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, 2022~~March 31, 2023

☐ 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)

Texas

74-1751768

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

111 W. Houston Street,

San Antonio,

Texas

78205

(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 class

Trading Symbol(s)

Name of each exchange on
which registered

Common Stock, $.01 Par Value

CFR

New York Stock Exchange

Depositary Shares, each representing a 1/40th interest in a share of 4.450% Non-Cumulative Perpetual Preferred Stock, Series B

CFR.PrB

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~October 24, 2022~~April 20, 2023, there were ~~64,298,720~~64,398,599 shares of the registrant’s Common Stock, $.01 par value, outstanding.

Cullen/Frost Bankers, Inc.

Quarterly Report on Form 10-Q

~~September 30, 2022~~March 31, 2023

Table of Contents


		Page
Part I - Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income (Loss)	5
	Consolidated Statements of Changes in Shareholders’ Equity	6
	Consolidated Statements of Cash Flows	87
	Notes to Consolidated Financial Statements	98
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3735
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6457
Item 4.	Controls and Procedures	6457

Part II - Other Information
Item 1.	Legal Proceedings	6558
Item 1A.	Risk Factors	6558
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6558
Item 3.	Defaults Upon Senior Securities	6558
Item 4.	Mine Safety Disclosures	6558
Item 5.	Other Information	6558
Item 6.	Exhibits	6659

Signatures		6760

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, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Assets:	Assets:					Assets:
Cash and due from banks	Cash and due from banks	$	665,123	$	555,778	Cash and due from banks	$	640,201	$	691,553
Interest-bearing deposits	Interest-bearing deposits	12,863,775		15,985,244		Interest-bearing deposits	8,571,723		11,128,902
Federal funds sold	Federal funds sold	91,650		34,075		Federal funds sold	5,200		120,527
Resell agreements	Resell agreements	12,150		7,903		Resell agreements	84,650		87,150
Total cash and cash equivalents	Total cash and cash equivalents	13,632,698		16,583,000		Total cash and cash equivalents	9,301,774		12,028,132
Securities held to maturity, net of allowance for credit losses of $158 at September 30, 2022 and $158 at December 31, 2021		2,174,084		1,749,179
Securities held to maturity, net of allowance for credit losses of $262 at March 31, 2023 and $158 at December 31, 2022						Securities held to maturity, net of allowance for credit losses of $262 at March 31, 2023 and $158 at December 31, 2022	3,711,579		2,639,083
Securities available for sale, at estimated fair value	Securities available for sale, at estimated fair value	17,399,107		13,924,628		Securities available for sale, at estimated fair value	17,981,830		18,243,605
Trading account securities	Trading account securities	25,008		25,162		Trading account securities	28,735		28,045
Loans, net of unearned discounts	Loans, net of unearned discounts	16,950,629		16,336,397		Loans, net of unearned discounts	17,486,020		17,154,969
Less: Allowance for credit losses on loans	Less: Allowance for credit losses on loans	(234,315)		(248,666)		Less: Allowance for credit losses on loans	(231,514)		(227,621)
Net loans	Net loans	16,716,314		16,087,731		Net loans	17,254,506		16,927,348
Premises and equipment, net	Premises and equipment, net	1,068,749		1,050,331		Premises and equipment, net	1,130,594		1,102,695
Goodwill	Goodwill	654,952		654,952		Goodwill	654,952		654,952
Other intangible assets, net	Other intangible assets, net	486		866		Other intangible assets, net	290		386
Cash surrender value of life insurance policies	Cash surrender value of life insurance policies	190,368		190,139		Cash surrender value of life insurance policies	190,601		190,188
Accrued interest receivable and other assets	Accrued interest receivable and other assets	1,083,803		612,502		Accrued interest receivable and other assets	990,797		1,077,942
Total assets	Total assets	$	52,945,569	$	50,878,490	Total assets	$	51,245,658	$	52,892,376

Liabilities:	Liabilities:					Liabilities:
Deposits:	Deposits:					Deposits:
Non-interest-bearing demand deposits	Non-interest-bearing demand deposits	$	18,565,820	$	18,423,018	Non-interest-bearing demand deposits	$	15,995,499	$	17,598,234
Interest-bearing deposits	Interest-bearing deposits	27,994,366		24,272,678		Interest-bearing deposits	26,188,656		26,355,962
Total deposits	Total deposits	46,560,186		42,695,696		Total deposits	42,184,155		43,954,196
Federal funds purchased	Federal funds purchased	26,200		25,925		Federal funds purchased	57,450		51,650
Repurchase agreements	Repurchase agreements	2,082,739		2,740,799		Repurchase agreements	4,237,444		4,660,641
Junior subordinated deferrable interest debentures, net of unamortized issuance costs	Junior subordinated deferrable interest debentures, net of unamortized issuance costs	123,055		123,011		Junior subordinated deferrable interest debentures, net of unamortized issuance costs	123,083		123,069
Subordinated notes, net of unamortized issuance costs	Subordinated notes, net of unamortized issuance costs	99,295		99,178		Subordinated notes, net of unamortized issuance costs	99,374		99,335
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	1,241,622		754,326		Accrued interest payable and other liabilities	1,076,351		866,257
Total liabilities	Total liabilities	50,133,097		46,438,935		Total liabilities	47,777,857		49,755,148

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, 2022 and December 31, 2021		145,452		145,452
Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,236,306 shares issued at September 30, 2022 and December 31, 2021		642		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, 2023 and December 31, 2022						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, 2023 and December 31, 2022	145,452		145,452
Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,404,582 shares issued at March 31, 2023 and 64,354,695 at December 31, 2022						Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,404,582 shares issued at March 31, 2023 and 64,354,695 at December 31, 2022	644		643
Additional paid-in capital	Additional paid-in capital	1,018,624		1,009,921		Additional paid-in capital	1,035,961		1,029,756
Retained earnings	Retained earnings	3,179,964		2,956,966		Retained earnings	3,428,991		3,309,671
Accumulated other comprehensive income (loss), net of tax	Accumulated other comprehensive income (loss), net of tax	(1,528,925)		347,318		Accumulated other comprehensive income (loss), net of tax	(1,142,138)		(1,348,294)
Treasury stock, at cost; 24,917 shares at September 30, 2022 and 250,070 shares at December 31, 2021		(3,285)		(20,744)
Treasury stock, at cost; 8,683 shares at March 31, 2023						Treasury stock, at cost; 8,683 shares at March 31, 2023	(1,109)		—
Total shareholders’ equity	Total shareholders’ equity	2,812,472		4,439,555		Total shareholders’ equity	3,467,801		3,137,228
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	52,945,569	$	50,878,490	Total liabilities and shareholders’ equity	$	51,245,658	$	52,892,376

See accompanying Notes to Consolidated Financial Statements.

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,
		2022		2021		2022		2021				2023		2022
Interest income:	Interest income:									Interest income:
Loans, including fees	Loans, including fees	$	205,932	$	168,779	$	522,588	$	518,957	Loans, including fees		$	269,715	$	149,977
Securities:	Securities:									Securities:
Taxable	Taxable	68,311		20,736		167,734		61,366		Taxable		97,775		43,058
Tax-exempt	Tax-exempt	59,450		56,882		173,394		169,656		Tax-exempt		66,634		56,866
Interest-bearing deposits	Interest-bearing deposits	74,257		5,830		106,971		11,877		Interest-bearing deposits		99,245		6,343
Federal funds sold	Federal funds sold	316		2		428		13		Federal funds sold		758		13
Resell agreements	Resell agreements	64		6		78		11		Resell agreements		1,068		4
Total interest income	Total interest income	408,330		252,235		971,193		761,880		Total interest income		535,195		256,261
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	42,682		3,677		62,187		10,693		Deposits		97,989		4,912
Federal funds purchased	Federal funds purchased	249		9		336		24		Federal funds purchased		583		12
Repurchase agreements	Repurchase agreements	7,529		632		9,837		1,597		Repurchase agreements		33,651		518
Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	1,159		631		2,515		1,915		Junior subordinated deferrable interest debentures		1,988		584
Subordinated notes	Subordinated notes	1,164		1,164		3,492		3,492		Subordinated notes		1,164		1,164
Total interest expense	Total interest expense	52,783		6,113		78,367		17,721		Total interest expense		135,375		7,190
Net interest income	Net interest income	355,547		246,122		892,826		744,159		Net interest income		399,820		249,071
Credit loss expense	Credit loss expense	—		—		—		63		Credit loss expense		9,104		—
Net interest income after credit loss expense	Net interest income after credit loss expense	355,547		246,122		892,826		744,096		Net interest income after credit loss expense		390,716		249,071
Non-interest income:	Non-interest income:									Non-interest income:
Trust and investment management fees	Trust and investment management fees	38,552		37,381		114,984		110,569		Trust and investment management fees		36,144		38,656
Service charges on deposit accounts	Service charges on deposit accounts	22,960		21,216		69,570		61,058		Service charges on deposit accounts		21,879		22,740
Insurance commissions and fees	Insurance commissions and fees	13,152		11,748		41,536		39,834		Insurance commissions and fees		18,952		16,608
Interchange and card transaction fees	Interchange and card transaction fees	4,614		4,490		13,751		13,224		Interchange and card transaction fees		4,889		4,226
Other charges, commissions and fees	Other charges, commissions and fees	11,095		9,785		30,609		26,729		Other charges, commissions and fees		11,704		9,627
Net gain (loss) on securities transactions	Net gain (loss) on securities transactions	—		—		—		—		Net gain (loss) on securities transactions		21		—
Other	Other	9,448		8,569		28,688		26,258		Other		11,676		9,533
Total non-interest income	Total non-interest income	99,821		93,189		299,138		277,672		Total non-interest income		105,265		101,390
Non-interest expense:	Non-interest expense:									Non-interest expense:
Salaries and wages	Salaries and wages	127,189		99,463		355,399		289,956		Salaries and wages		130,345		111,329
Employee benefits	Employee benefits	21,680		21,576		66,633		62,840		Employee benefits		33,922		24,220
Net occupancy	Net occupancy	28,133		27,208		83,923		79,909		Net occupancy		30,349		27,411
Technology, furniture and equipment	Technology, furniture and equipment	30,781		28,494		89,859		84,508		Technology, furniture and equipment		32,481		29,157
Deposit insurance	Deposit insurance	4,279		3,088		11,636		8,893		Deposit insurance		6,245		3,633
Intangible amortization	Intangible amortization	103		157		380		544		Intangible amortization		96		146
Other	Other	45,733		38,017		135,147		116,749		Other		51,704		42,836
Total non-interest expense	Total non-interest expense	257,898		218,003		742,977		643,399		Total non-interest expense		285,142		238,732
Income before income taxes	Income before income taxes	197,470		121,308		448,987		378,369		Income before income taxes		210,839		111,729
Income taxes	Income taxes	27,710		13,333		61,011		36,311		Income taxes		33,186		12,627
Net income	Net income	169,760		107,975		387,976		342,058		Net income		177,653		99,102
Preferred stock dividends	Preferred stock dividends	1,668		1,668		5,006		5,488		Preferred stock dividends		1,669		1,669
Net income available to common shareholders	Net income available to common shareholders	$	168,092	$	106,307	$	382,970	$	336,570	Net income available to common shareholders		$	175,984	$	97,433

Earnings per common share:	Earnings per common share:									Earnings per common share:
Basic	Basic	$	2.60	$	1.66	$	5.92	$	5.25	Basic		$	2.71	$	1.51
Diluted	Diluted	2.59		1.65		5.90		5.22		Diluted		2.70		1.50

See accompanying Notes to Consolidated Financial Statements.

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,
		2022		2021		2022		2021				2023		2022
Net income	Net income	$	169,760	$	107,975	$	387,976	$	342,058	Net income		$	177,653	$	99,102
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 period	Change in net unrealized gain/loss during the period	(829,324)		(80,668)		(2,376,642)		(209,779)		Change in net unrealized gain/loss during the period		260,269		(910,795)
Change in net unrealized gain on securities transferred to held to maturity	Change in net unrealized gain on securities transferred to held to maturity	(174)		(237)		(572)		(741)		Change in net unrealized gain on securities transferred to held to maturity		(160)		(209)
Reclassification adjustment for net (gains) losses included in net income	Reclassification adjustment for net (gains) losses included in net income	—		—		—		—		Reclassification adjustment for net (gains) losses included in net income		(21)		—
Total securities available for sale and transferred securities	Total securities available for sale and transferred securities	(829,498)		(80,905)		(2,377,214)		(210,520)		Total securities available for sale and transferred securities		260,088		(911,004)
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)	741		1,529		2,223		4,587		Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)		870		741
Total defined-benefit post-retirement benefit plans	Total defined-benefit post-retirement benefit plans	741		1,529		2,223		4,587		Total defined-benefit post-retirement benefit plans		870		741
Other comprehensive income (loss), before tax	Other comprehensive income (loss), before tax	(828,757)		(79,376)		(2,374,991)		(205,933)		Other comprehensive income (loss), before tax		260,958		(910,263)
Deferred tax expense (benefit)	Deferred tax expense (benefit)	(174,038)		(16,669)		(498,748)		(43,246)		Deferred tax expense (benefit)		54,802		(191,155)
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	(654,719)		(62,707)		(1,876,243)		(162,687)		Other comprehensive income (loss), net of tax		206,156		(719,108)
Comprehensive income (loss)	Comprehensive income (loss)	$	(484,959)	$	45,268	$	(1,488,267)	$	179,371	Comprehensive income (loss)		$	383,809	$	(620,006)

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

Cullen/Frost Bankers, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

(Dollars in thousands, except per share amounts)
Preferred
Stock Common
Stock Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax Treasury
Stock Total
Three months ended:
September 30, 2022
Balance at beginning of period $ 145,452 $ 642 $ 1,015,451 $ 3,070,109 $ (874,206) $ (10,473) $ 3,346,975
Net income — — — 169,760 — — 169,760
Other comprehensive income (loss), net of tax — — — — (654,719) — (654,719)
Stock option exercises/stock unit conversions (88,350 shares) — — — (1,918) — 7,188 5,270
Stock-based compensation expense recognized in earnings — — 3,173 — — 3,173
Cash dividends – Series B preferred stock (approximately $11.13 per share which is equivalent to approximately $0.28 per depositary share) — — — (1,668) — — (1,668)
Cash dividends – common stock ($0.87 per share) — — — (56,319) — — (56,319)
Balance at end of period $ 145,452 $ 642 $ 1,018,624 $ 3,179,964 $ (1,528,925) $ (3,285) $ 2,812,472
September 30, 2021
Balance at beginning of period $ 145,452 $ 642 $ 1,002,939 $ 2,862,966 $ 412,990 $ (51,172) $ 4,373,817
Net income — — — 107,975 — — 107,975
Other comprehensive income (loss), net of tax — — — — (62,707) — (62,707)
Stock option exercises/stock unit conversions (21,968 shares) — — — (1,085) — 2,213 1,128
Stock-based compensation expense recognized in earnings — — 1,985 — — — 1,985
Purchase of treasury stock (478 shares) — — — — — (54) (54)
Cash dividends – Series B preferred stock (approximately $11.13 per share which is equivalent to approximately $0.28 per depositary share) — — — (1,668) — — (1,668)
Cash dividends – common stock ($0.75 per share) — — — (48,114) — — (48,114)
Balance at end of period $ 145,452 $ 642 $ 1,004,924 $ 2,920,074 $ 350,283 $ (49,013) $ 4,372,362

~~See accompanying Notes to Consolidated Financial Statements~~

~~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			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, 2022
Three months ended:																Three months ended:
March 31, 2023																March 31, 2023
Balance at beginning of period	Balance at beginning of period	$	145,452	$	642	$	1,009,921	$	2,956,966	$	347,318	$	(20,744)	$	4,439,555	Balance at beginning of period	$	145,452	$	643	$	1,029,756	$	3,309,671	$	(1,348,294)	$	—	$	3,137,228

Net income	Net income	—		—		—		387,976		—		—		387,976		Net income	—		—		—		177,653		—		—		177,653
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	—		—		—		—		(1,876,243)		—		(1,876,243)		Other comprehensive income (loss), net of tax	—		—		—		—		206,156		—		206,156
Stock option exercises/stock unit conversions (232,612 shares)		—		—		—		(6,695)		—		18,455		11,760
Stock option exercises/stock unit conversions (50,387 shares)																Stock option exercises/stock unit conversions (50,387 shares)	—		1		1,463		(28)		—		64		1,500
Stock-based compensation expense recognized in earnings																Stock-based compensation expense recognized in earnings	—		—		4,742		—		—		—		4,742
Purchase of treasury stock (9,183 shares)																Purchase of treasury stock (9,183 shares)	—		—		—		—		—		(1,173)		(1,173)

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)	—		—		—		(1,669)		—		—		(1,669)
Cash dividends – common stock ($0.87 per share)																Cash dividends – common stock ($0.87 per share)	—		—		—		(56,636)		—		—		(56,636)
Balance at end of period																Balance at end of period	$	145,452	$	644	$	1,035,961	$	3,428,991	$	(1,142,138)	$	(1,109)	$	3,467,801

March 31, 2022																March 31, 2022
Balance at beginning of period																Balance at beginning of period	$	145,452	$	642	$	1,009,921	$	2,956,966	$	347,318	$	(20,744)	$	4,439,555
Net income																Net income	—		—		—		99,102		—		—		99,102
Other comprehensive income (loss), net of tax																Other comprehensive income (loss), net of tax	—		—		—		—		(719,108)		—		(719,108)
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 earnings	Stock-based compensation expense recognized in earnings	—		—		8,703		—		—		—		8,703		Stock-based compensation expense recognized in earnings	—		—		2,112		—		—		—		2,112
Purchase of treasury stock (7,459 shares)	Purchase of treasury stock (7,459 shares)	—		—		—		—		—		(996)		(996)		Purchase of treasury stock (7,459 shares)	—		—		—		—		—		(996)		(996)

Cash dividends – Series B preferred stock (approximately $33.38 per share which is equivalent to approximately $0.83 per depositary share)		—		—		—		(5,006)		—		—		(5,006)
Cash dividends – common stock ($2.37 per share)		—		—		—		(153,277)		—		—		(153,277)
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)	—		—		—		(1,669)		—		—		(1,669)
Cash dividends – common stock ($0.75 per share)																Cash dividends – common stock ($0.75 per share)	—		—		—		(48,443)		—		—		(48,443)
Balance at end of period	Balance at end of period	$	145,452	$	642	$	1,018,624	$	3,179,964	$	(1,528,925)	$	(3,285)	$	2,812,472	Balance at end of period	$	145,452	$	642	$	1,012,033	$	3,002,642	$	(371,790)	$	(12,687)	$	3,776,292

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

See accompanying Notes to Consolidated Financial Statements

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Cullen/Frost Bankers, Inc.

Consolidated Statements of Cash Flows

(Dollars in thousands)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Operating Activities:	Operating Activities:					Operating Activities:
Net income	Net income	$	387,976	$	342,058	Net income	$	177,653	$	99,102
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 expense	Credit loss expense	—		63		Credit loss expense	9,104		—
Deferred tax expense (benefit)	Deferred tax expense (benefit)	(3,378)		4,672		Deferred tax expense (benefit)	(1,809)		(432)
Accretion of loan discounts	Accretion of loan discounts	(10,572)		(9,879)		Accretion of loan discounts	(5,125)		(2,945)
Securities premium amortization (discount accretion), net	Securities premium amortization (discount accretion), net	76,328		90,017		Securities premium amortization (discount accretion), net	20,520		27,654
Net (gain) loss on securities transactions	Net (gain) loss on securities transactions	—		—		Net (gain) loss on securities transactions	(21)		—
Depreciation and amortization	Depreciation and amortization	53,303		51,550		Depreciation and amortization	18,472		17,551
Net (gain) loss on sale/write-down of assets/foreclosed assets	Net (gain) loss on sale/write-down of assets/foreclosed assets	109		(1,885)		Net (gain) loss on sale/write-down of assets/foreclosed assets	(284)		130
Stock-based compensation	Stock-based compensation	8,703		7,756		Stock-based compensation	4,742		2,112
Net tax benefit from stock-based compensation	Net tax benefit from stock-based compensation	2,894		4,505		Net tax benefit from stock-based compensation	342		1,244
Earnings on life insurance policies	Earnings on life insurance policies	(1,561)		(1,901)		Earnings on life insurance policies	(625)		(533)
Net change in:	Net change in:					Net change in:
Trading account securities	Trading account securities	154		(421)		Trading account securities	1,739		139
Lease right-of-use assets	Lease right-of-use assets	18,151		17,566		Lease right-of-use assets	4,952		5,970
Accrued interest receivable and other assets	Accrued interest receivable and other assets	(63,382)		(65,849)		Accrued interest receivable and other assets	132,345		(55,232)
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	71,187		114,361		Accrued interest payable and other liabilities	(193,659)		238,065
Net cash from operating activities	Net cash from operating activities	539,912		552,613		Net cash from operating activities	168,346		332,825
Investing Activities:	Investing Activities:					Investing Activities:
Securities held to maturity:	Securities held to maturity:					Securities held to maturity:
Purchases	Purchases	(878,434)		—		Purchases	(839,794)		(31,545)
Maturities, calls and principal repayments	Maturities, calls and principal repayments	557,901		171,969		Maturities, calls and principal repayments	67,311		111,211
Securities available for sale:	Securities available for sale:					Securities available for sale:
Purchases	Purchases	(6,702,519)		(4,105,085)		Purchases	(7,308,338)		(3,356,279)
Sales	Sales	—		—		Sales	884,273		—
Maturities, calls and principal repayments	Maturities, calls and principal repayments	1,140,939		3,125,786		Maturities, calls and principal repayments	6,926,125		236,032
Proceeds from sale of loans		2,365		—

Net change in loans	Net change in loans	(617,981)		1,649,429		Net change in loans	(334,708)		(209,490)
Benefits received on life insurance policies	Benefits received on life insurance policies	1,332		1,944		Benefits received on life insurance policies	212		1,201
Proceeds from sales of premises and equipment	Proceeds from sales of premises and equipment	47		7,033		Proceeds from sales of premises and equipment	1,176		1
Purchases of premises and equipment	Purchases of premises and equipment	(55,635)		(37,088)		Purchases of premises and equipment	(46,103)		(12,374)
Proceeds from sales of repossessed properties	Proceeds from sales of repossessed properties	2,585		809		Proceeds from sales of repossessed properties	558		1,543
Net cash from investing activities	Net cash from investing activities	(6,549,400)		814,797		Net cash from investing activities	(649,288)		(3,259,700)
Financing Activities:	Financing Activities:					Financing Activities:
Net change in deposits	Net change in deposits	3,864,490		4,597,006		Net change in deposits	(1,770,041)		1,735,233
Net change in short-term borrowings	Net change in short-term borrowings	(657,785)		110,232		Net change in short-term borrowings	(417,397)		(888,906)
Proceeds from stock option exercises	Proceeds from stock option exercises	11,760		37,810		Proceeds from stock option exercises	1,500		5,739
Purchase of treasury stock	Purchase of treasury stock	(996)		(1,342)		Purchase of treasury stock	(1,173)		(996)
Cash dividends paid on preferred stock	Cash dividends paid on preferred stock	(5,006)		(5,488)		Cash dividends paid on preferred stock	(1,669)		(1,669)
Cash dividends paid on common stock	Cash dividends paid on common stock	(153,277)		(140,510)		Cash dividends paid on common stock	(56,636)		(48,443)
Net cash from financing activities	Net cash from financing activities	3,059,186		4,597,708		Net cash from financing activities	(2,245,416)		800,958
Net change in cash and cash equivalents	Net change in cash and cash equivalents	(2,950,302)		5,965,118		Net change in cash and cash equivalents	(2,726,358)		(2,125,917)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	16,583,000		10,288,853		Cash and cash equivalents at beginning of period	12,028,132		16,583,000
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	13,632,698	$	16,253,971	Cash and cash equivalents at end of period	$	9,301,774	$	14,457,083

See accompanying Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements

(Table amounts in thousands, except for share and per share amounts)

Note 1 - Significant Accounting Policies

Nature of Operations. Cullen/Frost Bankers, Inc. (“Cullen/Frost”) is a financial holding company and a bank holding company headquartered in San Antonio, Texas that provides, through its subsidiaries, a broad array of products and services throughout numerous Texas markets. The terms “Cullen/Frost,” “the Corporation,” “we,” “us” and “our” mean Cullen/Frost Bankers, Inc. and its subsidiaries, when appropriate. In addition to general commercial and consumer banking, other products and services offered include trust and investment management, insurance, brokerage, mutual funds, leasing, treasury management, capital markets advisory and item processing.

Basis of Presentation. The consolidated financial statements in this Quarterly Report on Form 10-Q include the accounts of Cullen/Frost and all other entities in which Cullen/Frost has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and financial reporting policies we follow conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry.

The consolidated financial statements in this Quarterly Report on Form 10-Q have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of our financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, ~~2021,~~2022, included in our Annual Report on Form 10-K filed with the SEC on February ~~4, 2022~~3, 2023 (the ~~“2021~~“2022 Form ~~10-K”~~10-K”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The allowance for loan losses and the fair values of financial instruments and the status of contingencies are particularly subject to change.

Cash Flow Reporting. Additional cash flow information was as follows:


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Cash paid for interest	Cash paid for interest	$	71,848	$	23,722	Cash paid for interest	$	129,207	$	8,069
Cash paid for income taxes	Cash paid for income taxes	78,500		28,043		Cash paid for income taxes	—		—
Significant non-cash transactions:	Significant non-cash transactions:					Significant non-cash transactions:
Unsettled securities transactions	Unsettled securities transactions	470,813		600,874		Unsettled securities transactions	303,242		78,769
Loans foreclosed and transferred to other real estate owned and foreclosed assets		—		3,464

Right-of-use lease assets obtained in exchange for lessee operating lease liabilities	Right-of-use lease assets obtained in exchange for lessee operating lease liabilities	23,959		4,045		Right-of-use lease assets obtained in exchange for lessee operating lease liabilities	2,879		4,013
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.

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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, 2022~~March 31, 2023 and December 31, ~~2021~~2022 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, 2022
March 31, 2023														March 31, 2023

Residential mortgage-backed securities	Residential mortgage-backed securities	$	526,397	$	—	$	68,024	$	458,373	$	—	$	526,397	Residential mortgage-backed securities	$	1,273,079	$	3,859	$	56,728	$	1,220,210	$	—	$	1,273,079
States and political subdivisions	States and political subdivisions	1,646,345		90		188,964		1,457,471		(158)		1,646,187		States and political subdivisions	2,437,262		30,964		88,103		2,380,123		(262)		2,437,000
Other	Other	1,500		—		57		1,443		—		1,500		Other	1,500		—		76		1,424		—		1,500
Total	Total	$	2,174,242	$	90	$	257,045	$	1,917,287	$	(158)	$	2,174,084	Total	$	3,711,841	$	34,823	$	144,907	$	3,601,757	$	(262)	$	3,711,579
December 31, 2021
December 31, 2022														December 31, 2022

Residential mortgage-backed securities	Residential mortgage-backed securities	$	527,264	$	18,766	$	—	$	546,030	$	—	$	527,264	Residential mortgage-backed securities	$	526,122	$	—	$	65,322	$	460,800	$	—	$	526,122
States and political subdivisions	States and political subdivisions	1,220,573		41,141		101		1,261,613		(158)		1,220,415		States and political subdivisions	2,111,619		13,048		119,033		2,005,634		(158)		2,111,461
Other	Other	1,500		—		—		1,500		—		1,500		Other	1,500		—		69		1,431		—		1,500
Total	Total	$	1,749,337	$	59,907	$	101	$	1,809,143	$	(158)	$	1,749,179	Total	$	2,639,241	$	13,048	$	184,424	$	2,467,865	$	(158)	$	2,639,083

All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. The carrying value of held-to-maturity securities pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law was ~~$271.6~~$438.0 million and ~~$642.3~~$256.3 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Accrued interest receivable on held-to-maturity securities totaled ~~$11.5~~$20.6 million and ~~$18.4~~$30.2 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively and is included in accrued interest receivable and other assets in the accompanying consolidated balance sheets.

From time to time, we have reclassified certain securities from available for sale to held to maturity. The net unamortized, unrealized gain remaining on transferred securities included in accumulated other comprehensive income in the accompanying balance sheet totaled ~~$2.0~~$1.6 million ($~~1.6~~1.3 million, net of tax) at ~~September 30, 2022~~March 31, 2023 and ~~$2.5~~$1.8 million ($~~2.0~~1.4 million, net of tax) at December 31, ~~2021.~~2022. This amount will be amortized out of accumulated other comprehensive income over the remaining life of the underlying securities as an adjustment of the yield on those securities.

The following table summarizes Moody's and/or Standard & Poor's bond ratings for our portfolio of held-to-maturity securities issued by States and political subdivisions and other securities as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


		States and Political Subdivisions											States and Political Subdivisions
		Not Guaranteed or Pre-Refunded		Guaranteed by the Texas PSF		Pre-Refunded		Total		Other Securities			Not Guaranteed or Pre-Refunded		Guaranteed by the Texas PSF		Guaranteed by Third Party		Pre-Refunded		Total		Other Securities
September 30, 2022
March 31, 2023												March 31, 2023
Aaa/AAA	Aaa/AAA	$	220,180	$	1,116,482	$	121,042	$	1,457,704	$	—	Aaa/AAA	$	302,021	$	1,557,444	$	7,476	$	59,123	$	1,926,064	$	—
Aa/AA	Aa/AA	188,641		—		—		188,641		—		Aa/AA	506,432		—		4,766		—		511,198		—

Not rated	Not rated	—		—		—		—		1,500		Not rated	—		—		—		—		—		1,500
Total	Total	$	408,821	$	1,116,482	$	121,042	$	1,646,345	$	1,500	Total	$	808,453	$	1,557,444	$	12,242	$	59,123	$	2,437,262	$	1,500
December 31, 2021
December 31, 2022												December 31, 2022
Aaa/AAA	Aaa/AAA	$	92,379	$	460,648	$	563,251	$	1,116,278	$	—	Aaa/AAA	$	273,201	$	1,422,442	$	—	$	121,961	$	1,817,604	$	—
Aa/AA	Aa/AA	104,295		—		—		104,295		—		Aa/AA	294,015		—		—		—		294,015		—

Not rated	Not rated	—		—		—		—		1,500		Not rated	—		—		—		—		—		1,500
Total	Total	$	196,674	$	460,648	$	563,251	$	1,220,573	$	1,500	Total	$	567,216	$	1,422,442	$	—	$	121,961	$	2,111,619	$	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, 2022~~March 31, 2023 and ~~2021.~~2022.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Beginning balance	Beginning balance	$	158	$	158	$	158	$	160	Beginning balance		$	158	$	158
Credit loss expense (benefit)	Credit loss expense (benefit)	—		—		—		(2)		Credit loss expense (benefit)		104		—
Ending balance	Ending balance	$	158	$	158	$	158	$	158	Ending balance		$	262	$	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, 2022~~March 31, 2023 and December 31, ~~2021~~2022 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, 2022
March 31, 2023												March 31, 2023
U.S. Treasury	U.S. Treasury	$	5,447,478	$	—	$	424,861	$	—	$	5,022,617	U.S. Treasury	$	5,453,585	$	—	$	325,489	$	—	$	5,128,096

Residential mortgage-backed securities	Residential mortgage-backed securities	6,685,418		1,293		987,902		—		5,698,809		Residential mortgage-backed securities	7,857,669		13,622		848,349		—		7,022,942
States and political subdivisions	States and political subdivisions	7,121,730		1,395		487,827		—		6,635,298		States and political subdivisions	6,032,658		12,526		256,889		—		5,788,295
Other	Other	42,383		—		—		—		42,383		Other	42,497		—		—		—		42,497
Total	Total	$	19,297,009	$	2,688	$	1,900,590	$	—	$	17,399,107	Total	$	19,386,409	$	26,148	$	1,430,727	$	—	$	17,981,830
December 31, 2021
December 31, 2022												December 31, 2022
U.S. Treasury	U.S. Treasury	$	2,165,702	$	23,333	$	9,602	$	—	$	2,179,433	U.S. Treasury	$	5,450,546	$	—	$	398,959	$	—	$	5,051,587

Residential mortgage-backed securities	Residential mortgage-backed securities	4,059,692		31,662		25,089		—		4,066,265		Residential mortgage-backed securities	7,316,824		8,050		948,638		—		6,376,236
States and political subdivisions	States and political subdivisions	7,178,135		463,810		5,374		—		7,636,571		States and political subdivisions	7,098,635		9,108		334,388		—		6,773,355
Other	Other	42,359		—		—		—		42,359		Other	42,427		—		—		—		42,427
Total	Total	$	13,445,888	$	518,805	$	40,065	$	—	$	13,924,628	Total	$	19,908,432	$	17,158	$	1,681,985	$	—	$	18,243,605

All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. At ~~September 30, 2022,~~March 31, 2023, all of the securities in our available for sale municipal bond portfolio were issued by the State of Texas or political subdivisions or agencies within the State of Texas, of which approximately ~~75.1%~~75.9% 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~~$6.9 billion and ~~$5.8~~$8.0 billion at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Accrued interest receivable on available-for-sale securities totaled ~~$99.7~~$91.4 million and ~~$120.5~~$140.6 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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, 2022,~~March 31, 2023, 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 Months				More than 12 Months				Total					Less than 12 Months				More than 12 Months				Total
		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. Treasury	U.S. Treasury	$	4,429,609	$	323,346	$	593,008	$	101,515	$	5,022,617	$	424,861	U.S. Treasury	$	2,033,194	$	44,859	$	3,094,902	$	280,630	$	5,128,096	$	325,489
Residential mortgage-backed securities	Residential mortgage-backed securities	4,280,074		713,685		1,032,311		274,217		5,312,385		987,902		Residential mortgage-backed securities	1,665,095		36,196		4,330,689		812,153		5,995,784		848,349
States and political subdivisions	States and political subdivisions	5,943,551		412,938		194,456		74,889		6,138,007		487,827		States and political subdivisions	2,253,851		23,095		1,455,154		233,794		3,709,005		256,889
Total	Total	$	14,653,234	$	1,449,969	$	1,819,775	$	450,621	$	16,473,009	$	1,900,590	Total	$	5,952,140	$	104,150	$	8,880,745	$	1,326,577	$	14,832,885	$	1,430,727

As of ~~September 30, 2022,~~March 31, 2023, no allowance for credit losses has been recognized on available for sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality. This 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 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, 2022.~~March 31, 2023. Mortgage-backed securities are included in maturity categories based on their stated maturity date. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Other securities classified as available for sale include stock in the Federal Reserve Bank and the Federal Home Loan Bank, which have no maturity date. These securities have been included in the total column only.


		Within 1 Year		1 - 5 Years		5 - 10 Years		After 10 Years		Total			Within 1 Year		1 - 5 Years		5 - 10 Years		After 10 Years		Total
Held To Maturity	Held To Maturity											Held To Maturity
Amortized Cost	Amortized Cost											Amortized Cost

Residential mortgage-backed securities	Residential mortgage-backed securities	$	—	$	—	$	514,321	$	12,076	$	526,397	Residential mortgage-backed securities	$	—	$	—	$	513,796	$	759,283	$	1,273,079
States and political subdivisions	States and political subdivisions	121,042		29,534		9,880		1,485,889		1,646,345		States and political subdivisions	72,953		17,842		21,713		2,324,754		2,437,262
Other	Other	—		1,500		—		—		1,500		Other	—		1,500		—		—		1,500
Total	Total	$	121,042	$	31,034	$	524,201	$	1,497,965	$	2,174,242	Total	$	72,953	$	19,342	$	535,509	$	3,084,037	$	3,711,841
Estimated Fair Value	Estimated Fair Value											Estimated Fair Value

Residential mortgage-backed securities	Residential mortgage-backed securities	$	—	$	—	$	448,514	$	9,859	$	458,373	Residential mortgage-backed securities	$	—	$	—	$	459,002	$	761,208	$	1,220,210
States and political subdivisions	States and political subdivisions	120,786		29,362		9,850		1,297,473		1,457,471		States and political subdivisions	72,976		17,835		21,257		2,268,055		2,380,123
Other	Other	—		1,443		—		—		1,443		Other	—		1,424		—		—		1,424
Total	Total	$	120,786	$	30,805	$	458,364	$	1,307,332	$	1,917,287	Total	$	72,976	$	19,259	$	480,259	$	3,029,263	$	3,601,757
Available For Sale	Available For Sale											Available For Sale
Amortized Cost	Amortized Cost											Amortized Cost
U. S. Treasury	U. S. Treasury	$	—	$	3,821,606	$	1,433,912	$	191,960	$	5,447,478	U. S. Treasury	$	1,286,682	$	2,539,671	$	1,435,094	$	192,138	$	5,453,585
Residential mortgage-backed securities	Residential mortgage-backed securities	28		9,355		17,253		6,658,782		6,685,418		Residential mortgage-backed securities	8		6,422		17,165		7,834,074		7,857,669
States and political subdivisions	States and political subdivisions	250,317		1,470,384		944,279		4,456,750		7,121,730		States and political subdivisions	268,607		835,006		853,009		4,076,036		6,032,658
Other	Other	—		—		—		—		42,383		Other	—		—		—		—		42,497
Total	Total	$	250,345	$	5,301,345	$	2,395,444	$	11,307,492	$	19,297,009	Total	$	1,555,297	$	3,381,099	$	2,305,268	$	12,102,248	$	19,386,409
Estimated Fair Value	Estimated Fair Value											Estimated Fair Value
U. S. Treasury	U. S. Treasury	$	—	$	3,648,015	$	1,232,969	$	141,633	$	5,022,617	U. S. Treasury	$	1,251,908	$	2,451,237	$	1,275,631	$	149,320	$	5,128,096
Residential mortgage-backed securities	Residential mortgage-backed securities	27		9,130		17,167		5,672,485		5,698,809		Residential mortgage-backed securities	8		6,340		17,181		6,999,413		7,022,942
States and political subdivisions	States and political subdivisions	250,875		1,462,732		894,174		4,027,517		6,635,298		States and political subdivisions	269,590		839,354		842,226		3,837,125		5,788,295
Other	Other	—		—		—		—		42,383		Other	—		—		—		—		42,497
Total	Total	$	250,902	$	5,119,877	$	2,144,310	$	9,841,635	$	17,399,107	Total	$	1,521,506	$	3,296,931	$	2,135,038	$	10,985,858	$	17,981,830

Sales of Securities. No~~held to maturity or~~Sales of available for sale securities were ~~sold during the three or nine months ended September 30, 2022 or 2021.~~as follows:


	Three Months Ended March 31,
		2023		2022
Proceeds from sales		$	884,273	$	—
Gross realized gains		4,856		—
Gross realized losses		(4,835)		—
Tax (expense) benefit of securities gains/losses		(4)		—

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,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Premium amortization	Premium amortization	$	(27,165)	$	(30,240)	$	(84,278)	$	(92,016)	Premium amortization		$	(25,925)	$	(29,060)
Discount accretion	Discount accretion	4,062		657		7,950		1,999		Discount accretion		5,405		1,406
Net (premium amortization) discount accretion	Net (premium amortization) discount accretion	$	(23,103)	$	(29,583)	$	(76,328)	$	(90,017)	Net (premium amortization) discount accretion		$	(20,520)	$	(27,654)

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Trading Account Securities. Trading account securities, at estimated fair value, were as follows:

September 30,
2022 December 31,
2021
U.S. Treasury $ 25,008 $ 24,237
States and political subdivisions — 925
Total $ 25,008 $ 25,162

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	March 31, 2023		December 31, 2022
U.S. Treasury	$	26,076	$	25,879
States and political subdivisions	2,659		2,166
Total	$	28,735	$	28,045

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,
		2022		2021		2022		2021				2023		2022
Net gain on sales transactions	Net gain on sales transactions	$	1,110	$	314	$	2,462	$	716	Net gain on sales transactions		$	968	$	340
Net mark-to-market gains (losses)	Net mark-to-market gains (losses)	9		(2)		(235)		(71)		Net mark-to-market gains (losses)		(17)		(168)
Net gain (loss) on trading account securities	Net gain (loss) on trading account securities	$	1,119	$	312	$	2,227	$	645	Net gain (loss) on trading account securities		$	951	$	172

Note 3 - Loans

Loans were as follows:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Commercial and industrial	Commercial and industrial	$	5,531,820	$	5,364,954	Commercial and industrial	$	5,668,697	$	5,674,798
Energy:	Energy:					Energy:
Production	Production	701,975		878,436		Production	779,657		696,570
Service	Service	127,065		105,901		Service	166,605		133,542
Other	Other	89,085		93,455		Other	120,126		95,617
Total energy	Total energy	918,125		1,077,792		Total energy	1,066,388		925,729
Paycheck Protection Program	Paycheck Protection Program	51,048		428,882		Paycheck Protection Program	28,497		34,852
Commercial real estate:	Commercial real estate:					Commercial real estate:
Commercial mortgages	Commercial mortgages	6,149,504		5,867,062		Commercial mortgages	6,247,370		6,168,910
Construction	Construction	1,557,415		1,304,271		Construction	1,482,458		1,477,247
Land	Land	524,423		405,277		Land	542,468		537,168
Total commercial real estate	Total commercial real estate	8,231,342		7,576,610		Total commercial real estate	8,272,296		8,183,325
Consumer real estate:	Consumer real estate:					Consumer real estate:
Home equity lines of credit						Home equity lines of credit	719,054		691,841
Home equity loans	Home equity loans	401,234		324,157		Home equity loans	502,083		449,507
Home equity lines of credit		661,618		519,098
Home improvement loans						Home improvement loans	626,810		577,377
Other	Other	652,884		567,535		Other	138,912		124,814
Total consumer real estate	Total consumer real estate	1,715,736		1,410,790		Total consumer real estate	1,986,859		1,843,539
Total real estate	Total real estate	9,947,078		8,987,400		Total real estate	10,259,155		10,026,864
Consumer and other	Consumer and other	502,558		477,369		Consumer and other	463,283		492,726
Total loans	Total loans	$	16,950,629	$	16,336,397	Total loans	$	17,486,020	$	17,154,969

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, 2022,~~March 31, 2023, 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 ~~5.4%~~6.1% of total ~~loans (also 5.4% excluding PPP loans).~~ loans.Unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled ~~$1.1~~$1.0 billion and ~~$117.0~~$99.1 million, respectively, as of ~~September 30, 2022.~~March 31, 2023.

Foreign Loans. We have U.S. dollar denominated loans and commitments to borrowers in Mexico. The outstanding balance of these loans and the unfunded amounts available under these commitments were not significant at ~~September 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022.

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 ~~$356.4~~$394.2 million at ~~September 30, 2022~~March 31, 2023 and ~~$350.5~~$391.3 million at December 31, ~~2021.~~2022.

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Accrued Interest Receivable. Accrued interest receivable on loans totaled ~~$48.7~~$69.6 million and ~~$40.0~~$68.7 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, and is included in accrued interest receivable and other assets in the ~~accompany~~accompanying consolidated balance sheets.

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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, 2022				December 31, 2021					March 31, 2023				December 31, 2022
		Total Non-Accrual		Non-Accrual with No Credit Loss Allowance		Total Non-Accrual		Non-Accrual with No Credit Loss Allowance			Total Non-Accrual		Non-Accrual with No Credit Loss Allowance		Total Non-Accrual		Non-Accrual with No Credit Loss Allowance
Commercial and industrial	Commercial and industrial	$	7,267	$	4,425	$	22,582	$	4,701	Commercial and industrial	$	10,494	$	4,962	$	18,130	$	8,514
Energy	Energy	16,134		7,277		14,433		8,533		Energy	22,349		14,515		15,224		7,139
Paycheck Protection Program		—		—		—		—

Commercial real estate:	Commercial real estate:									Commercial real estate:
Buildings, land and other	Buildings, land and other	5,489		2,497		15,297		13,817		Buildings, land and other	4,604		4,110		3,552		1,991
Construction	Construction	—		—		948		—		Construction	—		—		—		—
Consumer real estate	Consumer real estate	1,014		712		440		138		Consumer real estate	963		963		927		927
Consumer and other	Consumer and other	—		—		13		13		Consumer and other	—		—		—		—
Total	Total	$	29,904	$	14,911	$	53,713	$	27,202	Total	$	38,410	$	24,550	$	37,833	$	18,571

The following table presents non-accrual loans as of ~~September 30, 2022~~March 31, 2023 by class and year of origination.


		2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term		Total			2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and industrial	Commercial and industrial	$	—	$	85	$	1,065	$	3,245	$	1,439	$	234	$	467	$	732	$	7,267	Commercial and industrial	$	—	$	139	$	1,026	$	815	$	3,121	$	1,247	$	690	$	3,456	$	10,494
Energy	Energy	5,154		—		72		1,394		15		—		7,746		1,753		16,134		Energy	7,812		4,161		—		72		1,371		8		7,219		1,706		22,349
Paycheck Protection Program		—		—		—		—		—		—		—		—		—

Commercial real estate:	Commercial real estate:																			Commercial real estate:
Buildings, land and other	Buildings, land and other	1,083		2,408		—		223		275		1,500		—		—		5,489		Buildings, land and other	—		2,543		303		—		211		1,547		—		—		4,604
Construction	Construction	—		—		—		—		—		—		—		—		—		Construction	—		—		—		—		—		—		—		—		—
Consumer real estate	Consumer real estate	—		—		—		—		—		363		—		651		1,014		Consumer real estate	—		—		258		32		—		101		—		572		963
Consumer and other	Consumer and other	—		—		—		—		—		—		—		—		—		Consumer and other	—		—		—		—		—		—		—		—		—
Total	Total	$	6,237	$	2,493	$	1,137	$	4,862	$	1,729	$	2,097	$	8,213	$	3,136	$	29,904	Total	$	7,812	$	6,843	$	1,587	$	919	$	4,703	$	2,903	$	7,909	$	5,734	$	38,410

In the table above, energy loans reported as 2023 originations as of March 31, 2023 were first originated in years prior to 2023 but were renewed in the current year. Had non-accrual loans performed in accordance with their original contract terms, we would have recognized additional interest income, net of tax, of approximately ~~$372~~$600 thousand ~~and $1.2 million~~ for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, and approximately ~~$474~~$407 thousand ~~and $1.4 million~~ for the three ~~and nine~~ months ended ~~September 30, 2021, respectively.~~March 31, 2022.

An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of ~~September 30, 2022~~March 31, 2023 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 industrial	Commercial and industrial	$	26,481	$	4,629	$	31,110	$	5,500,710	$	5,531,820	$	2,443	Commercial and industrial	$	28,697	$	7,320	$	36,017	$	5,632,680	$	5,668,697	$	1,876
Energy	Energy	2,211		7,745		9,956		908,169		918,125		—		Energy	3,916		7,833		11,749		1,054,639		1,066,388		—
Paycheck Protection Program	Paycheck Protection Program	13,841		7,879		21,720		29,328		51,048		7,879		Paycheck Protection Program	484		5,748		6,232		22,265		28,497		5,748
Commercial real estate:	Commercial real estate:													Commercial real estate:
Buildings, land and other	Buildings, land and other	20,434		2,341		22,775		6,651,152		6,673,927		1,731		Buildings, land and other	39,054		1,071		40,125		6,749,713		6,789,838		112
Construction	Construction	1,238		—		1,238		1,556,177		1,557,415		—		Construction	1,647		118		1,765		1,480,693		1,482,458		118
Consumer real estate	Consumer real estate	7,169		2,110		9,279		1,706,457		1,715,736		1,803		Consumer real estate	14,401		2,317		16,718		1,970,141		1,986,859		2,013
Consumer and other	Consumer and other	5,611		491		6,102		496,456		502,558		491		Consumer and other	4,430		98		4,528		458,755		463,283		98
Total	Total	$	76,985	$	25,195	$	102,180	$	16,848,449	$	16,950,629	$	14,347	Total	$	92,629	$	24,505	$	117,134	$	17,368,886	$	17,486,020	$	9,965

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~~Troubled Debt Restructurings~~Modifications to Borrowers Experiencing Financial Difficulty. ~~. Troubled debt restructurings~~From time to time, we may modify certain loans to borrowers who are experiencing financial difficulty. In some cases, these modifications may result in new loans. Loan modifications to borrowers experiencing financial difficulty may be in the form of a principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension or a combination thereof, among other things. There were no modifications of loans to borrowers who were experiencing financial difficulty during the ~~nine~~three months ended ~~September 30, 2022 and 2021 are set forth in the following table.~~

Nine Months Ended
September 30, 2022 Nine Months Ended
September 30, 2021
Balance at
Restructure Balance at
Period-End Balance at
Restructure Balance at
Period-End
Commercial and industrial $ — $ — $ 1,312 $ 1,237
Energy — — 3,817 3,566
Commercial real estate:
Buildings, land and other 1,155 1,083 1,888 1,875
$ 1,155 $ 1,083 $ 7,017 $ 6,678

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/March 31, 2023 or ~~reducing collateral or interest rates. The modifications during the reported periods did not significantly impact our determination of the allowance for credit losses on loans.~~March 31, 2022.

Information as of or for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and March 31, 2022 ~~and 2021~~ related to loans ~~restructured during~~modified (by type of modification) in the preceding twelve months, respectively, whereby the borrower was experiencing financial difficulty at the time of modification is set forth in the following table.

September 30, 2022 September 30, 2021
Restructured loans past due in excess of 90 days at period-end:
Number of loans — 1
Dollar amount of loans $ — $ 306
Restructured loans on non-accrual status at period end 1,083 5,072
Charge-offs of restructured loans:
Recognized in connection with restructuring — —
Recognized on previously restructured loans 723 1,433
Proceeds from sale of restructured loans 1,070 —


	March 31, 2023				March 31, 2022
	Payment Delay		Combination: Payment Delay and Term Extension		Payment Delay		Combination: Payment Delay and Term Extension
Past due in excess of 90 days or on non-accrual status at period-end:


Commercial real estate:
Buildings, land and other	$	—	$	—	$	306	$	266



	$	—	$	—	$	306	$	266
Charge-offs during the period:

Energy	$	—	$	—	$	371	$	—
Commercial real estate:
Buildings, land and other	—		—		—		352



	$	—	$	—	$	371	$	352

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 (v) the general economic conditions in the State of Texas.

We utilize a risk grading matrix to assign a risk grade to each of our commercial loans. Loans are graded on a scale of 1 to 14. A description of the general characteristics of the 14 risk grades is set forth in our ~~2021~~2022 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 on management’s “watch list,” where a significant risk-modifying action is anticipated in the near term. When a loan has a risk grade of 10 or higher, a special assets officer monitors the loan on an on-going basis.

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The following ~~tables present~~table presents weighted-average risk grades for all commercial loans, by class and year of origination/renewal, as of ~~September 30, 2022.~~March 31, 2023. Paycheck Protection Program (“PPP”) loans are excluded as such loans are fully guaranteed by the Small Business Administration (“SBA”).


		2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term		Total		W/A Risk Grade		2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total		W/A Risk Grade
Commercial and industrial	Commercial and industrial																				Commercial and industrial
Risk grades 1-8	Risk grades 1-8	$	1,214,942	$	706,035	$	529,894	$	242,581	$	136,161	$	199,629	$	2,180,437	$	47,088	$	5,256,767	6.25	Risk grades 1-8	$	824,021	$	1,023,049	$	584,919	$	438,100	$	206,973	$	284,568	$	2,033,889	$	49,564	$	5,445,083	6.25
Risk grade 9	Risk grade 9	34,065		28,895		6,211		6,909		12,436		9,923		94,984		11,133		204,556		9.00	Risk grade 9	3,907		12,818		33,802		3,483		3,206		11,015		65,547		5,938		139,716		9.00
Risk grade 10	Risk grade 10	2,131		636		814		4,513		1,518		143		21,207		2,207		33,169		10.00	Risk grade 10	—		1,253		666		446		4,305		1,081		12,520		852		21,123		10.00
Risk grade 11	Risk grade 11	35		3,984		6,444		4,332		1,391		1,942		8,188		3,745		30,061		11.00	Risk grade 11	182		2,286		4,395		5,661		2,450		2,138		21,199		13,970		52,281		11.00
Risk grade 12	Risk grade 12	—		85		837		2,975		1,419		234		467		436		6,453		12.00	Risk grade 12	—		139		826		763		2,851		1,247		242		1,215		7,283		12.00
Risk grade 13	Risk grade 13	—		—		228		270		20		—		—		296		814		13.00	Risk grade 13	—		—		200		52		270		—		448		2,241		3,211		13.00
		$	1,251,173	$	739,635	$	544,428	$	261,580	$	152,945	$	211,871	$	2,305,283	$	64,905	$	5,531,820	6.41		$	828,110	$	1,039,545	$	624,808	$	448,505	$	220,055	$	300,049	$	2,133,845	$	73,780	$	5,668,697	6.39
W/A risk grade	W/A risk grade	6.44		7.05		6.04		6.66		6.92		5.73		6.25		7.57		6.41			W/A risk grade	6.13		6.67		7.10		5.94		6.46		6.05		6.22		7.91		6.39
Energy
Risk grades 1-8		$	319,910	$	105,110	$	5,238	$	5,674	$	2,346	$	4,146	$	386,836	$	45,123	$	874,383	5.61
Risk grade 9		1,722		147		245		659		829		—		10,016		35		13,653		9.00
Risk grade 10		—		—		—		456		226		—		—		47		729		10.00
Risk grade 11		8,714		186		173		3,183		819		151		—		—		13,226		11.00
Risk grade 12		4,104		—		72		1,394		15		—		4,571		303		10,459		12.00
Risk grade 13		1,050		—		—		—		—		—		3,175		1,450		5,675		13.00
		$	335,500	$	105,443	$	5,728	$	11,366	$	4,235	$	4,297	$	404,598	$	46,958	$	918,125	5.86
W/A risk grade		6.22		5.64		7.67		8.81		8.52		6.70		5.40		6.46		5.86
Commercial real estate:
Buildings, land, other
Risk grades 1-8		$	1,434,936	$	1,556,836	$	936,889	$	731,589	$	361,215	$	868,933	$	101,817	$	105,168	$	6,097,383	6.91
Risk grade 9		51,425		20,259		109,106		79,833		24,749		54,595		4,558		2,134		346,659		9.00
Risk grade 10		33,233		14,484		11,364		42,672		29,990		6,012		—		—		137,755		10.00
Risk grade 11		12,808		14,684		4,520		6,393		6,401		38,266		2,993		576		86,641		11.00
Risk grade 12		613		2,082		—		223		275		1,500		—		—		4,693		12.00
Risk grade 13		470		326		—		—		—		—		—		—		796		13.00
		$	1,533,485	$	1,608,671	$	1,061,879	$	860,710	$	422,630	$	969,306	$	109,368	$	107,878	$	6,673,927	7.14
W/A risk grade		7.11		7.19		7.27		7.20		7.35		6.90		7.26		6.45		7.14
Construction
Risk grades 1-8		$	464,837	$	568,694	$	162,262	$	35,986	$	490	$	1,762	$	243,723	$	4,414	$	1,482,168	6.85
Risk grade 9		11,270		2,253		2,100		—		—		—		17,382		—		33,005		9.00
Risk grade 10		28,851		75		—		—		—		—		—		—		28,926		10.00
Risk grade 11		—		—		—		13,316		—		—		—		—		13,316		11.00
Risk grade 12		—		—		—		—		—		—		—		—		—		12.00
Risk grade 13		—		—		—		—		—		—		—		—		—		13.00
		$	504,958	$	571,022	$	164,362	$	49,302	$	490	$	1,762	$	261,105	$	4,414	$	1,557,415	6.99
W/A risk grade		7.11		7.21		6.55		8.08		6.00		6.76		6.36		5.01		6.99
Total commercial real estate		$	2,038,443	$	2,179,693	$	1,226,241	$	910,012	$	423,120	$	971,068	$	370,473	$	112,292	$	8,231,342	7.11
W/A risk grade		7.11		7.20		7.17		7.24		7.35		6.90		6.63		6.39		7.11

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	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total		W/A Risk Grade
Energy
Risk grades 1-8	$	317,804	$	79,796	$	92,367	$	4,588	$	2,734	$	8,395	$	454,453	$	41,477	$	1,001,614	5.71
Risk grade 9	—		4,797		1,513		85		501		664		30,108		26		37,694		9.00
Risk grade 10	—		—		—		—		388		201		—		720		1,309		10.00
Risk grade 11	—		—		131		142		3,106		43		—		—		3,422		11.00
Risk grade 12	7,812		3,499		—		72		1,371		8		4,248		526		17,536		12.00
Risk grade 13	—		662		—		—		—		—		2,971		1,180		4,813		13.00
	$	325,616	$	88,754	$	94,011	$	4,887	$	8,100	$	9,311	$	491,780	$	43,929	$	1,066,388	5.99
W/A risk grade	6.14		7.13		5.66		7.65		9.73		6.85		5.65		5.98		5.99

Commercial real estate:
Buildings, land, other
Risk grades 1-8	$	437,014	$	1,677,855	$	1,437,065	$	919,210	$	612,177	$	1,094,299	$	149,384	$	104,209	$	6,431,213	6.96
Risk grade 9	386		54,811		27,557		18,737		50,933		30,140		2,162		2,178		186,904		9.00
Risk grade 10	—		23,228		6,122		3,683		8,888		7,257		—		—		49,178		10.00
Risk grade 11	10,574		7,804		10,970		27,000		4,678		53,477		2,993		443		117,939		11.00
Risk grade 12	—		2,417		303		—		211		1,547		—		—		4,478		12.00
Risk grade 13	—		126		—		—		—		—		—		—		126		13.00
	$	447,974	$	1,766,241	$	1,482,017	$	968,630	$	676,887	$	1,186,720	$	154,539	$	106,830	$	6,789,838	7.11
W/A risk grade	7.15		7.07		7.21		7.18		7.04		7.06		7.14		6.46		7.11
Construction
Risk grades 1-8	$	209,154	$	524,611	$	389,715	$	76,004	$	961	$	1,970	$	165,201	$	854	$	1,368,470	7.18
Risk grade 9	4,511		13,834		—		25,522		—		—		15,675		—		59,542		9.00
Risk grade 10	918		—		68		—		—		—		—		—		986		10.00
Risk grade 11	—		15,489		37,971		—		—		—		—		—		53,460		11.00
Risk grade 12	—		—		—		—		—		—		—		—		—		12.00
Risk grade 13	—		—		—		—		—		—		—		—		—		13.00
	$	214,583	$	553,934	$	427,754	$	101,526	$	961	$	1,970	$	180,876	$	854	$	1,482,458	7.39
W/A risk grade	7.50		7.30		7.61		6.49		7.07		6.66		7.52		5.86		7.39
Total commercial real estate	$	662,557	$	2,320,175	$	1,909,771	$	1,070,156	$	677,848	$	1,188,690	$	335,415	$	107,684	$	8,272,296	7.16
W/A risk grade	7.26		7.12		7.30		7.12		7.04		7.06		7.34		6.46		7.16

In the table above, certain loans are reported as ~~2022~~2023 originations and have risk grades of 11 or higher. These loans were, for the most part, first originated in various years prior to ~~2022~~2023 but were renewed in the current year.

~~Table of Contents~~

The following tables present weighted average risk grades for all commercial loans by class as of December 31, ~~2021.~~2022. Refer to our ~~2021~~2022 Form 10-K for details of these loans by year of origination/renewal.


		Commercial and Industrial			Energy			Commercial Real Estate - Buildings, Land and Other			Commercial Real Estate - Construction			Total Commercial Real Estate				Commercial and Industrial			Energy			Commercial Real Estate - Buildings, Land and Other			Commercial Real Estate - Construction			Total Commercial Real Estate
		W/A Risk Grade	Loans		W/A Risk Grade	Loans		W/A Risk Grade	Loans		W/A Risk Grade	Loans		W/A Risk Grade	Loans			W/A Risk Grade	Loans		W/A Risk Grade	Loans		W/A Risk Grade	Loans		W/A Risk Grade	Loans		W/A Risk Grade	Loans
Risk grades 1-8	Risk grades 1-8	6.01	$	5,063,847	5.78	$	1,008,370	6.91	$	5,574,922	6.99	$	1,262,200	6.92	$	6,837,122	Risk grades 1-8	6.24	$	5,435,917	5.44	$	887,182	6.94	$	6,340,028	7.04	$	1,430,012	6.96	$	7,770,040
Risk grade 9	Risk grade 9	9.00	187,870		9.00	36,622		9.00	321,533		9.00	41,123		9.00	362,656		Risk grade 9	9.00	146,192		9.00	11,112		9.00	189,928		9.00	34,952		9.00	224,880
Risk grade 10	Risk grade 10	10.00	59,137		10.00	1,773		10.00	269,447		10.00	—		10.00	269,447		Risk grade 10	10.00	37,596		10.00	642		10.00	91,020		10.00	931		10.00	91,951
Risk grade 11	Risk grade 11	11.00	31,518		11.00	16,594		11.00	91,140		11.00	—		11.00	91,140		Risk grade 11	11.00	36,963		11.00	11,569		11.00	81,550		11.00	11,352		11.00	92,902
Risk grade 12	Risk grade 12	12.00	12,535		12.00	8,953		12.00	15,097		12.00	748		12.00	15,845		Risk grade 12	12.00	12,521		12.00	10,840		12.00	2,957		12.00	—		12.00	2,957
Risk grade 13	Risk grade 13	13.00	10,047		13.00	5,480		13.00	200		13.00	200		13.00	400		Risk grade 13	13.00	5,609		13.00	4,384		13.00	595		13.00	—		13.00	595
Total	Total	6.22	$	5,364,954	6.06	$	1,077,792	7.22	$	6,272,339	7.06	$	1,304,271	7.19	$	7,576,610	Total	6.39	$	5,674,798	5.67	$	925,729	7.09	$	6,706,078	7.12	$	1,477,247	7.10	$	8,183,325

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Information about the payment status of consumer loans, segregated by portfolio segment and year of origination, as of ~~September 30, 2022~~March 31, 2023 was as follows:


		2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term		Total			2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Consumer real estate:	Consumer real estate:																			Consumer real estate:
Past due 30-89 days	Past due 30-89 days	$	90	$	726	$	689	$	503	$	405	$	1,605	$	1,549	$	1,602	$	7,169	Past due 30-89 days	$	—	$	89	$	1,324	$	460	$	2,906	$	2,300	$	2,897	$	4,425	$	14,401
Past due 90 or more days	Past due 90 or more days	—		—		64		341		151		1,116		208		230		2,110		Past due 90 or more days	—		95		429		66		—		1,017		710		—		2,317
Total past due	Total past due	90		726		753		844		556		2,721		1,757		1,832		9,279		Total past due	—		184		1,753		526		2,906		3,317		3,607		4,425		16,718
Current loans	Current loans	283,431		317,862		201,281		74,855		41,146		129,830		649,300		8,752		1,706,457		Current loans	108,565		428,252		308,606		189,511		66,032		157,889		703,042		8,244		1,970,141
Total	Total	$	283,521	$	318,588	$	202,034	$	75,699	$	41,702	$	132,551	$	651,057	$	10,584	$	1,715,736	Total	$	108,565	$	428,436	$	310,359	$	190,037	$	68,938	$	161,206	$	706,649	$	12,669	$	1,986,859
Consumer and other:	Consumer and other:																			Consumer and other:
Past due 30-89 days	Past due 30-89 days	$	1,985	$	245	$	935	$	51	$	6	$	43	$	218	$	2,128	$	5,611	Past due 30-89 days	$	1,828	$	375	$	76	$	87	$	34	$	57	$	1,901	$	72	$	4,430
Past due 90 or more days	Past due 90 or more days	435		—		—		16		—		—		1		39		491		Past due 90 or more days	—		55		—		—		—		—		43		—		98
Total past due	Total past due	2,420		245		935		67		6		43		219		2,167		6,102		Total past due	1,828		430		76		87		34		57		1,944		72		4,528
Current loans	Current loans	46,561		24,877		7,985		3,428		1,499		1,732		388,104		22,270		496,456		Current loans	30,334		45,568		17,082		5,430		2,378		2,163		332,833		22,967		458,755
Total	Total	$	48,981	$	25,122	$	8,920	$	3,495	$	1,505	$	1,775	$	388,323	$	24,437	$	502,558	Total	$	32,162	$	45,998	$	17,158	$	5,517	$	2,412	$	2,220	$	334,777	$	23,039	$	463,283

Revolving loans that converted to term during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Commercial and industrial	Commercial and industrial	$	2,368	$	12,009	$	22,579	$	39,551	Commercial and industrial		$	15,490	$	5,763
Energy	Energy	1,582		52,055		1,806		57,871		Energy		3,435		—
Commercial real estate:	Commercial real estate:									Commercial real estate:
Buildings, land and other	Buildings, land and other	—		6,012		10,759		37,093		Buildings, land and other		—		47
Construction	Construction	—		—		4,414		—		Construction		—		3,666
Consumer real estate	Consumer real estate	700		330		2,223		1,172		Consumer real estate		707		858
Consumer and other	Consumer and other	1,963		1,523		7,691		7,017		Consumer and other		6,342		4,222
Total	Total	$	6,613	$	71,929	$	49,472	$	142,704	Total		$	25,974	$	14,556

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 ~~2021~~2022 Form 10-K, totaled ~~130.3~~130.7 at ~~September 30, 2022~~March 31, 2023 and ~~135.9~~130.0 at December 31, ~~2021.~~2022. A ~~lower~~higher TLI value implies ~~less~~more favorable economic conditions.

~~Table of Contents~~

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 ~~2021~~2022 Form 10-K.

During the first quarter of 2023, we recalibrated and updated all of our commercial loan models, with the exception of the models related to commercial real estate - non-owner occupied loans, as well as our consumer real estate loan models. While the fundamental modeling methodologies remain unchanged, the updates included (i) separating the energy loan pool from the commercial and industrial pool as a result of differences in loss characteristics observed in recent history and (ii) changing the modeling approach related to loan renewals whereby each renewal is treated as a separate loan which impacted loan life assumptions. For modeling purposes, our loan pools now include (i) commercial and industrial non-revolving, (ii) commercial and industrial revolving, (iii) energy, (iv) commercial real estate - owner occupied, (v) commercial real estate - non-owner occupied, (vi) commercial real estate - construction/land development, (vii) consumer real estate and (viii) consumer and other. The overall approximate impact of the model updates was a $45.0 million decrease in modeled expected credit losses on loans

Table of Contents

though the impact of this decrease was largely offset with qualitative adjustments. The decrease in modeled expected credit losses on loans was largely driven by lower measurements for probability of default (“PD”) and loss given default (“LGD”) based on the historical data series (2008 through 2018) used for the recalibration. This period was one of relatively low losses and included higher levels of government stimulus. The lower PD and LGD measurements were also impacted by shorter loan life assumptions due to the aforementioned change in the modeling approach related to loan renewals.

The following table presents details of the allowance for credit losses on loans segregated by loan portfolio segment as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. No allowance for credit losses has been recognized for PPP loans as such loans are fully guaranteed by the SBA.


September 30, 2022		Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
March 31, 2023														March 31, 2023	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
Modeled expected credit losses	Modeled expected credit losses	$	57,625	$	8,657	$	24,404	$	7,797	$	5,459	$	103,942	Modeled expected credit losses	$	42,449	$	5,034	$	14,739	$	9,380	$	4,413	$	76,015
Q-Factor and other qualitative adjustments	Q-Factor and other qualitative adjustments	39,931		4,519		74,307		156		2,533		121,446		Q-Factor and other qualitative adjustments	32,805		9,343		100,828		328		4,044		147,348
Specific allocations	Specific allocations	1,274		5,675		1,896		82		—		8,927		Specific allocations	3,211		4,814		126		—		—		8,151
Total	Total	$	98,830	$	18,851	$	100,607	$	8,035	$	7,992	$	234,315	Total	$	78,465	$	19,191	$	115,693	$	9,708	$	8,457	$	231,514
December 31, 2021
December 31, 2022														December 31, 2022
Modeled expected credit losses	Modeled expected credit losses	$	46,946	$	6,363	$	16,676	$	6,484	$	6,397	$	82,866	Modeled expected credit losses	$	61,918	$	8,531	$	27,013	$	7,847	$	4,983	$	110,292
Q-Factor and other qualitative adjustments	Q-Factor and other qualitative adjustments	14,609		5,374		127,860		65		1,440		149,348		Q-Factor and other qualitative adjustments	36,237		5,148		61,572		157		2,034		105,148
Specific allocations	Specific allocations	10,536		5,480		400		36		—		16,452		Specific allocations	6,082		4,383		1,716		—		—		12,181
Total	Total	$	72,091	$	17,217	$	144,936	$	6,585	$	7,837	$	248,666	Total	$	104,237	$	18,062	$	90,301	$	8,004	$	7,017	$	227,621

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, 2022~~March 31, 2023 and ~~2021.~~2022. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. No allowance for credit losses has been recognized for PPP loans as such loans are fully guaranteed by the SBA.


		Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total			Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
Three months ended:	Three months ended:													Three months ended:
September 30, 2022
March 31, 2023														March 31, 2023
Beginning balance	Beginning balance	$	87,270	$	16,267	$	117,106	$	6,854	$	12,135	$	239,632	Beginning balance	$	104,237	$	18,062	$	90,301	$	8,004	$	7,017	$	227,621
Credit loss expense (benefit)	Credit loss expense (benefit)	10,844		2,491		(16,522)		940		(216)		(2,463)		Credit loss expense (benefit)	(20,684)		966		25,361		1,283		5,749		12,675
Charge-offs	Charge-offs	(572)		—		—		(68)		(6,549)		(7,189)		Charge-offs	(6,180)		—		—		(250)		(6,942)		(13,372)
Recoveries	Recoveries	1,288		93		23		309		2,622		4,335		Recoveries	1,092		163		31		671		2,633		4,590
Net (charge-offs) recoveries	Net (charge-offs) recoveries	716		93		23		241		(3,927)		(2,854)		Net (charge-offs) recoveries	(5,088)		163		31		421		(4,309)		(8,782)
Ending balance	Ending balance	$	98,830	$	18,851	$	100,607	$	8,035	$	7,992	$	234,315	Ending balance	$	78,465	$	19,191	$	115,693	$	9,708	$	8,457	$	231,514
September 30, 2021
March 31, 2022														March 31, 2022
Beginning balance	Beginning balance	$	65,271	$	28,010	$	147,993	$	6,154	$	7,860	$	255,288	Beginning balance	$	72,091	$	17,217	$	144,936	$	6,585	$	7,837	$	248,666
Credit loss expense (benefit)	Credit loss expense (benefit)	(1,020)		(7,720)		4,007		(982)		2,692		(3,023)		Credit loss expense (benefit)	17,561		(2,044)		(15,609)		(26)		4,582		4,464
Charge-offs	Charge-offs	(1,611)		—		—		—		(5,073)		(6,684)		Charge-offs	(3,455)		(371)		(702)		(231)		(5,771)		(10,530)
Recoveries	Recoveries	1,126		159		54		857		2,373		4,569		Recoveries	829		620		329		31		2,426		4,235
Net (charge-offs) recoveries	Net (charge-offs) recoveries	(485)		159		54		857		(2,700)		(2,115)		Net (charge-offs) recoveries	(2,626)		249		(373)		(200)		(3,345)		(6,295)
Ending balance	Ending 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

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Commercial
and
Industrial Energy Commercial
Real Estate Consumer
Real Estate Consumer
and Other Total
Nine months ended:
September 30, 2022
Beginning balance $ 72,091 $ 17,217 $ 144,936 $ 6,585 $ 7,837 $ 248,666
Credit loss expense (benefit) 29,347 874 (44,363) 1,497 10,250 (2,395)
Charge-offs (5,918) (371) (702) (430) (17,642) (25,063)
Recoveries 3,310 1,131 736 383 7,547 13,107
Net (charge-offs) recoveries (2,608) 760 34 (47) (10,095) (11,956)
Ending balance $ 98,830 $ 18,851 $ 100,607 $ 8,035 $ 7,992 $ 234,315
September 30, 2021
Beginning balance $ 73,843 $ 39,553 $ 134,892 $ 7,926 $ 6,963 $ 263,177
Credit loss expense (benefit) (8,886) (19,048) 16,583 (3,093) 7,042 (7,402)
Charge-offs (4,485) (1,433) (137) (672) (13,015) (19,742)
Recoveries 3,294 1,377 716 1,868 6,862 14,117
Net (charge-offs) recoveries (1,191) (56) 579 1,196 (6,153) (5,625)
Ending balance $ 63,766 $ 20,449 $ 152,054 $ 6,029 $ 7,852 $ 250,150
The following table presents year-to-date gross charge-offs by year of origination as of March 31, 2023.


	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and industrial	$	—	$	69	$	167	$	54	$	25	$	—	$	3,134	$	2,731	$	6,180
Energy	—		—		—		—		—		—		—		—		—
Commercial real estate:
Buildings, land and other	—		—		—		—		—		—		—		—		—
Construction	—		—		—		—		—		—		—		—		—
Consumer real estate	—		—		—		—		—		—		250		—		250
Consumer and other	1,974		4,300		35		12		—		12		398		211		6,942
Total	$	1,974	$	4,369	$	202	$	66	$	25	$	12	$	3,782	$	2,942	$	13,372

In the table above, all consumer and other loan charge-offs reported as 2023 originations and $4.2 million of the total reported as 2022 originations were related to deposit overdrafts.

The following table presents loans that were evaluated for expected credit losses on an individual basis and the related specific allocations, by loan portfolio segment, as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.


		September 30, 2022				December 31, 2021					March 31, 2023				December 31, 2022
		Loan Balance		Specific Allocations		Loan Balance		Specific Allocations			Loan Balance		Specific Allocations		Loan Balance		Specific Allocations
Commercial and industrial	Commercial and industrial	$	8,655	$	1,274	$	24,523	$	10,536	Commercial and industrial	$	8,895	$	3,211	$	18,980	$	6,082
Energy	Energy	15,947		5,675		16,393		5,480		Energy	22,195		4,814		15,058		4,383
Paycheck Protection Program	Paycheck Protection Program	—		—		—		—		Paycheck Protection Program	—		—		—		—
Commercial real estate:	Commercial real estate:									Commercial real estate:
Buildings, land and other	Buildings, land and other	19,790		1,896		24,670		200		Buildings, land and other	3,779		126		17,711		1,716
Construction	Construction	—		—		948		200		Construction	—		—		—		—
Consumer real estate	Consumer real estate	934		82		303		36		Consumer real estate	818		—		827		—
Consumer and other	Consumer and other	—		—		—		—		Consumer and other	—		—		—		—
Total	Total	$	45,326	$	8,927	$	66,837	$	16,452	Total	$	35,687	$	8,151	$	52,576	$	12,181

Note 4 - Goodwill and Other Intangible Assets

Goodwill and other intangible assets are presented in the table below.


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Goodwill	Goodwill	$	654,952	$	654,952	Goodwill	$	654,952	$	654,952
Other intangible assets:	Other intangible assets:					Other intangible assets:
Core deposits	Core deposits	$	395	$	718	Core deposits	$	225	$	310
Customer relationships	Customer relationships	91		148		Customer relationships	65		76
		$	486	$	866		$	290	$	386

The estimated aggregate future amortization expense for intangible assets remaining as of ~~September 30, 2022~~March 31, 2023 is as follows:


Remainder of 2022		$	101
2023		282
Remainder of 2023				Remainder of 2023	$	187
2024	2024	87		2024	87
2025	2025	11		2025	11
2026	2026	5		2026	5

		$	486
					$	290

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Note 5 - Deposits

Deposits were as follows:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Non-interest-bearing demand deposits	Non-interest-bearing demand deposits	$	18,565,820	$	18,423,018	Non-interest-bearing demand deposits	$	15,995,499	$	17,598,234
Interest-bearing deposits:	Interest-bearing deposits:					Interest-bearing deposits:
Savings and interest checking	Savings and interest checking	12,399,351		11,930,959		Savings and interest checking	11,400,681		12,333,675
Money market accounts	Money market accounts	13,939,882		11,228,815		Money market accounts	12,256,786		12,227,247
Time accounts	Time accounts	1,655,133		1,112,904		Time accounts	2,531,189		1,795,040
Total interest-bearing deposits	Total interest-bearing deposits	27,994,366		24,272,678		Total interest-bearing deposits	26,188,656		26,355,962
Total deposits	Total deposits	$	46,560,186	$	42,695,696	Total deposits	$	42,184,155	$	43,954,196

The ~~following~~ table below presents additional information about our ~~deposits:~~deposits. Public funds in excess of deposit insurance limits are included in the totals for deposits not covered by insurance; however, such deposits are generally fully collateralized by securities.


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022

Deposits from foreign sources (primarily Mexico)	Deposits from foreign sources (primarily Mexico)	$	1,069,964	$	993,479	Deposits from foreign sources (primarily Mexico)	$	1,080,897	$	1,048,943
Non-interest-bearing public funds deposits	Non-interest-bearing public funds deposits	688,227		1,235,026		Non-interest-bearing public funds deposits	482,264		788,040
Interest-bearing public funds deposits	Interest-bearing public funds deposits	746,671		810,863		Interest-bearing public funds deposits	764,400		758,761
Total deposits not covered by deposit insurance	Total deposits not covered by deposit insurance	26,614,691		24,125,359		Total deposits not covered by deposit insurance	22,014,668		23,839,797
Time deposits not covered by deposit insurance	Time deposits not covered by deposit insurance	407,758		238,608		Time deposits not covered by deposit insurance	727,128		430,128

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 ~~2021~~2022 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, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Commitments to extend credit	Commitments to extend credit	$	11,439,755	$	10,420,142	Commitments to extend credit	$	12,129,547	$	12,137,957
Standby letters of credit	Standby letters of credit	383,720		238,690		Standby letters of credit	402,139		383,851
Deferred standby letter of credit fees	Deferred standby letter of credit fees	2,144		2,072		Deferred standby letter of credit fees	2,198		2,236

Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures. The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. Off-balance-sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit detailed in the table above. The amount of the allowance represents management's best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment. Our allowance methodology is more fully described in our ~~2021~~2022 Form 10-K. This methodology was also impacted by the model updates described in Note 3 - Loans. The overall approximate impact of the model updates was a $19.0 million decrease in modeled expected credit losses for off-balance-sheet credit exposures, though the impact of this decrease was largely offset with qualitative adjustments.

Table of Contents

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,
2022 2021 2022 2021
Beginning balance $ 50,246 $ 48,596 $ 50,314 $ 44,152
Credit loss expense (benefit) 2,463 3,023 2,395 7,467
Ending balance $ 52,709 $ 51,619 $ 52,709 $ 51,619

~~Table of Contents~~


	Three Months Ended March 31,
		2023		2022
Beginning balance		$	58,593	$	50,314
Credit loss expense (benefit)		(3,675)		(4,464)
Ending balance		$	54,918	$	45,850

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,
		2022		2021		2022		2021				2023		2022
Amortization of lease right-of-use assets	Amortization of lease right-of-use assets	$	8,389	$	8,172	$	24,703	$	24,584	Amortization of lease right-of-use assets		$	8,765	$	8,105
Short-term lease expense	Short-term lease expense	536		384		1,639		1,118		Short-term lease expense		409		613
Non-lease components (including taxes, insurance, common maintenance, etc.)	Non-lease components (including taxes, insurance, common maintenance, etc.)	3,092		2,864		8,860		8,205		Non-lease components (including taxes, insurance, common maintenance, etc.)		3,381		3,020
Total	Total	$	12,017	$	11,420	$	35,202	$	33,907	Total		$	12,555	$	11,738

Right-of-use lease assets totaled ~~$287.2~~$286.7 million at ~~September 30, 2022~~March 31, 2023 and ~~$281.4~~$288.8 million at December 31, ~~2021~~2022 and are reported as a component of premises and equipment on our accompanying consolidated balance sheets. The related lease liabilities totaled ~~$319.9~~$320.3 million at ~~September 30, 2022~~March 31, 2023 and ~~$313.4~~$321.9 million at December 31, ~~2021~~2022 and are reported as a component of accrued interest payable and other liabilities in the accompanying consolidated balance sheets. Lease payments under operating leases that were applied to our operating lease liability totaled ~~$8.2 million and $24.6~~$8.3 million during the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023 and ~~$7.9 million and $24.0~~$8.0 million during the three ~~and nine~~ months ended ~~September 30, 2021, respectively.~~March 31, 2022. There has been no significant change in our expected future minimum lease payments since December 31, ~~2021.~~2022. See the ~~2021~~2022 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.

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 ~~2021~~2022 Form 10-K. This CECL transitional adjustment totaled $30.8 million and $46.2 million ~~and $61.6 million~~ at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the details of which are further discussed below. Frost Bank did not have any additional Tier 1 capital beyond Common Equity Tier 1 at ~~September 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022. Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital for both Cullen/Frost and Frost Bank includes a permissible portion of the allowances for credit losses on securities, loans and off-balance-sheet credit exposures. Tier 2 capital for Cullen/Frost also includes the 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~~$60.0 million at ~~September 30, 2022~~March 31, 2023 and ~~$100.0~~$80.0 million at December 31, ~~2021~~2022 and trust preferred securities totaling $120.0 million at both ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

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The following table presents actual and required capital ratios as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 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 ~~2021~~2022 Form 10-K for a more detailed discussion of the Basel III Capital Rules.


		Actual				Minimum Capital Required Plus Capital Conservation Buffer				Required to be Considered Well- Capitalized (1)				Actual				Minimum Capital Required Plus Capital Conservation Buffer				Required to be Considered Well- Capitalized (1)
		Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount	Ratio			Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio
September 30, 2022
March 31, 2023													March 31, 2023
Common Equity Tier 1 to Risk-Weighted Assets	Common Equity Tier 1 to Risk-Weighted Assets												Common Equity Tier 1 to Risk-Weighted Assets
Cullen/Frost	Cullen/Frost	$	3,606,527	12.74	%	$	1,981,042	7.00	%	N/A	N/A		Cullen/Frost	$	3,860,754	13.24	%	$	2,041,213	7.00	%	N/A		N/A
Frost Bank	Frost Bank	3,595,393		12.71		1,979,976		7.00		1,838,550	6.50	%	Frost Bank	3,879,997		13.33		2,037,787		7.00		$	1,892,231	6.50	%
Tier 1 Capital to Risk-Weighted Assets	Tier 1 Capital to Risk-Weighted Assets												Tier 1 Capital to Risk-Weighted Assets
Cullen/Frost	Cullen/Frost	3,751,979		13.26		2,405,550		8.50		1,698,036	6.00		Cullen/Frost	4,006,206		13.74		2,478,616		8.50		1,749,611		6.00
Frost Bank	Frost Bank	3,595,393		12.71		2,404,257		8.50		2,262,830	8.00		Frost Bank	3,879,997		13.33		2,474,456		8.50		2,328,900		8.00
Total Capital to Risk-Weighted Assets	Total Capital to Risk-Weighted Assets												Total Capital to Risk-Weighted Assets
Cullen/Frost	Cullen/Frost	4,187,120		14.80		2,971,562		10.50		2,830,059	10.00		Cullen/Frost	4,438,205		15.22		3,061,819		10.50		2,916,018		10.00
Frost Bank	Frost Bank	3,830,534		13.54		2,969,965		10.50		2,828,538	10.00		Frost Bank	4,131,996		14.19		3,056,681		10.50		2,911,125		10.00
Leverage Ratio	Leverage Ratio												Leverage Ratio
Cullen/Frost	Cullen/Frost	3,751,979		7.09		2,117,091		4.00		N/A	N/A		Cullen/Frost	4,006,206		7.69		2,084,640		4.00		N/A		N/A
Frost Bank	Frost Bank	3,595,393		6.79		2,117,519		4.00		2,646,898	5.00		Frost Bank	3,879,997		7.45		2,083,812		4.00		2,604,765		5.00
December 31, 2021
December 31, 2022													December 31, 2022
Common Equity Tier 1 to Risk-Weighted Assets	Common Equity Tier 1 to Risk-Weighted Assets												Common Equity Tier 1 to Risk-Weighted Assets
Cullen/Frost	Cullen/Frost	$	3,371,043	13.13	%	$	1,796,549	7.00	%	N/A	N/A		Cullen/Frost	$	3,751,200	12.85	%	$	2,042,876	7.00	%	N/A		N/A
Frost Bank	Frost Bank	3,261,532		12.72		1,795,221		7.00		1,666,991	6.50	%	Frost Bank	3,789,056		13.00		2,040,388		7.00		$	1,894,646	6.50	%
Tier 1 Capital to Risk-Weighted Assets	Tier 1 Capital to Risk-Weighted Assets												Tier 1 Capital to Risk-Weighted Assets
Cullen/Frost	Cullen/Frost	3,516,495		13.70		2,181,523		8.50		1,539,899	6.00		Cullen/Frost	3,896,652		13.35		2,480,635		8.50		1,751,036		6.00
Frost Bank	Frost Bank	3,261,532		12.72		2,179,911		8.50		2,051,681	8.00		Frost Bank	3,789,056		13.00		2,477,614		8.50		2,331,872		8.00
Total Capital to Risk-Weighted Assets	Total Capital to Risk-Weighted Assets												Total Capital to Risk-Weighted Assets
Cullen/Frost	Cullen/Frost	3,966,244		15.45		2,694,823		10.50		2,566,498	10.00		Cullen/Frost	4,330,982		14.84		3,064,313		10.50		2,918,394		10.00
Frost Bank	Frost Bank	3,491,281		13.61		2,692,831		10.50		2,564,601	10.00		Frost Bank	4,023,386		13.80		3,060,583		10.50		2,914,841		10.00
Leverage Ratio	Leverage Ratio												Leverage Ratio
Cullen/Frost	Cullen/Frost	3,516,495		7.34		1,917,533		4.00		N/A	N/A		Cullen/Frost	3,896,652		7.29		2,136,680		4.00		N/A		N/A
Frost Bank	Frost Bank	3,261,532		6.80		1,917,679		4.00		2,397,099	5.00		Frost Bank	3,789,056		7.09		2,136,316		4.00		2,670,395		5.00

____________________

(1)“Well-capitalized” minimum Common Equity Tier 1 to Risk-Weighted Assets and Leverage Ratio are not formally defined under applicable banking regulations for bank holding companies.

As of ~~September 30, 2022,~~March 31, 2023, 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, 2022~~March 31, 2023 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, 2022,~~March 31, 2023, that Cullen/Frost and Frost Bank meet all capital adequacy requirements to which they are subject.

Preferred Stock. Outstanding preferred stock includes 150,000 shares, or $150.0 million in aggregate liquidation preference, of our 4.450% Non-Cumulative Perpetual Preferred Stock, Series B, par value $0.01 and liquidation preference $1,000 per share (“Series B Preferred Stock”). Each share of Series B Preferred Stock issued and outstanding is represented by 40 depositary shares, each representing a 1/40th ownership interest in a share of the Series B Preferred Stock (equivalent to a liquidation preference of $25 per share). The Series B Preferred Stock qualifies as Tier 1 capital for the purposes of the regulatory capital calculations. The net proceeds from the issuance and sale of the Series B Preferred Stock, after deducting $4.5 million of issuance costs including the underwriting discount and professional service fees, among other things, were approximately $145.5 million. Refer to our ~~2021~~2022 Form 10-K for additional details related to our Series B Preferred Stock.

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Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. On January ~~26, 2022,~~25, 2023, our board of directors authorized a $100.0 million stock repurchase program, allowing us to repurchase shares of our common stock over a one-year period from time to time at various prices in the open market or through private transactions. No shares have been repurchased under this plan or ~~the~~under prior ~~plan~~plans during the reported periods. Under the Basel III Capital Rules, Cullen/Frost may not repurchase or redeem any of its preferred stock or subordinated notes and, in some cases, its common stock without the prior approval of the Federal Reserve Board.

Dividend Restrictions. In the ordinary course of business, Cullen/Frost is dependent upon dividends from Frost Bank to provide funds for the payment of dividends to shareholders and to provide for other cash requirements, 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, 2022,~~March 31, 2023, Frost Bank could pay aggregate dividends of up to ~~$619.6~~$873.7 million to Cullen/Frost without prior regulatory approval.

Under the terms of the junior subordinated deferrable interest debentures that Cullen/Frost has issued to Cullen/Frost Capital Trust II, 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 various interest rate swaps, caps ~~swaptions~~ and floors, among other things, to mitigate exposure to interest rate risk and to facilitate the needs of our customers. Our objectives for utilizing these derivative instruments are described in our ~~2021~~2022 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, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.


		September 30, 2022				December 31, 2021					March 31, 2023				December 31, 2022
		Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value			Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value
Derivatives designated as hedges of fair value:	Derivatives designated as hedges of fair value:									Derivatives designated as hedges of fair value:
Financial institution counterparties:	Financial institution counterparties:									Financial institution counterparties:
Loan/lease interest rate swaps – assets	Loan/lease interest rate swaps – assets	$	1,679	$	25	$	—	$	—	Loan/lease interest rate swaps – assets	$	1,548	$	8	$	1,614	$	19
Loan/lease interest rate swaps – liabilities		—		—		2,426		(34)

Non-hedging interest rate derivatives:	Non-hedging interest rate derivatives:									Non-hedging interest rate derivatives:
Financial institution counterparties:	Financial institution counterparties:									Financial institution counterparties:
Loan/lease interest rate swaps – assets	Loan/lease interest rate swaps – assets	1,229,040		61,992		247,592		1,207		Loan/lease interest rate swaps – assets	1,058,771		61,076		1,165,812		70,416
Loan/lease interest rate swaps – liabilities	Loan/lease interest rate swaps – liabilities	126,112		(1,088)		928,756		(19,142)		Loan/lease interest rate swaps – liabilities	161,505		(3,160)		78,798		(1,102)
Loan/lease interest rate caps – assets	Loan/lease interest rate caps – assets	243,840		15,777		270,431		3,239		Loan/lease interest rate caps – assets	234,322		12,816		246,442		15,256
Customer counterparties:	Customer counterparties:									Customer counterparties:
Loan/lease interest rate swaps – assets	Loan/lease interest rate swaps – assets	67,780		1,104		928,756		39,864		Loan/lease interest rate swaps – assets	160,438		3,160		53,570		1,102
Loan/lease interest rate swaps – liabilities	Loan/lease interest rate swaps – liabilities	1,185,815		(82,228)		247,592		(2,846)		Loan/lease interest rate swaps – liabilities	1,058,771		(62,210)		1,175,563		(79,175)
Loan/lease interest rate caps – liabilities	Loan/lease interest rate caps – liabilities	243,840		(15,777)		270,431		(3,239)		Loan/lease interest rate caps – liabilities	234,322		(12,816)		246,442		(15,256)

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The weighted-average rates paid and received for interest rate swaps outstanding at ~~September 30, 2022~~March 31, 2023 were as follows:


		Weighted-Average					Weighted-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 swaps	Fair value hedge loan/lease interest rate swaps	1.58	%	2.56	%	Fair value hedge loan/lease interest rate swaps	1.58	%	4.66	%
Non-hedging interest rate swaps – financial institution counterparties	Non-hedging interest rate swaps – financial institution counterparties	3.74		4.23		Non-hedging interest rate swaps – financial institution counterparties	3.90		5.53
Non-hedging interest rate swaps – customer counterparties	Non-hedging interest rate swaps – customer counterparties	4.21		3.73		Non-hedging interest rate swaps – customer counterparties	5.53		3.90

The weighted-average strike rate for outstanding interest rate caps was ~~3.29%~~3.31% at ~~September 30, 2022.~~March 31, 2023.

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~~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, 2022			December 31, 2021					March 31, 2023			December 31, 2022
		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 – assets	Oil – assets	Barrels	4,467	$	45,381	4,809	$	14,721	Oil – assets	Barrels	3,964	$	26,640	4,024	$	27,082
Oil – liabilities	Oil – liabilities	Barrels	6,987	(55,645)		7,032	(73,594)		Oil – liabilities	Barrels	5,825	(31,281)		6,068	(53,579)
Natural gas – assets	Natural gas – assets	MMBTUs	13,406	4,033		15,947	4,143		Natural gas – assets	MMBTUs	16,741	9,852		16,539	6,220
Natural gas – liabilities	Natural gas – liabilities	MMBTUs	20,489	(40,049)		29,446	(21,249)		Natural gas – liabilities	MMBTUs	14,860	(10,265)		15,682	(19,138)
Customer counterparties:	Customer counterparties:								Customer counterparties:
Oil – assets	Oil – assets	Barrels	7,006	56,366		7,046	74,437		Oil – assets	Barrels	5,852	31,789		6,068	54,219
Oil – liabilities	Oil – liabilities	Barrels	4,448	(44,674)		4,796	(14,294)		Oil – liabilities	Barrels	3,938	(26,200)		4,024	(26,551)
Natural gas – assets	Natural gas – assets	MMBTUs	20,489	40,153		29,446	21,456		Natural gas – assets	MMBTUs	14,860	10,342		15,682	19,164
Natural gas – liabilities	Natural gas – liabilities	MMBTUs	13,406	(4,017)		15,947	(4,124)		Natural gas – liabilities	MMBTUs	16,741	(9,729)		16,539	(6,124)

Foreign Currency Derivatives. We enter into foreign currency forward and option contracts that are not designated as hedging instruments primarily to accommodate the business needs of our customers. Upon the origination of a foreign currency denominated transaction with a customer, we simultaneously enter into an offsetting contract with a ~~third party~~third-party financial institution to negate the exposure to fluctuations in foreign currency exchange rates. We also utilize foreign currency forward contracts and options that are not designated as hedging instruments to mitigate the economic effect of fluctuations in foreign currency exchange rates on foreign currency holdings and certain short-term, non-U.S. dollar denominated loans. The notional amounts and fair values of open foreign currency forward and option contracts were as follows:

September 30, 2022 December 31, 2021
Notional
Currency Notional
Amount Estimated
Fair Value Notional
Amount Estimated
Fair Value
Financial institution counterparties:
Forward and option contracts – assets EUR 2,925 $ 1 1,900 $ 29
Forward and option contracts – assets CAD — — 658 —
Forward and option contracts – liabilities EUR 2,925 (251) — —
Customer counterparties:
Forward and option contracts – assets EUR 2,925 251 — —
Forward and option contracts – assets CAD — — 658 4
Forward and option contracts – liabilities EUR 2,925 (1) 1,900 (55)

~~Table of Contents~~


		March 31, 2023			December 31, 2022
	Notional Currency	Notional Amount	Estimated Fair Value		Notional Amount	Estimated Fair Value
Financial institution counterparties:
Forward and option contracts – assets	EUR	—	$	—	875	$	1




Forward and option contracts – liabilities	EUR	7,000	(176)		875	(10)




Customer counterparties:
Forward and option contracts – assets	EUR	7,000	186		875	10




Forward and option contracts – liabilities	EUR	—	—		875	(1)

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.

Table of Contents

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,
		2022		2021		2022		2021				2023		2022
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 loans	Amount of gain (loss) included in interest income on loans	$	2	$	(21)	$	(16)	$	(74)	Amount of gain (loss) included in interest income on loans		$	12	$	(13)
Amount of (gain) loss included in other non-interest expense	Amount of (gain) loss included in other non-interest expense	1		3		6		8		Amount of (gain) loss included in other non-interest expense		—		2

As stated above, we enter into non-hedge related derivative positions primarily to accommodate the business needs of our customers. Upon the origination of a derivative contract with a customer, we simultaneously enter into an offsetting derivative contract with a third party financial institution. We recognize immediate income based upon the difference in the bid/ask spread of the underlying transactions with our customers and the third party. Because we act only as an intermediary for our customer, subsequent changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact our results of operations.

Amounts included in the consolidated statements of income related to non-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,
		2022		2021		2022		2021				2023		2022
Non-hedging interest rate derivatives:	Non-hedging interest rate derivatives:									Non-hedging interest rate derivatives:
Other non-interest income	Other non-interest income	$	140	$	946	$	1,171	$	2,674	Other non-interest income		$	710	$	516
Other non-interest expense	Other non-interest expense	—		—		—		(1)		Other non-interest expense		(1)		—
Non-hedging commodity derivatives:	Non-hedging commodity derivatives:									Non-hedging commodity derivatives:
Other non-interest income	Other non-interest income	485		1,143		2,063		3,266		Other non-interest income		422		929
Non-hedging foreign currency derivatives:	Non-hedging foreign currency derivatives:									Non-hedging foreign currency derivatives:
Other non-interest income	Other non-interest income	—		4		63		34		Other non-interest income		25		18

Counterparty Credit Risk. Our credit exposure relating to interest rate, ~~swaps,~~ commodity ~~swaps/options~~ and foreign currency ~~forward and option~~derivative contracts with bank customers was approximately ~~$58.4~~$18.2 million at ~~September 30, 2022.~~March 31, 2023. This credit exposure is partly mitigated as transactions with customers are generally secured by the collateral, if any, securing the underlying transaction being hedged. Our credit exposure, net of collateral pledged, relating to interest rate, ~~swaps,~~ commodity ~~swaps/options~~ and foreign currency ~~forward/option~~derivative contracts with upstream financial institution counterparties was approximately ~~$20.2 million~~$328 thousand at ~~September 30, 2022.~~March 31, 2023. This amount was ~~primarily~~ related to initial margin payments to the ~~CME and excess collateral we posted to counterparties.~~CME. Excess collateral is generally cleared on the next business day. 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, 2022, the aggregate fair value of securities~~March 31, 2023 we ~~posted as collateral related to derivative contracts totaled $10.9 million. We also~~ had ~~$12.9~~$1.4 million in cash collateral related to derivative contracts on deposit with other financial institution ~~counterparties at September 30, 2022.~~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, 2022~~March 31, 2023 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, 2022
March 31, 2023								March 31, 2023
Financial assets:	Financial assets:							Financial assets:
Derivatives:	Derivatives:							Derivatives:
Loan/lease interest rate swaps and caps		$	77,794	$	—	$	77,794
Commodity swaps and options		49,414		—		49,414
Foreign currency forward contracts		1		—		1
Interest rate contracts								Interest rate contracts	$	73,900	$	—	$	73,900
Commodity contracts								Commodity contracts	36,492		—		36,492

Total derivatives	Total derivatives	127,209		—		127,209		Total derivatives	110,392		—		110,392
Resell agreements	Resell agreements	12,150		—		12,150		Resell agreements	84,650		—		84,650
Total	Total	$	139,359	$	—	$	139,359	Total	$	195,042	$	—	$	195,042
Financial liabilities:	Financial liabilities:							Financial liabilities:
Derivatives:	Derivatives:							Derivatives:
Loan/lease interest rate swaps and caps		$	1,088	$	—	$	1,088
Commodity swaps and options		95,694		—		95,694
Foreign currency forward contracts		251		—		251
Interest rate contracts								Interest rate contracts	$	3,160	$	—	$	3,160
Commodity contracts								Commodity contracts	41,546		—		41,546
Foreign currency contracts								Foreign currency contracts	176		—		176
Total derivatives	Total derivatives	97,033		—		97,033		Total derivatives	44,882		—		44,882
Repurchase agreements	Repurchase agreements	2,082,739		—		2,082,739		Repurchase agreements	4,237,444		—		4,237,444
Total	Total	$	2,179,772	$	—	$	2,179,772	Total	$	4,282,326	$	—	$	4,282,326


				Gross Amounts Not Offset									Gross Amounts Not Offset
		Net Amount Recognized		Financial Instruments		Collateral		Net Amount			Net Amount Recognized		Financial Instruments		Collateral		Net Amount
September 30, 2022
March 31, 2023										March 31, 2023
Financial assets:	Financial assets:									Financial assets:
Derivatives:	Derivatives:									Derivatives:
Counterparty A		$	47	$	(47)	$	—	$	—
Counterparty B	Counterparty B	44,271		(35,853)		(6,063)		2,355		Counterparty B	$	33,779	$	(16,381)	$	(17,398)	$	—
Counterparty C		407		(251)		—		156

Counterparty E										Counterparty E	11,880		(24)		(11,856)		—
Counterparty F										Counterparty F	15,865		(15,030)		(835)		—
Counterparty G										Counterparty G	8,717		—		(8,717)		—
Other counterparties	Other counterparties	82,484		(53,163)		(27,740)		1,581		Other counterparties	40,151		(12,393)		(27,758)		—
Total derivatives	Total derivatives	127,209		(89,314)		(33,803)		4,092		Total derivatives	110,392		(43,828)		(66,564)		—
Resell agreements	Resell agreements	12,150		—		(12,150)		—		Resell agreements	84,650		—		(84,650)		—
Total	Total	$	139,359	$	(89,314)	$	(45,953)	$	4,092	Total	$	195,042	$	(43,828)	$	(151,214)	$	—
Financial liabilities:	Financial liabilities:									Financial liabilities:
Derivatives:	Derivatives:									Derivatives:
Counterparty A		$	1,081	$	(47)	$	(1,031)	$	3
Counterparty B	Counterparty B	35,853		(35,853)		—		—		Counterparty B	$	16,381	$	(16,381)	$	—	$	—
Counterparty C		251		(251)		—		—

Counterparty E										Counterparty E	24		(24)		—		—
Counterparty F										Counterparty F	15,030		(15,030)		—		—
Counterparty G										Counterparty G	—		—		—		—
Other counterparties	Other counterparties	59,848		(53,163)		(6,685)		—		Other counterparties	13,447		(12,393)		(1,051)		3
Total derivatives	Total derivatives	97,033		(89,314)		(7,716)		3		Total derivatives	44,882		(43,828)		(1,051)		3
Repurchase agreements	Repurchase agreements	2,082,739		—		(2,082,739)		—		Repurchase agreements	4,237,444		—		(4,237,444)		—
Total	Total	$	2,179,772	$	(89,314)	$	(2,090,455)	$	3	Total	$	4,282,326	$	(43,828)	$	(4,238,495)	$	3

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Information about financial instruments that are eligible for offset in the consolidated balance sheet as of December 31, ~~2021~~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
December 31, 2021
December 31, 2022								December 31, 2022
Financial assets:	Financial assets:							Financial assets:
Derivatives:	Derivatives:							Derivatives:
Loan/lease interest rate swaps and caps		$	4,446	$	—	$	4,446
Commodity swaps and options		18,864		—		18,864

Interest rate contracts								Interest rate contracts	$	85,691	$	—	$	85,691
Commodity contracts								Commodity contracts	33,302		—		33,302
Foreign currency contracts								Foreign currency contracts	1		—		1
Total derivatives	Total derivatives	23,339		—		23,339		Total derivatives	118,994		—		118,994
Resell agreements	Resell agreements	7,903		—		7,903		Resell agreements	87,150		—		87,150
Total	Total	$	31,242	$	—	$	31,242	Total	$	206,144	$	—	$	206,144
Financial liabilities:	Financial liabilities:							Financial liabilities:
Derivatives:	Derivatives:							Derivatives:
Loan/lease interest rate swaps and caps		$	19,176	$	—	$	19,176
Commodity swaps and options		94,843		—		94,843

Interest rate contracts								Interest rate contracts	$	1,102	$	—	$	1,102
Commodity contracts								Commodity contracts	72,717		—		72,717
Foreign currency contracts								Foreign currency contracts	10		—		10
Total derivatives	Total derivatives	114,019		—		114,019		Total derivatives	73,829		—		73,829
Repurchase agreements	Repurchase agreements	2,740,799		—		2,740,799		Repurchase agreements	4,660,641		—		4,660,641
Total	Total	$	2,854,818	$	—	$	2,854,818	Total	$	4,734,470	$	—	$	4,734,470


				Gross Amounts Not Offset									Gross Amounts Not Offset
		Net Amount Recognized		Financial Instruments		Collateral		Net Amount			Net Amount Recognized		Financial Instruments		Collateral		Net Amount
December 31, 2021
December 31, 2022										December 31, 2022
Financial assets:	Financial assets:									Financial assets:
Derivatives:	Derivatives:									Derivatives:
Counterparty A		$	6	$	(6)	$	—	$	—
Counterparty B	Counterparty B	7,655		(7,655)		—		—		Counterparty B	$	39,370	$	(24,500)	$	(14,870)	$	—

Counterparty E										Counterparty E	14,430		(47)		(14,131)		252
Counterparty F										Counterparty F	17,297		(17,297)		—		—
Counterparty G										Counterparty G	10,660		—		(10,660)		—
Other counterparties	Other counterparties	15,678		(15,678)		—		—		Other counterparties	37,237		(20,684)		(16,307)		246
Total derivatives	Total derivatives	23,339		(23,339)		—		—		Total derivatives	118,994		(62,528)		(55,968)		498
Resell agreements	Resell agreements	7,903		—		(7,903)		—		Resell agreements	87,150		—		(87,150)		—
Total	Total	$	31,242	$	(23,339)	$	(7,903)	$	—	Total	$	206,144	$	(62,528)	$	(143,118)	$	498
Financial liabilities:	Financial liabilities:									Financial liabilities:
Derivatives:	Derivatives:									Derivatives:
Counterparty A		$	3,870	$	(6)	$	(3,864)	$	—
Counterparty B	Counterparty B	28,130		(7,655)		(20,475)		—		Counterparty B	$	24,500	$	(24,500)	$	—	$	—
Counterparty C		9		—		(9)		—

Counterparty E										Counterparty E	47		(47)		—		—
Counterparty F										Counterparty F	27,747		(17,297)		(8,479)		1,971
Counterparty G										Counterparty G	—		—		—		—
Other counterparties	Other counterparties	82,010		(15,678)		(66,225)		107		Other counterparties	21,535		(20,684)		(851)		—
Total derivatives	Total derivatives	114,019		(23,339)		(90,573)		107		Total derivatives	73,829		(62,528)		(9,330)		1,971
Repurchase agreements	Repurchase agreements	2,740,799		—		(2,740,799)		—		Repurchase agreements	4,660,641		—		(4,660,641)		—
Total	Total	$	2,854,818	$	(23,339)	$	(2,831,372)	$	107	Total	$	4,734,470	$	(62,528)	$	(4,669,971)	$	1,971

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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, 2022~~March 31, 2023 and December 31, ~~2021~~2022 is presented in the following tables.


		Remaining Contractual Maturity of the Agreements											Remaining Contractual Maturity of the Agreements
		Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total			Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
September 30, 2022
March 31, 2023												March 31, 2023
Repurchase agreements:	Repurchase agreements:											Repurchase agreements:
U.S. Treasury	U.S. Treasury	$	1,348,705	$	—	$	—	$	—	$	1,348,705	U.S. Treasury	$	3,357,206	$	—	$	—	$	—	$	3,357,206

Residential mortgage-backed securities	Residential mortgage-backed securities	734,034		—		—		—		734,034		Residential mortgage-backed securities	880,238		—		—		—		880,238
Total borrowings	Total borrowings	$	2,082,739	$	—	$	—	$	—	$	2,082,739	Total borrowings	$	4,237,444	$	—	$	—	$	—	$	4,237,444
Gross amount of recognized liabilities for repurchase agreements	Gross amount of recognized liabilities for repurchase agreements									$	2,082,739	Gross amount of recognized liabilities for repurchase agreements									$	4,237,444
Amounts related to agreements not included in offsetting disclosures above	Amounts related to agreements not included in offsetting disclosures above									$	—	Amounts related to agreements not included in offsetting disclosures above									$	—

December 31, 2021
December 31, 2022												December 31, 2022
Repurchase agreements:	Repurchase agreements:											Repurchase agreements:
U.S. Treasury	U.S. Treasury	$	1,342,591	$	—	$	—	$	—	$	1,342,591	U.S. Treasury	$	3,735,061	$	—	$	—	$	—	$	3,735,061

Residential mortgage-backed securities	Residential mortgage-backed securities	1,398,208		—		—		—		1,398,208		Residential mortgage-backed securities	925,580		—		—		—		925,580
Total borrowings	Total borrowings	$	2,740,799	$	—	$	—	$	—	$	2,740,799	Total borrowings	$	4,660,641	$	—	$	—	$	—	$	4,660,641
Gross amount of recognized liabilities for repurchase agreements	Gross amount of recognized liabilities for repurchase agreements									$	2,740,799	Gross amount of recognized liabilities for repurchase agreements									$	4,660,641
Amounts related to agreements not included in offsetting disclosures above	Amounts related to agreements not included in offsetting disclosures above									$	—	Amounts related to agreements not included in offsetting disclosures above									$	—

~~Table of Contents~~

Note 10 - Stock-Based Compensation

A combined summary of activity in our active stock plans is presented in the 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, 2022,~~March 31, 2023, there were ~~789,290~~522,119 shares remaining available for grant for future stock-based compensation awards.


		Deferred Stock Units Outstanding			Non-Vested Stock Units Outstanding			Performance Stock Units Outstanding			Stock Options Outstanding				Deferred Stock Units Outstanding			Non-Vested Restricted Stock Units Outstanding			Performance Stock Units Outstanding			Stock Options Outstanding
		Number of Units	Weighted- Average Fair Value at Grant		Number of Units	Weighted- Average Fair Value at Grant		Number of Units	Weighted- Average Fair Value at Grant		Number of Shares	Weighted- Average Exercise Price			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, 2022		56,301	$	79.21	449,337	$	93.05	202,460	$	84.71	877,681	$	69.02
Authorized		—	—		—	—		—	—		—	—
Balance, January 1, 2023														Balance, January 1, 2023	45,661	$	87.15	465,319	$	105.36	213,749	$	96.20	616,227	$	71.27

Granted	Granted	5,382	133.67		4,676	130.30		—	—		—	—		Granted	—	—		2,594	128.42		—	—		—	—
Exercised/vested	Exercised/vested	(16,022)	74.89		—	—		(25,180)	87.18		(191,410)	61.44		Exercised/vested	—	—		(1,631)	91.95		(28,151)	85.74		(20,605)	72.76
Forfeited/expired	Forfeited/expired	—	—		(5,603)	93.69		(16,058)	87.18		—	—		Forfeited/expired	—	—		(1,003)	110.79		(18,254)	85.74		—	—
Balance, September 30, 2022		45,661	87.15		448,410	93.43		161,222	84.08		686,271	71.14
Balance, March 31, 2023														Balance, March 31, 2023	45,661	87.15		465,279	105.53		167,344	99.10		595,622	71.22

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,
		2022		2021		2022		2021				2023		2022
New shares issued from available authorized shares	New shares issued from available authorized shares	—		—		—		—		New shares issued from available authorized shares		49,887		—
Shares issued from available treasury stock	Shares issued from available treasury stock	88,350		21,968		232,612		650,044		Shares issued from available treasury stock		500		115,430
Proceeds from stock option exercises	Proceeds from stock option exercises	$	5,270	$	1,128	$	11,760	$	37,810	Proceeds from stock option exercises		$	1,500	$	5,739

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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,
		2022		2021		2022		2021				2023		2022

Non-vested stock units	Non-vested stock units	$	2,174	$	1,559	$	6,823	$	5,210	Non-vested stock units		$	3,307	$	2,358
Deferred stock units		—		—		720		700

Performance stock units	Performance stock units	999		426		1,160		1,846		Performance stock units		1,435		(246)
Total	Total	$	3,173	$	1,985	$	8,703	$	7,756	Total		$	4,742	$	2,112
Income tax benefit	Income tax benefit	$	440	$	281	$	1,760	$	1,162	Income tax benefit		$	1,068	$	708

Unrecognized stock-based compensation expense at ~~September 30, 2022~~March 31, 2023 is presented in the table below. Unrecognized stock-based compensation expense related to performance stock units is presented assuming attainment of the maximum payout rate as set forth by the performance criteria.


Non-vested stock units	$	~~11,704~~18,685
Performance stock units	~~7,257~~8,078
Total	$	~~18,961~~26,763

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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 ~~2021~~2022 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,
		2022		2021		2022		2021				2023		2022
Net income	Net income	$	169,760	$	107,975	$	387,976	$	342,058	Net income		$	177,653	$	99,102
Less: Preferred stock dividends	Less: Preferred stock dividends	1,668		1,668		5,006		5,488		Less: Preferred stock dividends		1,669		1,669
Net income available to common shareholders	Net income available to common shareholders	168,092		106,307		382,970		336,570		Net income available to common shareholders		175,984		97,433
Less: Earnings allocated to participating securities	Less: Earnings allocated to participating securities	1,503		932		3,414		3,228		Less: Earnings allocated to participating securities		1,807		849
Net earnings allocated to common stock	Net earnings allocated to common stock	$	166,589	$	105,375	$	379,556	$	333,342	Net earnings allocated to common stock		$	174,177	$	96,584

Distributed earnings allocated to common stock	Distributed earnings allocated to common stock	$	55,820	$	47,740	$	151,963	$	139,224	Distributed earnings allocated to common stock		$	56,006	$	48,051
Undistributed earnings allocated to common stock	Undistributed earnings allocated to common stock	110,769		57,635		227,593		194,118		Undistributed earnings allocated to common stock		118,171		48,533
Net earnings allocated to common stock	Net earnings allocated to common stock	$	166,589	$	105,375	$	379,556	$	333,342	Net earnings allocated to common stock		$	174,177	$	96,584

Weighted-average shares outstanding for basic earnings per common share	Weighted-average shares outstanding for basic earnings per common share	64,157,662		63,652,020		64,107,621		63,522,884		Weighted-average shares outstanding for basic earnings per common share		64,373,563		64,051,202
Dilutive effect of stock compensation	Dilutive effect of stock compensation	343,750		444,636		369,268		489,219		Dilutive effect of stock compensation		258,513		409,705
Weighted-average shares outstanding for diluted earnings per common share	Weighted-average shares outstanding for diluted earnings per common share	64,501,412		64,096,656		64,476,889		64,012,103		Weighted-average shares outstanding for diluted earnings per common share		64,632,076		64,460,907

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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,
		2022		2021		2022		2021				2023		2022
Expected return on plan assets, net of expenses	Expected return on plan assets, net of expenses	$	(3,492)	$	(3,210)	$	(10,475)	$	(9,630)	Expected return on plan assets, net of expenses		$	(2,740)	$	(3,491)
Interest cost on projected benefit obligation	Interest cost on projected benefit obligation	1,005		835		3,013		2,506		Interest cost on projected benefit obligation		1,746		1,004
Net amortization and deferral	Net amortization and deferral	741		1,529		2,223		4,587		Net amortization and deferral		870		741
Net periodic expense (benefit)	Net periodic expense (benefit)	$	(1,746)	$	(846)	$	(5,239)	$	(2,537)	Net periodic expense (benefit)		$	(124)	$	(1,746)

Our non-qualified defined benefit pension plan is not funded. No contributions to the qualified defined benefit pension plan were made during the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. We do not expect to make any contributions to the qualified defined benefit plan during the remainder of ~~2022.~~2023.

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,
		2022			2021			2022			2021					2023			2022
Current income tax expense (benefit)		$	28,684		$	13,849		$	64,389		$	31,639
Current income tax expense														Current income tax expense		$	34,995		$	13,059
Deferred income tax expense (benefit)	Deferred income tax expense (benefit)	(974)			(516)			(3,378)			4,672			Deferred income tax expense (benefit)		(1,809)			(432)
Income tax expense, as reported	Income tax expense, as reported	$	27,710		$	13,333		$	61,011		$	36,311		Income tax expense, as reported		$	33,186		$	12,627
Effective tax rate	Effective tax rate	14.0		%	11.0		%	13.6		%	9.6		%	Effective tax rate		15.7		%	11.3		%

We had a net deferred tax asset totaling ~~$420.9~~$321.4 million at ~~September 30, 2022~~March 31, 2023 and ~~a net deferred tax liability totaling $81.2~~$374.4 million at December 31, ~~2021.~~2022. No valuation allowance for deferred tax assets was recorded at ~~September 30, 2022~~March 31, 2023 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.

~~Table of Contents~~

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 securities, loans ~~securities~~ and life insurance policies and the income tax effects associated with stock-based ~~compensation.~~compensation, among other things. There were no unrecognized tax benefits during any of the reported periods. Interest and/or penalties related to income taxes are reported as a component of income tax expense. Such amounts were not significant during the reported periods.

We file income tax returns in the U.S. federal jurisdiction. We are no longer subject to U.S. federal income tax examinations by tax authorities for years before ~~2018.~~2019.

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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, 2022 Three Months Ended
September 30, 2021
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 $ (829,324) $ (174,158) $ (655,166) $ (80,668) $ (16,941) $ (63,727)
Change in net unrealized gain on securities transferred to held to maturity (174) (36) (138) (237) (49) (188)
Reclassification adjustment for net (gains) losses included in net income — — — — — —
Total securities available for sale and transferred securities (829,498) (174,194) (655,304) (80,905) (16,990) (63,915)
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) 741 156 585 1,529 321 1,208
Total defined-benefit post-retirement benefit plans 741 156 585 1,529 321 1,208
Total other comprehensive income (loss) $ (828,757) $ (174,038) $ (654,719) $ (79,376) $ (16,669) $ (62,707)
Nine Months Ended
September 30, 2022 Nine Months Ended
September 30, 2021
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 $ (2,376,642) $ (499,095) $ (1,877,547) $ (209,779) $ (44,054) $ (165,725)
Change in net unrealized gain on securities transferred to held to maturity (572) (120) (452) (741) (155) (586)
Reclassification adjustment for net (gains) losses included in net income — — — — — —
Total securities available for sale and transferred securities (2,377,214) (499,215) (1,877,999) (210,520) (44,209) (166,311)
Defined-benefit post-retirement benefit plans:
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic expense (benefit) 2,223 467 1,756 4,587 963 3,624
Total defined-benefit post-retirement benefit plans 2,223 467 1,756 4,587 963 3,624
Total other comprehensive income (loss) $ (2,374,991) $ (498,748) $ (1,876,243) $ (205,933) $ (43,246) $ (162,687)

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	Three Months Ended March 31, 2023						Three Months Ended March 31, 2022
	Before Tax Amount		Tax Expense, (Benefit)		Net of Tax Amount		Before Tax Amount		Tax Expense, (Benefit)		Net of Tax Amount
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	260,269	$	54,656	$	205,613	$	(910,795)	$	(191,267)	$	(719,528)
Change in net unrealized gain on securities transferred to held to maturity	(160)		(33)		(127)		(209)		(44)		(165)
Reclassification adjustment for net (gains) losses included in net income	(21)		(4)		(17)		—		—		—
Total securities available for sale and transferred securities	260,088		54,619		205,469		(911,004)		(191,311)		(719,693)
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)	870		183		687		741		156		585
Total defined-benefit post-retirement benefit plans	870		183		687		741		156		585
Total other comprehensive income (loss)	$	260,958	$	54,802	$	206,156	$	(910,263)	$	(191,155)	$	(719,108)

Activity in accumulated other comprehensive income (loss), net of tax, was as follows:


		Securities Available For Sale		Defined Benefit Plans		Accumulated Other Comprehensive Income			Securities Available For Sale		Defined Benefit Plans		Accumulated Other Comprehensive Income
Balance January 1, 2022		$	380,209	$	(32,891)	$	347,318
Balance at January 1, 2023								Balance at January 1, 2023	$	(1,313,791)	$	(34,503)	$	(1,348,294)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(1,877,999)		—		(1,877,999)		Other comprehensive income (loss) before reclassifications	205,486		—		205,486
Reclassification of amounts included in net income	Reclassification of amounts included in net income	—		1,756		1,756		Reclassification of amounts included in net income	(17)		687		670
Net other comprehensive income (loss) during period	Net other comprehensive income (loss) during period	(1,877,999)		1,756		(1,876,243)		Net other comprehensive income (loss) during period	205,469		687		206,156
Balance at September 30, 2022		$	(1,497,790)	$	(31,135)	$	(1,528,925)
Balance at March 31, 2023								Balance at March 31, 2023	$	(1,108,322)	$	(33,816)	$	(1,142,138)

Balance January 1, 2021		$	563,801	$	(50,831)	$	512,970
Balance at January 1, 2022								Balance at January 1, 2022	$	380,209	$	(32,891)	$	347,318
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(166,311)		—		(166,311)		Other comprehensive income (loss) before reclassifications	(719,693)		—		(719,693)
Reclassification of amounts included in net income	Reclassification of amounts included in net income	—		3,624		3,624		Reclassification of amounts included in net income	—		585		585
Net other comprehensive income (loss) during period	Net other comprehensive income (loss) during period	(166,311)		3,624		(162,687)		Net other comprehensive income (loss) during period	(719,693)		585		(719,108)

Balance at September 30, 2021		$	397,490	$	(47,207)	$	350,283
Balance at March 31, 2022								Balance at March 31, 2022	$	(339,484)	$	(32,306)	$	(371,790)

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Note 15 – Operating Segments

We are managed under a matrix organizational structure whereby our two primary operating segments, Banking and Frost Wealth Advisors, overlap a regional reporting structure. See our ~~2021~~2022 Form 10-K for additional information regarding our operating segments. Summarized operating results by segment were as follows:


		Banking		Frost Wealth Advisors		Non-Banks		Consolidated			Banking		Frost Wealth Advisors		Non-Banks		Consolidated
Three months ended:	Three months ended:									Three months ended:
September 30, 2022
March 31, 2023										March 31, 2023
Net interest income (expense)	Net interest income (expense)	$	356,513	$	1,357	$	(2,323)	$	355,547	Net interest income (expense)	$	401,318	$	1,654	$	(3,152)	$	399,820
Credit loss expense	Credit loss expense	(1)		1		—		—		Credit loss expense	9,102		2		—		9,104
Non-interest income	Non-interest income	55,994		44,263		(436)		99,821		Non-interest income	63,643		42,038		(416)		105,265
Non-interest expense	Non-interest expense	223,193		33,530		1,175		257,898		Non-interest expense	249,867		33,947		1,328		285,142
Income (loss) before income taxes	Income (loss) before income taxes	189,315		12,089		(3,934)		197,470		Income (loss) before income taxes	205,992		9,743		(4,896)		210,839
Income tax expense (benefit)	Income tax expense (benefit)	26,520		2,539		(1,349)		27,710		Income tax expense (benefit)	32,366		2,046		(1,226)		33,186
Net income (loss)	Net income (loss)	162,795		9,550		(2,585)		169,760		Net income (loss)	173,626		7,697		(3,670)		177,653
Preferred stock dividends	Preferred stock dividends	—		—		1,668		1,668		Preferred stock dividends	—		—		1,669		1,669

Net income (loss) available to common shareholders	Net income (loss) available to common shareholders	$	162,795	$	9,550	$	(4,253)	$	168,092	Net income (loss) available to common shareholders	$	173,626	$	7,697	$	(5,339)	$	175,984
Revenues from (expenses to) external customers	Revenues from (expenses to) external customers	$	412,507	$	45,620	$	(2,759)	$	455,368	Revenues from (expenses to) external customers	$	464,961	$	43,692	$	(3,568)	$	505,085
September 30, 2021
March 31, 2022										March 31, 2022
Net interest income (expense)	Net interest income (expense)	$	247,381	$	536	$	(1,795)	$	246,122	Net interest income (expense)	$	250,119	$	700	$	(1,748)	$	249,071
Credit loss expense (benefit)	Credit loss expense (benefit)	(6)		6		—		—		Credit loss expense (benefit)	(1)		1		—		—
Non-interest income	Non-interest income	51,279		42,369		(459)		93,189		Non-interest income	58,706		43,229		(545)		101,390
Non-interest expense	Non-interest expense	185,891		31,086		1,026		218,003		Non-interest expense	206,538		30,910		1,284		238,732
Income (loss) before income taxes	Income (loss) before income taxes	112,775		11,813		(3,280)		121,308		Income (loss) before income taxes	102,288		13,018		(3,577)		111,729
Income tax expense (benefit)	Income tax expense (benefit)	12,029		2,481		(1,177)		13,333		Income tax expense (benefit)	11,014		2,734		(1,121)		12,627
Net income (loss)	Net income (loss)	100,746		9,332		(2,103)		107,975		Net income (loss)	91,274		10,284		(2,456)		99,102
Preferred stock dividends	Preferred stock dividends	—		—		1,668		1,668		Preferred stock dividends	—		—		1,669		1,669

Net income (loss) available to common shareholders	Net income (loss) available to common shareholders	$	100,746	$	9,332	$	(3,771)	$	106,307	Net income (loss) available to common shareholders	$	91,274	$	10,284	$	(4,125)	$	97,433
Revenues from (expenses to) external customers	Revenues from (expenses to) external customers	$	298,660	$	42,905	$	(2,254)	$	339,311	Revenues from (expenses to) external customers	$	308,825	$	43,929	$	(2,293)	$	350,461
Nine months ended:
September 30, 2022
Net interest income (expense)		$	895,818	$	3,015	$	(6,007)	$	892,826
Credit loss expense (benefit)		(1)		1		—		—
Non-interest income		170,097		130,546		(1,505)		299,138
Non-interest expense		640,775		97,598		4,604		742,977
Income (loss) before income taxes		425,141		35,962		(12,116)		448,987
Income tax expense (benefit)		57,355		7,552		(3,896)		61,011
Net income (loss)		367,786		28,410		(8,220)		387,976
Preferred stock dividends		—		—		5,006		5,006

Net income (loss) available to common shareholders		$	367,786	$	28,410	$	(13,226)	$	382,970
Revenues from (expenses to) external customers		$	1,065,915	$	133,561	$	(7,512)	$	1,191,964
September 30, 2021
Net interest income (expense)		$	748,036	$	1,530	$	(5,407)	$	744,159
Credit loss expense		57		6		—		63
Non-interest income		154,003		124,512		(843)		277,672
Non-interest expense		548,151		91,037		4,211		643,399
Income (loss) before income taxes		353,831		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

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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 ~~2021~~2022 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, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, segregated by the level of the valuation inputs within the fair value hierarchy of ASC Topic 820 utilized to measure fair value.


		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value			Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
September 30, 2022
Securities available for sale:
U.S. Treasury		$	5,022,617	$	—	$	—	$	5,022,617
Residential mortgage-backed securities		—		5,698,809		—		5,698,809
States and political subdivisions		—		6,635,298		—		6,635,298
Other		—		42,383		—		42,383
Trading account securities:
U.S. Treasury		25,008		—		—		25,008

Derivative assets:
Interest rate swaps, caps and floors		—		78,898		—		78,898
Commodity swaps and options		—		145,933		—		145,933
Foreign currency forward contracts		252		—		—		252
Derivative liabilities:
Interest rate swaps, caps and floors		—		99,093		—		99,093
Commodity swaps and options		—		144,385		—		144,385
Foreign currency forward contracts		252		—		—		252
December 31, 2021
March 31, 2023										March 31, 2023
Securities available for sale:	Securities available for sale:									Securities available for sale:
U.S. Treasury	U.S. Treasury	$	2,179,433	$	—	$	—	$	2,179,433	U.S. Treasury	$	5,128,096	$	—	$	—	$	5,128,096
Residential mortgage-backed securities	Residential mortgage-backed securities	—		4,066,265		—		4,066,265		Residential mortgage-backed securities	—		7,022,942		—		7,022,942
States and political subdivisions	States and political subdivisions	—		7,636,571		—		7,636,571		States and political subdivisions	—		5,788,295		—		5,788,295
Other	Other	—		42,359		—		42,359		Other	—		42,497		—		42,497
Trading account securities:	Trading account securities:									Trading account securities:
U.S. Treasury	U.S. Treasury	24,237		—		—		24,237		U.S. Treasury	26,076		—		—		26,076
States and political subdivisions	States and political subdivisions	—		925		—		925		States and political subdivisions	—		2,659		—		2,659
Derivative assets:	Derivative assets:									Derivative assets:
Interest rate swaps, caps and floors	Interest rate swaps, caps and floors	—		44,310		—		44,310		Interest rate swaps, caps and floors	—		77,060		—		77,060
Commodity swaps and options	Commodity swaps and options	—		114,757		—		114,757		Commodity swaps and options	—		78,623		—		78,623
Foreign currency forward contracts	Foreign currency forward contracts	33		—		—		33		Foreign currency forward contracts	186		—		—		186
Derivative liabilities:	Derivative liabilities:									Derivative liabilities:
Interest rate swaps, caps and floors	Interest rate swaps, caps and floors	—		25,261		—		25,261		Interest rate swaps, caps and floors	—		78,186		—		78,186
Commodity swaps and options	Commodity swaps and options	—		113,261		—		113,261		Commodity swaps and options	—		77,475		—		77,475
Foreign currency forward contracts	Foreign currency forward contracts	55		—		—		55		Foreign currency forward contracts	176		—		—		176
December 31, 2022										December 31, 2022
Securities available for sale:										Securities available for sale:
U.S. Treasury										U.S. Treasury	$	5,051,587	$	—	$	—	$	5,051,587
Residential mortgage-backed securities										Residential mortgage-backed securities	—		6,376,236		—		6,376,236
States and political subdivisions										States and political subdivisions	—		6,773,355		—		6,773,355
Other										Other	—		42,427		—		42,427
Trading account securities:										Trading account securities:
U.S. Treasury										U.S. Treasury	25,879		—		—		25,879
States and political subdivisions										States and political subdivisions	—		2,166		—		2,166
Derivative assets:										Derivative assets:
Interest rate swaps, caps and floors										Interest rate swaps, caps and floors	—		86,793		—		86,793
Commodity swaps and options										Commodity swaps and options	—		106,685		—		106,685
Foreign currency forward contracts										Foreign currency forward contracts	11		—		—		11
Derivative liabilities:										Derivative liabilities:
Interest rate swaps, caps and floors										Interest rate swaps, caps and floors	—		95,533		—		95,533
Commodity swaps and options										Commodity swaps and options	—		105,392		—		105,392
Foreign currency forward contracts										Foreign currency forward contracts	11		—		—		11

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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.

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, 2022				Nine Months Ended September 30, 2021					Three Months Ended March 31, 2023				Three Months Ended March 31, 2022
		Level 2		Level 3		Level 2		Level 3			Level 2		Level 3		Level 2		Level 3
Carrying value before allocations	Carrying value before allocations	$	7,999	$	2,087	$	3,329	$	15,274	Carrying value before allocations	$	368	$	6,242	$	2,064	$	5,711
Specific (allocations) reversals of prior allocations	Specific (allocations) reversals of prior allocations	(1,742)		4,881		(336)		(4,791)		Specific (allocations) reversals of prior allocations	—		(900)		(126)		3,965
Fair value	Fair value	$	6,257	$	6,968	$	2,993	$	10,483	Fair value	$	368	$	5,342	$	1,938	$	9,676

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. From time to time, non-financial assets measured at fair value on a non-recurring basis 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. There were no such fair value measurements during the reported periods.

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, 2022				December 31, 2021					March 31, 2023				December 31, 2022
		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 equivalents	Cash and cash equivalents	$	13,632,698	$	13,632,698	$	16,583,000	$	16,583,000	Cash and cash equivalents	$	9,301,774	$	9,301,774	$	12,028,132	$	12,028,132
Securities held to maturity	Securities held to maturity	2,174,084		1,917,287		1,749,179		1,809,143		Securities held to maturity	3,711,579		3,601,757		2,639,083		2,467,865
Cash surrender value of life insurance policies	Cash surrender value of life insurance policies	190,368		190,368		190,139		190,139		Cash surrender value of life insurance policies	190,601		190,601		190,188		190,188
Accrued interest receivable	Accrued interest receivable	169,540		169,540		179,111		179,111		Accrued interest receivable	191,883		191,883		243,682		243,682
Level 3 inputs:	Level 3 inputs:									Level 3 inputs:
Loans, net	Loans, net	16,716,314		16,163,170		16,087,731		16,079,454		Loans, net	17,254,506		16,763,098		16,927,348		16,343,417
Financial liabilities:	Financial liabilities:									Financial liabilities:
Level 2 inputs:	Level 2 inputs:									Level 2 inputs:
Deposits	Deposits	46,560,186		46,538,352		42,695,696		41,343,426		Deposits	42,184,155		42,158,490		43,954,196		43,920,741
Federal funds purchased	Federal funds purchased	26,200		26,200		25,925		25,925		Federal funds purchased	57,450		57,450		51,650		51,650
Repurchase agreements	Repurchase agreements	2,082,739		2,082,739		2,740,799		2,740,799		Repurchase agreements	4,237,444		4,237,444		4,660,641		4,660,641
Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	123,055		123,712		123,011		123,712		Junior subordinated deferrable interest debentures	123,083		123,712		123,069		123,712
Subordinated notes	Subordinated notes	99,295		96,926		99,178		111,430		Subordinated notes	99,374		96,246		99,335		97,014
Accrued interest payable	Accrued interest payable	9,545		9,545		3,026		3,026		Accrued interest payable	24,612		24,612		18,444		18,444

Under ASC Topic 825, entities may choose to measure eligible financial instruments at fair value at specified election dates. The fair value measurement option (i) may be applied instrument by instrument, with certain exceptions, (ii) is generally irrevocable and (iii) is applied only to entire instruments and not to portions of instruments. Unrealized gains and losses on items for which the fair value measurement option has been elected must be reported in earnings at each subsequent reporting date. During the reported periods, we had no financial instruments measured at fair value under the fair value measurement option.

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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 ~~2021~~2022 Form 10-K for additional information related to previously issued accounting standards updates.

~~ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method.”~~ Under prior guidance, entities can apply the last-of-layer hedging method to hedge the exposure of a closed portfolio of prepayable financial assets to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 expands the last-of-layer method, which permits only one hedge layer, to allow multiple hedged layers of a single closed portfolio. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. ASU 2022-01 also (i) expands the scope of the portfolio layer method to include non-prepayable financial assets, (ii) specifies eligible hedging instruments in a single-layer hedge, (iii) provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method and (iv) specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. ASU 2022-01 will be effective for us on January 1, 2023 though early adoption is permitted. The adoption of ASU 2022-01 is not expected to have a significant impact on our financial statements.

ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in Accounting Standards Codification (“ASC”) Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, ASU 2022-02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 3126-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. ASU 2022-02 ~~will be~~became effective for us on January 1, ~~2023 though early adoption is permitted. The adoption of ASU 2022-02 is not expected to have a significant impact on our~~2023. See Note 3 - Loans for the new financial ~~statements.~~statement disclosures applicable under this update.

ASU ~~2022-03, “Fair Value Measurement~~2023-01, “Leases (Topic ~~820)~~842): ~~Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.~~Common Control Arrangements.” ASU ~~2022-03 clarifies that a contractual restriction on~~2023-01 requires entities to amortize leasehold improvements associated with common control leases over the ~~sale of an equity security is not considered part of~~useful life to the ~~unit of account of the equity security~~common control group. ASU 2023-01 also provides certain practical expedients applicable to private companies and ~~therefore, is not considered in measuring fair value.~~not-for-profit organizations. ASU 2022-03 also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires certain new disclosures for equity securities subject to contractual sale restrictions. ASU 2022-032023-01 will be effective for us on January 1, 2024, though early adoption is ~~permitted. The~~permitted, and its adoption ~~of ASU 2022-03~~ is not expected to have a significant ~~impact~~effect on our financial statements.

ASU No. 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” ASU 2023-02 is intended to improve the accounting and disclosures for investments in tax credit structures. ASU 2023-02 allows entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. Previously, this method was only available for qualifying tax equity investments in low-income housing tax credit structures. ASU 2023-02 will be effective for us on January 1, 2024, though early adoption is permitted, and its adoption is not expected to have a significant effect on our financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Financial Review

Cullen/Frost Bankers, Inc.

The following discussion should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, ~~2021,~~2022, and the other information included in the ~~2021~~2022 Form 10-K. Operating results for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 are not necessarily indicative of the results for the year ending December 31, ~~2022~~2023 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”)~~. These may include statements regarding the potential effects of the 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:

•The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board.

•Inflation, interest rate, securities market and monetary fluctuations.

•Local, regional, national and international economic conditions and the impact they may have on us and our customers and our assessment of that impact.

•Changes in the financial performance and/or condition of our borrowers.

•Changes in the mix of loan geographies, sectors and types or the level of non-performing assets and charge-offs.

•Changes in estimates of future credit loss reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements.

•Changes in our liquidity position.

•Impairment of our goodwill or other intangible assets.

•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, borrowing and saving habits.

•Greater than expected costs or difficulties related to the integration of new products and lines of business.

•Technological changes.

•The cost and effects of cyber incidents or other failures, interruptions or security breaches of our systems or those of our customers or third-party providers.

•Acquisitions and integration of acquired businesses.

•Changes in the reliability of our vendors, internal control systems or information systems.

•Our ability to increase market share and control expenses.

•Our ability to attract and retain qualified employees.

•Changes in our organization, compensation and benefit plans.

•The soundness of other financial institutions.

•Volatility and disruption in national and international financial and commodity markets.

•Changes in the competitive environment in our markets and among banking organizations and other financial service providers.

•Government intervention in the U.S. financial system.

•Political or economic instability.

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•Acts of God or of war or terrorism.

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•The potential impact of climate change.

•The impact of ~~the COVID-19 pandemic and~~pandemics, epidemics or 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.

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

•The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters.

•Our success at managing the risks involved in the foregoing items.

In addition, financial markets and global supply chains may continue to be adversely affected by the current or anticipated impact of military conflict, including the current Russian invasion of Ukraine ~~terrorism~~ or other geopolitical events.

Further, statements about the potential effects of the 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.

~~COVID-19 Effects and Actions~~

Our business has been, and continues to be, impacted by the effects of the COVID-19 pandemic. There 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 mitigate both the economic and health-related effects of COVID-19. Refer to our 2021 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.

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 ~~2021~~2022 Form 10-K for additional information regarding critical accounting policies.

Overview

A discussion of our results of operations is presented below. Certain reclassifications have been made to make prior periods comparable. Taxable-equivalent adjustments are the result of increasing income from tax-free loans and investments by an amount equal to the taxes that would be paid if the income were fully taxable based on a 21% federal tax rate, thus making tax-exempt yields comparable to taxable asset yields.

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Results of Operations

Net income available to common shareholders totaled ~~$168.1~~$176.0 million, or ~~$2.59 per diluted common share, and $383.0 million, or $5.90~~$2.70 per diluted common share, for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared to ~~$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, 2021.~~March 31, 2022.

Selected data for the comparable periods was as follows:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
		2022			2021			2022			2021					2023			2022
Taxable-equivalent net interest income	Taxable-equivalent net interest income	$	379,518		$	269,321		$	963,089		$	813,266		Taxable-equivalent net interest income		$	425,844		$	272,194
Taxable-equivalent adjustment	Taxable-equivalent adjustment	23,971			23,199			70,263			69,107			Taxable-equivalent adjustment		26,024			23,123
Net interest income	Net interest income	355,547			246,122			892,826			744,159			Net interest income		399,820			249,071
Credit loss expense	Credit loss expense	—			—			—			63			Credit loss expense		9,104			—
Net interest income after credit loss expense	Net interest income after credit loss expense	355,547			246,122			892,826			744,096			Net interest income after credit loss expense		390,716			249,071
Non-interest income	Non-interest income	99,821			93,189			299,138			277,672			Non-interest income		105,265			101,390
Non-interest expense	Non-interest expense	257,898			218,003			742,977			643,399			Non-interest expense		285,142			238,732
Income before income taxes	Income before income taxes	197,470			121,308			448,987			378,369			Income before income taxes		210,839			111,729
Income taxes	Income taxes	27,710			13,333			61,011			36,311			Income taxes		33,186			12,627
Net income	Net income	169,760			107,975			387,976			342,058			Net income		177,653			99,102
Preferred stock dividends	Preferred stock dividends	1,668			1,668			5,006			5,488			Preferred stock dividends		1,669			1,669
Net income available to common shareholders	Net income available to common shareholders	$	168,092		$	106,307		$	382,970		$	336,570		Net income available to common shareholders		$	175,984		$	97,433
Earnings per common share – basic	Earnings per common share – basic	$	2.60		$	1.66		$	5.92		$	5.25		Earnings per common share – basic		$	2.71		$	1.51
Earnings per common share – diluted	Earnings per common share – diluted	2.59			1.65			5.90			5.22			Earnings per common share – diluted		2.70			1.50
Dividends per common share	Dividends per common share	0.87			0.75			2.37			2.19			Dividends per common share		0.87			0.75
Return on average assets	Return on average assets	1.27		%	0.90		%	1.00		%	1.00		%	Return on average assets		1.39		%	0.79		%
Return on average common equity	Return on average common equity	20.13			9.87			14.19			10.72			Return on average common equity		22.59			9.58
Average shareholders’ equity to average assets	Average shareholders’ equity to average assets	6.60			9.44			7.32			9.65			Average shareholders’ equity to average assets		6.44			8.48

Net income available to common shareholders increased ~~$61.8~~$78.6 million, or ~~58.1%~~80.6%, for the three months ended ~~September 30, 2022 and increased $46.4 million, or 13.8%, for the nine months ended September 30, 2022~~March 31, 2023 compared to the same ~~periods~~period in ~~2021.~~2022. The increase during the three months ended ~~September 30, 2022~~March 31, 2023 was primarily the result of a ~~$109.4~~$150.7 million increase in net interest income and a ~~$6.6~~$3.9 million increase in non-interest income partly offset by a ~~$39.9~~$46.4 million increase in non-interest expense, ~~and~~ a ~~$14.4~~$20.6 million increase in income tax ~~expense. The increase during the nine months ended September 30, 2022 was primarily the result of~~expense and a ~~$148.7~~$9.1 million increase in ~~net interest income and a $21.5 million increase in non-interest income partly offset by a $99.6 million increase in non-interest expense and a $24.7 million increase in income tax~~credit loss expense. 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 ~~74.9%~~79.2% of total revenue during the first ~~nine~~three months of ~~2022.~~2023. Net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period. The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and net interest margin.

The Federal Reserve influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. As of ~~September 30, 2022,~~March 31, 2023, approximately ~~42.2%~~42.8% of our loans had a fixed interest rate, while the remaining loans had floating interest rates that were primarily tied to the prime interest rate (approximately ~~28.4%~~26.3%); or the London Interbank Offered Rate (“LIBOR”) (approximately 13.7%). 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”),; or a benchmark developed by the American Financial Exchange, the Secured Overnight Financing Rate (“SOFR”); or a benchmark developed by Bloomberg Index Services (“BSBY”) (together totaling approximately 27.2%). We discontinued originating loans based on the London Interbank Offered Rate (“LIBOR”) effective December 31, 2021 due to the fact that the most commonly used LIBOR settings will cease to be published on June 30, 2023. As of ~~September 30, 2022,~~March 31, 2023, LIBOR-based loans totaled approximately ~~15.7%~~3.7% of ~~loans were tied to one of these indexes.~~our total loan portfolio. 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. ~~Our goal is~~We expect to complete all transitions by the ~~first quarter of 2023.~~applicable LIBOR cessation date.

Select average market rates for the periods indicated are presented in the table below.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Federal funds target rate upper bound	Federal funds target rate upper bound	2.37	%	0.25	%	1.21	%	0.25	%	Federal funds target rate upper bound		4.69	%	0.29	%
Effective federal funds rate	Effective federal funds rate	2.18		0.09		1.03		0.08		Effective federal funds rate		4.51		0.12
Interest on reserve balances		2.25		0.15		1.10		0.12
Interest on reserve balances at the Federal Reserve										Interest on reserve balances at the Federal Reserve		4.59		0.19
Prime	Prime	5.37		3.25		4.21		3.25		Prime		7.69		3.29
1-Month LIBOR	1-Month LIBOR	2.47		0.09		1.24		0.10		1-Month LIBOR		4.61		0.22
3-Month LIBOR	3-Month LIBOR	3.00		0.13		1.68		0.16		3-Month LIBOR		4.91		0.51
AMERIBOR Term-30(1)	AMERIBOR Term-30(1)	2.29		0.10		1.13		0.11		AMERIBOR Term-30(1)		4.58		0.19
AMERIBOR Term-90(1)	AMERIBOR Term-90(1)	2.89		0.13		1.62		0.16		AMERIBOR Term-90(1)		4.88		0.51
1-Month Term SOFR(2)	1-Month Term SOFR(2)	2.43		0.05		1.18		0.04		1-Month Term SOFR(2)		4.61		0.15
3-Month Term SOFR(2)	3-Month Term SOFR(2)	2.82		0.05		1.49		0.04		3-Month Term SOFR(2)		4.78		0.33
Bloomberg 1-Month Short-Term Bank Yield Index	Bloomberg 1-Month Short-Term Bank Yield Index	2.35		0.06		1.14		0.08		Bloomberg 1-Month Short-Term Bank Yield Index		4.58		0.17
Bloomberg 3-Month Short-Term Bank Yield Index	Bloomberg 3-Month Short-Term Bank Yield Index	2.89		0.10		1.60		0.13		Bloomberg 3-Month Short-Term Bank Yield Index		4.82		0.46

____________________

(1)AMERIBOR Term-30 and AMERIBOR Term-90 are published by the American Financial Exchange.

(2)1-Month Term SOFR and 3-Month Term SOFR market data are the property of Chicago Mercantile Exchange, Inc. or its licensors as applicable. All rights reserved, or otherwise licensed by Chicago Mercantile Exchange, Inc.

As of March 31, 2023, the target range for the federal funds rate was 4.75% to 5.0%. In ~~September 2022,~~March 2023, the Federal Reserve released projections whereby the midpoint of the projected appropriate target range for the federal funds rate would rise to ~~4.4%~~5.1% by the end of ~~2022~~2023 and subsequently decrease to ~~4.6%~~4.3% by the end of ~~2023.~~2024. While there can be no such assurance that any increases or decreases in the federal funds rate will occur, these projections imply up to a ~~125~~25 basis point increase in the federal funds rate during the remainder of ~~2022,~~2023, followed by ~~an additional 25~~a 75 basis point ~~increase~~decrease in ~~2023.~~2024.

We are primarily funded by core deposits, with non-interest-bearing demand deposits historically being a significant source of funds. This lower-cost funding base is expected to have a positive impact on our net interest income and net interest margin in a rising interest rate environment. Nonetheless, our access to deposits may be negatively impacted by, among other factors, periods of higher interest rates which could promote increased competition for deposits, including from new financial technology competitors, or provide customers with alternative investment options. See Item 3. Quantitative and Qualitative Disclosures About Market Risk elsewhere in this report for information about our sensitivity to interest rates. Further analysis of the components of our net interest margin is presented below.

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The following tables present an analysis of net interest income and net interest spread for the periods indicated, including average outstanding balances for each major category of interest-earning assets and interest-bearing liabilities, the interest earned or paid on such amounts, and the average rate earned or paid on such assets or liabilities, respectively. The tables also set forth the net interest margin on average total interest-earning assets for the same periods. For these computations: (i) average balances are presented on a daily average basis, (ii) information is shown on a taxable-equivalent basis assuming a 21% tax rate, (iii) average loans include loans on non-accrual status, and (iv) average securities include unrealized gains and losses on securities available for sale, while yields are based on average amortized cost.


		Quarter To Date						Quarter To Date							Quarter To Date						Quarter To Date
		September 30, 2022						September 30, 2021							March 31, 2023						March 31, 2022
		Average Balance		Interest Income/ Expense		Yield/ Cost		Average Balance		Interest Income/ Expense		Yield/ Cost			Average Balance		Interest Income/ Expense		Yield/ Cost		Average Balance		Interest Income/ Expense		Yield/ Cost
Assets:	Assets:													Assets:
Interest-bearing deposits	Interest-bearing deposits	$	12,776,193	$	74,257	2.27	%	$	15,278,296	$	5,830	0.15	%	Interest-bearing deposits	$	8,687,003	$	99,245	4.57	%	$	13,766,486	$	6,343	0.18	%
Federal funds sold	Federal funds sold	50,656		316		2.44		1,676		2		0.48		Federal funds sold	64,294		758		4.72		13,892		13		0.37
Resell agreements	Resell agreements	10,471		64		2.39		7,907		6		0.29		Resell agreements	89,573		1,068		4.77		5,835		4		0.27
Securities:	Securities:													Securities:
Taxable	Taxable	11,486,105		68,311		2.20		4,147,511		20,736		2.03		Taxable	13,342,207		97,775		2.67		9,000,677		43,058		1.90
Tax-exempt	Tax-exempt	7,915,790		81,831		4.09		8,355,422		78,968		4.04		Tax-exempt	8,401,401		90,692		4.23		8,165,462		78,898		4.03
Total securities	Total securities	19,401,895		150,142		2.94		12,502,933		99,704		3.35		Total securities	21,743,608		188,467		3.24		17,166,139		121,956		2.88
Loans, net of unearned discounts	Loans, net of unearned discounts	16,822,933		207,522		4.89		16,189,334		169,892		4.16		Loans, net of unearned discounts	17,319,061		271,681		6.36		16,386,458		151,068		3.74
Total Earning Assets and Average Rate Earned	Total Earning Assets and Average Rate Earned	49,062,148		432,301		3.43		43,980,146		275,434		2.53		Total Earning Assets and Average Rate Earned	47,903,539		561,219		4.57		47,338,810		279,384		2.39
Cash and due from banks	Cash and due from banks	633,905						569,715						Cash and due from banks	676,441						651,124
Allowance for credit losses on loans and securities	Allowance for credit losses on loans and securities	(238,623)						(255,214)						Allowance for credit losses on loans and securities	(227,503)						(248,801)
Premises and equipment, net	Premises and equipment, net	1,061,315						1,029,242						Premises and equipment, net	1,117,644						1,050,735
Accrued interest and other assets	Accrued interest and other assets	1,864,046						1,450,373						Accrued interest and other assets	1,836,957						1,531,609
Total Assets	Total Assets	$	52,382,791					$	46,774,262					Total Assets	$	51,307,078					$	50,323,477

Liabilities:	Liabilities:													Liabilities:
Non-interest-bearing demand deposits	Non-interest-bearing demand deposits	18,511,055						16,998,730						Non-interest-bearing demand deposits	16,636,298						17,961,221
Interest-bearing deposits:	Interest-bearing deposits:													Interest-bearing deposits:
Savings and interest checking	Savings and interest checking	12,235,537		2,159		0.07		10,909,851		322		0.01		Savings and interest checking	11,661,657		10,338		0.36		11,954,465		410		0.01
Money market deposit accounts	Money market deposit accounts	13,465,863		36,568		1.08		10,085,955		2,663		0.10		Money market deposit accounts	12,404,532		75,470		2.47		11,858,775		3,651		0.12
Time accounts	Time accounts	1,590,561		3,955		0.99		1,121,266		692		0.24		Time accounts	2,054,972		12,181		2.40		1,187,458		851		0.29
Total interest-bearing deposits	Total interest-bearing deposits	27,291,961		42,682		0.62		22,117,072		3,677		0.07		Total interest-bearing deposits	26,121,161		97,989		1.52		25,000,698		4,912		0.08
Total deposits	Total deposits	45,803,016				0.37		39,115,802				0.04		Total deposits	42,757,459				0.93		42,961,919				0.05
Federal funds purchased	Federal funds purchased	41,718		249		2.33		27,002		9		0.13		Federal funds purchased	51,263		583		4.55		27,759		12		0.17
Repurchase agreements	Repurchase agreements	1,959,630		7,529		1.50		2,188,171		632		0.11		Repurchase agreements	4,210,767		33,651		3.20		2,051,577		518		0.10
Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	123,049		1,159		3.77		136,395		631		1.85		Junior subordinated deferrable interest debentures	123,078		1,988		6.46		123,020		584		1.90
Subordinated notes	Subordinated notes	99,281		1,164		4.69		99,125		1,164		4.70		Subordinated notes	99,359		1,164		4.69		99,203		1,164		4.69

Total Interest-Bearing Funds and Average Rate Paid	Total Interest-Bearing Funds and Average Rate Paid	29,515,639		52,783		0.71		24,567,765		6,113		0.10		Total Interest-Bearing Funds and Average Rate Paid	30,605,628		135,375		1.79		27,302,257		7,190		0.11
Accrued interest and other liabilities	Accrued interest and other liabilities	897,094						790,289						Accrued interest and other liabilities	760,304						790,092
Total Liabilities	Total Liabilities	48,923,788						42,356,784						Total Liabilities	48,002,230						46,053,570
Shareholders’ Equity	Shareholders’ Equity	3,459,003						4,417,478						Shareholders’ Equity	3,304,848						4,269,907
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	52,382,791					$	46,774,262					Total Liabilities and Shareholders’ Equity	$	51,307,078					$	50,323,477
Net interest income	Net interest income			$	379,518					$	269,321			Net interest income			$	425,844					$	272,194
Net interest spread	Net interest spread					2.72	%					2.43	%	Net interest spread					2.78	%					2.28	%
Net interest income to total average earning assets	Net interest income to total average earning assets					3.01	%					2.47	%	Net interest income to total average earning assets					3.47	%					2.33	%

~~Table of Contents~~

Year To Date Year To Date
September 30, 2022 September 30, 2021
Average
Balance Interest
Income/
Expense Yield/
Cost Average
Balance Interest
Income/
Expense Yield/
Cost
Assets:
Interest-bearing deposits $ 13,190,883 $ 106,971 1.07 % $ 12,849,827 $ 11,877 0.12 %
Federal funds sold 32,042 428 1.76 9,331 13 0.18
Resell agreements 6,461 78 1.59 6,169 11 0.24
Securities:
Taxable 10,280,574 167,734 2.06 4,111,574 61,366 2.03
Tax-exempt 7,960,457 239,730 4.05 8,237,397 235,344 4.07
Total securities 18,241,031 407,464 2.90 12,348,971 296,710 3.37
Loans, net of unearned discounts 16,629,559 526,515 4.23 17,034,405 522,376 4.10
Total Earning Assets and Average Rate Earned 48,099,976 1,041,456 2.86 42,248,703 830,987 2.67
Cash and due from banks 643,654 543,514
Allowance for credit losses on loans and securities (244,763) (261,568)
Premises and equipment, net 1,053,887 1,038,467
Accrued interest and other assets 1,723,257 1,434,859
Total Assets $ 51,276,011 $ 45,003,975
Liabilities:
Non-interest-bearing demand deposits 18,277,657 16,261,999
Interest-bearing deposits:
Savings and interest checking 12,176,393 3,775 0.04 10,506,015 1,057 0.01
Money market deposit accounts 12,650,089 51,334 0.54 9,710,072 6,538 0.09
Time accounts 1,403,238 7,078 0.67 1,134,065 3,098 0.37
Total interest-bearing deposits 26,229,720 62,187 0.32 21,350,152 10,693 0.07
Total deposits 44,507,377 0.19 37,612,151 0.04
Federal funds purchased 35,053 336 1.26 33,937 24 0.09
Repurchase agreements 1,917,622 9,837 0.68 2,030,266 1,597 0.10
Junior subordinated deferrable interest debentures 123,035 2,515 2.70 136,380 1,915 1.87
Subordinated notes 99,242 3,492 4.69 99,085 3,492 4.70
Total Interest-Bearing Funds and Average Rate Paid 28,404,672 78,367 0.37 23,649,820 17,721 0.10
Accrued interest and other liabilities 840,489 747,473
Total Liabilities 47,522,818 40,659,292
Shareholders’ Equity 3,753,193 4,344,683
Total Liabilities and Shareholders’ Equity $ 51,276,011 $ 45,003,975
Net interest income $ 963,089 $ 813,266
Net interest spread 2.49 % 2.57 %
Net interest income to total average earning assets 2.64 % 2.61 %

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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.

Three Months Ended
September 30, 2022 vs. September 30, 2021
Increase (Decrease) Due to Change in
Rate Volume Total
Interest-bearing deposits $ 69,498 $ (1,071) $ 68,427
Federal funds sold 37 277 314
Resell agreements 55 3 58
Securities:
Taxable 1,875 45,700 47,575
Tax-exempt 988 1,875 2,863
Loans, net of unearned discounts 30,768 6,862 37,630
Total earning assets 103,221 53,646 156,867
Savings and interest checking 1,801 36 1,837
Money market deposit accounts 32,784 1,121 33,905
Time accounts 2,877 386 3,263
Federal funds purchased 232 8 240
Repurchase agreements 6,965 (68) 6,897
Junior subordinated deferrable interest debentures 596 (68) 528
Subordinated notes (2) 2 —
Total interest-bearing liabilities 45,253 1,417 46,670
Net change $ 57,968 $ 52,229 $ 110,197


		Nine Months Ended				Three Months Ended
		September 30, 2022 vs. September 30, 2021				March 31, 2023 vs. March 31, 2022
		Increase (Decrease) Due to Change in								Increase (Decrease) Due to Change in
		Rate		Volume			Total			Rate		Volume		Total
Interest-bearing deposits	Interest-bearing deposits	$	94,776	$	318		$	95,094	Interest-bearing deposits	$	96,021	$	(3,119)	$	92,902
Federal funds sold	Federal funds sold	324		91			415		Federal funds sold	568		177		745
Resell agreements	Resell agreements	66		1			67		Resell agreements	571		493		1,064
Securities:	Securities:								Securities:
Taxable	Taxable	920		105,448			106,368		Taxable	21,698		33,019		54,717
Tax-exempt	Tax-exempt	(1,188)		5,574			4,386		Tax-exempt	4,091		7,703		11,794
Loans, net of unearned discounts	Loans, net of unearned discounts	16,597		(12,458)			4,139		Loans, net of unearned discounts	111,550		9,063		120,613
Total earning assets	Total earning assets	111,495		98,974			210,469		Total earning assets	234,499		47,336		281,835
Savings and interest checking	Savings and interest checking	2,581		137			2,718		Savings and interest checking	9,935		(7)		9,928
Money market deposit accounts	Money market deposit accounts	42,238		2,558			44,796		Money market deposit accounts	71,650		169		71,819
Time accounts	Time accounts	3,079		901			3,980		Time accounts	10,296		1,034		11,330
Federal funds purchased	Federal funds purchased	311		1			312		Federal funds purchased	553		18		571
Repurchase agreements	Repurchase agreements	8,329		(89)			8,240		Repurchase agreements	32,045		1,088		33,133
Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	798		(198)			600		Junior subordinated deferrable interest debentures	1,404		—		1,404
Subordinated notes	Subordinated notes	(6)		6			—		Subordinated notes	—		—		—
Total interest-bearing liabilities	Total interest-bearing liabilities	57,330		3,316			60,646		Total interest-bearing liabilities	125,883		2,302		128,185
Net change	Net change	$	54,165	$	95,658		$	149,823	Net change	$	108,616	$	45,034	$	153,650

Taxable-equivalent net interest income for the three months ended ~~September 30, 2022~~March 31, 2023 increased ~~$110.2~~$153.7 million, or ~~40.9%, while taxable-equivalent net interest income for the nine months ended September 30, 2022 increased $149.8 million, or 18.4%~~56.4%, compared to the same ~~periods~~period in ~~2021.~~2022. The increase in taxable-equivalent net interest income during the three months ended ~~September 30, 2022~~March 31, 2023 was primarily related to increases in the average yield on loans and, to a lesser extent, the average volume of loans; an increase in the average yield on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve); ~~an increase in the average volume of taxable securities; increases in the average yield on and, to a lesser extent, the average volume of loans;~~ and increases in the average ~~volume~~volumes of and the average taxable-equivalent ~~yield~~yields on taxable and tax-exempt ~~securities.~~securities, among other things. The impact of these items was partly offset by increases in the average ~~cost~~

~~Table of Contents~~

costs of interest-bearing deposit accounts ~~(primarily money market deposit accounts)~~ and ~~an increase in the average cost of~~ repurchase agreements, among other ~~things.~~

~~The increase in taxable-equivalent net interest income during the nine months ended September 30, 2022 was primarily related to an increase~~things, combined with a decrease in the average volume of ~~taxable securities; an increase in the average yield on~~ interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve); an increase in the average yield on loans; and an increase in the average volume of tax-exempt securities. The impact of these items was partly offset by increases in the average cost and the average volume of interest-bearing deposit accounts (primarily money market deposit accounts), an increase in the average cost of repurchase agreements and a decrease in the average volume of loans.

. As a result of the aforementioned fluctuations, the taxable-equivalent net interest margin increased 54114 basis points from ~~2.47%~~2.33% during the three months ended ~~September 30, 2021~~March 31, 2022 to ~~3.01%~~3.47% during the three months ended September 30, 2022 while the taxable-equivalent net interest margin increased 3 basis points from 2.61% during the nine months ended September 30, 2021 to 2.64% during the nine months ended September 30, 2022.March 31, 2023.

The average volume of interest-earning assets for the three months ended ~~September 30, 2022~~March 31, 2023 increased ~~$5.1 billion while the average volume of interest-earning assets for the nine months ended September 30, 2022 increased $5.9 billion~~$564.7 million compared to the same ~~periods~~period in ~~2021.~~2022. The increase in the average volume of interest-earning assets ~~during the three months ended September 30, 2022~~was primarily related to a ~~$7.3~~$4.3 billion increase in average taxable securities, ~~and~~ a ~~$633.6~~$932.6 million increase in average loans ~~(which was impacted by~~and a ~~$1.3 billion decrease~~$235.9 million increase in average ~~PPP loans, as further discussed below),~~tax-exempt securities partly offset by a ~~$2.5~~$5.1 billion decrease in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and a $439.6 million decrease in average tax-exempt securities. The increase in the average volume of interest-earning assets during the nine months ended September 30, 2022 primarily related to a $6.2 billion increase in average taxable securities and a $341.1 million increase in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) partly offset by a $404.8 million decrease in average loans (which was primarily impacted by a $2.1 billion decrease in average PPP loans, as further discussed below) and a $276.9 million decrease in average tax-exempt securities.

. The average taxable-equivalent yield on interest-earning assets increased 90218 basis points from ~~2.53%~~2.39% during the three months ended ~~September 30, 2021~~March 31, 2022 to ~~3.43%~~4.57% during the three months ended September 30, 2022 while the average taxable-equivalent yield on interest-earning assets increased 19 basis points from 2.67% during the nine months ended September 30, 2021 to 2.86% during the nine months ended September 30, 2022.March 31, 2023. The average taxable-equivalent yield on interest-earning assets during ~~2022~~the comparable periods 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 73262 basis points from ~~4.16%~~3.74% during the three months ended ~~September 30, 2021~~March 31, 2022 to ~~4.89%~~6.36% during the three months ended ~~September 30, 2022 while the~~March 31, 2023. The average taxable-equivalent yield on loans ~~increased 13 basis points from 4.10%~~ during the ~~nine~~three months ended ~~September 30, 2021 to 4.23% during the nine months ended September 30, 2022. The average taxable-equivalent yields on loans during three and nine months ended September 30, 2022 were~~March 31, 2023 was positively impacted by recent increases in market interest rates. The average taxable-equivalent yield on loans during the three and nine months ended September 30, 2021 was positively impacted by a higher average proportion of higher-yielding PPP loans to total loans compared to the three and nine months ended September 30, 2022. The average volume of loans for the three months ended ~~September 30, 2022~~March 31, 2023 increased ~~$633.6~~$932.6 million, or ~~3.9%, while the average volume of loans for the nine months ended September 30, 2022 decreased $404.8 million, or 2.4%,~~5.7% compared to the same ~~periods~~period in 2021. The average volumes of loans during the three and nine months ended September 30, 2022 were impacted by decreases in the average volumes of PPP loans. Excluding PPP loans, average loans would have increased $1.9 billion, or 13.0%, and $1.7 billion, or 11.5%, during the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.2022. Loans made up approximately ~~34.3% and 34.6%~~36.1% of average interest-earning assets during the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, compared to ~~36.8% and 40.3%~~34.6% during the same ~~respective periods~~period in ~~2021.~~2022.

~~During the nine months ended September 30, 2022, we recognized approximately $2.6 million in PPP loan related deferred processing fees (net of amortization of related deferred origination costs) as a~~The average taxable-equivalent yield ~~adjustment and this amount is included in interest income~~ on ~~loans. Such amounts were not significant~~securities was 3.24% during the three months ended September 30, 2022. During the three and nine months ended September 30, 2021, we recognized approximately $26.5 million and $88.9 million, respectively, in PPP loan related deferred processing fees (net of amortization of related deferred origination costs). As a result of the inclusion of these net fees in interest income, the average yields on PPP loans was 1.00% and 3.00%March 31, 2023, increasing 36 basis points from 2.88% during the three ~~and nine~~ months ended ~~September 30, 2022, and 8.72% and 6.23%~~March 31, 2022. The average yield on taxable securities was 2.67% during the three ~~and nine~~ months ended ~~September 30, 2021, compared to~~March 31, 2023, increasing 77 basis points from 1.90% during the ~~stated interest rate of 1.0% on these loans.~~same period in 2022. The

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The average taxable-equivalent yield on securities was 2.94% and 2.90% during the three and nine months ended September 30, 2022, respectively, decreasing 41 basis points from 3.35% during the three months ended September 30, 2021 and decreasing 47 basis points from 3.37% during the nine months ended September 30, 2021. The average yield on taxable securities was 2.20% during the three months ended September 30, 2022 increasing 17 basis points from 2.03% during the same period in 2021 while the average yield on taxable securities was 2.06% during the nine months ended September 30, 2022 increasing 3 basis points from 2.03% during the same period in 2021. The average taxable-equivalent yield on tax-exempt securities was ~~4.09%~~4.23% during the three months ended ~~September 30, 2022~~March 31, 2023, increasing 520 basis points from ~~4.04%~~4.03% during the same period in 2021 while the average taxable-equivalent yield on tax-exempt securities was 4.05% during the nine months ended September 30, 2022, decreasing 2 basis points from 4.07% during the same period in 2021.2022.

~~Tax exempt~~Tax-exempt securities made up approximately ~~40.8% and 43.6%~~38.6% of total average securities during the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, compared to ~~66.8% and 66.7%~~47.6% during the same ~~periods~~period in ~~2021.~~2022. The average volume of total securities during the three months ended ~~September 30, 2022~~March 31, 2023 increased ~~$6.9~~$4.6 billion, or ~~55.2%~~26.7%, compared to the same period in ~~2021 while the average volume of total securities during the nine months ended September 30, 2022 increased $5.9 billion, or 47.7%, compared to the same period in 2021.~~2022. Securities made up approximately ~~39.5%~~45.4% of average interest-earning assets during the three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~28.4%~~36.3% during the same period in ~~2021 while securities made up approximately 37.9% of average interest-earning assets during the nine months ended September 30, 2022 compared to 29.2% during the same period in 2021.~~2022. The ~~increases during the three and nine months ended September 30, 2022 were~~increase was primarily related to the investment of available funds (primarily from ~~growth in customer deposits and~~the reinvestment of amounts held in an interest-bearing account at the Federal Reserve) into taxable securities, and to a lesser extent, tax-exempt securities.

Average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) for the three months ended ~~September 30, 2022~~March 31, 2023 decreased ~~$2.5~~$5.1 billion, or ~~16.4%~~36.9%, compared to the same period in 2021 while average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) for the nine months ended September 30, 2022 increased $341.1 million, or 2.7%, compared to the same period in 2021.2022. Interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) made up approximately ~~26.1%~~18.1% of average interest-earning assets during the three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~34.7%~~29.1% during the same period in 2021 while interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) made up approximately 27.4% of average interest-earning assets during the nine months ended September 30, 2022 compared to 30.4% during the same period of 2021.2022. The ~~decreases~~decrease during the three ~~and nine~~ months ended ~~September 30, 2022 were~~March 31, 2023 was primarily related to the reinvestment of amounts held in an interest-bearing account at the Federal Reserve into taxable securities, and to a lesser extent, loans and tax-exempt securities. The average yield on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) was ~~2.27% and 1.07%~~4.57% during the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, compared to ~~0.15% and 0.12%~~0.18% during the same ~~respective periods~~period in ~~2021.~~2022. The average ~~yields~~yield on interest-bearing deposits during the three ~~and nine~~ months ended ~~September 30, 2022 were~~March 31, 2023 was impacted by higher interest rates paid on reserves held at the Federal Reserve, compared to the same ~~respective periods~~period in ~~2021.~~2022.

The average rate paid on interest-bearing liabilities was ~~0.71%~~1.79% during the three months ended ~~September 30, 2022,~~March 31, 2023, increasing 61168 basis points from ~~0.10%~~0.11% during the same period in ~~2021 while the average rate paid on interest-bearing liabilities was 0.37% during the nine months ended September 30, 2022 increasing 27 basis points from 0.10% during the same period in 2021.~~2022. Average deposits ~~increased $6.7 billion,~~decreased $204.5 million, or ~~17.1%~~0.5%, during the three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021~~2022 and included a ~~$5.2~~$1.3 billion decrease in average non-interest-bearing deposits partly offset by a $1.1 billion increase in average interest-bearing deposits and a $1.5 billion increase in average non-interest bearing deposits. Average deposits increased $6.9 billion, or 18.3%, during the nine months ended September 30, 2022 compared to the same period in 2021 and included a $4.9 billion increase in average interest-bearing deposits and a $2.0 billion increase in average non-interest bearing deposits. The ratio of average interest-bearing deposits to total average deposits was ~~59.6% and 58.9%~~61.1% during the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared to ~~56.5% and 56.8%~~58.2% during the same ~~respective periods~~period in ~~2021.~~2022. The average cost of deposits is primarily impacted by changes in market interest rates as well as changes in the volume and relative mix of interest-bearing deposits. The average cost of interest-bearing deposits and total deposits was ~~0.62%~~1.52% and ~~0.37%~~0.93%, respectively, during the three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~0.07%~~0.08% and ~~0.04%~~0.05%, respectively, during the same period in 2021. The average cost of interest-bearing deposits and total deposits was 0.32% and 0.19%, respectively, during the nine months ended September 30, 2022 compared to 0.07% and 0.04%, respectively, during the same period in 2021.2022. The average cost of deposits during ~~2022~~the comparable periods was impacted by ~~an increase~~increases in the interest rates we pay on ~~most of~~ our interest-bearing deposit products as a result of the aforementioned ~~increase~~increases in market interest rates.

Our net interest spread, which represents the difference between the average rate earned on earning assets and the average rate paid on interest-bearing liabilities, was ~~2.72% and 2.49%~~2.78% during the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared to ~~2.43% and 2.57%~~2.28% during the same ~~respective periods~~period in ~~2021.~~2022. The net interest spread, as well as the net interest margin, will be impacted by future changes in short-term and long-term interest rate levels, as well as the impact from the competitive ~~environment.~~environment, including from new financial technology competitors, and the availability of alternative investment options. A discussion of the effects of changing interest rates on net interest income is set forth in Item 3. Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.

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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.

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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,
		2022		2021		2022		2021				2023		2022
Credit loss expense (benefit) related to:	Credit loss expense (benefit) related to:									Credit loss expense (benefit) related to:
Loans	Loans	$	(2,463)	$	(3,023)	$	(2,395)	$	(7,402)	Loans		$	12,675	$	4,464
Off-balance-sheet credit exposures	Off-balance-sheet credit exposures	2,463		3,023		2,395		7,467		Off-balance-sheet credit exposures		(3,675)		(4,464)
Securities held to maturity	Securities held to maturity	—		—		—		(2)		Securities held to maturity		104		—
Total	Total	$	—	$	—	$	—	$	63	Total		$	9,104	$	—

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, 2022~~March 31, 2023 increased ~~$6.6~~$3.9 million, or ~~7.1%~~3.8%, ~~and increased $21.5 million, or 7.7%, respectively,~~ compared to the same ~~periods~~period in ~~2021.~~2022. Changes in the various components of non-interest income are discussed in more detail below.

Trust and Investment Management Fees. Trust and investment management fees for the three ~~and nine~~ months ended ~~September 30, 2022 increased $1.2~~March 31, 2023 decreased $2.5 million, or ~~3.1%~~6.5%, ~~and $4.4 million, or 4.0%, respectively,~~ compared to the same ~~periods~~period in ~~2021.~~2022. Investment management fees are the most significant component of trust and investment management fees, making up approximately ~~78.0%~~81.4% and ~~82.4%~~81.6% of total trust and investment management fees for the first ~~nine~~three months of ~~2022~~2023 and ~~2021,~~2022, respectively. The ~~increase~~decrease in trust and investment management fees during the three months ended ~~September 30, 2022~~March 31, 2023 was primarily due to ~~increases in oil and gas fees (up $2.9 million), real estate fees (up $467 thousand) and estate fees (up $314 thousand) partly offset by~~ a decrease in investment management fees (down ~~$2.5~~$2.1 million).

~~The increase~~ and, to a lesser extent, decreases in ~~trust and investment management~~estate fees ~~during the nine months ended September 30, 2022 was primarily due to increases in oil and gas fees (up $5.5 million)~~(down $174 thousand) and real estate fees ~~(up $1.0 million) partly offset by decreases in investment management fees~~ (down ~~$1.5 million) and estate fees (down $574~~$169 thousand). Oil and gas fees during the three and nine months ended September 30, 2022 were impacted by increases in oil and gas prices. The fluctuations in estate fees and real estate fees during the comparable periods were primarily related to variations in transaction volumes. Investment management 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 ~~decreases~~decrease in investment management fees during the three ~~and nine~~ months ended ~~September 30, 2022 were~~March 31, 2023 was primarily related to lower average equity valuations, in part related to the sharp decline in equity valuations that began during the second ~~and third quarters~~quarter of 2022. The decreases in estate fees and real estate fees were primarily related to decreases in transaction volumes.

At ~~September 30, 2022,~~March 31, 2023, trust assets, including both managed assets and custody assets, were primarily composed of equity securities ~~(41.7%~~(40.7% of assets), fixed income securities ~~(33.8%~~(34.4% of assets), alternative investments ~~(7.5%~~(8.6% of assets) and cash equivalents ~~(9.6%~~(9.9% of assets). The estimated fair value of these assets was ~~$40.1~~$44.7 billion (including managed assets of ~~$19.3~~$21.9 billion and custody assets of ~~$20.8~~$22.7 billion) at ~~September 30, 2022,~~March 31, 2023, compared to ~~$43.3~~$43.6 billion (including managed assets of ~~$19.1~~$21.4 billion and custody assets of ~~$24.2~~$22.2 billion) at December 31, ~~2021~~2022 and ~~$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.

Service Charges on Deposit Accounts. Service charges on deposit accounts for the three ~~and nine~~ months ended ~~September 30, 2022 increased $1.7 million,~~March 31, 2023 decreased $861 thousand, or ~~8.2%~~3.8%, ~~and $8.5 million, or 13.9%, respectively,~~ compared to the same ~~periods~~period in ~~2021.~~2022. The ~~increase~~decrease during the three months ended ~~September 30, 2022~~March 31, 2023 was primarily related to a decrease in commercial service charges (down $3.1 million), partly offset by increases in overdraft charges on consumer and commercial accounts (up ~~$1.3~~$1.2 million and ~~$568~~$664 thousand, respectively) and consumer service charges (up ~~$260~~$294 thousand) ~~partly offset by a decrease in commercial service charges (down $400 thousand)~~. ~~The increase during the nine~~

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months ended September 30, 2022 was primarily related to increases in overdraft charges on consumer and commercial accounts (up $4.1 million and $1.7 million, respectively), commercial service charges (up $2.1 million) and consumer service charges (up $702 thousand).

Overdraft charges totaled $9.7 million ($7.2 million consumer and $2.4 million commercial) during the three months ended September 30, 2022 compared to $7.8 million ($5.9 million consumer and $1.9 million commercial) during the same period in 2021. Overdraft charges totaled $27.9 million ($21.4 million consumer and $6.5 million commercial) during the nine months ended September 30, 2022 compared to $22.2 million ($17.3 million consumer and $4.9 million commercial) during the same period in 2021. The increases in overdraft charges during the three and nine months ended September 30, 2022 were impacted by increases in the volumes of fee assessed overdrafts relative to the same periods in 2021, in part due to growth in the number of accounts. The decrease in commercial service charges during the three months ended ~~September 30, 2022~~March 31, 2023 primarily resulted from a higher average earnings credit rate applied to deposits maintained by treasury management customers. Because average market interest rates were higher during ~~2022~~2023 compared to ~~2021,~~2022, deposit balances were more valuable and yielded a higher average earnings credit rate. As a result, customers paid for less of their services through fees rather than with earnings credits applied to their deposit balances. ~~The increase in commercial service~~Overdraft charges totaled $10.6 million ($7.9 million consumer and $2.7 million commercial) during the ~~nine~~three months ended ~~September 30, 2022 was primarily related~~March 31, 2023 compared to ~~an increase in the volume of billable services compared to~~$8.7 million ($6.7 million consumer and $2.0 million commercial) during the same period in ~~2021, partly offset by the impact of a higher average earnings credit rate.~~2022. The increases in ~~consumer service~~overdraft charges during the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 were ~~partly related to~~impacted by increases in ~~overall deposit accounts and volumes.~~

~~In June~~the volumes of fee assessed overdrafts relative to 2022, ~~we expanded~~in part due to growth in the ~~overdraft grace feature first implemented in April 2021. This feature, which was previously only available to certain consumer demand deposit accounts, is now available to all~~number of our consumer demand deposit accounts, regardless of direct deposit status. With this feature, no fees will be assessed on overdrafts of $100 or less. Additionally, we also eliminated fees on non-sufficient and returned items for all consumer deposit accounts. ~~We expect these changes will impact revenue by as much as $3.5 million on an annual basis.~~

Insurance Commissions and Fees. Insurance commissions and fees for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 increased ~~$1.4~~$2.3 million, or ~~12.0%~~14.1%, ~~and $1.7 million, or 4.3%, respectively,~~ compared to the same ~~periods~~period in ~~2021.~~2022. The increase during the three months ended ~~September 30, 2022~~March 31, 2023 was primarily the result of ~~an increase~~increases in contingent income (up $1.4 million) and commission income (up $1.4 million). The increase during the nine months ended September 30, 2022 was the result of an increase in commission income (up $2.7 million) partly offset by a decrease in contingent income (down $964$971 thousand).

The increases in commission income during the three and nine months ended September 30, 2022 were primarily related to increases in commercial and personal lines property and casualty commissions. These increases were related to increased business volumes and increased market rates.

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Contingent income totaled ~~$278 thousand and $3.3~~$3.8 million during the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, compared to ~~$241 thousand and $4.3~~$2.4 million during the same ~~periods~~period in ~~2021.~~2022. Contingent income primarily consists of amounts received from various property and casualty insurance carriers related to portfolio growth and the loss performance of insurance policies previously placed. These performance related contingent payments are seasonal in nature and are mostly received during the first quarter of each year. This performance related contingent income totaled ~~$1.9~~$3.2 million and ~~$3.2~~$1.6 million during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. The ~~decrease~~increase in performance related contingent income ~~during 2022~~ was primarily related to ~~low~~ growth within the portfolio and ~~a deterioration~~improvement in the loss performance of insurance policies previously placed. ~~This deterioration~~Performance related contingent income in 2022 was impacted by a severe weather event in Texas during ~~the first quarter of~~ 2021 that resulted in a significant ~~increase in~~ property and casualty claims and losses. Contingent income also includes amounts received from various benefit plan insurance companies related to the volume of business generated and/or the subsequent retention of such business. This benefit plan related contingent income totaled ~~$232~~$665 thousand ~~and $1.4 million~~ during the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, compared to ~~$201~~$813 thousand ~~and $1.1 million~~ during the same ~~respective periods~~period in ~~2021.~~2022. The increase in commission income was primarily related to an increase in life insurance commissions due to increased 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.

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Net interchange and card transaction fees for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 increased ~~$124~~$663 thousand, or ~~2.8%~~15.7%, ~~and $527 thousand, or 4.0%, respectively,~~ compared to the same ~~periods~~period in ~~2021~~2022 primarily due to increases in transaction volumes ~~as well as the impact of new card products~~ partly offset by an increase in network costs. 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,
		2022		2021		2022		2021				2023		2022
Income from card transactions	Income from card transactions	$	8,292	$	7,721	$	24,081	$	21,666	Income from card transactions		$	8,802	$	7,481
ATM service fees	ATM service fees	871		841		2,502		2,492		ATM service fees		844		764
Gross interchange and card transaction fees	Gross interchange and card transaction fees	9,163		8,562		26,583		24,158		Gross interchange and card transaction fees		9,646		8,245
Network costs	Network costs	4,549		4,072		12,832		10,934		Network costs		4,757		4,019
Net interchange and card transaction fees	Net interchange and card transaction fees	$	4,614	$	4,490	$	13,751	$	13,224	Net interchange and card transaction fees		$	4,889	$	4,226

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, 2022~~March 31, 2023 increased ~~$1.3~~$2.1 million, or ~~13.4%~~21.6%, compared to the same period in ~~2021.~~2022. The increase was primarily related to increases in income from the placement of money market accounts (up ~~$1.6~~$1.5 million), other service charges (up $609 thousand), commitment fees on unused lines of credit (up $337 thousand), capital markets advisory fees (up $245 thousand), letter of credit fees (up $186 thousand) and merchant services rebates/bonuses (up ~~$417~~$169 thousand), among other things, partly offset by a decrease in income from the sale of mutual funds (down ~~$983~~$862 thousand), among other things. ~~Other charges, commissions and fees for~~

Net Gain/Loss on Securities Transactions. During the ~~nine~~three months ended ~~September 30, 2022 increased $3.9~~March 31, 2023, we sold certain available-for-sale securities with amortized costs totaling $1.2 billion (of which $298.6 million ~~or 14.5%, compared~~remained unsettled as of March 31, 2023) and realized a net gain of $21 thousand. Market conditions provided us an opportunity to sell certain lower-yielding securities. The proceeds from these sales enhanced our current liquidity position and will provide us the ~~same period~~flexibility to be more opportunistic with the reinvestment of these funds in ~~2021. The increase was primarily related to increases in income from~~ the ~~placement~~future. There were no sales of money market accounts (up $2.6 million), merchant services rebates/bonuses (up $1.3 million), letter of credit fees (up $681 thousand) and funds transfer service charges (up $446 thousand), among other things, partly offset by a decrease in income from the sale of mutual funds (down $1.1 million), among other things.securities during 2022.

Other Non-Interest Income. Other non-interest income for the three months ended ~~September 30, 2022~~March 31, 2023 increased ~~$879 thousand,~~$2.1 million, or ~~10.3%~~22.5%, compared to the same period in ~~2021.~~2022. The increase was primarily related to increases in sundry and other miscellaneous income (up ~~$927~~$1.3 million), income from customer derivative and securities trading transactions (up $482 thousand), ~~public finance underwriting fees~~gains on the sale of foreclosed and other assets (up ~~$629~~$334 thousand) and income from customer foreign exchange transactions (up ~~$364~~$247 thousand), among other things, partly offset by a decrease in ~~income from customer derivative and securities trading transactions~~public finance underwriting fees (down ~~$660~~$927 thousand), among other things. Sundry income during the three months ended ~~September 30, 2022~~March 31, 2023 included $1.2 million ~~in card~~ related ~~incentives/rebates,~~to a distribution received from a Small Business Investment Company (“SBIC”) fund investment and $575 thousand related to a partnership interest, among other things, while sundry income during the three months ended March 31, 2022 included

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$458 thousand related to a contract fee, among other things. The fluctuations in income from public finance underwriting fees; income from customer derivative and securities trading ~~transactions~~transactions; and income from customer foreign exchange transactions were primarily related to fluctuations in transaction volumes.

~~Other non-interest income for the nine months ended September 30, 2022 increased $2.4 million, or 9.3%, compared to the same period in 2021.~~ The increase was primarily related to increases in sundry and other miscellaneous income (up $3.2 million), public finance underwriting fees (up $2.3 million) and income from customer foreign exchange transactions (up $1.3 million) partly offset by decreases in gains on the sale of foreclosed and other assets (down $2.0 million), income from customer derivative and securities trading transactions (down $1.1 million) and mineral interest income (down $574 thousand), among other things. Sundry income during the nine months ended September 30, 2022 included $2.2 million in card related incentives/rebates, $1.2 million related to the recovery of prior write-offs and $458 thousand related to a contract fee. The increases in public finance underwriting fees and income from customer foreign exchange transactions werewas primarily ~~related to increases in transaction volumes. Gains on the sale of assets during 2021 included $1.8 million~~ related to the sale of certain parking lots in downtown San Antonio during the second quarter. The decrease in income from customer derivative transactions was primarily due to a decrease in transaction volume. The decrease in mineral interest income was related to the donation of certain mineral interests in 2021.foreclosed real estate property.

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Non-Interest Expense

Total non-interest expense for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 increased ~~$39.9~~$46.4 million, or ~~18.3%~~19.4%, ~~and increased $99.6 million, or 15.5%, respectively,~~ compared to the same ~~periods~~period in ~~2021.~~2022. Changes in the various components of non-interest expense are discussed below.

Salaries and Wages. Salaries and wages for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 increased ~~$27.7~~$19.0 million, or ~~27.9%~~17.1%, ~~and $65.4 million, or 22.6%, respectively,~~ compared to the same ~~periods~~period in ~~2021.~~2022. The ~~increases~~increase in salaries and wages ~~were~~was primarily related to ~~increases~~an increase in salaries, due to annual merit and market increases, ~~as well as~~and an increase in the ~~implementation~~number of ~~a $20 per hour minimum wage in December, 2021. Salaries and wages were also impacted by increases~~employees. The increase in the number of employees increases in incentive and stock-based compensation and, primarily during the nine months ended September 30, 2022, a decrease in salary costs deferred in connection with loan originations as the first quarter of 2021 was ~~impacted by the high volume of PPP loan originations. The increases in the number of employees were~~ partly related to our investments in organic expansion in the Houston and Dallas markets as well as preparations for our mortgage loan product offering. Salaries and wages were also impacted, to a lesser extent, by increases in stock-based compensation and incentive compensation. We are experiencing a competitive labor market which has resulted in and could continue to result in an increase in our staffing costs.

Employee Benefits. Employee benefits expense for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 increased ~~$104 thousand, or 0.5%, and $3.8~~$9.7 million, or ~~6.0%~~40.1%, ~~respectively,~~ compared to the same ~~periods~~period in ~~2021.~~2022. The increase ~~during the three months ended September 30, 2022~~ was primarily related to increases in 401(k) plan expense, payroll taxes and medical benefits expense, and ~~other employee benefits, among other things, partly offset by~~ a decrease ~~in 401(k) plan expense, primarily due to a discretionary profit sharing accrual during the third quarter of 2021, and an increase~~ in the net periodic benefit related to our defined benefit retirement ~~plan. The increase during the nine months ended September 30, 2022 was primarily related to increases in payroll taxes, medical benefits expense, 401(k)~~ plan, ~~expense and other employee benefits,~~ among other ~~things, partly offset by an increase in the net periodic benefits related to our defined benefit retirement plan.~~things.

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 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, 2022~~March 31, 2023 increased ~~$925 thousand, or 3.4%, and $4.0~~$2.9 million, or ~~5.0%~~10.7%, ~~respectively,~~ compared to the same ~~periods~~period in ~~2021.~~2022. The increase during the three months ended ~~September 30, 2022~~March 31, 2023 was primarily related to increases in lease expense (up ~~$545~~$841 thousand) and depreciation on buildings and leasehold improvements (together up $313 thousand), among other things. The increase during the nine months ended September 30, 2022 was primarily related to increases in repairs and maintenance/service contracts expense (up $1.6 million), lease expense (up $1.1 million), depreciation on buildings and leasehold improvements (together up ~~$976~~$683 thousand), utilities expense (up $633 thousand) and ~~insurance~~repairs and maintenance/service contracts expense (up ~~$477~~$399 thousand), among other things. The increases in the aforementioned components of net occupancy expense were impacted, in part, by our expansion within the Houston and Dallas market areas.

Technology, Furniture and Equipment. Technology, furniture and equipment expense for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 increased ~~$2.3~~$3.3 million, or ~~8.0%~~11.4%, ~~and $5.4 million, or 6.3%, respectively,~~ compared to the same ~~periods~~period in ~~2021.~~2022. The ~~increases~~increase during the three ~~and nine~~ months ended ~~September 30, 2022 were~~March 31, 2023 was primarily related to increases in cloud services expense (up ~~$999 thousand and $2.9 million, respectively), depreciation of furniture and equipment (up $189 thousand and $1.1 million, respectively)~~$1.6 million), service contracts expense (up ~~$240 thousand and $823 thousand, respectively)~~$989 thousand) and software ~~maintenance~~amortization (up ~~$846 thousand and $289 thousand, respectively)~~$340 thousand), among other things.

Deposit Insurance. Deposit insurance expense totaled ~~$4.3 million and $11.6~~$6.2 million for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, up $2.6 million, or 71.9%, compared to ~~$3.1 million and $8.9~~$3.6 million for the three ~~and nine~~ months ended ~~September 30, 2021.~~March 31, 2022. The ~~increases were~~increase was primarily related to an increase in ~~total assets.~~the assessment rate. In October 2022, the Federal Deposit Insurance Corporation (“FDIC”) adopted a final rule to increase the initial base deposit insurance assessment rate schedules uniformly by 2 basis points beginning with the first quarterly assessment period of 2023. During the second quarter of 2023, the FDIC is expected to issue a proposed rulemaking for public comment for a special assessment to replenish the deposit insurance fund after recent bank failures. The extent to which any such assessment will impact our future deposit insurance expense is currently uncertain.

Other Non-Interest Expense. Other non-interest expense for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 increased ~~$7.7~~$8.9 million, or ~~20.3%~~20.7%, ~~and $18.4 million, or 15.8%, respectively,~~ compared to the same ~~periods~~period in ~~2021.~~2022. The increase during the three months ended ~~September 30, 2022~~March 31, 2023 included increases in ~~advertising/promotions expense (up $2.0 million);~~ professional services expense (up ~~$1.3~~$2.3 million);, primarily related to information technology services; travel, meals and entertainment (up ~~$1.2~~$1.4 million); ~~and~~ sundry and other miscellaneous expenses (up $1.4 million), advertising/promotions expense (up $1.2 million); check card expense (up $903 thousand); business development expense (up $719 thousand) and communications expense (up $582 thousand), among other things. Sundry and other miscellaneous expense included $997 thousand related to an operational loss and $323 thousand related to a write-off of premises and equipment.

The increase during the nine months ended September 30, 2022 included increases in advertising/promotions expense (up $4.8 million); professional services expense (up $4.3 million); travel, meals and entertainment (up $4.2 million); sundry and

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other miscellaneous expenses (up $1.4 million) and business development expense (up $1.1 million), among other things. Other non-interest expense during the nine months ended September 30, 2022 was also impacted by a decrease in costs deferred as loan origination costs (down $1.2 million) as the first quarter of 2021 was impacted by a large volume of PPP loan originations. The impact of the aforementioned items was partly offset by a decrease in donations expense (down $3.4 million), which was impacted by $3.3 million in contributions to the Frost Charitable Foundation during the first and second quarters of 2021, among other things. Sundry and other miscellaneous expense for the three and nine months ended September 30, 2022 included a $1.6 million accrual related to a probable loss.

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, 2022~~March 31, 2023 increased ~~$62.0~~$82.4 million, or ~~61.6%~~90.2%, ~~and $46.8 million, or 14.6%, respectively,~~ compared to the same ~~periods~~period in ~~2021.~~2022. The increase during the three months ended ~~September 30, 2022~~March 31, 2023 was primarily the result of a ~~$109.1~~$151.2 million increase in net interest income and a ~~$4.7~~$4.9 million increase in non-interest income partly offset by a ~~$37.3~~$43.3 million increase in non-interest expense, ~~and~~ a ~~$14.5~~$21.4 million increase in income tax ~~expense. The increase during the nine months ended September 30, 2022 was primarily the result of by~~expense and a ~~$147.8~~$9.1 million increase in ~~net interest income and a $16.1 million increase in non-interest income partly offset by a $92.6 million increase in non-interest expense and a $24.5 million increase in income tax~~credit loss expense.

Net interest income for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 increased ~~$109.1~~$151.2 million, or ~~44.1%~~60.5%, ~~and $147.8 million, or 19.8%, respectively,~~ compared to the same ~~periods~~period in ~~2021.~~2022. The increase during the three months ended ~~September 30, 2022~~March 31, 2023 was primarily related to increases in the average yield on loans and, to a lesser extent, the average volume of loans; an increase in the average yield on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve); ~~an increase in the average volume of taxable securities; increases in the average yield on and, to a lesser extent, the average volume of loans;~~ and increases in the average ~~volume~~volumes of and the average taxable-equivalent ~~yield~~yields on taxable and tax-exempt ~~securities.~~securities, among other things. The impact of these items was partly offset by increases in the average ~~cost~~costs of interest-bearing deposit accounts ~~(primarily money market deposit accounts)~~ and ~~an increase in the average cost of~~ repurchase agreements, among other ~~things. The increase during the nine months ended September 30, 2022 was primarily related to an increase~~things, combined with a decrease in the average volume of ~~taxable securities; an increase in the average yield on~~ interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve); an increase in the average yield on loans; and an increase in the average volume of tax-exempt securities. The impact of these items was partly offset by increases in the average cost and the average volume of interest-bearing deposit accounts (primarily money market deposit accounts), an increase in the average cost of repurchase agreements and a decrease in the average volume of loans.. See the analysis of net interest income included in the section captioned “Net Interest Income” included elsewhere in this discussion.

Credit loss expense/benefit was not significant for the Banking segment during the 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, 2022~~March 31, 2023 increased ~~$4.7~~$4.9 million, or ~~9.2%, while non-interest income for the nine months ended September 30, 2022 increased $16.1 million, or 10.5%~~8.4%, compared to the same ~~respective periods~~period in ~~2021.~~2022. The ~~increases~~increase during the three ~~and nine~~ months ended ~~September 30, 2022 were~~March 31, 2023 was primarily due to increases in ~~service charges on deposit accounts;~~ insurance commissions and fees; other non-interest income; other charges, commissions and ~~fees;~~fees and interchange and card transactions fees partly offset by a decrease in service charges on deposit accounts. The increase in insurance commissions and fees was primarily related to increases in contingent income and commission income, which is further discussed below in relation to Frost Insurance Agency. The increase in other non-interest income was primarily due to increases in sundry and other ~~non-interest income.~~miscellaneous income, income from customer derivative and securities trading transactions, gains on the sale of foreclosed and other assets and income from customer foreign exchange transactions, among other things, partly offset by a decrease in public finance underwriting fees, among other things. Sundry income during the three months ended March 31, 2023 was impacted by the receipt of distributions from an SBIC fund investment and a partnership interest, among other things. The fluctuations in income from public finance underwriting fees; income from customer derivative and securities trading transactions; and income from customer foreign exchange transactions were primarily related to fluctuations in transaction volumes. The increase in gains on the sale of foreclosed and other assets was primarily related to the sale of foreclosed real estate property. The increase in other charges, commissions and fees was primarily related to increases other service charges, commitment fees on unused lines of credit, capital markets advisory fees, letter of credit fees and merchant services rebates/bonuses, among other things. The increase in interchange and card transactions fees was primarily due to increases in transaction volumes partly offset by an increase in network costs. The decrease in service charges on deposit accounts ~~during the three months ended September 30, 2022~~ was primarily related to a decrease in commercial service charges, largely due to a higher average earnings credit rate applied to deposits maintained by treasury management customers, partly offset by increases in overdraft charges on consumer and commercial accounts and consumer service charges ~~partly offset by a decrease in commercial service charges. The increase in service charges on deposit accounts during the nine months ended September 30, 2022 was primarily related~~due to increases in overdraft charges on consumer and commercial accounts, commercial service charges and consumer service charges. The increases in overdraft charges during the three and nine months ended September 30, 2022 were impacted by increases in the volumes of fee assessed overdrafts relative to ~~the same periods~~2022, in ~~2021. The increases in consumer service charges during the three and nine months ended September 30, 2022 were partly related~~part due to increases in overall deposit accounts and volumes. The decrease in commercial service charges during the three months ended September 30, 2022 primarily resulted from a higher average earnings credit rate applied to deposits maintained by treasury management customers. The increase in commercial service charges during the nine months ended September 30,

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~~2022 was primarily related to an increase~~growth in the ~~volumes~~number of billable services compared to the same period in 2021, partly offset by the impact of a higher average earnings credit rate. The increases in insurance commissions and fees during the three and nine months ended September 30, 2022 were primarily related to increases in commission income, while the increase during the nine months ended September 30, 2022 was partly offset by a decrease in contingent income. Insurance commissions and fees are further discussed below in relation to Frost Insurance Agency. The increases in other charges, commissions and fees during the three and nine months ended September 30, 2022 were primarily related to increases in merchant services rebates/bonuses, among other things, and, additionally for the nine months ended September 30, 2022, increases in letter of credit fees and funds transfer service charges. The increases in other non-interest income during the three and nine months ended September 30, 2022 were primarily due to increases in sundry and other miscellaneous income; public finance underwriting fees; and income from customer foreign exchange transactions. The increases from these items were partly offset by decreases in income from customer derivative and securities trading transactions, among other things, and, for the nine months ended September 30, 2022, a decrease in gains on the sale of foreclosed and other assets. Sundry and other miscellaneous income during the three and nine months ended September 30, 2022 was impacted by certain card related incentives/rebates. During the nine months ended September 30, 2022, sundry and other miscellaneous income was also impacted by the recovery of prior write-offs and the recognition of a contract fee. The fluctuations in income from public finance underwriting fees; customer derivative and securities trading transactions and customer foreign exchange transactions were primarily related to fluctuations in transaction volumes.accounts. See the analysis of these categories of non-interest income included in the section captioned “Non-Interest Income” included elsewhere in this discussion.

Non-interest expense for three months ended ~~September 30, 2022~~March 31, 2023 increased ~~$37.3~~$43.3 million, or ~~20.1%, while non-interest expense for the nine months ended September 30, 2022 increased $92.6 million, or 16.9%~~21.0%, compared to the same ~~respective periods~~period in ~~2021.~~2022. The ~~increases during the three and nine months ended September 30, 2022 were~~increase was primarily due to increases in salaries and ~~wages and~~wages; employee benefit expense; other non-interest ~~expense and, to a lesser extent, increases in~~expense; technology, furniture and equipment ~~expense,~~expense; net occupancy expense and deposit insurance. ~~Non-interest expense for the nine months ended September 30, 2022 was also negatively impacted by an~~The increase ~~in employee benefit expense. The increases~~ in salaries and wages ~~during the three and nine months ended September 30, 2022, were~~was primarily related to ~~increases~~an increase in salaries, due to annual merit and market ~~increases as well as the implementation of a $20 per hour minimum wage in December, 2021.~~increases. Salaries and wages were also impacted by ~~increases~~an increase in the number of employees as well as increases in ~~incentive and stock based~~stock-based compensation and ~~primarily during~~incentive compensation. The increase in the ~~nine months ended September 30, 2022, a decrease~~number of employees was partly related to our investments in ~~salary costs deferred~~organic expansion in ~~connection with~~the Houston and Dallas markets as well as preparations for our mortgage loan ~~originations as the first quarter~~product offering. The increase in employee benefits

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expense was ~~impacted by the high volume of PPP loan originations. The increases in other non-interest expense during the three and nine months ended September 30, 2022 were~~ primarily related to increases in ~~advertising/promotions expense;~~401(k) plan expense, payroll taxes and medical benefits expense, and a decrease in the net periodic benefit related to our defined benefit retirement plan, among other things. The increase in other non-interest expense was primarily related to increases in professional services expense; travel, meals and entertainment; ~~and~~ sundry and other miscellaneous ~~expenses. Sundry~~expenses, advertising/promotions expense; check card expense; business development expense and other miscellaneous expenses for the three and nine months ended September 30, 2022 were impacted by an accrual related to a probable loss. Other non-interest expense during the nine months ended September 30, 2022 was also impacted by a decrease in costs deferred as loan origination costs as the first quarter of 2021 was impacted by a large volume of PPP loan originations. The increases in the aforementioned items during the nine months ended September 30, 2022 were partly offset by a decrease in donationscommunications expense, among other things. ~~Donations expense during 2021 was impacted by $3.3 million in contributions to the Frost Charitable Foundation in the first and second quarters.~~ The ~~increases~~increase in technology, furniture and equipment expense ~~during the three and nine months ended September 30, 2022 were~~was primarily related to increases in cloud services expense, ~~depreciation of furniture and equipment,~~ service contracts expense and software ~~maintenance,~~amortization, among other things. The ~~increases~~increase in net occupancy ~~during the three and nine months ended September 30, 2022 were~~was primarily related to increases in lease expense, depreciation on buildings and leasehold improvements, ~~and lease~~utilities expense ~~among other things,~~ and ~~for the nine months ended September 30, 2022, increases in~~ repairs and maintenance/service contracts expense, ~~and insurance expense.~~among other things. The increases in the aforementioned components of net occupancy expense were impacted, in part, by our expansion within the Houston and Dallas market areas. The ~~increases~~increase in deposit insurance ~~during the three and nine months ended September 30, 2022 were~~was primarily related to an increase in ~~total assets. The increase in employee benefits expense during~~ the nine months ended September 30, 2022 was primarily related to increases in payroll taxes, medical benefits expense, 401(k) plan expense and other employee benefits, among other things, partly offset by an increase in the net periodic benefits related to our defined benefit retirement plan.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.

Frost Insurance Agency, which is included in the Banking operating segment, had gross commission revenues of ~~$13.2~~$19.0 million ~~and $41.6 million during the three and nine months ended September 30, 2022, respectively, compared to $11.7 million and $39.9 million during the same respective periods in 2021. The increase~~ during the three months ended ~~September 30, 2022~~March 31, 2023, compared to $16.7 million during the same period in 2022. The increase was primarily related to increases in contingent income and commission ~~income while the increase during the nine months ended September 30, 2022 was primarily related an~~income. The increase in commission income partly offset by a decrease in contingent income. The increases in gross commission income during the three and nine months ended September 30, 2022 were primarily related to increases in commercial and personal lines property and casualty commissions, due to increases in business volumes and market rates. The decrease in contingent income ~~during the nine months ended September 30, 2022~~ was primarily related to ~~a decrease~~an increase in

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performance related contingent payments due to ~~low~~ growth within the portfolio and ~~a deterioration~~improvement in the loss performance of insurance policies previously placed. The ~~decrease~~increase in ~~performance~~gross commission income was primarily related ~~contingent commissions during the nine months ended September 30, 2022 was partly offset by~~to an increase in ~~contingent~~life insurance commissions ~~received from various benefit plan insurance companies.~~due to increased 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, 2022 increased $218 thousand,~~March 31, 2023 decreased $2.6 million, or ~~2.3%~~25.2%, ~~and increased $761 thousand, or 2.8%, respectively,~~ compared to the same ~~periods~~period in ~~2021.~~2022. The ~~increase during the three months ended September 30, 2022~~decrease was primarily the result of a ~~$1.9~~$3.0 million increase in non-interest ~~income~~expense and a ~~$821~~$1.2 million decrease in non-interest income partly offset by a $954 thousand increase in net interest income partly offset by a $2.4 million increase in non-interest expense. The increase during the nine months ended September 30, 2022 was primarily the result of a $6.0 million increase in non-interest income and a ~~$1.5 million increase~~$688 thousand decrease in ~~net interest~~ income ~~partly offset by a $6.6 million increase in non-interest~~tax expense.

Net interest income for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 increased ~~$821~~$954 thousand, or ~~153.2%~~136.3%, ~~and $1.5 million, or 97.1%, respectively,~~ compared to the same ~~periods~~period in ~~2021.~~2022. The ~~increases during the three and nine months ended September 30, 2022 were~~increase was primarily due to ~~increases in the average volume of funds provided by Frost Wealth Advisors and~~ an increase in the average funds transfer prices allocated to ~~such funds.~~funds provided by Frost Wealth Advisors. 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, 2022 increased $1.9~~March 31, 2023 decreased $1.2 million, or ~~4.5%~~2.8%, ~~and $6.0 million, or 4.8%, respectively,~~ compared to the same ~~periods~~period in ~~2021.~~2022. The ~~increases during the three and nine months ended September 30, 2022 were~~decrease was primarily due to ~~increases~~a decrease in trust and investment management ~~fees;~~fees partly offset by increases in other charges, commissions and ~~fees;~~fees and other non-interest income. Trust and investment management fee income is the most significant income component for Frost Wealth Advisors. Investment management fees are the most significant component of trust and investment management fees, making up approximately ~~78.0%~~81.4% of total trust and investment management fees for the first ~~nine~~three months of ~~2022.~~2023. The ~~increases~~decrease in trust and investment management fees during the three ~~and nine~~ months ended ~~September 30, 2022 were~~March 31, 2023 was primarily due to ~~increases~~a decrease in ~~oil~~investment management fees and, ~~gas~~to a lesser extent, decreases in estate fees and real estate ~~fees partly offset by decreases in investment management~~ fees. Trust and investment management fees for the three months ended September 30, 2022 were also positively impacted by an increase in estate fees compared to the same period in 2021 while trust and investment management fees for the nine months ended September 30, 2022 were also negatively impacted by aThe decrease ~~in estate fees compared to the same period in 2021. Oil and gas fees during the three and nine months ended September 30, 2022 were impacted by increases in oil and gas prices. The decreases~~ in investment management fees ~~during three and nine months ended September 30, 2022 were~~was primarily related to lower average equity valuations, in part related to the sharp decline in equity valuations that began during the second ~~and third quarters~~quarter of 2022. The ~~fluctuations~~decreases in estate fees and real estate fees ~~during the comparable periods~~ were primarily related to ~~variations~~decreases in transaction volumes. The ~~increases~~increase in other charges, commissions and fees ~~during the three and nine months ended September 30, 2022 were~~was primarily related to ~~increases~~an increase in income from the placement of money market accounts ~~among other things,~~and, to a lesser extent, an increase in annuity income, partly offset by ~~decreases~~a decrease in income from the sale of mutual funds, among other things. The ~~increases~~increase in other non-interest income ~~during the three and nine months ended September 30, 2022 were~~was primarily related to ~~increases~~an increase in income from customer securities trading ~~transactions partly offset by decreases in sundry and other miscellaneous income.~~transactions. 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 ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 increased ~~$2.4~~$3.0 million, or ~~7.9%~~9.8%, ~~and $6.6 million, or 7.2%, respectively,~~ compared to the same ~~periods~~period in ~~2021.~~2022. The ~~increases during the three and nine months ended September 30, 2022 were~~increase was primarily due to increases in other non-interest expense, salaries and wages and employee benefits expense. The increase in other non-interest expense was primarily related to an increase in the corporate overhead expense allocation and, to a lesser extent, ~~increases~~an increase in ~~employee benefits expense~~meals and ~~technology, furniture~~entertainment, among other things, partly offset by a decrease in research and ~~equipment expense.~~

platform fees, among other things. The ~~increases~~increase in salaries and wages ~~during the three and nine months ended September 30, 2022 were~~was primarily due to ~~increases~~an increase in salaries, due to annual merit and market increases, as well as ~~increases~~an increase in commission ~~expense and incentive and stock compensation~~ expense. The ~~increases~~increase in ~~other non-interest expense during the three and nine months ended September 30, 2022 were mostly related to increases in sundry and other miscellaneous expenses, which~~employee benefits was primarily related to ~~the write-off of certain assets; and travel, meals and entertainment; among other things. Other non-interest expense for the nine months ended September 30, 2022 was also negatively impacted by~~ an increase ~~in research and platform fees. The increases in employee benefits during the three and nine months ended September 30, 2022 were primarily related to increases~~ in 401(k) plan expense, medical benefits expense and payroll taxes. ~~The increases in technology, furniture and equipment expense during the three and nine months ended September 30, 2022 were primarily related to increases in cloud services expense.~~

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Non-Banks

The Non-Banks operating segment had a net ~~losses~~loss of ~~$2.6 million and $8.2~~$3.7 million during the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, compared to a net ~~losses~~loss of ~~$2.1 million and $6.6~~$2.5 million during the same ~~periods~~period in ~~2021.~~2022. The increase in the net loss ~~during the three months ended September 30, 2022~~ was primarily due to an increase in net interest ~~expense. The~~expense due to an increase in the net loss during the nine months ended September 30, 2022 was primarily due to a decrease in other non-interest income combined with an increase in net interest expense. The increases in net interest expense during the three and nine months ended September 30, 2022 were primarily related to increases in the average ~~rate~~rates paid on our long-term borrowings partly offset by the impact of the redemption, during the fourth quarter of 2021, of $13.4 million of junior subordinated deferrable interest debentures issued to WNB Capital Trust I. The decrease in other non-interest income during the nine months ended September 30, 2022 was primarily due to a decrease in mineral interest income as the related mineral interest assets were donated to the Frost Charitable Foundation during the third quarter of 2021.borrowings.

Income Taxes

During the three months ended ~~September 30, 2022,~~March 31, 2023, we recognized income tax expense of ~~$27.7~~$33.2 million, for an effective tax rate of ~~14.0%~~15.7%, compared to ~~$13.3~~$12.6 million, for an effective tax rate of ~~11.0%~~11.3%, for the same period in 2021. During the nine months ended September 30, 2022, we recognized income tax expense of $61.0 million, for an effective tax rate of 13.6%, compared to $36.3 million, for an effective tax rate of 9.6%, for the same period in 2021.2022. The effective income tax rates differed from the U.S. statutory federal income tax rate of 21% during ~~2022~~2023 and ~~2021~~2022 primarily due to the effect of tax-exempt income from securities, loans ~~securities~~ and life insurance policies and the income tax effects associated with stock-based compensation, among other things, and their relative proportion to total pre-tax net income. The ~~increases~~increase in the effective tax rates during ~~2022 were~~2023 was primarily related to ~~increases~~an increase in projected pre-tax net income and, to a lesser extent, ~~during the nine months ended September 30, 2022,~~an increases in disallowed deposit interest expense and deposit insurance premiums and a decrease in discrete tax benefits associated with stock-based ~~compensation.~~compensation, among other things.

Average Balance Sheet

Average assets totaled $51.3 billion for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 representing an increase of ~~$6.3 billion,~~$983.6 million, or ~~13.9%~~2.0%, compared to average assets for the same period in ~~2021.~~2022. Earning assets increased ~~$5.9 billion,~~$564.7 million, or ~~13.8%~~1.2%, during the ~~first nine~~three months ~~of 2022~~ended March 31, 2023 compared to the same period in ~~2021.~~2022. The increase in earning assets was primarily related to a ~~$6.2~~$4.3 billion increase in average taxable securities, a $932.6 million increase in average loans and a ~~$341.1~~$235.9 million increase in tax-exempt securities partly offset by a $5.1 billion decrease in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) ~~partly offset by a $404.8 million decrease in average loans.~~. Average deposits ~~increased $6.9 billion,~~decreased $204.5 million, or ~~18.3%~~0.5%, during ~~the first nine~~three months ~~of 2022~~ended March 31, 2023 compared to the same period in ~~2021. Growth in average deposits was related to increased customer balances as well as new customer accounts.~~2022. The ~~increase~~decrease included a ~~$2.0~~$1.3 billion ~~increase~~decrease in ~~non-interest bearing~~non-interest-bearing deposits ~~and~~partly offset by a ~~$4.9~~$1.1 billion increase in interest-bearing deposit accounts. Average ~~non-interest bearing~~non-interest-bearing deposits made up ~~41.1%~~38.9% and ~~43.2%~~41.8% of average total deposits during the ~~first nine~~three months ofended March 31, 2023 and 2022, ~~and 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 increased ~~$614.2~~$331.1 million, or ~~3.8%~~1.9%, from ~~$16.3~~$17.2 billion at December 31, ~~2021~~2022 to ~~$17.0~~$17.5 billion at September 30, 2022. As further discussed below, during the second quarter of 2020, we began originating loans to qualified small businesses under the Paycheck Protection Program (“PPP”) administered by the SBA under the provisions of the CARES Act. Excluding PPP loans, total loans would have otherwise increased $992.1 million, or 6.2%, from $15.9 billion at DecemberMarch 31, ~~2021 to $16.9 billion at September 30, 2022.~~2023. 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 ~~2021~~2022 Form 10-K for a more detailed discussion of our loan origination and risk management processes.

Commercial and Industrial. Commercial and industrial loans ~~increased $166.9 million, or 3.1%, from $5.4~~totaled $5.7 billion at both March 31, 2023 and December 31, ~~2021 to $5.5 billion at September 30,~~ 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).

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 $159.7~~increased $140.7 million, or ~~14.8%~~15.2%, from $925.7 million at December 31, 2022 to $1.1 billion at ~~December~~March 31, ~~2021 to~~

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~~$918.1 million at September 30, 2022. We~~2023. While we have recently made efforts to reduce our exposure to energy ~~loans. Nonetheless energy~~ loans, such loans nonetheless remain our largest industry concentration totaling 6.1% of total loans at March 31, 2023, up from 5.4% of total loans ~~(also 5.4% excluding PPP loans) at September 30, 2022, down from 6.6% of total loans (6.8% excluding PPP loans)~~ at December 31, ~~2021.~~2022. The average loan size, the significance of the portfolio and the specialized nature of the energy industry requires a highly prescriptive underwriting policy. Exceptions to this policy are rarely granted. Due to the large borrowing requirements of this customer base, the energy loan portfolio includes participations and SNCs.

Purchased Shared National Credits. Purchased shared national credits are participations purchased from upstream financial organizations and tend to be larger in size than our originated portfolio. Our purchased SNC portfolio totaled ~~$710.3~~$773.6 million at ~~September 30, 2022, increasing $11.9~~March 31, 2023, decreasing $16.9 million, or ~~1.7%~~2.1%, from ~~$698.4~~$790.5 million at December 31, ~~2021.~~2022. At ~~September 30, 2022, 29.6%~~March 31, 2023, 32.0% of outstanding purchased SNCs were related to the construction industry while ~~23.4%~~21.5% were related to the energy industry, ~~15.5%~~12.2% were related to the financial services industry and ~~11.7%~~12.1% were related to the real estate management industry. The remaining

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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 ~~$654.7~~$89.0 million, or ~~8.6%~~1.1%, from ~~$7.6~~$8.2 billion at December 31, ~~2021~~2022 to ~~$8.2~~$8.3 billion at ~~September 30, 2022.~~March 31, 2023. Commercial real estate loans represented ~~82.8%~~80.6% of total real estate loans at ~~September 30, 2022~~March 31, 2023 compared to ~~84.3%~~81.6% at December 31, ~~2021.~~2022. 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. Consequently, these loans must undergo the analysis and underwriting process of a commercial and industrial loan, as well as that of a real estate loan. At ~~September 30, 2022,~~March 31, 2023, approximately ~~49.5%~~51.3% 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 real estate loan portfolio increased ~~$304.9~~$143.3 million, or ~~21.6%~~7.8%, from ~~$1.4~~$1.8 billion at December 31, ~~2021~~2022 to ~~$1.7~~$2.0 billion at ~~September 30, 2022.~~March 31, 2023. Combined, home equity loans and lines of credit made up ~~61.9%~~61.5% and ~~59.8%~~61.9% of the consumer real estate loan total at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. We offer home equity loans up to 80% of the estimated value of the personal residence of the borrower, less the value of existing mortgages and home improvement loans. ~~We have~~Prior to 2023, we did not generally ~~originated~~originate 1-4 family mortgage ~~loans since 2000;~~loans; however, from time to time, we ~~invested~~did invest in such loans to meet the needs of our customers or for other regulatory compliance purposes. ~~Nonetheless,~~During the first quarter of 2023, we began offering 1-4 family mortgage loans to our employees. We expect to begin ~~regular~~limited production of 1-4 family mortgage loans for customers in the second quarter of 2023. Our 1-4 family mortgage loan production is intended to be for portfolio investment ~~purposes in the first half~~purposes. Nonetheless, 1-4 family mortgage loans are not a significant component of ~~2023.~~our consumer real estate portfolio. Consumer and other loans ~~increased $25.2~~decreased $29.4 million, or ~~5.3%~~6.0%, from December 31, ~~2021.~~2022. The consumer and other loan portfolio primarily consists of automobile loans, overdrafts, unsecured revolving credit products, personal loans secured by cash and cash equivalents and other similar types of credit facilities.

Paycheck Protection Program. We have originated loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act. Loans covered by the PPP may be eligible for loan forgiveness for certain costs incurred related to payroll, group health care benefit costs and qualifying mortgage, rent and utility payments. The remaining loan balance after forgiveness of any amounts is still fully guaranteed by the SBA. Refer to the ~~2021~~2022 Form 10-K for additional details.

During the nine months ended September 30, 2022, we recognized approximately $2.6 million in PPP loan related deferred processing fees (net of amortization of related deferred origination costs) as a yield adjustment and this amount is included in interest income on loans. During the nine months ended September 30, 2021, we recognized approximately $88.9 million 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 3.00% during the nine months ended September 30, 2022, and 6.23% during the nine months ended September 30, 2021 compared to the stated interest rate of 1.0% on these loans. PPP 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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Accruing Past Due Loans. Accruing past due loans are presented in the following tables. Also see Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.


				Accruing Loans 30-89 Days Past Due				Accruing Loans 90 or More Days Past Due				Total Accruing Past Due Loans							Accruing Loans 30-89 Days Past Due				Accruing Loans 90 or More Days Past Due				Total Accruing Past Due Loans
		Total Loans		Amount		Percent of Loans in Category		Amount		Percent of Loans in Category		Amount		Percent of Loans in Category			Total Loans		Amount		Percent of Loans in Category		Amount		Percent of Loans in Category		Amount		Percent of Loans in Category
September 30, 2022
March 31, 2023																March 31, 2023
Commercial and industrial	Commercial and industrial	$	5,531,820	$	26,229	0.47	%	$	2,443	0.04	%	$	28,672	0.51	%	Commercial and industrial	$	5,668,697	$	27,524	0.49	%	$	1,876	0.03	%	$	29,400	0.52	%
Energy	Energy	918,125		2,211		0.24		—		—		2,211		0.24		Energy	1,066,388		2,561		0.24		—		—		2,561		0.24
Paycheck Protection Program	Paycheck Protection Program	51,048		13,841		27.11		7,879		15.43		21,720		42.54		Paycheck Protection Program	28,497		484		1.70		5,748		20.17		6,232		21.87
Commercial real estate:	Commercial real estate:															Commercial real estate:
Buildings, land and other	Buildings, land and other	6,673,927		19,572		0.29		1,731		0.03		21,303		0.32		Buildings, land and other	6,789,838		38,751		0.57		112		—		38,863		0.57
Construction	Construction	1,557,415		1,238		0.08		—		—		1,238		0.08		Construction	1,482,458		1,647		0.11		118		0.01		1,765		0.12
Consumer real estate	Consumer real estate	1,715,736		6,537		0.38		1,803		0.11		8,340		0.49		Consumer real estate	1,986,859		13,790		0.69		2,013		0.10		15,803		0.79
Consumer and other	Consumer and other	502,558		5,611		1.12		491		0.10		6,102		1.22		Consumer and other	463,283		4,430		0.96		98		0.02		4,528		0.98
Total	Total	$	16,950,629	$	75,239	0.44		$	14,347	0.08		$	89,586	0.52		Total	$	17,486,020	$	89,187	0.51		$	9,965	0.06		$	99,152	0.57
Excluding PPP loans	Excluding PPP loans	$	16,899,581	$	61,398	0.36		$	6,468	0.04		$	67,866	0.40		Excluding PPP loans	$	17,457,523	$	88,703	0.51		$	4,217	0.02		$	92,920	0.53
December 31, 2021
Commercial and industrial		$	5,364,954	$	29,491	0.55	%	$	7,802	0.15	%	$	37,293	0.70	%
Energy		1,077,792		1,353		0.13		215		0.02		1,568		0.15
Paycheck Protection Program		428,882		4,979		1.16		18,766		4.38		23,745		5.54
Commercial real estate:
Buildings, land and other		6,272,339		37,033		0.59		8,687		0.14		45,720		0.73
Construction		1,304,271		188		0.01		—		—		188		0.01
Consumer real estate		1,410,790		4,866		0.34		2,177		0.15		7,043		0.49
Consumer and other		477,369		4,185		0.88		1,076		0.23		5,261		1.11
Total		$	16,336,397	$	82,095	0.50		$	38,723	0.24		$	120,818	0.74
Excluding PPP loans		$	15,907,515	$	77,116	0.48		$	19,957	0.13		$	97,073	0.61

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			Accruing Loans 30-89 Days Past Due				Accruing Loans 90 or More Days Past Due				Total Accruing Past Due Loans
	Total Loans		Amount		Percent of Loans in Category		Amount		Percent of Loans in Category		Amount		Percent of Loans in Category
December 31, 2022
Commercial and industrial	$	5,674,798	$	30,769	0.54	%	$	5,560	0.10	%	$	36,329	0.64	%
Energy	925,729		1,472		0.16		—		—		1,472		0.16
Paycheck Protection Program	34,852		5,321		15.27		13,867		39.79		19,188		55.06
Commercial real estate:
Buildings, land and other	6,706,078		23,561		0.35		5,664		0.08		29,225		0.43
Construction	1,477,247		—		—		—		—		—		—
Consumer real estate	1,843,539		7,856		0.43		2,398		0.13		10,254		0.56
Consumer and other	492,726		5,155		1.05		311		0.06		5,466		1.11
Total	$	17,154,969	$	74,134	0.43		$	27,800	0.16		$	101,934	0.59
Excluding PPP loans	$	17,120,117	$	68,813	0.40		$	13,933	0.08		$	82,746	0.48

Accruing past due loans at ~~September 30, 2022~~March 31, 2023 decreased ~~$31.2~~$2.8 million compared to December 31, ~~2021.~~2022. The decrease was primarily related to decreases in past due ~~non-construction related commercial real estate~~PPP loans (down ~~$24.4~~$13.0 million), and past due commercial and industrial loans (down ~~$8.6~~$6.9 million) mostly offset by increases in past due commercial real estate loans (up $11.4 million) and past due ~~PPP~~consumer real estate loans ~~(down $2.0~~(up $5.5 million). PPP loans are fully guaranteed by the SBA and we expect to collect all amounts due related to these loans. Excluding PPP loans, accruing past due loans ~~decreased $29.2~~increased $10.2 million.

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Non-Accrual Loans. Non-accrual loans are presented in the table below. Also see in Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.


		September 30, 2022							December 31, 2021								March 31, 2023							December 31, 2022
				Non-Accrual Loans							Non-Accrual Loans								Non-Accrual Loans							Non-Accrual Loans
		Total Loans		Amount			Percent of Loans in Category		Total Loans		Amount			Percent of Loans in Category			Total Loans		Amount			Percent of Loans in Category		Total Loans		Amount			Percent of Loans in Category
Commercial and industrial	Commercial and industrial	$	5,531,820	$	7,267		0.13	%	$	5,364,954	$	22,582		0.42	%	Commercial and industrial	$	5,668,697	$	10,494		0.19	%	$	5,674,798	$	18,130		0.32	%
Energy	Energy	918,125		16,134			1.76		1,077,792		14,433			1.34		Energy	1,066,388		22,349			2.10		925,729		15,224			1.64
Paycheck Protection Program	Paycheck Protection Program	51,048		—			—		428,882		—			—		Paycheck Protection Program	28,497		—			—		34,852		—			—
Commercial real estate:	Commercial real estate:															Commercial real estate:
Buildings, land and other	Buildings, land and other	6,673,927		5,489			0.08		6,272,339		15,297			0.24		Buildings, land and other	6,789,838		4,604			0.07		6,706,078		3,552			0.05
Construction	Construction	1,557,415		—			—		1,304,271		948			0.07		Construction	1,482,458		—			—		1,477,247		—			—
Consumer real estate	Consumer real estate	1,715,736		1,014			0.06		1,410,790		440			0.03		Consumer real estate	1,986,859		963			0.05		1,843,539		927			0.05
Consumer and other	Consumer and other	502,558		—			—		477,369		13			—		Consumer and other	463,283		—			—		492,726		—			—
Total	Total	$	16,950,629	$	29,904		0.18		$	16,336,397	$	53,713		0.33		Total	$	17,486,020	$	38,410		0.22		$	17,154,969	$	37,833		0.22
Excluding PPP loans		$	16,899,581	$	29,904		0.18		$	15,907,515	$	53,713		0.34
Allowance for credit losses on loans	Allowance for credit losses on loans			$	234,315						$	248,666				Allowance for credit losses on loans			$	231,514						$	227,621
Ratio of allowance for credit losses on loans to non-accrual loans	Ratio of allowance for credit losses on loans to non-accrual loans			783.56		%					462.95		%			Ratio of allowance for credit losses on loans to non-accrual loans			602.74		%					601.65		%

Non-accrual loans at ~~September 30, 2022 decreased $23.8 million~~March 31, 2023 increased $577 thousand from December 31, ~~2021~~2022 primarily due to ~~decreases~~increases in non-accrual energy and commercial real estate loans mostly offset by a decrease in non-accrual commercial and industrial ~~loans and commercial real estate partially offset by an increase in non-accrual energy~~ loans. The ~~decreases were~~decrease in commercial and industrial was primarily related to principal payments, loans returning to accrual 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. There were no non-accrual commercial and industrial loans in excess of $5.0 million at ~~September 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022. Non-accrual energy loans included ~~two~~three credit relationships in excess of $5.0 million totaling ~~$11.8~~$18.1 million at ~~September 30, 2022. One~~March 31, 2023. Two of these credit relationships, which totaled ~~$6.7~~$10.3 million at ~~September 30, 2022, was~~ March 31, 2023, were

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previously reported as non-accrual with an aggregate balance of ~~$9.6~~$11.1 million at December 31, ~~2021.~~2022. The ~~decrease~~decreases in the aggregate balance of ~~this~~these credit relationship ~~was~~were related to principal payments made by ~~the borrower.~~these borrowers. Non-accrual real estate loans primarily consist of land development, 1-4 family residential construction credit relationships and loans secured by office buildings and religious facilities. There were no non-accrual commercial real estate loans in excess of $5.0 million at ~~September 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022.

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 authorities toward classification of assets. See our ~~2021~~2022 Form 10-K for additional information regarding our accounting policies related to credit losses.

~~Table~~ Also see Note 3 - Loans in the accompanying notes consolidated financial statements for information related to model updates during the first quarter of ~~Contents~~

2023.

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 Allocated		Percent of Loans in Each Category to Total Loans		Total Loans		Ratio of Allowance Allocated to Loans in Each Category			Amount of Allowance Allocated		Percent of Loans in Each Category to Total Loans		Total Loans		Ratio of Allowance Allocated to Loans in Each Category
September 30, 2022
March 31, 2023										March 31, 2023
Commercial and industrial	Commercial and industrial	$	98,830	32.6	%	$	5,531,820	1.79	%	Commercial and industrial	$	78,465	32.4	%	$	5,668,697	1.38	%
Energy	Energy	18,851		5.4		918,125		2.05		Energy	19,191		6.1		1,066,388		1.80
Paycheck Protection Program	Paycheck Protection Program	—		0.3		51,048		—		Paycheck Protection Program	—		0.2		28,497		—
Commercial real estate	Commercial real estate	100,607		48.6		8,231,342		1.22		Commercial real estate	115,693		47.3		8,272,296		1.40
Consumer real estate	Consumer real estate	8,035		10.1		1,715,736		0.47		Consumer real estate	9,708		11.4		1,986,859		0.49
Consumer and other	Consumer and other	7,992		3.0		502,558		1.59		Consumer and other	8,457		2.6		463,283		1.83
Total	Total	$	234,315	100.0	%	$	16,950,629	1.38		Total	$	231,514	100.0	%	$	17,486,020	1.32
Excluding PPP loans		$	234,315			$	16,899,581	1.39	%
December 31, 2021
December 31, 2022										December 31, 2022
Commercial and industrial	Commercial and industrial	$	72,091	32.9	%	$	5,364,954	1.34	%	Commercial and industrial	$	104,237	33.1	%	$	5,674,798	1.84	%
Energy	Energy	17,217		6.6		1,077,792		1.60		Energy	18,062		5.4		925,729		1.95
Paycheck Protection Program	Paycheck Protection Program	—		2.6		428,882		—		Paycheck Protection Program	—		0.2		34,852		—
Commercial real estate	Commercial real estate	144,936		46.4		7,576,610		1.91		Commercial real estate	90,301		47.7		8,183,325		1.10
Consumer real estate	Consumer real estate	6,585		8.6		1,410,790		0.47		Consumer real estate	8,004		10.7		1,843,539		0.43
Consumer and other	Consumer and other	7,837		2.9		477,369		1.64		Consumer and other	7,017		2.9		492,726		1.42
Total	Total	$	248,666	100.0	%	$	16,336,397	1.52		Total	$	227,621	100.0	%	$	17,154,969	1.33
Excluding PPP loans		$	248,666			$	15,907,515	1.56

The allowance allocated to commercial and industrial loans totaled ~~$98.8~~$78.5 million, or ~~1.79%~~1.38% of total commercial and industrial loans, at ~~September 30, 2022 increasing $26.7~~March 31, 2023 decreasing $25.8 million, or ~~37.1%~~24.7%, compared to ~~$72.1~~$104.2 million, or ~~1.34%~~1.84% of total commercial and industrial loans, at December 31, ~~2021.~~2022. Modeled expected credit losses ~~increased $10.7~~decreased $19.5 million while qualitative factor (“Q-Factor”) and other qualitative adjustments related to commercial and industrial loans ~~increased $25.3~~decreased $3.4 million. Specific allocations for commercial and industrial loans that were evaluated for expected credit losses on an individual basis decreased ~~$9.3~~$2.9 million from ~~$10.5~~$6.1 million at December 31, ~~2021~~2022 to ~~$1.3~~$3.2 million at ~~September 30, 2022.~~March 31, 2023. The decrease in specific allocations for commercial and industrial loans was primarily related to ~~principal payments received and~~ the recognition of charge-offs.

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The allowance allocated to energy loans totaled ~~$18.9~~$19.2 million, or ~~2.05%~~1.80% of total energy loans, at ~~September 30, 2022~~March 31, 2023 increasing ~~$1.6~~$1.1 million, or ~~9.5%~~6.3%, compared to ~~$17.2~~$18.1 million, or ~~1.60%~~1.95% of total energy loans, at December 31, ~~2021.~~2022. Modeled expected credit losses related to energy loans ~~increased $2.3~~decreased $3.5 million while Q-Factor and other qualitative adjustments related to energy loans ~~decreased $855 thousand.~~increased $4.2 million. Specific allocations for energy loans that were evaluated for expected credit losses on an individual basis totaled ~~$5.7~~$4.8 million at ~~September 30, 2022~~March 31, 2023 increasing ~~$195~~$431 thousand compared to ~~$5.5~~$4.4 million on December 31, ~~2021.~~2022.

The allowance allocated to commercial real estate loans totaled ~~$100.6~~$115.7 million, or ~~1.22%~~1.40% of total commercial real estate loans, at ~~September 30, 2022 decreasing $44.3~~March 31, 2023 increasing $25.4 million, or ~~30.6%~~28.1%, compared to ~~$144.9~~$90.3 million, or ~~1.91%~~1.10% of total commercial real estate loans, at December 31, ~~2021.~~2022. Modeled expected credit losses related to commercial real estate loans ~~increased $7.7~~decreased $12.3 million while Q-Factor and other qualitative adjustments related to commercial real estate loans ~~decreased $53.6~~increased $39.3 million. Specific allocations for commercial real estate loans that were evaluated for expected credit losses on an individual basis ~~increased~~decreased from ~~$400 thousand~~$1.7 million at December 31, ~~2021~~2022 to ~~$1.9 million~~$126 thousand at ~~September 30, 2022.~~March 31, 2023. The decrease in specific allocations for commercial real estate loans was related to principal payments received and a loan no longer requiring a specific allocation.

The allowance allocated to consumer real estate loans totaled ~~$8.0~~$9.7 million, or ~~0.47%~~0.49% of total consumer real estate loans, at ~~September 30, 2022~~March 31, 2023 increasing ~~$1.5~~$1.7 million, or ~~22.0%~~21.3%, compared to ~~$6.6~~$8.0 million, or ~~0.47%~~0.43% of total consumer real estate loans, at December 31, ~~2021.~~2022. Modeled expected credit losses related to consumer real estate loans increased ~~$1.3~~$1.5 million while Q-Factor and other qualitative adjustments related to consumer real estate loans increased ~~$91~~$171 thousand.

The allowance allocated to consumer loans totaled ~~$8.0~~$8.5 million, or ~~1.59%~~1.83% of total consumer loans, at ~~September 30, 2022~~March 31, 2023 increasing ~~$155 thousand,~~$1.4 million, or ~~2.0%~~20.5%, compared to ~~$7.8~~$7.0 million, or ~~1.64%~~1.42% of total consumer loans, at December 31, ~~2021.~~2022. Modeled expected credit losses related to consumer loans decreased ~~$938~~$570 thousand while Q-Factor and other qualitative

~~Table of Contents~~

adjustments increased ~~$1.1~~$2.0 million, which was primarily due to an increase in the consumer overlay, which is further discussed below.

As more fully described in our ~~2021~~2022 Form 10-K, we measure expected credit losses over the life of each loan utilizing a combination of models which measure probability of default and loss given default, among other things. The measurement of expected credit losses is impacted by loan/borrower attributes and certain macroeconomic variables. Models are adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period.

In estimating expected credit losses as of ~~September 30, 2022,~~March 31, 2023, we utilized the Moody’s Analytics September 2022 Baseline Scenario (the “September 2022 Baseline Scenario”) to forecast the macroeconomic variables used in our models. The September 2022 Baseline Scenario was based on the review of a variety of surveys of baseline forecasts of the U.S. economy. The September 2022 Baseline Scenario projections included, among other things, (i) U.S. Nominal Gross Domestic Product annualized quarterly growth rate of 4.2% in the fourth quarter of 2022 followed by average annualized quarterly growth rates of 4.7% inMarch 2023 and 4.9% through the end of the forecast period in the third quarter of 2024; (ii) average U.S. unemployment rate of 3.7% in the fourth quarter of 2022 followed by average annualized quarterly rates of 3.9% in 2023 and 4.0% through the end of the forecast period in the third quarter of 2024; (iii) average Texas unemployment rate of 4.2% in the fourth quarter of 2022 followed by average annualized quarterly rates of 4.1% in 2023 and 3.9% through the end of the forecast period in the third quarter of 2024; (iv) projected average 10 year Treasury rate of 3.1% in the fourth quarter of 2022, and increasing to 3.5% by the end of the forecast period in the third quarter of 2024.

~~In estimating expected credit losses as of December 31, 2021, we utilized the Moody’s Analytics December 2021~~ Consensus Scenario (the ~~“December 2021~~“March 2023 Consensus Scenario”) to forecast the macroeconomic variables used in our models. The ~~December 2021~~March 2023 Consensus Scenario was based on the review of a variety of surveys of baseline forecasts of the U.S. economy. The ~~December 2021~~March 2023 Consensus Scenario projections included, among other things, (i) U.S. Nominal Gross Domestic Product annualized quarterly growth rate of ~~6.4%~~2.83% during the remainder of 2023 followed by average annualized quarterly growth rates of 3.85% in 2024 and 4.80% through the end of the forecast period in the first quarter of 2025; (ii) average U.S. unemployment rate of 4.38% during the remainder of 2023 followed by average annualized quarterly rates of 4.70% in 2024 and 4.46% through the end of the forecast period in the first quarter of 2025; (iii) average Texas unemployment rate of 4.45% during the remainder of 2023 followed by average annualized quarterly rates of 4.50% in 2024 and 4.27% through the end of the forecast period in the first quarter of 2025; (iv) projected average 10 year Treasury rate of 3.77% during the remainder of 2023, decreasing to 3.41% during 2024 and 3.32% by the end of the forecast period in the first quarter of 2025 and (v) average oil price of $87 per barrel during the remainder of 2023 decreasing to $83 per barrel in 2024 and $78 per barrel by the end of the forecast period in the first quarter of 2025.

In estimating expected credit losses as of December 31, 2022, we utilized the Moody’s Analytics December 2022 Baseline Scenario (the “December 2022 Baseline Scenario”) to forecast the macroeconomic variables used in our models. The December 2022 Baseline Scenario was based on the most likely outcome based on prevailing economic conditions and Moody's forecast of the U.S. economy. The December 2022 Baseline Scenario projections included, among other things, (i) U.S. Nominal Gross Domestic Product annualized quarterly growth rate of 2.65% in the first quarter of 2023, followed by annualized quarterly growth rates in the range of ~~3.8%~~3.62% to ~~5.4%~~4.50% during the remainder of ~~2022~~2023 and an average annualized growth rate of ~~4.8%~~4.79% through the end of the forecast period in the fourth quarter of ~~2023;~~2024; (ii) U.S. unemployment rate of ~~4.3%~~3.80% in the first quarter of ~~2022 improving~~2023 and an average quarterly U.S. unemployment rate of 4.06% through the end of the forecast period in the fourth quarter of 2024; (iii) Texas unemployment rate of 4.10% in the first quarter of 2023 and an average quarterly Texas unemployment rate of 4.04% through the end of the forecast period in the fourth quarter of 2024; (iv) projected average 10 year Treasury rate of 4.03% in the first quarter of 2023 and average projected rates of 4.25% during the remainder of 2023 and 3.96% in 2024; and (v) average oil price of $93 per barrel in the first quarter of 2023 decreasing to ~~3.7%~~$67 per barrel by the end of the forecast period in the fourth quarter of ~~2023 with Texas unemployment rates slightly higher at those dates; and (iii) projected average 10 year Treasury rate~~2024.

Table of ~~1.59% in the first quarter of 2022, increasing to average projected rates of 1.75% during the remainder of 2022 and 2.10% in 2023.~~Contents

The overall loan portfolio ~~excluding PPP loans which are fully guaranteed by the SBA,~~ as of ~~September 30, 2022~~March 31, 2023 increased ~~$992.1~~$331.1 million, or ~~6.2%~~1.9%, compared to December 31, ~~2021.~~2022. This increase included a ~~$654.7~~$143.3 million, or ~~8.6%, increase in commercial real estate loans; a $304.9 million, or 21.6%~~7.8%, increase in consumer real estate loans; a ~~$166.9~~$140.7 million, or ~~3.1%~~15.2%, increase in energy loans; and an $89.0 million, or 1.1%, increase in commercial ~~and industrial~~real estate loans; ~~and~~partly offset by a ~~$25.2~~$29.4 million, or ~~5.3%~~6.0%, ~~increase~~decrease in consumer and other loans ~~partly offset by~~and a ~~$159.7~~$6.1 million, or ~~14.8%~~0.1%, decrease in ~~energy~~commercial and industrial loans.

The weighted average risk grade for commercial and industrial loans ~~increased to 6.41~~was 6.39 at ~~September 30, 2022 compared to 6.22 at~~both March 31, 2023 and December 31, ~~2021. This increase was primarily due to~~2022 as the impact of an increase in the weighted-average risk grade of pass-grade commercial and industrial loans, which increased to 6.25 at ~~September 30, 2022~~March 31, 2023 from ~~6.01~~6.24 at December 31, ~~2021. Commercial and industrial~~2022, was offset by a decrease in the weighted-average risk grade of classified loans, ~~graded “watch” and “special mention” (risk grades 9 and 10)~~which decreased ~~$9.3 million during the first nine months of 2022 while classified commercial and industrial loans decreased $16.8 million.~~to 11.22 at March 31, 2023 from 11.43 at December 31, 2022. Classified loans consist of loans having a risk grade of 11, 12 or 13. The weighted-average risk grade for energy loans ~~decreased~~increased to ~~5.86~~5.99 at ~~September 30, 2022~~March 31, 2023 from ~~6.06~~5.67 at December 31, ~~2021.~~2022. The ~~decrease~~increase in the weighted average risk grade was partly related to a ~~$24.0~~$27.2 million ~~decrease~~increase in energy loans graded “watch” and “special mention” (risk grades 9 and 10). Additionally, pass grade energy loans ~~decreased $134.0~~increased $114.4 million ~~and~~while the weighted-average risk grade of pass grade energy loans ~~decreased~~increased from ~~5.78~~5.44 at December 31, ~~2021~~2022 to ~~5.61~~5.71 at ~~September 30, 2022.~~March 31, 2023. The weighted average risk grade for commercial real estate loans ~~decreased~~increased to ~~7.11~~7.16 at ~~September 30, 2022~~March 31, 2023 from ~~7.19~~7.10 at December 31, ~~2021.~~2022. Pass grade commercial real estate loans increased ~~$742.4~~$29.6 million while the weighted-average risk grade of such loans ~~decreased~~increased from ~~6.92~~6.96 at December 31, ~~2021~~2022 to ~~6.90 September 30, 2022.~~7.00 March 31, 2023. Commercial real estate loans graded as “watch” and “special mention” decreased ~~$85.8~~$20.2 million ~~and~~while classified commercial real estate loans ~~decreased $1.9~~increased $79.5 million.

As noted above, our credit loss models utilized the economic forecasts in the Moody's ~~September 2022 Baseline~~March 2023 Consensus Scenario for our estimated expected credit losses as of ~~September 30, 2022~~March 31, 2023 and the ~~Moody's December 2021 Consensus~~Moody’s Baseline Scenario for our estimate of expected credit losses as of December 31, ~~2021.~~2022. We qualitatively adjusted the model results based on these scenarios for various risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor, or Q-Factor, adjustments are discussed below.

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Q-Factor adjustments are based upon management's judgment and current assessment as to the impact of risks related to changes in lending policies and procedures; economic and business conditions; loan portfolio attributes and credit concentrations; and external factors, among other things, that are not already captured within the modeling inputs, assumptions and other processes. Management assesses the potential impact of such items within a range of severely negative impact to positive impact and adjusts the modeled expected credit loss by an aggregate adjustment percentage based upon the assessment. As a result of this assessment as of ~~September 30, 2022,~~March 31, 2023, modeled expected credit losses were adjusted upwards by a weighted-average Q-Factor adjustment of approximately ~~2.6%~~4.2%, resulting in a ~~$2.6~~$3.0 million total adjustment, compared to 2.3% at December 31, ~~2021,~~2022, which resulted in a ~~$1.8~~$2.3 million total adjustment. The ~~weighted-average~~increase in the Q-Factor adjustment ~~at September 30, 2022~~percentage as of March 31, 2023 was ~~based on a limited negative expected impact on our commercial and industrial and commercial real estate loan portfolios~~largely related to ~~changes in loan portfolio concentrations;~~ a ~~limited~~generally more negative expected impact on all of our loan portfolios related to changes in the volumes and severity of loan delinquencies, changes in risk grades and adverse classifications; a limited negative expected impact on our commercial and consumer real estate portfolios related to the potential deterioration of collateral values (no expected impact related to our commercial and industrial and consumer portfolios); a negative expected impactoutlook associated with national, regional and local economic and business conditions and developments that affect the collectability of loans; a severely negative expected impact from other risk factors associated with our commercial real estate construction and land loan portfolios, particularly the risks related to expected extensions; and limited negative impact to our commercial real estate construction, non-owner occupied and owner occupied loan portfolios, as well as a negative impact to our consumerchanges in loan portfolio ~~related to~~concentrations; changes in ~~lending policies, procedures, underwriting standards~~the volumes and severity of loan ~~portfolio attributes,~~delinquencies; changes in risk grades and adverse classifications; and the potential for deterioration of collateral values, among other things.

We have also provided additional qualitative adjustments, or management overlays, as of ~~September 30, 2022~~March 31, 2023 as management believes there are still significant risks impacting certain categories of our loan portfolio. Q-Factor and other qualitative adjustments as of ~~September 30, 2022~~March 31, 2023 are detailed in the table below.


		Q-Factor Adjustment		Model Overlays		Office Building Overlays		Down-Side Scenario Overlay		Credit Concentration Overlays		Consumer Overlay		Total			Q-Factor Adjustment		Model Overlays		Office Building Overlays		Down-Side Scenario Overlay		Credit Concentration Overlays		Consumer Overlay		Total
Commercial and industrial	Commercial and industrial	$	1,152	$	—	$	—	$	33,344	$	5,435	$	—	$	39,931	Commercial and industrial	$	1,486	$	—	$	—	$	28,233	$	3,086	$	—	$	32,805
Energy	Energy	173		—		—		—		4,346		—		4,519		Energy	176		—		—		—		9,167		—		9,343
Commercial real estate:	Commercial real estate:															Commercial real estate:
Owner occupied	Owner occupied	445		18,992		—		—		1,635		—		21,072		Owner occupied	422		23,910		—		—		626		—		24,958
Non-owner occupied	Non-owner occupied	80		10,672		23,590		—		586		—		34,928		Non-owner occupied	197		29,028		13,371		—		949		—		43,545
Construction	Construction	587		11,202		5,710		—		808		—		18,307		Construction	385		28,564		2,935		—		441		—		32,325
Consumer real estate	Consumer real estate	156		—		—		—		—		—		156		Consumer real estate	328		—		—		—		—		—		328
Consumer and other	Consumer and other	33		—		—		—		—		2,500		2,533		Consumer and other	44		—		—		—		—		4,000		4,044
Total	Total	$	2,626	$	40,866	$	29,300	$	33,344	$	12,810	$	2,500	$	121,446	Total	$	3,038	$	81,502	$	16,306	$	28,233	$	14,269	$	4,000	$	147,348

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Model overlays are qualitative adjustments to address the ~~effect~~effects of ~~unusually large positive changes in certain economic variables used by~~risks not captured within our commercial real estate credit loss models. These adjustments are determined based upon minimum reserve ratios for our commercial real estate loans. In the case of our commercial real estate - owner occupied loan portfolio, we determined a minimum reserve ratio is appropriate to address the effect of the model's over-sensitivity to positive changes in certain economic variables. After analysis and benchmarking against peer bank data, we believe the modeled results may be overly optimistic and not appropriately capturing downside risk. As such, we determined that the appropriate forecasted loss rate for our owner-occupied commercial real estate loan portfolio should be more closely aligned with that of our commercial and industrial loan portfolio. In the case of our commercial real estate - non-owner occupied and commercial real estate - construction loan ~~portfolios.~~portfolios, we determined minimum reserve ratios are appropriate as we believe the modeled results are not appropriately capturing the downside risk associated with our borrowers' ability to access the capital markets for the sale or refinancing of investor real estate and assets currently under construction. We believe access to capital may be impaired for a significant amount of time. Accordingly, this would require secondary sources of liquidity and capital to support completed projects that may take considerably longer to stabilize than originally underwritten. Furthermore, rapidly rising interest rates have presented a new emerging risk as most non-owner occupied and construction loans are originated with floating interest rates.

Office building overlays are qualitative adjustments to address longer-term concerns over the utilization of commercial office space which could impact the long-term performance of some types of office properties within our commercial real estate loan portfolio. These adjustments are determined based upon minimum reserve ratios for loans within our commercial real estate - non-owner occupied and commercial real estate - construction loan portfolios that have risk grades of 8 or worse.

The down-side scenario overlay is a qualitative adjustment for our commercial and industrial loan portfolio to address the significant risk of economic recession as a result of inflation; rising interest rates; labor shortages; disruption in financial markets and global supply chains; further oil price volatility; and the current or anticipated impact of military conflict, including the current war between Russia and Ukraine, terrorism or other geopolitical events. Factors such as these are outside of our control but nonetheless affect customer income levels and could alter anticipated customer behavior, including borrowing, repayment, investment and deposit practices. To determine this qualitative adjustment, we use an alternative, more pessimistic economic scenario to forecast the macroeconomic variables used in our models. As of ~~September 30, 2022,~~March 31, 2023, we used the Moody’s Analytics ~~August 2022~~March S3 Alternative Scenario Downside - 90th Percentile (the ~~“August 2022~~“March 2023 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.~~level, with the exception of loans with risk grades of 8 or 9 for which we assume such loans are downgraded by two risk grade levels. 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.

~~Table of Contents~~

Credit concentration overlays are qualitative adjustments based upon statistical analysis to address relationship exposure concentrations within our loan portfolio. Variations in loan portfolio concentrations over time cause expected credit losses within our existing portfolio to differ from historical loss experience. Given that the allowance for credit losses on loans reflects expected credit losses within our loan portfolio and the fact that these expected credit losses are uncertain as to nature, timing and amount, management believes that segments with higher concentration risk are more likely to experience a high loss event. Due to the fact that a significant portion of our loan portfolio is concentrated in large credit relationships and because of large, concentrated credit losses in recent years, management made the qualitative adjustments detailed in the table above to address the risk associated with such a relationship deteriorating to a loss event.

The consumer overlay is a qualitative adjustment for our consumer and other loan portfolio to address the risk associated with the level of unsecured loans within this portfolio and other risk factors. Unsecured consumer loans have an elevated risk of loss in times of economic stress as these loans lack a secondary source of repayment in the form of hard collateral. This adjustment was determined by analyzing our consumer loan charge-off trends as well as those of the general banking industry. Management deemed it appropriate to consider an additional overlay to the modeled forecasted losses for the unsecured consumer portfolio.

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As of December 31, ~~2021,~~2022, we provided qualitative adjustments, as detailed in the table below. Further information regarding these qualitative adjustments is provided in our ~~2021~~2022 Form 10-K.

Q-Factor Adjustment Model Overlays Office Building Overlays Small Business Overlay COVID-19 Related Overlays Credit Concentration Overlays Consumer Overlay Total
Commercial and industrial $ 939 $ — $ — $ 3,956 $ 4,715 $ 4,999 $ — $ 14,609
Energy 127 — — — — 5,247 — 5,374
Commercial real estate:
Owner occupied 198 31,806 — — 7,397 1,320 — 40,721
Non-owner occupied 45 7,762 27,860 — 30,940 731 — 67,338
Construction 383 11,212 5,544 — 2,151 511 — 19,801
Consumer real estate 65 — — — — — — 65
Consumer and other 8 — — — — — 1,432 1,440
Total $ 1,765 $ 50,780 $ 33,404 $ 3,956 $ 45,203 $ 12,808 $ 1,432 $ 149,348

~~Table of Contents~~


	Q-Factor Adjustment		Model Overlays		Office Building Overlays		Down-Side Scenario Overlay		Credit Concentration Overlays		Consumer Overlay		Total
Commercial and industrial	$	929	$	—	$	—	$	29,632	$	5,676	$	—	$	36,237
Energy	128		—		—		—		5,020		—		5,148
Commercial real estate:
Owner occupied	318		19,708		—		—		1,718		—		21,744
Non-owner occupied	95		10,472		16,557		—		487		—		27,611
Construction	660		7,905		3,122		—		530		—		12,217
Consumer real estate	157		—		—		—		—		—		157
Consumer and other	34		—		—		—		—		2,000		2,034
Total	$	2,321	$	38,085	$	19,679	$	29,632	$	13,431	$	2,000	$	105,148

Additional information related to credit loss expense and net (charge-offs) recoveries is presented in the tables below. Also see Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.


		Credit Loss Expense (Benefit)		Net (Charge-Offs) Recoveries		Average Loans		Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans			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, 2022
March 31, 2023										March 31, 2023
Commercial and industrial	Commercial and industrial	$	10,844	$	716	$	5,501,675	0.05	%	Commercial and industrial	$	(20,684)	$	(5,088)	$	5,653,233	(0.37)	%
Energy	Energy	2,491		93		971,418		0.04		Energy	966		163		1,016,325		0.07
Paycheck Protection Program	Paycheck Protection Program	—		—		70,896		—		Paycheck Protection Program	—		—		31,601		—
Commercial real estate	Commercial real estate	(16,522)		23		8,147,431		—		Commercial real estate	25,361		31		8,223,698		—
Consumer real estate	Consumer real estate	940		241		1,630,568		0.06		Consumer real estate	1,283		421		1,911,249		0.09
Consumer and other	Consumer and other	(216)		(3,927)		500,945		(3.11)		Consumer and other	5,749		(4,309)		482,955		(3.62)
Total	Total	$	(2,463)	$	(2,854)	$	16,822,933	(0.07)		Total	$	12,675	$	(8,782)	$	17,319,061	(0.21)
Excluding PPP loans		$	(2,463)	$	(2,854)	$	16,752,037	(0.07)
September 30, 2021
March 31, 2022										March 31, 2022
Commercial and industrial	Commercial and industrial	$	(1,020)	$	(485)	$	4,823,302	(0.04)	%	Commercial and industrial	$	17,561	$	(2,626)	$	5,466,467	(0.19)	%
Energy	Energy	(7,720)		159		968,044		0.07		Energy	(2,044)		249		1,055,021		0.10
Paycheck Protection Program	Paycheck Protection Program	—		—		1,364,945		—		Paycheck Protection Program	—		—		302,431		—
Commercial real estate	Commercial real estate	4,007		54		7,194,723		—		Commercial real estate	(15,609)		(373)		7,666,754		(0.02)
Consumer real estate	Consumer real estate	(982)		857		1,353,830		0.25		Consumer real estate	(26)		(200)		1,422,077		(0.06)
Consumer and other	Consumer and other	2,692		(2,700)		484,490		(2.21)		Consumer and other	4,582		(3,345)		473,708		(2.86)
Total	Total	$	(3,023)	$	(2,115)	$	16,189,334	(0.05)		Total	$	4,464	$	(6,295)	$	16,386,458	(0.16)
Excluding PPP loans		$	(3,023)	$	(2,115)	$	14,824,389	(0.06)

Nine months ended:
September 30, 2022
Commercial and industrial		$	29,347	$	(2,608)	$	5,495,705	(0.06)	%
Energy		874		760		1,021,927		0.10
Paycheck Protection Program		—		—		171,591		—
Commercial real estate		(44,363)		34		7,932,491		—
Consumer real estate		1,497		(47)		1,516,912		—
Consumer and other		10,250		(10,095)		490,933		(2.75)
Total		$	(2,395)	$	(11,956)	$	16,629,559	(0.10)
Excluding PPP loans		$	(2,395)	$	(11,956)	$	16,457,968	(0.10)
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 estate		16,583		579		7,116,541		0.01
Consumer real estate		(3,093)		1,196		1,339,487		0.12
Consumer and other		7,042		(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)

We recorded a net credit loss ~~benefit~~expense related to loans totaling ~~$2.4~~$12.7 million for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 while we recorded a net credit loss ~~benefit~~expense totaling ~~$7.4~~$4.5 million during the same period in ~~2021.~~2022. Net credit loss expense/benefit for each portfolio segment reflects the amount needed to adjust the allowance for credit losses allocated to that segment to the level of expected credit losses determined under our allowance methodology after net charge-offs have been recognized.

The net credit loss ~~benefit~~expense related to loans during the first ~~nine~~three months of ~~2022~~2023 primarily reflects ~~a decrease~~an increase in expected credit losses associated with commercial real estate loans, primarily related to ~~a decrease in expected credit losses related to certain pandemic impacted industries and a reduction~~increases in the minimum reserve ~~ratio~~ratios for our commercial real estate - ~~owner~~non-owner occupied ~~portfolio.~~and construction portfolios. The net credit loss expense related to loans during the first three months of 2023 also reflects charge-off trends related to consumer and other loans and the additional expected credit losses associated with our consumer real estate; consumer and other; and energy loan portfolios. The impact of ~~this decrease~~these items was partly offset by ~~an increase~~a decrease in expected credit losses associated with commercial and industrial loans, primarily related to a decrease in modeled expected losses and decreases in the credit concentration and down-side scenario ~~overlay discussed above, and increases in modeled losses for our commercial and industrial, energy, commercial real estate and consumer real estate portfolios.~~ overlays.

The ratio of the

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allowance for credit losses on loans to total loans was ~~1.38% (1.39% excluding PPP loans)~~1.32% at ~~September 30, 2022~~March 31, 2023 compared to ~~1.52% (1.56% excluding PPP loans)~~1.33% at December 31, ~~2021.~~2022. Management believes 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 expected credit losses could also change, which could affect the level of future credit loss expense related to loans.

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Allowance for Credit Losses - Off-Balance-Sheet Credit Exposures. The allowance for credit losses on off-balance-sheet credit exposures totaled approximately ~~$52.7~~$54.9 million and ~~$50.3~~$58.6 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. The level of the allowance for credit losses on off-balance-sheet credit exposures depends upon the volume of outstanding commitments, underlying risk grades, the expected utilization of available funds and forecasted economic conditions impacting our loan portfolio. We recognized a net credit loss benefit related to off-balance-sheet credit exposures totaling $3.7 million during the three months ended March 31, 2023 compared to a net credit loss benefit of $4.5 million during the same period in 2022. Our policies and methodology used to estimate the allowance for credit losses on off-balance-sheet credit exposures are further described in our ~~2021~~2022 Form 10-K. ~~We recognized~~This methodology was also impacted by the model updates described in Note 3 - Loans in the accompanying notes to consolidated financial statements elsewhere in this report. The overall approximate impact of the model updates was a ~~net~~$19.0 million decrease in modeled expected credit ~~loss expense related to~~losses for off-balance-sheet credit exposures, ~~totaling $2.4 million during~~though the ~~nine months ended September 30, 2022 compared~~impact of this decrease was largely offset with a qualitative adjustment similar to ~~a net credit loss expense of $7.5 million during~~ the ~~same period in 2021.~~model overlay described above for commercial real estate - construction loans.

Capital and Liquidity

Capital. Shareholders’ equity totaled ~~$2.8~~$3.5 billion and ~~$4.4~~$3.1 billion at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. The ~~decrease~~increase was ~~primarily~~partly related to the accumulated other comprehensive income/loss component of shareholders’ equity which decreased to a net, after-tax, unrealized loss of ~~$1.5~~$1.1 billion at ~~September 30, 2022~~March 31, 2023 from a net, after-tax unrealized ~~gain~~loss of ~~$347.3 million~~$1.3 billion at December 31, ~~2021. The~~2022. This change was primarily due to a ~~$1.9 billion~~$205.6 million net, after-tax, ~~decrease~~increase in the fair value of securities available for sale. Other ~~uses~~sources of capital during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 included ~~$158.3~~net income of $177.7 million, $4.7 million related to stock-based compensation and $1.5 million in proceeds from stock option exercises. Uses of capital during the three months ended March 31, 2023 included $58.3 million of dividends paid on preferred and common stock and ~~$996 thousand~~$1.2 million of treasury stock purchases. Sources of capital during the nine months ended September 30, 2022 included net income of $388.0 million, $11.8 million in proceeds from stock option exercises and $8.7 million related to stock-based compensation.

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, $0.75 and~~ $0.87 per common share during the first ~~second and third quarters~~quarter of ~~2022, respectively,~~2023 and a quarterly dividend of ~~$0.72, $0.72 and~~ $0.75 per common share during the first ~~second and third quarters~~quarter of ~~2021, respectively.~~2022. These dividend amounts equate to a common stock dividend payout ratio of ~~40.0%~~32.2% and ~~41.7%~~49.7% during the first ~~nine~~three months of ~~2022~~2023 and ~~2021,~~2022, respectively. Our ability to declare or pay dividends on, or purchase, redeem or otherwise acquire, shares of our capital stock may be impacted by certain restrictions described in 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 ~~26, 2022~~25, 2023 our board of directors authorized a $100.0 million stock repurchase program, allowing us to repurchase shares of our common stock over a one-year period from time to time at various prices in the open market or through private transactions. No shares have been repurchased under this plan or under a prior ~~plan~~plans during the reported periods. 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.

In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted. Among other things, the IRA imposes a new 1% excise tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S. corporations. With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including pursuant to compensatory arrangements.

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Liquidity. As more fully discussed in our ~~2021~~2022 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

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customer deposits, supplemented by our short-term and long-term borrowings as well as maturities of securities and loan amortization. As of ~~September 30, 2022,~~March 31, 2023, we had approximately ~~$12.8~~$8.6 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, 2022,~~March 31, 2023, based upon available, pledgeable collateral, our total borrowing capacity with the FHLB was approximately ~~$3.4~~$3.5 billion. Furthermore, at ~~September 30, 2022,~~March 31, 2023, we had approximately ~~$14.4~~$14.3 billion in securities that were unencumbered by a pledge and could be used to support additional borrowings, as needed, through repurchase agreements, or the Federal Reserve discount window or the Federal Reserve's new Bank Term Funding Program (“BTFP”). The BTFP is a new facility established in response to recent liquidity concerns within the banking industry in part due to recent deposit runs that resulted in a few large bank failures. The BTFP was designed to provide available additional funding to eligible depository institutions in order to help assure that banks have the ability to meet the needs of all their depositors. Under the program, eligible depository institutions can obtain loans of up to one year in length by pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as ~~needed.~~collateral. These assets will be valued at par. The BTFP is intended to eliminate the need for depository institutions to quickly sell their securities when they are experiencing stress on their liquidity.

Since Cullen/Frost is a holding company and does not conduct operations, its primary sources of liquidity are dividends upstreamed from Frost Bank and borrowings from outside sources. Banking regulations may limit the amount of dividends that may be paid by Frost Bank. See Note 7 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report regarding such dividends. At ~~September 30, 2022,~~March 31, 2023, Cullen/Frost had liquid assets, ~~including~~primarily consisting of cash ~~and resell agreements,~~on deposit at Frost Bank, totaling ~~$381.5~~$331.1 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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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 ~~2021~~2022 Form 10-K. There has been no significant change in the types of market risks we face since December 31, ~~2021.~~2022.

We utilize an earnings simulation model as the primary quantitative tool in measuring the amount of interest rate risk associated with changing market rates. The model quantifies the effects of various interest rate scenarios on projected net interest income and net income over the next 12 months. The model measures the impact on net interest income relative to a flat-rate case scenario of hypothetical fluctuations in interest rates over the next 12 months. These simulations incorporate assumptions regarding balance sheet growth and mix, pricing and the repricing and maturity characteristics of the existing and projected balance sheet. The impact of interest rate derivatives, such as interest rate swaps, caps and floors, is also included in the model. Other interest rate-related risks such as prepayment, basis and option risk are also considered.

For modeling purposes, as of ~~September 30, 2022,~~March 31, 2023, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of ~~1.0%~~1.4% and 3.0%, respectively, relative to the flat-rate case over the next 12 months, while 100 and 200 basis point ratable decreases in interest rates would result in a negative variances in net interest income of ~~1.6%~~1.4% and ~~5.6%~~2.9%, respectively, relative to the flat-rate case over the next 12 months. For modeling purposes, as of December 31, ~~2021,~~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 ~~2.8%~~0.2% and ~~7.1%~~1.4%, respectively, relative to the flat-rate case over the next 12 months, while ~~a 25~~100 and 200 basis point ratable ~~decrease~~decreases in interest rates would result in a negative ~~variance~~variances in net interest income of ~~3.0%~~0.2% and 1.4%, respectively, relative to the flat-rate case over the next 12 months. ~~The likelihood of a decrease in interest rates beyond 25 basis points as of December 31, 2021 was considered remote given prevailing interest rate levels.~~

We do not currently pay interest on a significant portion of our commercial demand deposits. Any interest rate that would ultimately be paid on these commercial demand deposits would likely depend upon a variety of factors, some of which are beyond our control. Our ~~September 30,~~March 31, 2023 and December 31, 2022 model simulations dodid not assume any payment of interest on commercial demand deposits (those not already receiving an earnings credit) while our modeling simulations as of December 31, 2021 assumed we would make interest payments on commercial demand deposits (those not already receiving an earnings credit) with such payments assumed to begin in the first quarter of 2022. This pricing structure on commercial demand deposits assumed 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, 2022, management~~Management believes, based on our experience during the last interest rate cycle, that it is less likely we will pay interest on these deposits as rates increase.

The model simulations as of ~~September 30, 2022~~March 31, 2023 indicate that our projected balance sheet is ~~less~~more asset sensitive in comparison to our balance sheet as of December 31, ~~2021.~~2022. The ~~decreased~~increased asset sensitivity was ~~partly~~primarily due to a decrease in the expected deposit pricing beta for rate increases on certain types of deposit accounts and an increase in the projected relative proportion of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and federal funds sold to projected average interest-earning ~~assets combined with an increase~~assets. The deposit pricing beta is a measure of how much deposit rates will reprice, up or down, given a defined change in market rates. Management believes that the ~~relative proportion~~deposit pricing betas used as of ~~fixed-rate taxable securities to projected average interest-earning assets.~~March 31, 2023 are more reflective of current expectations. 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.

As of ~~September 30, 2022,~~March 31, 2023, the effects of a 200 basis point increase and a 200 basis point decrease in interest rates on our derivative holdings would not result in a significant variance in our net interest income.

The effects of hypothetical fluctuations in interest rates on our securities classified as “trading” under ASC Topic 320, “Investments—Debt and Equity Securities,” are not significant, and, as such, separate quantitative disclosure is not presented.

Item 4. Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried 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 ~~2021~~2022 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, 2022.~~March 31, 2023. Dollar amounts in thousands.

~~Period~~


Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan	Maximum Number of Shares (or Approximate Dollar Value) That May Yet Be Purchased Under the Plan at the End of the Period
January 1, 2023 to January 31, 2023	—		$	—	—	$	100,000
February 1, 2023 to February 28, 2023	150	(1)	129.23		—	100,000
March 1, 2023 to March 31, 2023	9,033	(1)	127.72		—	100,000
Total	9,183		127.74		—

(1)Repurchases made in connection with the vesting of certain share awards.

Total Number of
Shares Purchased

Average Price
Paid Per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plan

Maximum
Number of Shares
(or Approximate
Dollar Value)
That May Yet Be
Purchased Under
the Plan at the
End of the Period

~~July 1, 2022 to July 31, 2022~~

—

~~100,000~~

~~August 1, 2022 to August 31, 2022~~

—

~~100,000~~

~~September 1, 2022 to September 30, 2022~~

—

~~100,000~~

~~Total~~

—

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
31.1			Rule 13a-14(a) Certification of the Corporation's Chief Executive Officer
31.2			Rule 13a-14(a) Certification of the Corporation's Chief Financial Officer
32.1(1)			Section 1350 Certification of the Corporation's Chief Executive Officer
32.2(1)			Section 1350 Certification of the Corporation's Chief Financial Officer
101.INS(2)			Inline XBRL Instance Document
101.SCH			Inline XBRL Taxonomy Extension Schema Document
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			InlineXBRL Taxonomy Extension Label Linkbase Document
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document
104(3)			Cover Page Interactive Data File

(1)This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

(2)The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

(3)Formatted as Inline XBRL and contained within the Inline XBRL Instance Document in Exhibit 101.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Cullen/Frost Bankers, Inc.

(Registrant)

Date:

~~October~~April 27, ~~2022~~2023

By:

/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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	Nine Months Ended September 30, 2022				Nine Months Ended September 30, 2021
	Balance at Restructure		Balance at Period-End		Balance at Restructure		Balance at Period-End
Commercial and industrial	$	—	$	—	$	1,312	$	1,237
Energy	—		—		3,817		3,566
Commercial real estate:
Buildings, land and other	1,155		1,083		1,888		1,875



	$	1,155	$	1,083	$	7,017	$	6,678


	September 30, 2022		September 30, 2021
Restructured loans past due in excess of 90 days at period-end:
Number of loans	—		1
Dollar amount of loans	$	—	$	306
Restructured loans on non-accrual status at period end	1,083		5,072
Charge-offs of restructured loans:
Recognized in connection with restructuring	—		—
Recognized on previously restructured loans	723		1,433
Proceeds from sale of restructured loans	1,070		—


	Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
	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	$	(829,324)	$	(174,158)	$	(655,166)	$	(80,668)	$	(16,941)	$	(63,727)
Change in net unrealized gain on securities transferred to held to maturity	(174)		(36)		(138)		(237)		(49)		(188)
Reclassification adjustment for net (gains) losses included in net income	—		—		—		—		—		—
Total securities available for sale and transferred securities	(829,498)		(174,194)		(655,304)		(80,905)		(16,990)		(63,915)
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)	741		156		585		1,529		321		1,208
Total defined-benefit post-retirement benefit plans	741		156		585		1,529		321		1,208
Total other comprehensive income (loss)	$	(828,757)	$	(174,038)	$	(654,719)	$	(79,376)	$	(16,669)	$	(62,707)

	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
	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	$	(2,376,642)	$	(499,095)	$	(1,877,547)	$	(209,779)	$	(44,054)	$	(165,725)
Change in net unrealized gain on securities transferred to held to maturity	(572)		(120)		(452)		(741)		(155)		(586)
Reclassification adjustment for net (gains) losses included in net income	—		—		—		—		—		—
Total securities available for sale and transferred securities	(2,377,214)		(499,215)		(1,877,999)		(210,520)		(44,209)		(166,311)
Defined-benefit post-retirement benefit plans:

Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic expense (benefit)	2,223		467		1,756		4,587		963		3,624
Total defined-benefit post-retirement benefit plans	2,223		467		1,756		4,587		963		3,624
Total other comprehensive income (loss)	$	(2,374,991)	$	(498,748)	$	(1,876,243)	$	(205,933)	$	(43,246)	$	(162,687)


	Year To Date						Year To Date
	September 30, 2022						September 30, 2021
	Average Balance		Interest Income/ Expense		Yield/ Cost		Average Balance		Interest Income/ Expense		Yield/ Cost
Assets:
Interest-bearing deposits	$	13,190,883	$	106,971	1.07	%	$	12,849,827	$	11,877	0.12	%
Federal funds sold	32,042		428		1.76		9,331		13		0.18
Resell agreements	6,461		78		1.59		6,169		11		0.24
Securities:
Taxable	10,280,574		167,734		2.06		4,111,574		61,366		2.03
Tax-exempt	7,960,457		239,730		4.05		8,237,397		235,344		4.07
Total securities	18,241,031		407,464		2.90		12,348,971		296,710		3.37
Loans, net of unearned discounts	16,629,559		526,515		4.23		17,034,405		522,376		4.10
Total Earning Assets and Average Rate Earned	48,099,976		1,041,456		2.86		42,248,703		830,987		2.67
Cash and due from banks	643,654						543,514
Allowance for credit losses on loans and securities	(244,763)						(261,568)
Premises and equipment, net	1,053,887						1,038,467
Accrued interest and other assets	1,723,257						1,434,859
Total Assets	$	51,276,011					$	45,003,975

Liabilities:
Non-interest-bearing demand deposits	18,277,657						16,261,999
Interest-bearing deposits:
Savings and interest checking	12,176,393		3,775		0.04		10,506,015		1,057		0.01
Money market deposit accounts	12,650,089		51,334		0.54		9,710,072		6,538		0.09
Time accounts	1,403,238		7,078		0.67		1,134,065		3,098		0.37
Total interest-bearing deposits	26,229,720		62,187		0.32		21,350,152		10,693		0.07
Total deposits	44,507,377				0.19		37,612,151				0.04
Federal funds purchased	35,053		336		1.26		33,937		24		0.09
Repurchase agreements	1,917,622		9,837		0.68		2,030,266		1,597		0.10
Junior subordinated deferrable interest debentures	123,035		2,515		2.70		136,380		1,915		1.87
Subordinated notes	99,242		3,492		4.69		99,085		3,492		4.70

Total Interest-Bearing Funds and Average Rate Paid	28,404,672		78,367		0.37		23,649,820		17,721		0.10
Accrued interest and other liabilities	840,489						747,473
Total Liabilities	47,522,818						40,659,292
Shareholders’ Equity	3,753,193						4,344,683
Total Liabilities and Shareholders’ Equity	$	51,276,011					$	45,003,975
Net interest income			$	963,089					$	813,266
Net interest spread					2.49	%					2.57	%
Net interest income to total average earning assets					2.64	%					2.61	%