excluding PPP loansExcluding PPP loans$263,177 $15,047,460 1.75 Excluding PPP loans$248,666 $15,907,515 1.56 
The allowance allocated to commercial and industrial loans totaled $63.8$87.0 million, or 1.29%1.56% of total commercial and industrial loans, at September 30, 2021 decreasing $10.1March 31, 2022 increasing $14.9 million, or 13.6%20.7%, compared to $73.8$72.1 million, or 1.49%1.34% of total commercial and industrial loans on December 31, 2020.2021. Modeled expected credit losses decreased $20.3 million$311 thousand while Q-Factor and other qualitative adjustments related to commercial and industrial loans increased $11.2$19.3 million. Specific allocations for commercial and industrial loans that were evaluated for expected credit losses on an individual basis decreased $1.0$4.1 million from $5.3$10.5 million at December 31, 20202021 to $4.3$6.5 million at September 30, 2021. March 31, 2022. The decrease in specific allocations for commercial and industrial loans was related to principal payments received and the recognition of charge-offs.
The allowance allocated to energy loans totaled $20.4$15.4 million, or 2.09%1.49% of total energy loans, at September 30, 2021March 31, 2022 decreasing $19.1$1.8 million, or 48.3%10.4%, compared to $39.6$17.2 million, or 3.20%1.60% of total energy loans on December 31, 2020.2021. Modeled expected credit losses related to energy loans decreased $1.9 million$392 thousand while Q-Factor and other qualitative adjustments related to energy loans decreased $21.1$1.1 million. Specific allocations for energy loans that were evaluated for expected credit losses on an individual basis totaled $13.4$5.2 million at September 30, 2021 increasing $4.0 million, or 42.0%,March 31, 2022 decreasing $289 thousand compared to $9.4$5.5 million on December 31, 2020. The increase in specific allocations for energy loans was primarily related to several newly downgraded credit relationships with specific allocations totaling $8.2 million partly offset by reductions in allocations for certain other loans due to principal payments received and the recognition of charge-offs. 2021.
The allowance allocated to commercial real estate loans totaled $152.1$129.0 million, or 2.10%1.65% of total commercial real estate loans, at September 30, 2021 increasing $17.2March 31, 2022 decreasing $16.0 million, or 12.7%11.0%, compared to $134.9$144.9 million, or 1.92%1.91% of total commercial real estate loans on December 31, 2020.2021. Modeled expected credit losses related to commercial real estate loans decreased $108.1 millionincreased $434 thousand while Q-Factor and other qualitative adjustments related to commercial real estate loans increased $124.8decreased $16.3 million. Specific allocations for commercial real estate loans that were evaluated for expected credit losses on an individual basis increaseddecreased from $513$400 thousand on December 31, 20202021 to $950$326 thousand at September 30, 2021. March 31, 2022.
The allowance allocated to consumer real estate loans totaled $6.0$6.4 million, or 0.44% of total consumer real estate loans, at September 30, 2021March 31, 2022 decreasing $1.9 million,$226 thousand, or 23.9%3.4%, compared to $7.9$6.6 million, or 0.60%0.47% of total consumer real estate loans on December 31, 2020.2021. Modeled expected credit losses related to consumer real estate loans decreased $2.0 million$224 thousand while Q-Factor and other qualitative adjustments related to consumer real estate loans increased $59decreased $2 thousand.
The allowance allocated to consumer loans totaled $7.9$9.1 million, or 1.63%1.88% of total consumer loans, at September 30, 2021March 31, 2022 increasing $889 thousand,$1.2 million, or 12.8%15.8%, compared to $7.0$7.8 million, or 1.38%1.64% of total consumer loans, on December 31, 2020.2021. Modeled expected credit losses related to consumer loans decreased $533 thousandincreased $1.2 million while Q-Factor and other qualitative adjustments related to consumer loans increased $1.4 million.did not fluctuate.
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As more fully described in our 20202021 Form 10-K, we measure expected credit losses over the life of each loan utilizing a combination of models which measure probability of default and loss given default, among other things. The measurement of expected credit losses is impacted by loan/borrower attributes and certain macroeconomic variables. Models are adjusted to reflect current impact of certain macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period.
In estimating expected credit losses as of September 30,March 31, 2022, we utilized the Moody’s Analytics March 2022 Consensus Scenario (the “March 2022 Consensus Scenario”) to forecast the macroeconomic variables used in our models. The March 2022 Consensus Scenario was based on the review of a variety of surveys of baseline forecasts of the U.S. economy. The March 2022 Consensus Scenario projections included, among other things, (i) U.S. Nominal Gross Domestic Product annualized quarterly growth rate of 8.7% in the second quarter of 2022, followed by average annualized quarterly growth rates of 4.4% during 2022 and 4.6% through the end of the forecast period in the first quarter of 2024; (ii) U.S. unemployment rate of 3.7% in the second quarter of 2022 and remaining fairly flat through the end of the forecast period where it is projected to be 3.6% in the first quarter of 2024; (iii) Texas unemployment rate of 4.0% in the second quarter of 2022 and improving to 3.7% by the end of the forecast in the first quarter of 2024; (iv) projected average 10 year Treasury rate of 2.08% in the second quarter of 2022, increasing to average projected rates of 2.15% during the remainder of 2022 and 2.33% through the end of the forecast period in the first quarter of 2024.
In estimating expected credit losses as of December 31, 2021, we utilized the Moody’s Analytics SeptemberDecember 2021 Consensus Scenario (the “September“December 2021 Consensus Scenario”) to forecast the macroeconomic variables used in our models. The SeptemberDecember 2021 Consensus Scenario was based on the review of a variety of surveys of baseline forecasts of the U.S. economy. The SeptemberDecember 2021 Consensus Scenario projections included, among other things, (i) U.S. Nominal Gross Domestic Product (“GDP”) annualized quarterly growth rate of 8.7%6.4% in the fourthfirst quarter of 2021,2022, followed by annualized quarterly growth rates in the range of 4.0%3.8% to 6.9%5.4% during the remainder of 2022 and an average annualized growth rate of 4.9%4.8% through the end of the forecast period in the thirdfourth quarter of 2023; (ii) U.S. unemployment rate of 4.7%4.3% in the fourthfirst quarter of 20212022 improving to 4.0%3.7% by the end of the forecast period in the thirdfourth quarter of 2023 with Texas unemployment rates slightly higher at those dates; and (iii) projected average 10 year Treasury rate of 1.42%1.59% in the fourthfirst quarter of 2021,2022, increasing to average projected rates of 1.66%1.75% during the remainder of 2022 and 2.15% by the end of the forecast period2.10% in the third quarter of 2023. Furthermore, the September 2021 Consensus Scenario projects an average oil price in the range of approximately $62 to $66 per barrel through the end of the forecast period in the third quarter of 2023.
In estimating expected credit losses as of December 31, 2020, we utilized the Moody’s Analytics December 2020 Baseline Scenario (the “December 2020 Baseline Scenario”) to forecast the macroeconomic variables used in our models. The December 2020 Baseline Scenario was based on the review of a variety of surveys of baseline forecasts of the U.S. economy. The December Baseline Scenario projections included, among other things, (i) U.S. GDP annualized quarterly growth rate of 4.6% for the fourth quarter of 2020 followed by projected annualized quarterly growth rates in the range of approximately 3.0% to 8.0% during 2021 and 6.0% to 7.5% through the end of the forecast period in the fourth quarter of 2022; (ii) a U.S. unemployment rate of 6.7% in the fourth quarter of 2020 and an average projected rate of 7.0% in 2021 and 6.0% in 2022, with the fourth quarter of 2022 projected to be 5.4% (Texas unemployment rates are projected to be slightly less for those periods); and (iii) an average 10 year Treasury rate of 0.79% in the fourth quarter of 2020, increasing to an average projected rate of 1.05% in 2021 and 2.04% in 2022. The December 2020 Baseline Scenario also projected average oil prices of $40 per barrel in the fourth quarter of 2020, $45 per barrel on average for the year in 2021 and $55 per barrel on average for the year in 2022, with the fourth quarter of 2022 projected to be $59 per barrel.
The overall loan portfolio, excluding PPP loans which are fully guaranteed by the SBA, as of September 30, 2021 decreased $42.6March 31, 2022 increased $427.4 million, or 0.3%2.7%, compared to December 31, 2020.2021. This decreaseincrease included a $25.7$221.8 million, or 0.5%2.9%, decreaseincrease in commercial real estate loans, a $219.2 million, or 4.1%, increase in commercial and industrial loans, a $257.0$22.8 million, or 20.8%1.6%, decreaseincrease in energyconsumer real estate loans and a $22.8$4.8 million, or 4.5%1.0%, decreaseincrease in consumer and other loans partly offset by a $230.6$41.2 million, or 3.3%3.8%, increasedecrease in commercial real estate loans and a $32.3 million, or 2.4%, increase in consumer real estateenergy loans.
The weighted average risk grade for commercial and industrial loans decreasedincreased to 6.296.34 at September 30, 2021March 31, 2022 compared to 6.456.22 at December 31, 2020.2021. This increase was primarily due to an increase in the weighted-average risk grade of pass-grade commercial and industrial loans to 6.18 at March 31, 2022 from 6.01 at December 31, 2021. Commercial and industrial loans graded “watch” and “special mention” (risk grades 9 and 10) decreased $116.6$48.1 million during the first ninethree months of 2021 while classified commercial and industrial loans decreased $1.6$3.3 million. Classified loans consist of loans having a risk grade of 11, 12 or 13. The weighted-average risk grade for energy loans decreased to 6.555.89 at September 30, 2021March 31, 2022 from 6.856.06 at December 31, 2020.2021. The decrease in the weighted average risk grade was primarily related to a $128.5$27.6 million decrease in energy loans graded “watch” and “special mention” (risk grades 9 and 10) and an $8.5$4.5 million decrease in classified energy loans. Pass grade energy loans decreased $120.0$9.1 million and the weighted-average risk grade of pass grade energy loans decreased slightly from 5.995.78 at December 31, 20202021 to 5.945.71 at September 30, 2021.March 31, 2022. The weighted average risk grade for commercial real estate loans decreased to 7.257.11 at September 30, 2021March 31, 2022 from 7.327.19 at December 31, 2020.2021. Pass grade commercial real estate loans increased $245.6$361.0 million while commercial real estate loans graded as “watch” and “special mention” increased $14.1decreased $107.0 million and classified commercial real estate loans decreased $29.2$32.2 million.
As noted above, our credit loss models utilized the economic forecasts in the Moody’sMoody's March 2022 Consensus Scenario for September 2021 for our estimated expected credit losses as of September 30, 2021March 31, 2022 and the Moody’s BaselineMoody's December 2021 Consensus Scenario for December 2020 for our estimate of expected credit losses as of December 31, 2020.2021. We qualitatively adjusted the model results based on these scenarios for various risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor (“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.
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As a result of this assessment as of September 30, 2021,March 31, 2022, modeled expected credit losses were adjusted upwards by a weighted-average Q-Factor adjustment of approximately 1.9%, upresulting in a $1.4 million total adjustment, down from approximately 1.2%2.3% at December 31, 2020.2021, which resulted in a $1.8 million total adjustment. The weighted-average Q-Factor adjustment at September 30, 2021March 31, 2022 was based on a limited negative expected impact on our commercial loan portfolios related to changes in lending policies, procedures and underwriting standards; no impact to 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;concentrations; a negative expected impact associated with national, regional and local economic and business conditions and developments that affect the collectability of loans andloans; a severely negative expected impact from other risk factors associated with our commercial real estate construction and land loan portfolios, particularly the risks related to expected extensions.
In the first quarter of 2020, unprecedented economic conditions dueextensions; and no impact to the COVID-19 pandemicchanges lending policies procedures and oil and gas price volatility resultedunderwriting standards; loan portfolio attributes; changes in significant spikesrisk grades; changes in the unemployment ratevolumes and the levelseverity of unemployment claimsloan delinquencies; and adverse classifications and potential deterioration of collateral values.
We have also provided additional qualitative adjustments, or management overlays, as wellof March 31, 2022 as severe declines in the level of the U.S. and Texas GDPs, among other things. In some cases, our expected credit loss models consider these economic variables on a three- to four-quarter lag basis. As of September 30, 2021, the significant spikes in several of these variables are no longer impacting our model results; however, as the economy has entered recovery, the models are now being impacted by exceptionally positive changes in certain variables which has resulted in lower estimates of expected credit losses. Notwithstanding the foregoing, management believes there are still significant headwindsrisks impacting the recovery of the U.S. and Texas economies and certain categories of our loan portfolio. As a result, we have provided additionalQ-Factor and other qualitative adjustments for certain categories of loans, as further described below.
As of December 31, 2020, we provided an additional qualitative adjustment for energy production loans. As more fully described in our 2020 Form 10-K, this adjustment was estimated based on borrowing base determinations for our energy production loans using current engineering valuations. We also performed an analysis of our customers' secondary sources of capital. As a result of the estimated borrowing base deficiencies for the identified credits, we provided an additional qualitative adjustment of approximately $21.1 million for energy production loans at December 31, 2020. Using a similar methodology as of September 30, 2021, we determined that no additional qualitative adjustment was necessary as there were no longer any significant borrowing base deficiencies withinMarch 31, 2022 are detailed in the energy production portfolio a result of higher market prices for oil and gas and lower line balances on production loans.table below.
Our Commercial Real Estate Oversight Council, in its oversight and assessment of the credit quality of our commercial real estate loan portfolios, believes these portfolios continue to have an elevated level of risk notwithstanding recent economic stimulus efforts by federal and state governments. As of September 30, 2021, we provided additional
Q-Factor AdjustmentModel OverlaysOffice Building OverlaysDown-Side Scenario OverlayPost-Pandemic OverlaysCredit Concentration OverlaysConsumer OverlayTotal
Commercial and industrial$700 $— $— $27,218 $1,543 $4,455 $— $33,916 
Energy90 — — — — 4,170 — 4,260 
Commercial real estate:
Owner occupied160 35,546 — — 1,206 1,306 — 38,218 
Non-owner occupied14 12,107 28,956 — 10,582 689 — 52,348 
Construction393 12,949 6,675 — 231 704 — 20,952 
Consumer real estate63 — — — — — — 63 
Consumer— — — — — 1,432 1,440 
Total$1,428 $60,602 $35,631 $27,218 $13,562 $11,324 $1,432 $151,197 
Model overlays are qualitative adjustments totaling $133.5 million for various categories of our commercial real estate loan portfolio. This amount includes $58.5 million for owner-occupied commercial real estate loans, $58.3 million for non-owner-occupied commercial real estate loans and $16.7 million for commercial real estate construction loans. These additional qualitative adjustments are largely related to the on-going effects of the COVID-19 pandemic, as further discussed below, and to compensate foraddress the effect of unusually large positive changes in certain economic variables used by our commercial real estate credit loss models. Furthermore, management believesThese adjustments are determined based upon minimum reserve ratios for our commercial real estate - owner occupied, commercial real estate - non-owner occupied and commercial real estate - construction loan portfolios.
Office building overlays are qualitative adjustments to address longer-term concerns over the utilization of commercial office space which could impact the long-term performance of some types of office properties within our commercial real estate loan portfolio. These adjustments are determined based upon minimum reserve ratios for loans within our commercial real estate - non-owner occupied and commercial real estate - construction loan portfolios that therehave risk grades of 8 or worse.
The down-side scenario overlay is a qualitative adjustment for our commercial and industrial loan portfolio to address the significant risk of economic recession as a result of inflation; labor shortages; disruption in financial markets and global supply chains; further oil price volatility; and the current or anticipated impact of military conflict, including the current war between Russia and Ukraine, terrorism or other geopolitical events. Factors such as these are still significant headwinds impacting the recovery of the U.S. and Texas economies and certain categoriesoutside of our loan portfolio.
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 led to the closure of non-essential businesses, travel restrictions, supply chain disruptionscontrol but nonetheless affect customer income levels and prohibitions on public gatherings, among other things, throughout many parts of the United Statescould alter anticipated customer behavior, including borrowing, repayment, investment and in particular, the markets in which we operate. Nonetheless, by late 2020, the markets in which we operate had substantially reopened. We lend to customers operating in certain industries (detailed in the table below) that have been, and are expected to continue to be, more significantly impacted by the effects of the COVID-19 pandemic. We are continuing to monitor customers in these industries closely. In assessing these portfolios for an additionaldeposit practices. To determine this qualitative adjustment, we performeduse an alternative, more pessimistic economic scenario to forecast the macroeconomic variables used in our models. As of March 31, 2022, we used the Moody’s Analytics March 2022 S3 Alternative Scenario Downside - 90th Percentile (the “March 2022 S3 Scenario”). In modeling expected credit losses using this scenario, we also assume each loan within our modeled loan pools is downgraded by one risk grade level. The qualitative adjustment is based upon the amount by which the alternative scenario modeling results exceed those of the primary scenario used in estimating credit loss expense, adjusted based upon management's assessment of the probability that this more pessimistic economic scenario will occur.
Post-pandemic overlays are qualitative adjustments to address elevated risk associated with certain industries and not addressed in other qualitative adjustments, due to the lingering, post-pandemic effects of COVID-19, particularly the impact of behavioral changes in business travel and entertainment, labor and staffing shortages, and inflation. These adjustments are determined based upon minimum reserve ratios, stratified by risk grade, for loans to customers within the hotel, restaurant and entertainment industries. These industries were considered the most at risk based upon a comprehensive review of the financial condition and overall outlook of the borrowers within these portfolios. Based on this analysis, we determined that there continuesWe are continuing to monitor these customers closely as they have been, and are expected to continue to be, an elevated level of risk associated with these industries. As a result, we provided an additional qualitative adjustment related tomore significantly impacted by the lingering, post-pandemic effects of the COVID-19 pandemic totaling $58.8 million as of September 30, 2021, of which $52.9 million was allocated to commercial real estate loans and $5.9 million was allocated to commercial and industrial loans. These amounts are included in the totals detailed above. As of December 31, 2020, we provided a similar additional qualitative adjustment totaling $47.1 million, the details of which are described in our 2020 Form 10-K.COVID-19.
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These industriesCredit concentration overlays are qualitative adjustments based upon statistical analysis to address relationship exposure concentrations within our loan portfolio. Variations in loan portfolio concentrations over time cause expected credit losses within our existing portfolio to differ from historical loss experience. Given that the allowance for credit losses on loans reflects expected credit losses within our loan portfolio and the fact that these expected credit losses are uncertain as to nature, timing and amount, management believes that segments with higher concentration risk are particularly impacted bymore likely to experience a high loss event. Due to the effectsfact that a significant portion of our loan portfolio is concentrated in large credit relationships and because of large, concentrated credit losses in recent years, management made the COVID-19 pandemic are presentedqualitative adjustments detailed in the following table as of September 30, 2021 and December 31, 2020 and include amounts reported as both commercial and industrial loans and commercial real estate loans while PPP loans are excluded.
Outstanding BalancePercentage of Total Loans, Excluding PPP LoansAllocated AllowanceAllocated Allowance as a Percentage of Outstanding Balance
September 30, 2021
Hotels/lodging$302,622 2.02 %$32,033 10.59 %
Restaurants280,718 1.87 18,804 6.70 
Entertainment111,386 0.74 10,301 9.25 
Total$694,726 4.63 %$61,138 8.80 %
December 31, 2020
Retail/strip centers$916,633 6.09 %$21,049 2.30 %
Hotels/lodging268,825 1.79 24,546 9.13 
Restaurants277,054 1.84 20,617 7.44 
Entertainment126,266 0.84 6,151 4.87 
Total$1,588,778 10.56 %$72,363 4.55 %
As of September 30, 2021, we provided an additional qualitative adjustment for our commercial and industrial loan portfolio totaling $13.4 million, of which $5.9 million was included in the $58.8 million additional qualitative adjustment for COVID-19 impacted industries discussed above. An additional $7.5 million was provided based upon management's assessment ofabove to address the risk associated with the long-term sustainability of borrowers within our small business commercial and industrial portfolio. such a relationship deteriorating to a loss event.
The majority of these borrowers have been bolstered by PPP funding from the SBA which has helped them to sustain their operations amid on-going pandemic-related shutdowns and other restrictions. Nonetheless, management believes thereconsumer overlay is a significant amount of uncertainty associated with the long-term viability of many of these businesses when this government supplemented funding runs out. Furthermore, on March 27, 2021, the COVID-19 Bankruptcy Relief Extension Act of 2021 was enacted, extending the bankruptcy relief provisions enacted in the CARES Act of 2020 until March 27, 2022. These provisions provide financially distressed small businesses and individuals greater access to bankruptcy relief. In that regard, we also provided an additional qualitative adjustment for our consumer and other loan portfolio totaling $1.4 million in light ofto address the risk associated with the level of unsecured loans within this portfolio and other risk factors. Unsecured consumer loans have an elevated risk of loss in times of economic stress as these loans lack a secondary source of repayment in the form of hard collateral. This adjustment was determined by analyzing our consumer loan charge-off trends as well as those of the general banking industry. Management deemed it appropriate to consider an additional overlay to the modeled forecasted losses for the unsecured consumer portfolio.

As of December 31, 2021, we provided qualitative adjustments, as detailed in the table below. Though largely similar to those described above, further information regarding these qualitative adjustments is provided in our 2021 Form 10-K.
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Q-Factor AdjustmentModel OverlaysOffice Building OverlaysSmall Business OverlayCOVID-19 Related OverlaysCredit Concentration OverlaysConsumer OverlayTotal
Commercial and industrial$939 $— $— $3,956 $4,715 $4,999 $— $14,609 
Energy127 — — — — 5,247 — 5,374 
Commercial real estate:
Owner occupied198 31,806 — — 7,397 1,320 — 40,721 
Non-owner occupied45 7,762 27,860 — 30,940 731 — 67,338 
Construction383 11,212 5,544 — 2,151 511 — 19,801 
Consumer real estate65 — — — — — — 65 
Consumer— — — — — 1,432 1,440 
Total$1,765 $50,780 $33,404 $3,956 $45,203 $12,808 $1,432 $149,348 
Additional information related to credit loss expense and net (charge-offs) recoveries is presented in the table below. Also see Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.
Credit Loss Expense (Benefit)Net
(Charge-Offs)
Recoveries
Average
Loans
Ratio of Annualized Net (Charge-Offs)
Recoveries to Average Loans
Credit Loss Expense (Benefit)Net
(Charge-Offs)
Recoveries
Average
Loans
Ratio of Annualized Net (Charge-Offs)
Recoveries to Average Loans
Three months ended:Three months ended:Three months ended:
September 30, 2021
March 31, 2022March 31, 2022
Commercial and industrialCommercial and industrial$(1,020)$(485)$4,823,302 (0.04)%Commercial and industrial$17,561 $(2,626)$5,466,467 (0.19)%
EnergyEnergy(7,720)159 968,044 0.07 Energy(2,044)249 1,055,021 0.10 
Paycheck Protection ProgramPaycheck Protection Program— — 1,364,945 — Paycheck Protection Program— — 302,431 — 
Commercial real estateCommercial real estate4,007 54 7,194,723 — Commercial real estate(15,609)(373)7,666,754 (0.02)
Consumer real estateConsumer real estate(982)857 1,353,830 0.25 Consumer real estate(26)(200)1,422,077 (0.06)
Consumer and otherConsumer and other2,692 (2,700)484,490 (2.21)Consumer and other4,582 (3,345)473,708 (2.86)
TotalTotal$(3,023)$(2,115)$16,189,334 (0.05)Total$4,464 $(6,295)$16,386,458 (0.16)
Excluding PPP loansExcluding PPP loans$(3,023)$(2,115)$14,824,389 (0.06)Excluding PPP loans$4,464 $(6,295)$16,084,027 (0.16)
September 30, 2020
March 31, 2021March 31, 2021
Commercial and industrialCommercial and industrial$(18,547)$(7,484)$4,915,056 (0.61)%Commercial and industrial$(1,965)$(986)$4,816,537 (0.08)%
EnergyEnergy13,814 — 1,386,637 — Energy(5,801)(280)1,169,168 (0.10)
Paycheck Protection ProgramPaycheck Protection Program— — 3,204,125 — Paycheck Protection Program— — 2,831,085 — 
Commercial real estateCommercial real estate25,368 (200)6,859,902 (0.01)Commercial real estate8,922 626 7,072,932 0.04 
Consumer real estateConsumer real estate1,794 (515)1,282,784 (0.16)Consumer real estate(2,722)432 1,328,590 0.13 
Consumer and otherConsumer and other1,161 (1,977)500,683 (1.57)Consumer and other1,566 (1,711)465,605 (1.49)
TotalTotal$23,590 $(10,176)$18,149,187 (0.22)Total$— $(1,919)$17,683,917 (0.04)
Excluding PPP loansExcluding PPP loans$23,590 $(10,176)$14,945,062 (0.27)Excluding PPP loans$— $(1,919)$14,852,832 (0.05)
Nine months ended:
September 30, 2021
Commercial and industrial$(8,886)$(1,191)$4,778,049 (0.03)%
Energy(19,048)(56)1,051,471 (0.01)
Paycheck Protection Program— — 2,276,087 — 
Commercial real estate16,583 579 7,116,541 0.01 
Consumer real estate(3,093)1,196 1,339,487 0.12 
Consumer and other7,042 (6,153)472,770 (1.74)
Total$(7,402)$(5,625)$17,034,405 (0.04)
Excluding PPP loans$(7,402)$(5,625)$14,758,318 (0.05)
September 30, 2020
Commercial and industrial$10,737 $(11,088)$5,137,360 (0.29)%
Energy96,478 (68,776)1,507,739 (6.09)
Paycheck Protection Program— — 1,906,840 — 
Commercial real estate104,716 (3,641)6,596,873 (0.07)
Consumer real estate3,716 56 1,239,946 0.01 
Consumer and other8,096 (6,421)513,775 (1.67)
Total$223,743 $(89,870)$16,902,533 (0.71)
Excluding PPP loans$223,743 $(89,870)$14,995,693 (0.80)
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We recorded a net credit loss benefit related to loans totaling $3.0 million and $7.4 million for the three and nine months ended September 30, 2021, respectively, compared to a net credit loss expense related to loans totaling $23.6 million and $223.7$4.5 million for the three months ended March 31, 2022 while no net credit loss expense or benefit was recognized during the same respective periodsperiod in 2020.2021. Net credit loss expense/benefit for each portfolio segment reflects the amount needed to adjust the allowance for credit losses allocated to that segment to the level of expected credit losses determined under our allowance methodology after net charge-offs have been recognized. The net credit loss benefit related to loans during the first nine months of 2021 primarily reflects improvements in forecasted economic conditions and oil price trends relative to the prevailing conditions in 2020. Credit loss expense related to loans during the first ninethree months of 2020 reflected the uncertain future impacts2022 primarily reflects increases in expected credit losses associated with commercial and industrial loans, primarily related to the COVID-19 pandemicdown-side scenario overlay discussed above, and the significant volatilityconsumer and other loans, primarily related to an increase in oil prices. Credit loss expense during the first nine months of 2020 also reflectedmodeled losses, as well as the level of net charge-offs theassociated with these loan portfolio segments. The impact of these items was partly offset by a decrease in expected deteriorationcredit losses associated with commercial real estate loans, primarily related to a decrease in expected credit quality and other changes within the loan portfolio.losses related to certain pandemic impacted industries. The ratio of the allowance for credit losses on loans to total loans was 1.58% (1.67%1.49% (1.51% excluding PPP loans) at September 30, 2021March 31, 2022 compared to 1.51% (1.75%1.52% (1.56% excluding PPP loans) at December 31, 2020.2021. Management believes
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the recorded amount of the allowance for credit losses on loans is appropriate based upon management’s best estimate of current expected credit losses within the existing portfolio of loans. Should any of the factors considered by management in making this estimate change, our estimate of current expect credit losses could also change, which could affect the level of future credit loss expense related to loans.
Allowance for Credit Losses - Off-Balance-Sheet Credit Exposures. The allowance for credit losses on off-balance-sheet credit exposures totaled approximately $51.6$45.9 million and $44.2$50.3 million at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. The level of the allowance for credit losses on off-balance-sheet credit exposures depends upon the volume of outstanding commitments, underlying risk grades, the expected utilization of available funds and forecasted economic conditions impacting our loan portfolio. Our policies and methodology used to estimate the allowance for credit losses on off-balance-sheet credit exposures are further described in our 20202021 Form 10-K. CreditWe recognized a net credit loss expensebenefit related to off-balance-sheet credit exposures totaled $7.5totaling $4.5 million during the first ninethree months of 2021ended March 31, 2022 compared to $3.8 milliona net credit loss expense of $65 thousand during the same period in 2020.2021. The credit loss benefit during the first three months of 2022 was partly impacted by the upgrade of a large credit commitment within our SNC portfolio.
Capital and Liquidity
Capital. Shareholders’ equity totaled $3.8 billion and $4.4 billion and $4.3 billion at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. In additionThe decrease was primarily related to the accumulated other comprehensive income/loss component of shareholders’ equity which decreased to a net, incomeafter-tax, unrealized loss of $342.1$371.8 million other sourcesat March 31, 2022 from a net, after-tax unrealized gain of $347.3 million at December 31, 2021. The change was primarily due to a $719.5 million net, after-tax, decrease in the fair value of securities available for sale. Other uses of capital during the ninethree months ended September 30, 2021March 31, 2022 included $37.8$50.1 million of dividends paid on preferred and common stock and $996 thousand of treasury stock purchases. Sources of capital during the three months ended March 31, 2022 included net income of $99.1 million, $5.7 million in proceeds from stock option exercises and $7.8$2.1 million related to stock-based compensation. Additionally, we issued $1.7 million of common stock held in treasury to our 401(k) plan in connection with matching contributions. Uses of capital during the nine months ended September 30, 2021 included other comprehensive loss, net of tax, of $162.7 million; $146.0 million of dividends paid on preferred and common stock; and $1.3 million of treasury stock purchases.
The accumulated other comprehensive income/loss component of shareholders’ equity totaled a net, after-tax, unrealized gain of $350.3 million at September 30, 2021 compared to $513.0 million at December 31, 2020. The change was primarily due to a $165.7 million net, after-tax, decrease in the net unrealized gain 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 our 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 regulatory capital ratios. Regulatory agencies for banks and bank holding companies utilize capital guidelines designed to measure capital and take into consideration the risk inherent in both on-balance-sheet and off-balance-sheet items. See Note 7 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report.
We paid a quarterly dividend of $0.75 per common share during the thirdfirst quarter of 2021,2022 and a quarterly dividend of $0.72 per common share during each of the first and second quartersquarter of 2021 and a quarterly dividend of $0.71 per common share during each the first, second and third quarters of 2020.2021. These dividend amounts equate to a common stock dividend payout ratio of 41.7%49.7% and 57.3%40.5% during the first ninethree months of 20212022 and 2020,2021, 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.
On November 19, 2020 we issued 150,000 shares, or $150.0 million in aggregate liquidation preference, of our 4.450% Non-Cumulative Perpetual Preferred Stock, Series B, par value $0.01 and liquidation preference $1,000 per share (“Series B Preferred Stock”). Each share of Series B Preferred Stock issued and outstanding is represented by 40 depositary shares, each representing a 1/40th ownership interest in a share of the Series B Preferred Stock (equivalent to a liquidation preference of $25 per share). Dividends on the Series B Preferred Stock, if declared, accrue and are payable quarterly, in arrears, at a rate of 4.450% per annum. The net proceeds from the issuance and sale of the depositary shares representing the Series B Preferred Stock, after deducting underwriting discount and commissions, and the payment of expenses, were approximately $145.5 million. Under the terms of the Series B Preferred Stock, in the event that we do not declare and pay dividends on the Series B Preferred Stock for the most recent dividend period, we may not, with certain exceptions, declare or pay dividends on, or
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purchase, redeem or otherwise acquire, shares of our common stock or any of our securities that rank junior to the Series B Preferred Stock. See Note 7 – Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report.
Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. On January 27, 202126, 2022 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. No shares werehave been repurchased under this plan during the first nine months of 2021. Underor under a prior plan we repurchased 177,834 shares at a total costduring the reported periods.
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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.
Liquidity. As more fully discussed in our 20202021 Form 10-K, our liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs. Our principal source of funding has been our customer deposits, supplemented by our short-term and long-term borrowings as well as maturities of securities and loan amortization. As of September 30, 2021,March 31, 2022, we had approximately $15.4$13.4 billion held in an interest-bearing account at the Federal Reserve. We also have the ability to borrow funds as a member of the Federal Home Loan Bank (“FHLB”). As of September 30, 2021,March 31, 2022, based upon available, pledgeable collateral, our total borrowing capacity with the FHLB was approximately $3.1$3.2 billion. Furthermore, at September 30, 2021,March 31, 2022, we had approximately $8.0$12.8 billion in securities that were unencumbered by a pledge and could be used to support additional borrowings through repurchase agreements or the Federal Reserve discount window, as needed.
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 September 30, 2021,March 31, 2022, Cullen/Frost had liquid assets, including cash and resell agreements, totaling $438.1$476.0 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)
September 30, 2021September 30, 2020
Average
Balance
Interest
Income/
Expense
Yield/
Cost
Average
Balance
Interest
Income/
Expense
Yield/
Cost
Assets:
Interest-bearing deposits$15,278,296 $5,830 0.15 %$5,887,903 $1,512 0.10 %
Federal funds sold1,676 0.48 11,153 0.18 
Resell agreements7,907 0.29 20,012 14 0.27 
Securities:
Taxable4,147,511 20,736 2.03 4,201,559 22,560 2.21 
Tax-exempt8,355,422 78,968 4.04 8,478,804 80,566 4.08 
Total securities12,502,933 99,704 3.35 12,680,363 103,126 3.44 
Loans, net of unearned discounts16,189,334 169,892 4.16 18,149,187 170,127 3.73 
Total Earning Assets and Average Rate Earned43,980,146 275,434 2.53 36,748,618 274,784 3.04 
Cash and due from banks569,715 512,557 
Allowance for credit losses on loans and securities(255,214)(259,973)
Premises and equipment, net1,029,242 1,053,725 
Accrued interest and other assets1,450,373 1,380,138 
Total Assets$46,774,262 $39,435,065 
Liabilities:
Non-interest-bearing demand deposits:
Commercial and individual$15,829,582 $13,782,790 
Correspondent banks234,720 243,946 
Public funds934,428 558,703 
Total non-interest-bearing demand deposits16,998,730 14,585,439 
Interest-bearing deposits:
Private accounts
Savings and interest checking10,317,162 308 0.01 8,076,797 313 0.02 
Money market deposit accounts10,024,138 2,655 0.11 8,555,381 1,940 0.09 
Time accounts1,101,498 684 0.25 1,120,021 3,116 1.11 
Public funds674,274 30 0.02 536,917 28 0.02 
Total interest-bearing deposits22,117,072 3,677 0.07 18,289,116 5,397 0.12 
Total deposits39,115,802  32,874,555  
Federal funds purchased27,002 0.13 33,917 0.08 
Repurchase agreements2,188,171 632 0.11 1,544,205 475 0.12 
Junior subordinated deferrable interest debentures136,395 631 1.85 136,337 700 2.05 
Subordinated notes99,125 1,164 4.70 98,968 1,164 4.70 
Total Interest-Bearing Funds and Average Rate Paid24,567,765 6,113 0.10 20,102,543 7,743 0.15 
Accrued interest and other liabilities790,289 682,525 
Total Liabilities42,356,784 35,370,507 
Shareholders’ Equity4,417,478 4,064,558 
Total Liabilities and Shareholders’ Equity$46,774,262 $39,435,065 
Net interest income$269,321 $267,041 
Net interest spread2.43 %2.89 %
Net interest income to total average earning assets2.47 %2.95 %
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)
September 30, 2021September 30, 2020
Average
Balance
Interest
Income/
Expense
Yield/
Cost
Average
Balance
Interest
Income/
Expense
Yield/
Cost
Assets:
Interest-bearing deposits$12,849,827 $11,877 0.12 %$4,491,737 $10,894 0.32 %
Federal funds sold9,331 13 0.18 104,425 721 0.91 
Resell agreements6,169 11 0.24 22,984 163 0.93 
Securities:
Taxable4,111,574 61,366 2.03 4,246,298 71,950 2.32 
Tax-exempt8,237,397 235,344 4.07 8,468,372 243,961 4.07 
Total securities12,348,971 296,710 3.37 12,714,670 315,911 3.48 
Loans, net of unearned discounts17,034,405 522,376 4.10 16,902,533 515,912 4.08 
Total Earning Assets and Average Rate Earned42,248,703 830,987 2.67 34,236,349 843,601 3.35 
Cash and due from banks543,514 525,627 
Allowance for credit losses on loans and securities(261,568)(219,312)
Premises and equipment, net1,038,467 1,040,451 
Accrued interest and other assets1,434,859 1,371,366 
Total Assets$45,003,975 $36,954,481 
Liabilities:
Non-interest-bearing demand deposits:
Commercial and individual$15,129,135 $12,330,235 
Correspondent banks245,630 239,911 
Public funds887,234 471,321 
Total non-interest-bearing demand deposits16,261,999 13,041,467 
Interest-bearing deposits:
Private accounts
Savings and interest checking9,903,558 1,015 0.01 7,575,992 1,012 0.02 
Money market deposit accounts9,652,001 6,519 0.09 8,221,183 13,532 0.22 
Time accounts1,122,169 3,078 0.37 1,115,666 11,629 1.39 
Public funds672,424 81 0.02 580,437 1,504 0.35 
Total interest-bearing deposits21,350,152 10,693 0.07 17,493,278 27,677 0.21 
Total deposits37,612,151 30,534,745 
Federal funds purchased33,937 24 0.09 31,547 92 0.38 
Repurchase agreements2,030,266 1,597 0.10 1,346,802 3,913 0.38 
Junior subordinated deferrable interest debentures136,380 1,915 1.87 136,323 2,893 2.83 
Subordinated notes99,085 3,492 4.70 98,929 3,492 4.71 
Federal Home Loan Bank advances— — — 145,985 318 0.29 
Total Interest-Bearing Funds and Average Rate Paid23,649,820 17,721 0.10 19,252,864 38,385 0.27 
Accrued interest and other liabilities747,473 669,297 
Total Liabilities40,659,292 32,963,628 
Shareholders’ Equity4,344,683 3,990,853 
Total Liabilities and Shareholders’ Equity$45,003,975 $36,954,481 
Net interest income$813,266 $805,216 
Net interest spread2.57 %3.08 %
Net interest income to total average earning assets2.61 %3.20 %
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 20202021 Form 10-K. There has been no significant change in the types of market risks we face since December 31, 2020.2021.
We utilize an earnings simulation model as the primary quantitative tool in measuring the amount of interest rate risk associated with changing market rates. The model quantifies the effects of various interest rate scenarios on projected net interest income and net income over the next 12 months. The model measures the impact on net interest income relative to a flat-rate case scenario of hypothetical fluctuations in interest rates over the next 12 months. These simulations incorporate assumptions regarding balance sheet growth and mix, pricing and the repricing and maturity characteristics of the existing and projected balance sheet. The impact of interest rate derivatives, such as interest rate swaps, caps and floors, is also included in the model. Other interest rate-related risks such as prepayment, basis and option risk are also considered.
For modeling purposes, as of September 30,March 31, 2022, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of 2.1% and 5.8%, respectively, relative to the flat-rate case over the next 12 months, while a 50 basis point ratable decrease in interest rates would result in a negative variance in net interest income of 3.7% relative to the flat-rate case over the next 12 months. For modeling purposes, as of December 31, 2021, 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 3.6%2.8% and 9.0%7.1%, 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 3.0% relative to the flat-rate case over the next 12 months. For modeling purposes, as of December 31, 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 2.3% and 6.2%, 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. Both the September 30, 2021March 31, 2022 and December 31, 20202021 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 fourthfirst and firstsecond quarters of 2021,2022, respectively, as further discussed below. The likelihood of a decrease in interest rates beyond 50 basis points as of March 31, 2022 and 25 basis points as of September 30, 2021 and December 31, 20202021 was considered remote given prevailing interest rate levels.
The model simulations as of September 30, 2021March 31, 2022 indicate that our projected balance sheet is moreless asset sensitive in comparison to our balance sheet as of December 31, 2020.2021. The increaseddecreased asset sensitivity was primarilypartly due to an increasea decrease in the relative proportion of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and federal funds sold to projected average interest-earning assets. Interest-bearing deposits and federal funds sold are more immediately impacted by changes in interest rates in comparison to our other categories of earning assets. Additionally, the positive impact of increasing interest rates was partly mitigated due to an increase in the relative proportion of interest-bearing deposit liabilities to total deposits as of March 31, 2022 compared to December 31, 2021, resulting in a higher projected cost of deposits.
We do not currently pay interest on a significant portion of our commercial demand deposits. Any interest rate that would ultimately be paid on these commercial demand deposits would likely depend upon a variety of factors, some of which are beyond our control. Our modeling simulations as of September 30, 2021March 31, 2022 and December 31, 20202021 assume a slightly aggressive 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 fourthsecond and first quarters of 2021 and 2020,2022, respectively. This 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.
As of September 30, 2021,March 31, 2022, the effects of a 200 basis point increase and a 2550 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 in the risk factors disclosed under Item 1A. of our 20202021 Form 10-K.
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 September 30, 2021.March 31, 2022. Dollar amounts in thousands.
PeriodTotal Number of
Shares Purchased
Average Price
Paid Per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plan
Maximum
Number of Shares
(or Approximate
Dollar Value)
That May Yet Be
Purchased Under
the Plan at the
End of the Period
July 1, 2021 to July 31, 2021478 (1)$112.62 — $100,000 
August 1, 2021 to August 31, 2021— — — 100,000 
September 1, 2021 to September 30, 2021— — — 100,000 
Total478 — 
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
January 1, 2022 to January 31, 2022— $— — $100,000 
February 1, 2022 to February 28, 2022— — — 100,000 
March 1, 2022 to March 31, 20227,459 (1)133.54 — 100,000 
Total7,459 — 

(1)Repurchases made in connection with the vesting of certain share awards.
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(1)
31.1
31.2
32.1(2)(1)
32.2(2)(1)
101.INS(3)(2)
Inline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInlineXBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104(4)(3)
Cover Page Interactive Data File
    
(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)(2)The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
(4)(3)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:OctoberApril 28, 20212022By:/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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