~~Table of Contents~~

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, ~~2020~~2021

☐ 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 ~~22, 2020~~21, 2021 there were ~~62,854,581~~63,715,008 shares of the registrant’s Common Stock, $.01 par value, outstanding.

~~Table of Contents~~

Cullen/Frost Bankers, Inc.

Quarterly Report on Form 10-Q

September 30, ~~2020~~2021

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	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4137
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7265
Item 4.	Controls and Procedures	7365

Part II - Other Information
Item 1.	Legal Proceedings	7466
Item 1A.	Risk Factors	7466
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7566
Item 3.	Defaults Upon Senior Securities	7566
Item 4.	Mine Safety Disclosures	7566
Item 5.	Other Information	7566
Item 6.	Exhibits	7667

Signatures		7768

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, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Assets:	Assets:					Assets:
Cash and due from banks	Cash and due from banks	$	499,396	$	581,857	Cash and due from banks	$	638,296	$	529,454
Interest-bearing deposits	Interest-bearing deposits	6,655,784		2,849,950		Interest-bearing deposits	15,601,647		9,758,624
Federal funds sold and resell agreements		20,500		356,374
Federal funds sold						Federal funds sold	6,125		775
Resell agreements						Resell agreements	7,903		—
Total cash and cash equivalents	Total cash and cash equivalents	7,175,680		3,788,181		Total cash and cash equivalents	16,253,971		10,288,853
Securities held to maturity, net of allowance for credit losses of $160 at September 30, 2020		1,951,384		2,030,005
Securities held to maturity, net of allowance for credit losses of $158 at September 30, 2021 and $160 at December 31, 2020						Securities held to maturity, net of allowance for credit losses of $158 at September 30, 2021 and $160 at December 31, 2020	1,759,270		1,945,673
Securities available for sale, at estimated fair value	Securities available for sale, at estimated fair value	10,604,480		11,269,591		Securities available for sale, at estimated fair value	11,731,222		10,437,565
Trading account securities	Trading account securities	25,808		24,298		Trading account securities	25,292		24,456
Loans, net of unearned discounts	Loans, net of unearned discounts	18,223,877		14,750,332		Loans, net of unearned discounts	15,832,670		17,481,309
Less: Allowance for credit losses on loans	Less: Allowance for credit losses on loans	(263,475)		(132,167)		Less: Allowance for credit losses on loans	(250,150)		(263,177)
Net loans	Net loans	17,960,402		14,618,165		Net loans	15,582,520		17,218,132
Premises and equipment, net	Premises and equipment, net	1,055,064		1,011,947		Premises and equipment, net	1,023,170		1,045,578
Goodwill	Goodwill	654,952		654,952		Goodwill	654,952		654,952
Other intangible assets, net	Other intangible assets, net	1,771		2,481		Other intangible assets, net	1,019		1,563
Cash surrender value of life insurance policies	Cash surrender value of life insurance policies	189,148		187,156		Cash surrender value of life insurance policies	189,941		189,984
Accrued interest receivable and other assets	Accrued interest receivable and other assets	482,551		440,652		Accrued interest receivable and other assets	638,968		584,561
Total assets	Total assets	$	40,101,240	$	34,027,428	Total assets	$	47,860,325	$	42,391,317

Liabilities:	Liabilities:					Liabilities:
Deposits:	Deposits:					Deposits:
Non-interest-bearing demand deposits	Non-interest-bearing demand deposits	$	14,845,770	$	10,873,629	Non-interest-bearing demand deposits	$	17,151,583	$	15,117,051
Interest-bearing deposits	Interest-bearing deposits	18,653,733		16,765,935		Interest-bearing deposits	22,461,184		19,898,710
Total deposits	Total deposits	33,499,503		27,639,564		Total deposits	39,612,767		35,015,761
Federal funds purchased and repurchase agreements		1,608,667		1,695,342
Federal funds purchased						Federal funds purchased	27,200		48,850
Repurchase agreements						Repurchase agreements	2,200,029		2,068,147
Junior subordinated deferrable interest debentures, net of unamortized issuance costs	Junior subordinated deferrable interest debentures, net of unamortized issuance costs	136,342		136,299		Junior subordinated deferrable interest debentures, net of unamortized issuance costs	136,400		136,357
Subordinated notes, net of unamortized issuance costs	Subordinated notes, net of unamortized issuance costs	98,982		98,865		Subordinated notes, net of unamortized issuance costs	99,139		99,021

Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	672,720		545,690		Accrued interest payable and other liabilities	1,412,428		730,165
Total liabilities	Total liabilities	36,016,214		30,115,760		Total liabilities	43,487,963		38,098,301

Shareholders’ Equity:	Shareholders’ Equity:					Shareholders’ Equity:
Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; 6,000,000 Series A shares ($25 liquidation preference) issued at December 31, 2019		0		144,486
Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,236,306 shares issued at September 30, 2020 and December 31, 2019		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 September 30, 2021 and December 31, 2020						Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; 150,000 Series B shares ($1,000 liquidation preference) issued at September 30, 2021 and December 31, 2020	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, 2021 and December 31, 2020						Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,236,306 shares issued at September 30, 2021 and December 31, 2020	642		642
Additional paid-in capital	Additional paid-in capital	991,477		983,250		Additional paid-in capital	1,004,924		997,168
Retained earnings	Retained earnings	2,724,681		2,667,534		Retained earnings	2,920,074		2,750,723
Accumulated other comprehensive income (loss), net of tax	Accumulated other comprehensive income (loss), net of tax	505,145		267,370		Accumulated other comprehensive income (loss), net of tax	350,283		512,970
Treasury stock, at cost; 1,454,736 shares at September 30, 2020 and 1,567,302 shares at December 31, 2019		(136,919)		(151,614)
Treasury stock, at cost; 568,570 shares at September 30, 2021 and 1,225,066 shares at December 31, 2020						Treasury stock, at cost; 568,570 shares at September 30, 2021 and 1,225,066 shares at December 31, 2020	(49,013)		(113,939)
Total shareholders’ equity	Total shareholders’ equity	4,085,026		3,911,668		Total shareholders’ equity	4,372,362		4,293,016
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	40,101,240	$	34,027,428	Total liabilities and shareholders’ equity	$	47,860,325	$	42,391,317

See 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 September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Interest income:	Interest income:									Interest income:
Loans, including fees	Loans, including fees	$	169,002	$	186,870	$	512,444	$	561,990	Loans, including fees	$	168,779	$	169,002	$	518,957	$	512,444
Securities:	Securities:									Securities:
Taxable	Taxable	22,560		32,122		71,950		87,125		Taxable	20,736		22,560		61,366		71,950
Tax-exempt	Tax-exempt	58,073		57,328		175,968		175,067		Tax-exempt	56,882		58,073		169,656		175,968
Interest-bearing deposits	Interest-bearing deposits	1,512		8,759		10,894		27,226		Interest-bearing deposits	5,830		1,512		11,877		10,894
Federal funds sold and resell agreements		19		1,194		884		4,323
Federal funds sold										Federal funds sold	2		5		13		721
Resell agreements										Resell agreements	6		14		11		163
Total interest income	Total interest income	251,166		286,273		772,140		855,731		Total interest income	252,235		251,166		761,880		772,140
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	5,397		25,637		27,677		79,655		Deposits	3,677		5,397		10,693		27,677
Federal funds purchased and repurchase agreements		482		5,040		4,005		15,276
Federal funds purchased										Federal funds purchased	9		7		24		92
Repurchase agreements										Repurchase agreements	632		475		1,597		3,913
Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	700		1,425		2,893		4,401		Junior subordinated deferrable interest debentures	631		700		1,915		2,893
Subordinated notes	Subordinated notes	1,164		1,164		3,492		3,492		Subordinated notes	1,164		1,164		3,492		3,492
Federal Home Loan Bank advances	Federal Home Loan Bank advances	0		0		318		0		Federal Home Loan Bank advances	—		—		—		318
Total interest expense	Total interest expense	7,743		33,266		38,385		102,824		Total interest expense	6,113		7,743		17,721		38,385
Net interest income	Net interest income	243,423		253,007		733,755		752,907		Net interest income	246,122		243,423		744,159		733,755
Credit loss expense	Credit loss expense	20,302		8,001		227,474		25,404		Credit loss expense	—		20,302		63		227,474
Net interest income after credit loss expense	Net interest income after credit loss expense	223,121		245,006		506,281		727,503		Net interest income after credit loss expense	246,122		223,121		744,096		506,281
Non-interest income:	Non-interest income:									Non-interest income:
Trust and investment management fees	Trust and investment management fees	31,469		31,649		97,002		93,794		Trust and investment management fees	37,381		31,469		110,569		97,002
Service charges on deposit accounts	Service charges on deposit accounts	19,812		22,941		60,043		65,529		Service charges on deposit accounts	21,216		19,812		61,058		60,043
Insurance commissions and fees	Insurance commissions and fees	11,456		11,683		38,609		40,207		Insurance commissions and fees	11,748		11,456		39,834		38,609
Interchange and debit card transaction fees		3,503		4,117		9,724		11,265
Interchange and card transaction fees										Interchange and card transaction fees	4,490		3,503		13,224		9,724
Other charges, commissions and fees	Other charges, commissions and fees	8,370		10,108		25,398		28,103		Other charges, commissions and fees	9,785		8,370		26,729		25,398
Net gain (loss) on securities transactions	Net gain (loss) on securities transactions	0		96		108,989		265		Net gain (loss) on securities transactions	—		—		—		108,989
Other	Other	8,991		8,630		34,352		29,484		Other	8,569		8,991		26,258		34,352
Total non-interest income	Total non-interest income	83,601		89,224		374,117		268,647		Total non-interest income	93,189		83,601		277,672		374,117
Non-interest expense:	Non-interest expense:									Non-interest expense:
Salaries and wages	Salaries and wages	93,323		93,812		282,485		277,078		Salaries and wages	99,463		93,323		289,956		282,485
Employee benefits	Employee benefits	16,074		21,002		59,824		64,579		Employee benefits	21,576		16,074		62,840		59,824
Net occupancy	Net occupancy	25,466		24,202		76,116		64,602		Net occupancy	27,208		25,466		79,909		76,116
Technology, furniture and equipment	Technology, furniture and equipment	26,482		22,415		77,768		66,236		Technology, furniture and equipment	28,494		26,482		84,508		77,768
Deposit insurance	Deposit insurance	2,372		2,491		7,796		7,752		Deposit insurance	3,088		2,372		8,893		7,796
Intangible amortization	Intangible amortization	212		274		710		904		Intangible amortization	157		212		544		710
Other	Other	38,221		44,668		121,293		132,722		Other	38,017		38,221		116,749		121,293
Total non-interest expense	Total non-interest expense	202,150		208,864		625,992		613,873		Total non-interest expense	218,003		202,150		643,399		625,992
Income before income taxes	Income before income taxes	104,572		125,366		254,406		382,277		Income before income taxes	121,308		104,572		378,369		254,406
Income taxes	Income taxes	9,516		13,530		11,525		42,359		Income taxes	13,333		9,516		36,311		11,525
Net income	Net income	95,056		111,836		242,881		339,918		Net income	107,975		95,056		342,058		242,881
Preferred stock dividends	Preferred stock dividends	0		2,016		2,016		6,047		Preferred stock dividends	1,668		—		5,488		2,016
Redemption of preferred stock	Redemption of preferred stock	0		0		5,514		0		Redemption of preferred stock	—		—		—		5,514
Net income available to common shareholders	Net income available to common shareholders	$	95,056	$	109,820	$	235,351	$	333,871	Net income available to common shareholders	$	106,307	$	95,056	$	336,570	$	235,351

Earnings per common share:	Earnings per common share:									Earnings per common share:
Basic	Basic	$	1.50	$	1.74	$	3.72	$	5.28	Basic	$	1.66	$	1.50	$	5.25	$	3.72
Diluted	Diluted	1.50		1.73		3.71		5.24		Diluted	1.65		1.50		5.22		3.71

See 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 September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net income	Net income	$	95,056	$	111,836	$	242,881	$	339,918	Net income	$	107,975	$	95,056	$	342,058	$	242,881
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	20,332		107,786		406,959		464,072		Change in net unrealized gain/loss during the period	(80,668)		20,332		(209,779)		406,959
Change in net unrealized gain on securities transferred to held to maturity	Change in net unrealized gain on securities transferred to held to maturity	(294)		(305)		(979)		(957)		Change in net unrealized gain on securities transferred to held to maturity	(237)		(294)		(741)		(979)
Reclassification adjustment for net (gains) losses included in net income	Reclassification adjustment for net (gains) losses included in net income	0		(97)		(108,989)		(266)		Reclassification adjustment for net (gains) losses included in net income	—		—		—		(108,989)
Total securities available for sale and transferred securities	Total securities available for sale and transferred securities	20,038		107,384		296,991		462,849		Total securities available for sale and transferred securities	(80,905)		20,038		(210,520)		296,991
Defined-benefit post-retirement benefit plans:	Defined-benefit post-retirement benefit plans:									Defined-benefit post-retirement benefit plans:

Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)	Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)	1,330		1,406		3,989		4,218		Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)	1,529		1,330		4,587		3,989
Total defined-benefit post-retirement benefit plans	Total defined-benefit post-retirement benefit plans	1,330		1,406		3,989		4,218		Total defined-benefit post-retirement benefit plans	1,529		1,330		4,587		3,989
Other comprehensive income (loss), before tax	Other comprehensive income (loss), before tax	21,368		108,790		300,980		467,067		Other comprehensive income (loss), before tax	(79,376)		21,368		(205,933)		300,980
Deferred tax expense (benefit)	Deferred tax expense (benefit)	4,487		22,845		63,205		98,084		Deferred tax expense (benefit)	(16,669)		4,487		(43,246)		63,205
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	16,881		85,945		237,775		368,983		Other comprehensive income (loss), net of tax	(62,707)		16,881		(162,687)		237,775
Comprehensive income (loss)	Comprehensive income (loss)	$	111,937	$	197,781	$	480,656	$	708,901	Comprehensive income (loss)	$	45,268	$	111,937	$	179,371	$	480,656

See 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, 2020
Balance at beginning of period $ 0 $ 642 $ 989,034 $ 2,678,686 $ 488,264 $ (147,825) $ 4,008,801
Net income — — — 95,056 — — 95,056
Other comprehensive income, net of tax — — — — 16,881 — 16,881
Stock option exercises/stock unit conversions (53,425 shares) — — — (2,502) — 5,200 2,698
Stock-based compensation expense recognized in earnings — — 2,443 — — — 2,443
Purchase of treasury stock (400 shares) — — — — — (27) (27)
Treasury stock issued to the 401(k) stock purchase plan ( 58,900 shares) — — — (1,602) — 5,733 4,131
Cash dividends – common stock ($0.71 per share) — — — (44,957) — — (44,957)
Balance at end of period $ 0 $ 642 $ 991,477 $ 2,724,681 $ 505,145 $ (136,919) $ 4,085,026
September 30, 2019
Balance at beginning of period $ 144,486 $ 642 $ 975,322 $ 2,556,235 $ 219,438 $ (156,877) $ 3,739,246
Net income — — — 111,836 — — 111,836
Other comprehensive loss, net of tax — — — — 85,945 — 85,945
Stock option exercises/stock unit conversions (101,284 shares) — — — (3,851) — 9,516 5,665
Stock-based compensation expense recognized in earnings — — 2,675 — — — 2,675
Purchase of treasury stock (202,724 shares) — — — — — (17,190) (17,190)
Cash dividends – preferred stock (approximately $0.34 per share) — — — (2,016) — — (2,016)
Cash dividends – common stock ($0.71 per share) — — — (44,704) — — (44,704)
Balance at end of period $ 144,486 $ 642 $ 977,997 $ 2,617,500 $ 305,383 $ (164,551) $ 3,881,457


	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, 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

September 30, 2020
Balance at beginning of period	$	—	$	642	$	989,034	$	2,678,686	$	488,264	$	(147,825)	$	4,008,801
Net income	—		—		—		95,056		—		—		95,056
Other comprehensive income (loss), net of tax	—		—		—		—		16,881		—		16,881
Stock option exercises/stock unit conversions (53,425 shares)	—		—		—		(2,502)		—		5,200		2,698
Stock-based compensation expense recognized in earnings	—		—		2,443		—		—		—		2,443
Purchase of treasury stock (400 shares)	—		—		—		—		—		(27)		(27)
Treasury stock issued to the 401(k) stock purchase plan (58,900 shares)	—		—		—		(1,602)		—		5,733		4,131

Cash dividends – common stock ($0.71 per share)	—		—		—		(44,957)		—		—		(44,957)
Balance at end of period	$	—	$	642	$	991,477	$	2,724,681	$	505,145	$	(136,919)	$	4,085,026

See accompanying Notes to Consolidated Financial Statements

Table of Contents

Cullen/Frost Bankers, Inc.

Consolidated Statements of Changes in Shareholders’ Equity ~~(continued)~~

(Dollars in thousands, except per share amounts)


		Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Tax		Treasury Stock		Total			Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Tax		Treasury Stock		Total
Nine months ended:	Nine months ended:															Nine months ended:
September 30, 2021																September 30, 2021
Balance at beginning of period																Balance at beginning of period	$	145,452	$	642	$	997,168	$	2,750,723	$	512,970	$	(113,939)	$	4,293,016

Net income																Net income	—		—		—		342,058		—		—		342,058
Other comprehensive income (loss), net of tax																Other comprehensive income (loss), net of tax	—		—		—		—		(162,687)		—		(162,687)
Stock option exercises/stock unit conversions (650,044 shares)																Stock option exercises/stock unit conversions (650,044 shares)	—		—		—		(26,652)		—		64,462		37,810
Stock-based compensation expense recognized in earnings																Stock-based compensation expense recognized in earnings	—		—		7,756		—		—		—		7,756
Purchase of treasury stock (12,103 shares)																Purchase of treasury stock (12,103 shares)	—		—		—		—		—		(1,342)		(1,342)
Treasury stock issued to the 401(k) stock purchase plan (18,555 shares)																Treasury stock issued to the 401(k) stock purchase plan (18,555 shares)	—		—		—		(57)		—		1,806		1,749
Cash dividends – Series B preferred stock (approximately $36.59 per share which is equivalent to approximately $0.91 per depositary share)																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)																Cash dividends – common stock ($2.19 per share)	—		—		—		(140,510)		—		—		(140,510)
Balance at end of period																Balance at end of period	$	145,452	$	642	$	1,004,924	$	2,920,074	$	350,283	$	(49,013)	$	4,372,362

September 30, 2020	September 30, 2020															September 30, 2020
Balance at beginning of period	Balance at beginning of period	$	144,486	$	642	$	983,250	$	2,667,534	$	267,370	$	(151,614)	$	3,911,668	Balance at beginning of period	$	144,486	$	642	$	983,250	$	2,667,534	$	267,370	$	(151,614)	$	3,911,668
Cumulative effect of accounting change	Cumulative effect of accounting change	—		—		—		(29,252)		—		—		(29,252)		Cumulative effect of accounting change	—		—		—		(29,252)		—		—		(29,252)
Total shareholders' equity at beginning of period, as adjusted	Total shareholders' equity at beginning of period, as adjusted	144,486		642		983,250		2,638,282		267,370		(151,614)		3,882,416		Total shareholders' equity at beginning of period, as adjusted	144,486		642		983,250		2,638,282		267,370		(151,614)		3,882,416
Net income	Net income	—		—		—		242,881		—		—		242,881		Net income	—		—		—		242,881		—		—		242,881
Other comprehensive income, net of tax		—		—		—		—		237,775		—		237,775
Other comprehensive income (loss), net of tax																Other comprehensive income (loss), net of tax	—		—		—		—		237,775		—		237,775
Stock option exercises/stock unit conversions (196,948 shares)	Stock option exercises/stock unit conversions (196,948 shares)	—		—		—		(11,627)		—		19,171		7,544		Stock option exercises/stock unit conversions (196,948 shares)	—		—		—		(11,627)		—		19,171		7,544
Stock-based compensation expense recognized in earnings	Stock-based compensation expense recognized in earnings	—		—		8,227		—		—		—		8,227		Stock-based compensation expense recognized in earnings	—		—		8,227		—		—		—		8,227
Redemption of preferred stock (6,000,000 shares)		(144,486)		—		—		(5,514)		—		—		(150,000)
Redemption of series A preferred stock (6,000,000 shares)																Redemption of series A preferred stock (6,000,000 shares)	(144,486)		—		—		(5,514)		—		—		(150,000)
Purchase of treasury stock (182,225 shares)	Purchase of treasury stock (182,225 shares)	—		—		—		—		—		(14,000)		(14,000)		Purchase of treasury stock (182,225 shares)	—		—		—		—		—		(14,000)		(14,000)
Treasury stock issued to the 401(k) stock purchase plan (97,843 shares)	Treasury stock issued to the 401(k) stock purchase plan (97,843 shares)	—		—		—		(2,563)		—		9,524		6,961		Treasury stock issued to the 401(k) stock purchase plan (97,843 shares)	—		—		—		(2,563)		—		9,524		6,961
Cash dividends – preferred stock (approximately $0.34 per share)		—		—		—		(2,016)		—		—		(2,016)
Cash dividends – series A preferred stock (approximately $0.34 per share)																Cash dividends – series A preferred stock (approximately $0.34 per share)	—		—		—		(2,016)		—		—		(2,016)
Cash dividends – common stock ($2.13 per share)	Cash dividends – common stock ($2.13 per share)	—		—		—		(134,762)		—		—		(134,762)		Cash dividends – common stock ($2.13 per share)	—		—		—		(134,762)		—		—		(134,762)
Balance at end of period	Balance at end of period	$	0	$	642	$	991,477	$	2,724,681	$	505,145	$	(136,919)	$	4,085,026	Balance at end of period	$	—	$	642	$	991,477	$	2,724,681	$	505,145	$	(136,919)	$	4,085,026

September 30, 2019
Balance at beginning of period		$	144,486	$	642	$	967,304	$	2,440,002	$	(63,600)	$	(119,917)	$	3,368,917
Cumulative effect of accounting change		—		—		—		(14,672)		—		—		(14,672)
Total shareholders' equity at beginning of period, as adjusted		144,486		642		967,304		2,425,330		(63,600)		(119,917)		3,354,245
Net income		—		—		—		339,918		—		—		339,918
Other comprehensive loss, net of tax		—		—		—		—		368,983		—		368,983
Stock option exercises/stock unit conversions (255,184 shares)		—		—		—		(9,569)		—		23,075		13,506
Stock-based compensation expense recognized in earnings		—		—		10,693		—		—		—		10,693
Purchase of treasury stock (704,382 shares)		—		—		—		—		—		(67,709)		(67,709)
Cash dividends – preferred stock (approximately $1.01 per share)		—		—		—		(6,047)		—		—		(6,047)
Cash dividends – common stock ($2.09 per share)		—		—		—		(132,132)		—		—		(132,132)
Balance at end of period		$	144,486	$	642	$	977,997	$	2,617,500	$	305,383	$	(164,551)	$	3,881,457

See accompanying Notes to Consolidated Financial Statements

Table of Contents

Cullen/Frost Bankers, Inc.

Consolidated Statements of Cash Flows

(Dollars in thousands)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2020		2019			2021		2020
Operating Activities:	Operating Activities:					Operating Activities:
Net income	Net income	$	242,881	$	339,918	Net income	$	342,058	$	242,881
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	227,474		25,404		Credit loss expense	63		227,474
Deferred tax expense (benefit)	Deferred tax expense (benefit)	(8,803)		(1,625)		Deferred tax expense (benefit)	4,672		(8,803)
Accretion of loan discounts	Accretion of loan discounts	(11,905)		(11,364)		Accretion of loan discounts	(9,879)		(11,905)
Securities premium amortization (discount accretion), net	Securities premium amortization (discount accretion), net	93,080		84,963		Securities premium amortization (discount accretion), net	90,017		93,080
Net (gain) loss on securities transactions	Net (gain) loss on securities transactions	(108,989)		(265)		Net (gain) loss on securities transactions	—		(108,989)
Depreciation and amortization	Depreciation and amortization	47,752		39,182		Depreciation and amortization	51,550		47,752
Net (gain) loss on sale/write-down of assets/foreclosed assets	Net (gain) loss on sale/write-down of assets/foreclosed assets	(6)		(6,016)		Net (gain) loss on sale/write-down of assets/foreclosed assets	(1,885)		(6)
Stock-based compensation	Stock-based compensation	8,227		10,693		Stock-based compensation	7,756		8,227
Net tax benefit from stock-based compensation	Net tax benefit from stock-based compensation	694		1,602		Net tax benefit from stock-based compensation	4,505		694
Earnings on life insurance policies	Earnings on life insurance policies	(2,895)		(2,744)		Earnings on life insurance policies	(1,901)		(2,895)
Net change in:	Net change in:					Net change in:
Trading account securities	Trading account securities	(197)		(3,132)		Trading account securities	(421)		(197)
Lease right-of-use assets	Lease right-of-use assets	17,419		14,618		Lease right-of-use assets	17,566		17,419
Accrued interest receivable and other assets	Accrued interest receivable and other assets	(52,842)		37,608		Accrued interest receivable and other assets	(65,849)		(52,842)
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	23,208		56,354		Accrued interest payable and other liabilities	114,361		23,208
Net cash from operating activities	Net cash from operating activities	475,098		585,196		Net cash from operating activities	552,613		475,098
Investing Activities:	Investing Activities:					Investing Activities:
Securities held to maturity:	Securities held to maturity:					Securities held to maturity:
Purchases	Purchases	(1,500)		0		Purchases	—		(1,500)
Maturities, calls and principal repayments	Maturities, calls and principal repayments	63,333		69,273		Maturities, calls and principal repayments	171,969		63,333
Securities available for sale:	Securities available for sale:					Securities available for sale:
Purchases	Purchases	(8,324,364)		(9,815,936)		Purchases	(4,105,085)		(8,324,364)
Sales	Sales	1,162,352		8,236,066		Sales	—		1,162,352
Maturities, calls and principal repayments	Maturities, calls and principal repayments	8,162,036		1,007,783		Maturities, calls and principal repayments	3,125,786		8,162,036
Proceeds from sale of loans		0		24,036

Net change in loans	Net change in loans	(3,551,650)		(569,223)		Net change in loans	1,649,429		(3,551,650)
Benefits received on life insurance policies	Benefits received on life insurance policies	903		0		Benefits received on life insurance policies	1,944		903
Proceeds from sales of premises and equipment	Proceeds from sales of premises and equipment	3,054		8,019		Proceeds from sales of premises and equipment	7,033		3,054
Purchases of premises and equipment	Purchases of premises and equipment	(81,866)		(168,326)		Purchases of premises and equipment	(37,088)		(81,866)
Proceeds from sales of repossessed properties	Proceeds from sales of repossessed properties	73		131		Proceeds from sales of repossessed properties	809		73
Net cash from investing activities	Net cash from investing activities	(2,567,629)		(1,208,177)		Net cash from investing activities	814,797		(2,567,629)
Financing Activities:	Financing Activities:					Financing Activities:
Net change in deposits	Net change in deposits	5,859,939		(65,622)		Net change in deposits	4,597,006		5,859,939
Net change in short-term borrowings	Net change in short-term borrowings	(86,675)		(166,893)		Net change in short-term borrowings	110,232		(86,675)
Proceeds from Federal Home Loan Bank advances	Proceeds from Federal Home Loan Bank advances	1,250,000		0		Proceeds from Federal Home Loan Bank advances	—		1,250,000
Principal payments on Federal Home Loan Bank advances	Principal payments on Federal Home Loan Bank advances	(1,250,000)		0		Principal payments on Federal Home Loan Bank advances	—		(1,250,000)
Redemption of preferred stock		(150,000)		0
Redemption of Series A preferred stock						Redemption of Series A preferred stock	—		(150,000)
Proceeds from stock option exercises	Proceeds from stock option exercises	7,544		13,506		Proceeds from stock option exercises	37,810		7,544
Purchase of treasury stock	Purchase of treasury stock	(14,000)		(67,709)		Purchase of treasury stock	(1,342)		(14,000)
Cash dividends paid on preferred stock	Cash dividends paid on preferred stock	(2,016)		(6,047)		Cash dividends paid on preferred stock	(5,488)		(2,016)
Cash dividends paid on common stock	Cash dividends paid on common stock	(134,762)		(132,132)		Cash dividends paid on common stock	(140,510)		(134,762)
Net cash from financing activities	Net cash from financing activities	5,480,030		(424,897)		Net cash from financing activities	4,597,708		5,480,030
Net change in cash and cash equivalents	Net change in cash and cash equivalents	3,387,499		(1,047,878)		Net change in cash and cash equivalents	5,965,118		3,387,499
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	3,788,181		3,955,779		Cash and cash equivalents at beginning of period	10,288,853		3,788,181
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	7,175,680	$	2,907,901	Cash and cash equivalents at end of period	$	16,253,971	$	7,175,680

See Notes to Consolidated Financial Statements.

Table of Contents

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, ~~2019,~~2020, included in our Annual Report on Form 10-K filed with the SEC on February ~~4, 2020~~5, 2021 (the ~~“2019~~“2020 Form 10-K”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

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

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


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2020		2019			2021		2020
Cash paid for interest	Cash paid for interest	$	41,634	$	100,041	Cash paid for interest	$	23,722	$	41,634
Cash paid for income taxes	Cash paid for income taxes	44,140		42,352		Cash paid for income taxes	28,043		44,140
Significant non-cash transactions:	Significant non-cash transactions:					Significant non-cash transactions:
Unsettled securities transactions	Unsettled securities transactions	6,698		82,064		Unsettled securities transactions	600,874		6,698
Loans foreclosed and transferred to other real estate owned and foreclosed assets	Loans foreclosed and transferred to other real estate owned and foreclosed assets	140		1,302		Loans foreclosed and transferred to other real estate owned and foreclosed assets	3,464		140
Loans to facilitate the sale of other real estate owned		0		847

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	18,284		315,542		Right-of-use lease assets obtained in exchange for lessee operating lease liabilities	4,045		18,284
Treasury stock issued to 401(k) stock purchase plan	Treasury stock issued to 401(k) stock purchase plan	6,961		0		Treasury stock issued to 401(k) stock purchase plan	1,749		6,961

Accounting Changes, Reclassifications and Restatements. Certain items in prior financial statements have been reclassified to conform to the current presentation. ~~In addition, on~~

On January 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” as subsequently updated for certain clarifications, targeted relief and codification improvements. Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) replaces the previous “incurred loss” model for measuring credit losses, which encompassed allowances for current known and inherent losses within the portfolio, with an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. The new current expected credit loss (“CECL”) model requires the measurement of all expected credit losses for financial assets measured at amortized cost and certain off-balance-sheet credit exposures based on historical experience, current conditions, and reasonable and supportable forecasts. ASC 326 also requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASC 326 includes certain changes to the accounting for available-for-sale securities including the requirement to present credit losses as

~~Table of Contents~~

~~an allowance rather than as a direct write-down for available-for-sale securities management does not intend to sell or believes that it is more likely than not they will be required to sell.~~

~~We adopted ASC 326~~improvements, using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Upon adoption, we recognized an after-tax cumulative effect reduction to retained earnings totaling $29.3 million, as detailed in ~~the table below. Operating results for periods after January 1,~~our 2020 ~~are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable standards and the accounting policies described in our 2019~~ Form 10-K.

~~The following table details the impact of the adoption of ASC 326 on the allowance for credit losses as of January 1, 2020.~~

January 1, 2020
Pre-Adoption Allowance Impact of Adoption Post-Adoption Allowance Cumulative Effect on Retained Earnings
Securities held to maturity:
U.S. Treasury $ 0 $ 0 $ 0 $ 0
Residential mortgage-backed securities 0 0 0 0
States and political subdivisions 0 215 215 (170)
Other 0 0 0 0
Total $ 0 $ 215 $ 215 $ (170)
Loans:
Commercial and industrial $ 51,593 $ 21,263 $ 72,856 $ (16,798)
Energy 37,382 (10,453) 26,929 8,258
Commercial real estate 31,037 (13,519) 17,518 10,680
Consumer real estate 4,113 2,392 6,505 (1,890)
Consumer and other 8,042 (2,248) 5,794 1,776
Total $ 132,167 $ (2,565) $ 129,602 $ 2,026
Off-balance-sheet credit exposures $ 500 $ 39,377 $ 39,877 $ (31,108)

~~In connection with the adoption of ASC 326, we revised certain accounting policies and implemented certain accounting policy elections. The revised accounting policies are described below.~~

~~Securities~~: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them until maturity. Securities to be held for indefinite periods of time are classified as available for sale and carried at fair value, with the unrealized holding gains and losses (those for which no allowance for credit losses are recorded) reported as a component of other comprehensive income, net of tax. Securities held for resale in anticipation of short-term market movements are classified as trading and are carried at fair value, with changes in unrealized holding gains and losses included in income. Management determines the appropriate classification of securities at the time of purchase. Securities with limited marketability, such as stock in the Federal Reserve Bank and the Federal Home Loan Bank, are carried at cost.

Interest income on securities includes amortization of purchase premiums and discounts. Premiums and discounts on securities are generally amortized using the interest method with a constant effective yield without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Premiums on callable securities are amortized to their earliest call date. A security is placed on non-accrual status if (i) principal or interest has been in default for a period of 90 days or more or (ii) full payment of principal and interest is not expected. Interest accrued but not received for a security placed on non-accrual status is reversed against interest income. Gains and losses on sales are recorded on the trade date and are derived from the amortized cost of the security sold.

~~Allowance For Credit Losses - Held-to-Maturity Securities~~: The allowance for credit losses on held-to-maturity securities is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of held-to-maturity securities to present management's best estimate of the net amount expected to be collected. Held-to-maturity securities are charged-off against the allowance when deemed uncollectible by management. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management has made the accounting policy election to exclude accrued interest receivable on held-to-maturity securities from the estimate of credit losses. Further information regarding our policies and methodology used to estimate the allowance for credit losses on held-to-maturity securities is presented in Note 2 - Securities.

~~Table of Contents~~

~~Allowance For Credit Losses - Available-for-Sale Securities~~: For available-for-sale securities in an unrealized loss position, we first assess whether (i) we intend to sell, or (ii) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either case is affirmative, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through income. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Management has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.

~~Loans~~: Loans are reported at the principal balance outstanding net of unearned discounts. Interest income on loans is reported on the level-yield method and includes amortization of deferred loan fees and costs over the terms of the individual loans to which they relate, or, in certain cases, over the average expected term for loans where deferred fees and costs are accounted for on a pooled basis. Net loan commitment fees or costs for commitment periods greater than one year are deferred and amortized into fee income or other expense on a straight-line basis over the commitment period. Income on direct financing leases is recognized on a basis that achieves a constant periodic rate of return on the outstanding investment. Further information regarding our accounting policies related to past due loans, non-accrual loans, collateral dependent loans and troubled-debt restructurings is presented in Note 3 - Loans.

~~Allowance For Credit Losses - Loans~~: The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present management's best estimate of the net amount expected to be collected. Loans are charged-off against the allowance when deemed uncollectible by management. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Management has made the accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses. Further information regarding our policies and methodology used to estimate the allowance for credit losses on loans is presented in Note 3 - Loans.

~~Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures~~: The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. The allowance is reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Further information regarding our policies and methodology used to estimate the allowance for credit losses on off-balance-sheet credit exposures is presented in Note 6 - Off-Balance-Sheet Arrangements, Commitments, Guarantees and Contingencies.

As more fully discussed in our 2019 Form 10-K, we adopted certain accounting standard updates related to accounting for leases as of January 1, 2019 using a modified-retrospective transition approach and recognized right-of-use lease assets and related lease liabilities totaling $170.5 million and $174.4 million, respectively, as of that date. We also adopted an accounting standard update which shortened the amortization period for certain callable debt securities held at a premium as of January 1, 2019 using a modified retrospective transition adoption approach and recognized a cumulative effect reduction to retained earnings totaling $14.7 million.

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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, ~~2020~~2021 and December 31, ~~2019~~2020 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, 2020
September 30, 2021														September 30, 2021

Residential mortgage-backed securities	Residential mortgage-backed securities	$	529,290	$	45,504	$	0	$	574,794	$	0	$	529,290	Residential mortgage-backed securities	$	527,649	$	24,332	$	—	$	551,981	$	—	$	527,649
States and political subdivisions	States and political subdivisions	1,420,754		61,808		0		1,482,562		(160)		1,420,594		States and political subdivisions	1,230,279		41,840		32		1,272,087		(158)		1,230,121
Other	Other	1,500		0		1		1,499		0		1,500		Other	1,500		—		—		1,500		—		1,500
Total	Total	$	1,951,544	$	107,312	$	1	$	2,058,855	$	(160)	$	1,951,384	Total	$	1,759,428	$	66,172	$	32	$	1,825,568	$	(158)	$	1,759,270
December 31, 2019
December 31, 2020														December 31, 2020

Residential mortgage-backed securities	Residential mortgage-backed securities	$	530,861	$	22	$	9,365	$	521,518	$	0	$	530,861	Residential mortgage-backed securities	$	528,784	$	41,742	$	—	$	570,526	$	—	$	528,784
States and political subdivisions	States and political subdivisions	1,497,644		28,909		896		1,525,657		0		1,497,644		States and political subdivisions	1,415,549		65,321		—		1,480,870		(160)		1,415,389
Other	Other	1,500		0		0		1,500		0		1,500		Other	1,500		—		—		1,500		—		1,500
Total	Total	$	2,030,005	$	28,931	$	10,261	$	2,048,675	$	0	$	2,030,005	Total	$	1,945,833	$	107,063	$	—	$	2,052,896	$	(160)	$	1,945,673

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 ~~$663.2~~$553.1 million and ~~$561.4~~$659.2 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Accrued interest receivable on held-to-maturity securities totaled ~~$11.9~~$10.8 million and ~~$21.1~~$21.7 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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. During the fourth quarter of 2019, we reclassified securities with an aggregate fair value of $377.8 million and an aggregate net unrealized gain of $3.3 million ($2.6 million, net of tax) on the date of the transfer. The net unamortized, unrealized gain remaining on transferred securities ~~including those transferred in 2019 and in years prior,~~ included in accumulated other comprehensive income in the accompanying balance sheet totaled ~~$3.8~~$2.8 million ($~~3.0~~2.2 million, net of tax) at September 30, ~~2020~~2021 and ~~$4.8~~$3.5 million ($~~3.8~~2.8 million, net of tax) at December 31, ~~2019.~~2020. 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 allowance for credit losses on held-to-maturity securities is a contra-asset valuation account that is deducted from the amortized cost basis of held-to-maturity securities to present the net amount expected to be collected. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to U.S. Treasury and residential mortgage-backed securities issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to securities issued by States and political subdivisions and other held-to-maturity securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, (iv) internal forecasts and (v) whether or not such securities are guaranteed by the Texas Permanent School Fund (“PSF”) or pre-refunded by the issuers.

The following table summarizes Moody's and/or Standard & Poor's bond ratings for our portfolio of held-to-maturity securities issued by States and political subdivisions and other securities as of September 30, 2021 and December 31, 2020:


		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		Pre-Refunded		Total		Other Securities
September 30, 2021												September 30, 2021
Aaa/AAA	Aaa/AAA	$	115,385	$	797,659	$	332,240	$	1,245,284	$	0	Aaa/AAA	$	95,820	$	466,028	$	562,320	$	1,124,168	$	—
Aa/AA	Aa/AA	112,614		0		0		112,614		0		Aa/AA	106,111		—		—		106,111		—
A	A	62,856		0		0		62,856		0		A	—		—		—		—		—
Not rated	Not rated	0		0		0		0		1,500		Not rated	—		—		—		—		1,500
Total	Total	$	290,855	$	797,659	$	332,240	$	1,420,754	$	1,500	Total	$	201,931	$	466,028	$	562,320	$	1,230,279	$	1,500
December 31, 2020												December 31, 2020
Aaa/AAA												Aaa/AAA	$	115,016	$	659,999	$	470,745	$	1,245,760	$	—
Aa/AA												Aa/AA	107,065		—		—		107,065		—
A												A	62,724		—		—		62,724		—
Not rated												Not rated	—		—		—		—		1,500
Total												Total	$	284,805	$	659,999	$	470,745	$	1,415,549	$	1,500

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Historical loss rates associated with securities having similar grades as those in our portfolio have generally not been significant. Furthermore, as of September 30, 2020, there were no past due principal or interest payments associated with these securities. The PSF is a sovereign wealth fund which serves to provide revenues for funding of public primary and secondary education in the State of Texas. Based upon (i) the PSF's AAA insurer financial strength rating, (ii) the PSF's substantial capitalization and excess guarantee capacity and (iii) a zero historical loss rate, no allowance for credit losses has been recorded for securities guaranteed by the PSF as there is no current expectation of credit losses related to these securities. Pre-refunded securities have been defeased by the issuer and are fully secured by cash and/or U.S. Treasury securities held in escrow for payment to holders when the underlying call dates of the securities are reached. Accordingly, no allowance for credit losses has been recorded for securities that have been defeased as there is no current expectation of credit losses related to these securities.

The following table details activity in the allowance for credit losses on held-to-maturity securities during the three and nine months ended September 30, 2021 and 2020.


		Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020			Three Months Ended September 30,				Nine Months Ended September 30,
							2021		2020		2021		2020
Beginning balance	Beginning balance	$	172	$	0	Beginning balance	$	158	$	172	$	160	$	—
Impact of adopting ASC 326	Impact of adopting ASC 326	0		215		Impact of adopting ASC 326	—		—		—		215
Credit loss expense (benefit)	Credit loss expense (benefit)	(12)		(55)		Credit loss expense (benefit)	—		(12)		(2)		(55)
Ending balance	Ending balance	$	160	$	160	Ending balance	$	158	$	160	$	158	$	160

Securities - Available for Sale. A summary of the amortized cost, fair value and allowance for credit losses related to securities available for sale as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 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, 2020
September 30, 2021												September 30, 2021
U.S. Treasury	U.S. Treasury	$	1,084,210	$	40,755	$	0	$	0	$	1,124,965	U.S. Treasury	$	1,670,692	$	20,609	$	6,080	$	—	$	1,685,221

Residential mortgage-backed securities	Residential mortgage-backed securities	2,092,184		72,021		43		0		2,164,162		Residential mortgage-backed securities	2,467,915		37,910		14,671		—		2,491,154
States and political subdivisions	States and political subdivisions	6,695,946		577,059		0		0		7,273,005		States and political subdivisions	7,049,872		471,883		9,266		—		7,512,489
Other	Other	42,348		0		0		0		42,348		Other	42,358		—		—		—		42,358
Total	Total	$	9,914,688	$	689,835	$	43	$	0	$	10,604,480	Total	$	11,230,837	$	530,402	$	30,017	$	—	$	11,731,222

December 31, 2019
December 31, 2020												December 31, 2020
U.S. Treasury	U.S. Treasury	$	1,941,283	$	18,934	$	12,084	$	0	$	1,948,133	U.S. Treasury	$	1,084,542	$	35,091	$	—	$	—	$	1,119,633

Residential mortgage-backed securities	Residential mortgage-backed securities	2,176,275		32,608		1,289		0		2,207,594		Residential mortgage-backed securities	1,916,581		71,102		4		—		1,987,679
States and political subdivisions	States and political subdivisions	6,717,344		353,857		204		0		7,070,997		States and political subdivisions	6,683,927		603,975		—		—		7,287,902
Other	Other	42,867		0		0		0		42,867		Other	42,351		—		—		—		42,351
Total	Total	$	10,877,769	$	405,399	$	13,577	$	0	$	11,269,591	Total	$	9,727,401	$	710,168	$	4	$	—	$	10,437,565

All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. At September 30, ~~2020,~~2021, 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 ~~75.8%~~76.9% 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 ~~$3.8~~$4.9 billion and ~~$3.4~~$4.4 billion at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Accrued interest receivable on available-for-sale securities totaled ~~$66.6~~$69.0 million and ~~$115.9~~$111.0 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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, ~~2020,~~2021, 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
Estimated
Fair Value Unrealized
Losses Estimated
Fair Value Unrealized
Losses Estimated
Fair Value Unrealized
Losses
Residential mortgage-backed securities $ 7,527 $ 42 $ 124 $ 1 $ 7,651 $ 43
Total $ 7,527 $ 42 $ 124 $ 1 $ 7,651 $ 43

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	Less than 12 Months				More than 12 Months				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
U.S. Treasury	$	687,535	$	6,080	$	—	$	—	$	687,535	$	6,080
Residential mortgage-backed securities	984,236		14,671		—		—		984,236		14,671
States and political subdivisions	636,776		9,266		—		—		636,776		9,266
Total	$	2,308,547	$	30,017	$	—	$	—	$	2,308,547	$	30,017

As of September 30, ~~2020, no~~2021, 0 allowance for credit losses has been recognized on available for sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality. This is based upon our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors ~~(such as a PSF guarantee)~~ related to our available for sale securities and in consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, management does not have the intent to sell any of the securities classified as available for sale in the table above

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and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost. The 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, ~~2020.~~2021. 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	$	0	$	231	$	516,368	$	12,691	$	529,290	Residential mortgage-backed securities	$	65	$	—	$	515,356	$	12,228	$	527,649
States and political subdivisions	States and political subdivisions	55,180		355,409		399,377		610,788		1,420,754		States and political subdivisions	456,778		181,302		88,862		503,337		1,230,279
Other	Other	0		1,500		0		0		1,500		Other	1,500		—		—		—		1,500
Total	Total	$	55,180	$	357,140	$	915,745	$	623,479	$	1,951,544	Total	$	458,343	$	181,302	$	604,218	$	515,565	$	1,759,428
Estimated Fair Value	Estimated Fair Value											Estimated Fair Value

Residential mortgage-backed securities	Residential mortgage-backed securities	$	0	$	233	$	560,456	$	14,105	$	574,794	Residential mortgage-backed securities	$	65	$	—	$	539,142	$	12,774	$	551,981
States and political subdivisions	States and political subdivisions	56,043		369,536		411,517		645,466		1,482,562		States and political subdivisions	464,067		187,495		90,295		530,230		1,272,087
Other	Other	0		1,499		0		0		1,499		Other	1,500		—		—		—		1,500
Total	Total	$	56,043	$	371,268	$	971,973	$	659,571	$	2,058,855	Total	$	465,632	$	187,495	$	629,437	$	543,004	$	1,825,568
Available For Sale	Available For Sale											Available For Sale
Amortized Cost	Amortized Cost											Amortized Cost
U. S. Treasury	U. S. Treasury	$	299,355	$	784,855	$	0	$	0	$	1,084,210	U. S. Treasury	$	499,857	$	533,532	$	445,697	$	191,606	$	1,670,692
Residential mortgage-backed securities	Residential mortgage-backed securities	175		45,832		22,949		2,023,228		2,092,184		Residential mortgage-backed securities	743		16,678		22,146		2,428,348		2,467,915
States and political subdivisions	States and political subdivisions	201,529		1,029,750		696,654		4,768,013		6,695,946		States and political subdivisions	82,366		1,392,877		863,687		4,710,942		7,049,872
Other	Other	0		0		0		0		42,348		Other	—		—		—		—		42,358
Total	Total	$	501,059	$	1,860,437	$	719,603	$	6,791,241	$	9,914,688	Total	$	582,966	$	1,943,087	$	1,331,530	$	7,330,896	$	11,230,837
Estimated Fair Value	Estimated Fair Value											Estimated Fair Value
U. S. Treasury	U. S. Treasury	$	305,121	$	819,844	$	0	$	0	$	1,124,965	U. S. Treasury	$	501,489	$	548,216	$	440,328	$	195,188	$	1,685,221
Residential mortgage-backed securities	Residential mortgage-backed securities	182		47,995		23,439		2,092,546		2,164,162		Residential mortgage-backed securities	772		17,559		22,743		2,450,080		2,491,154
States and political subdivisions	States and political subdivisions	204,107		1,127,267		757,126		5,184,505		7,273,005		States and political subdivisions	83,932		1,492,026		919,808		5,016,723		7,512,489
Other	Other	0		0		0		0		42,348		Other	—		—		—		—		42,358
Total	Total	$	509,410	$	1,995,106	$	780,565	$	7,277,051	$	10,604,480	Total	$	586,193	$	2,057,801	$	1,382,879	$	7,661,991	$	11,731,222

Sales of Securities. Sales of securities available for sale were as follows:

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Proceeds from sales $ 0 $ 4,944,537 $ 1,162,352 $ 8,236,066
Gross realized gains 0 96 108,989 899
Gross realized losses 0 0 0 (634)
Tax (expense) benefit of securities gains/losses 0 (21) (22,888) (56)

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Proceeds from sales	$	—	$	—	$	—	$	1,162,352
Gross realized gains	—		—		—		108,989
Gross realized losses	—		—		—		—
Tax (expense) benefit of securities gains/losses	—		—		��		(22,888)

Premiums and Discounts. Premium amortization and discount accretion included in interest income on securities was as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Premium amortization	Premium amortization	$	(31,540)	$	(29,511)	$	(94,873)	$	(88,798)	Premium amortization	$	(30,240)	$	(31,540)	$	(92,016)	$	(94,873)
Discount accretion	Discount accretion	637		1,274		1,793		3,835		Discount accretion	657		637		1,999		1,793
Net (premium amortization) discount accretion	Net (premium amortization) discount accretion	$	(30,903)	$	(28,237)	$	(93,080)	$	(84,963)	Net (premium amortization) discount accretion	$	(29,583)	$	(30,903)	$	(90,017)	$	(93,080)

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


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
U.S. Treasury	U.S. Treasury	$	24,495	$	24,298	U.S. Treasury	$	24,087	$	23,996
States and political subdivisions	States and political subdivisions	1,313		0		States and political subdivisions	1,205		460
Total	Total	$	25,808	$	24,298	Total	$	25,292	$	24,456

Net gains and losses on trading account securities were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net gain on sales transactions	Net gain on sales transactions	$	159	$	731	$	933	$	1,789	Net gain on sales transactions	$	314	$	159	$	716	$	933
Net mark-to-market gains (losses)	Net mark-to-market gains (losses)	1		(201)		94		(170)		Net mark-to-market gains (losses)	(2)		1		(71)		94
Net gain (loss) on trading account securities	Net gain (loss) on trading account securities	$	160	$	530	$	1,027	$	1,619	Net gain (loss) on trading account securities	$	312	$	160	$	645	$	1,027

Note 3 - Loans

Loans were as follows:


		September 30, 2020		Percentage of Total		December 31, 2019		Percentage of Total			September 30, 2021		Percentage of Total		December 31, 2020		Percentage of Total
Commercial and industrial	Commercial and industrial	$	4,820,018	26.4	%	$	5,187,466	35.2	%	Commercial and industrial	$	4,929,656	31.1	%	$	4,955,341	28.4	%
Energy:	Energy:									Energy:
Production	Production	1,108,753		6.1		1,348,900		9.2		Production	774,753		4.9		976,473		5.6
Service	Service	163,197		0.9		192,996		1.3		Service	107,585		0.7		116,825		0.7
Other	Other	91,418		0.4		110,986		0.8		Other	95,873		0.6		141,900		0.8
Total energy	Total energy	1,363,368		7.4		1,652,882		11.2		Total energy	978,211		6.2		1,235,198		7.1
Paycheck Protection Program	Paycheck Protection Program	3,226,980		17.7		0		0		Paycheck Protection Program	827,820		5.2		2,433,849		13.9
Commercial real estate:	Commercial real estate:									Commercial real estate:
Commercial mortgages	Commercial mortgages	5,412,731		29.7		4,594,113		31.1		Commercial mortgages	5,648,541		35.7		5,478,806		31.3
Construction	Construction	1,274,080		7.0		1,312,659		8.9		Construction	1,266,633		8.0		1,223,814		7.0
Land	Land	320,407		1.8		289,467		2.0		Land	335,849		2.1		317,847		1.8
Total commercial real estate	Total commercial real estate	7,007,218		38.5		6,196,239		42.0		Total commercial real estate	7,251,023		45.8		7,020,467		40.1
Consumer real estate:	Consumer real estate:									Consumer real estate:
Home equity loans	Home equity loans	340,226		1.9		375,596		2.6		Home equity loans	320,597		2.0		329,390		1.9
Home equity lines of credit	Home equity lines of credit	434,171		2.4		354,671		2.4		Home equity lines of credit	478,978		3.0		452,854		2.6
Other	Other	533,356		2.9		464,146		3.1		Other	563,464		3.6		548,530		3.1
Total consumer real estate	Total consumer real estate	1,307,753		7.2		1,194,413		8.1		Total consumer real estate	1,363,039		8.6		1,330,774		7.6
Total real estate	Total real estate	8,314,971		45.7		7,390,652		50.1		Total real estate	8,614,062		54.4		8,351,241		47.7
Consumer and other	Consumer and other	498,540		2.8		519,332		3.5		Consumer and other	482,921		3.1		505,680		2.9
Total loans	Total loans	$	18,223,877	100.0	%	$	14,750,332	100.0	%	Total loans	$	15,832,670	100.0	%	$	17,481,309	100.0	%

Concentrations of Credit. Most of our lending activity occurs within the State of Texas, including the four largest metropolitan areas of Austin, Dallas/Ft. Worth, Houston and San Antonio, as well as other markets. The majority of our loan portfolio consists of commercial and industrial and commercial real estate loans. As of September 30, ~~2020,~~2021, there were 0no 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 ~~7.4%~~6.2% of total loans, or ~~9.1%~~6.5% excluding PPP loans. Unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled ~~$910.3 million~~$1.0 billion and ~~$62.6~~$63.7 million, respectively, as of September 30, ~~2020.~~2021.

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Foreign Loans. We have U.S. dollar denominated loans and commitments to borrowers in Mexico. The outstanding balance of these loans and the unfunded amounts available under these commitments were not significant at September 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

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 ~~$316.0~~$318.8 million at September 30, ~~2020~~2021 and ~~$298.5~~$353.1 million at December 31, ~~2019.~~2020.

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Accrued Interest Receivable. Accrued interest receivable on loans totaled ~~$43.9~~$39.0 million and ~~$45.5~~$48.7 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively and is included in accrued interest receivable and other assets in the accompany consolidated balance sheets.

COVID-19 Loan Deferments.Certain borrowers ~~are currently~~have been unable to meet their contractual payment obligations because of the adverse effects of COVID-19. To help mitigate these effects, loan customers ~~may~~were able to apply for a deferral of payments, or portions thereof, for up to 90 days. After 90 days, customers ~~may~~were able to apply for an additional deferral, and a small proportion of our customers ~~have~~ requested such an additional deferral. In the absence of other intervening factors, such short-term modifications made on a good faith basis ~~are~~have not been categorized as troubled debt restructurings, nor ~~are~~have loans granted payment deferrals related to COVID-19 been reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral). AtAs of September 30, ~~2020, there were approximately 300~~2021, the amount of loans remaining in COVID-19 related deferment ~~with an aggregate outstanding balance of approximately $157.2 million.~~was not significant.

Non-Accrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. In determining whether or not a borrower may be unable to meet payment obligations for each class of loans, we consider the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regards to our collateral position. Regulatory provisions would typically require the placement of a loan on non-accrual status if (i) principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or (ii) full payment of principal and interest is not expected. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed against income. Interest income on non-accrual loans is recognized only to the extent that cash payments are received in excess of principal due. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period (at least six months) of repayment performance by the borrower.

Non-accrual loans, segregated by class of loans, were as follows:

September 30, 2020 December 31, 2019
Total Non-Accrual Non-Accrual with No Credit Loss Allowance Total Non-Accrual Non-Accrual with No Credit Loss Allowance
Commercial and industrial $ 21,566 $ 6,583 $ 26,038 $ 13,266
Energy 54,041 33,324 65,761 3,281
Paycheck Protection Program 0 0 0 0
Commercial real estate:
Buildings, land and other 13,525 6,754 8,912 6,558
Construction 680 680 665 665
Consumer real estate 1,748 1,748 922 922
Consumer and other 18 0 5 0
Total $ 91,578 $ 49,089 $ 102,303 $ 24,692

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	September 30, 2021				December 31, 2020
	Total Non-Accrual		Non-Accrual with No Credit Loss Allowance		Total Non-Accrual		Non-Accrual with No Credit Loss Allowance
Commercial and industrial	$	19,349	$	11,611	$	19,849	$	4,479
Energy	23,347		7,224		23,168		639
Paycheck Protection Program	—		—		—		—
Commercial real estate:
Buildings, land and other	12,247		8,770		15,737		14,116
Construction	1,632		664		1,684		1,684
Consumer real estate	480		178		993		993
Consumer and other	—		—		18		—
Total	$	57,055	$	28,447	$	61,449	$	21,911

The following table presents non-accrual loans as of September 30, ~~2020~~2021 by class and year of origination.


		2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term		Total			2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and industrial	Commercial and industrial	$	9,317	$	3,743	$	1,886	$	1,263	$	110	$	51	$	1,879	$	3,317	$	21,566	Commercial and industrial	$	315	$	7,922	$	4,211	$	676	$	882	$	370	$	2,067	$	2,906	$	19,349
Energy	Energy	24,149		7,021		2,204		0		0		0		15,054		5,613		54,041		Energy	—		477		6,467		1,513		—		323		12,170		2,397		23,347
Paycheck Protection Program	Paycheck Protection Program	0		0		0		0		0		0		0		0		0		Paycheck Protection Program	—		—		—		—		—		—		—		—		—
Commercial real estate:	Commercial real estate:																			Commercial real estate:
Buildings, land and other	Buildings, land and other	1,426		6,014		169		1,372		840		3,590		114		0		13,525		Buildings, land and other	2,096		1,723		2,811		824		2,051		2,742		—		—		12,247
Construction	Construction	680		0		0		0		0		0		0		0		680		Construction	—		1,632		—		—		—		—		—		—		1,632
Consumer real estate	Consumer real estate	0		0		421		211		350		382		261		123		1,748		Consumer real estate	—		—		—		—		—		443		—		37		480
Consumer and other	Consumer and other	0		0		0		0		0		0		18		0		18		Consumer and other	—		—		—		—		—		—		—		—		—
Total	Total	$	35,572	$	16,778	$	4,680	$	2,846	$	1,300	$	4,023	$	17,326	$	9,053	$	91,578	Total	$	2,411	$	11,754	$	13,489	$	3,013	$	2,933	$	3,878	$	14,237	$	5,340	$	57,055

~~In the table above, loans reported as 2020 originations were, for the most part, first originated in various years prior to 2020 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 $474 thousand and $1.4 million for the three and nine months ended September 30, 2021, and approximately $670 thousand and $2.3 million for the three and nine months ended September 30, ~~2020, and approximately $937 thousand and $3.0 million for the three and nine months ended September 30, 2019.~~2020.

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An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of September 30, ~~2020~~2021 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	$	36,067	$	25,115	$	61,182	$	4,758,836	$	4,820,018	$	19,392	Commercial and industrial	$	42,705	$	8,634	$	51,339	$	4,878,317	$	4,929,656	$	7,522
Energy	Energy	31,071		9,588		40,659		1,322,709		1,363,368		559		Energy	1,237		13,233		14,470		963,741		978,211		965
Paycheck Protection Program	Paycheck Protection Program	0		0		0		3,226,980		3,226,980		0		Paycheck Protection Program	—		—		—		827,820		827,820		—
Commercial real estate:	Commercial real estate:													Commercial real estate:
Buildings, land and other	Buildings, land and other	25,113		19,571		44,684		5,688,454		5,733,138		11,676		Buildings, land and other	20,910		19,190		40,100		5,944,290		5,984,390		12,224
Construction	Construction	0		0		0		1,274,080		1,274,080		0		Construction	—		—		—		1,266,633		1,266,633		—
Consumer real estate	Consumer real estate	11,054		4,761		15,815		1,291,938		1,307,753		3,406		Consumer real estate	4,148		2,101		6,249		1,356,790		1,363,039		1,985
Consumer and other	Consumer and other	6,629		673		7,302		491,238		498,540		673		Consumer and other	3,678		1,029		4,707		478,214		482,921		1,029
Total	Total	$	109,934	$	59,708	$	169,642	$	18,054,235	$	18,223,877	$	35,706	Total	$	72,678	$	44,187	$	116,865	$	15,715,805	$	15,832,670	$	23,725

Troubled Debt Restructurings. Troubled debt restructurings during the nine months ended September 30, ~~2020~~2021 and ~~September 30, 2019~~2020 are set forth in the following table.


		Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019					Nine Months Ended September 30, 2021				Nine Months Ended September 30, 2020
		Balance at Restructure		Balance at Period-End		Balance at Restructure		Balance at Period-End			Balance at Restructure		Balance at Period-End		Balance at Restructure		Balance at Period-End
Commercial and industrial	Commercial and industrial	$	3,660	$	1,415	$	3,845	$	2,188	Commercial and industrial	$	1,312	$	1,237	$	3,660	$	1,415

Energy										Energy	3,817		3,566		—		—
Commercial real estate:	Commercial real estate:									Commercial real estate:
Buildings, land and other	Buildings, land and other	6,606		6,585		9,456		9,494		Buildings, land and other	1,888		1,875		6,606		6,585
Construction	Construction	1,192		1,181		0		0		Construction	—		—		1,192		1,181
Consumer real estate		0		0		124		123

Consumer and other	Consumer and other	1,104		104		0		0		Consumer and other	—		—		1,104		104
		$	12,562	$	9,285	$	13,425	$	11,805		$	7,017	$	6,678	$	12,562	$	9,285

Loan modifications are typically related to extending amortization periods, converting loans to interest only for a limited period of time, deferral of interest payments, waiver of certain covenants, consolidating notes and/or reducing collateral or interest rates. The modifications during the reported periods did not significantly impact our determination of the allowance for credit losses on loans.

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Additional information related to restructured loans as of or for the ~~three~~nine months ended September 30, ~~2020~~2021 and ~~September 30, 2019~~2020 is set forth in the following table.


		September 30, 2020		September 30, 2019			September 30, 2021		September 30, 2020
Restructured loans past due in excess of 90 days at period-end:	Restructured loans past due in excess of 90 days at period-end:					Restructured loans past due in excess of 90 days at period-end:
Number of loans	Number of loans	2		4		Number of loans	1		2
Dollar amount of loans	Dollar amount of loans	$	3,682	$	3,244	Dollar amount of loans	$	306	$	3,682
Restructured loans on non-accrual status at period end	Restructured loans on non-accrual status at period end	5,353		5,645		Restructured loans on non-accrual status at period end	5,072		5,353
Charge-offs of restructured loans:	Charge-offs of restructured loans:					Charge-offs of restructured loans:
Recognized in connection with restructuring	Recognized in connection with restructuring	0		1,500		Recognized in connection with restructuring	—		—
Recognized on previously restructured loans	Recognized on previously restructured loans	2,188		0		Recognized on previously restructured loans	1,433		2,188

Credit Quality Indicators. As part of the on-going monitoring of the credit quality of our loan portfolio, management tracks certain credit quality indicators including trends related to (i) the weighted-average risk grade of commercial loans, (ii) the level of classified commercial loans, (iii) the delinquency status of consumer loans (iv) non-performing loans (see details above) and (vi) the general economic conditions in the State of Texas.

We utilize a risk grading matrix to assign a risk grade to each of our commercial loans. Loans are graded on a scale of 1 to 14. A description of the general characteristics of the 14 risk grades is set forth in our ~~2019~~2020 Form 10-K. We monitor portfolio credit quality by the weighted-average risk grade of each class of commercial loan. Individual relationship managers, under the oversight of credit administration, review updated financial information for all pass grade loans to reassess the risk grade on at least an annual basis. When a loan has a risk grade of 9, it is still considered a pass grade loan; however, it is considered to be

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on management’s “watch list,” where a significant risk-modifying action is anticipated in the near term. When a loan has a risk grade of 10 or higher, a special assets officer monitors the loan on an on-going basis.

The following tables present weighted-average risk grades for all commercial loans, by class and year of origination/renewal as of September 30, ~~2020.~~2021. Paycheck Protection Program (“PPP”) loans are excluded as such loans are fully guaranteed by the Small Business Administration (“SBA”).

2020 2019 2018 2017 2016 Prior Revolving Loans Revolving Loans Converted to Term Total W/A Risk Grade
Commercial and industrial
Risk grades 1-8 $ 1,101,917 $ 625,692 $ 340,799 $ 251,180 $ 120,777 $ 129,757 $ 1,788,761 $ 43,468 $ 4,402,351 6.12
Risk grade 9 69,846 27,843 36,271 21,352 9,910 1,087 77,802 4,462 248,573 9.00
Risk grade 10 4,394 7,722 13,867 6,875 812 824 60,028 4,347 98,869 10.00
Risk grade 11 3,675 4,507 6,720 4,422 1,896 167 17,909 9,363 48,659 11.00
Risk grade 12 6,917 2,791 1,544 708 110 51 1,350 3,022 16,493 12.00
Risk grade 13 2,400 952 342 555 0 0 529 295 5,073 13.00
$ 1,189,149 $ 669,507 $ 399,543 $ 285,092 $ 133,505 $ 131,886 $ 1,946,379 $ 64,957 $ 4,820,018 6.42
W/A risk grade 6.12 6.81 7.20 6.32 6.37 5.87 6.32 7.92 6.42
Energy
Risk grades 1-8 $ 454,901 $ 25,589 $ 10,956 $ 6,732 $ 1,481 $ 4,709 $ 407,478 $ 24,936 $ 936,782 6.18
Risk grade 9 108,859 5,542 3,190 0 0 0 90,292 14,974 222,857 9.00
Risk grade 10 486 4,113 1,461 0 907 0 7,837 2,105 16,909 10.00
Risk grade 11 78,832 15,724 3,280 1,210 0 1,066 32,398 269 132,779 11.00
Risk grade 12 24,149 4,829 714 0 0 0 10,629 5,613 45,934 12.00
Risk grade 13 0 2,192 1,490 0 0 0 4,425 0 8,107 13.00
$ 667,227 $ 57,989 $ 21,091 $ 7,942 $ 2,388 $ 5,775 $ 553,059 $ 47,897 $ 1,363,368 7.39
W/A risk grade 7.43 9.19 8.78 7.83 7.93 8.06 6.98 8.76 7.39

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		2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term		Total		W/A Risk Grade		2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term		Total		W/A Risk Grade
Commercial and industrial																					Commercial and industrial
Risk grades 1-8																					Risk grades 1-8	$	1,009,752	$	730,976	$	405,216	$	201,578	$	160,431	$	149,611	$	1,875,496	$	65,603	$	4,598,663	6.04
Risk grade 9																					Risk grade 9	9,569		35,274		30,953		26,216		12,258		18,329		70,412		5,272		208,283		9.00
Risk grade 10																					Risk grade 10	28,117		6,546		1,871		4,653		1,358		112		12,954		1,652		57,263		10.00
Risk grade 11																					Risk grade 11	1,326		8,603		9,644		4,160		3,098		279		7,189		11,799		46,098		11.00
Risk grade 12																					Risk grade 12	135		7,922		3,263		676		411		370		962		1,974		15,713		12.00
Risk grade 13																					Risk grade 13	180		—		948		—		471		—		1,105		932		3,636		13.00
																						$	1,049,079	$	789,321	$	451,895	$	237,283	$	178,027	$	168,701	$	1,968,118	$	87,232	$	4,929,656	6.29
W/A risk grade																					W/A risk grade	5.97		6.35		6.91		7.04		6.20		5.94		6.17		7.60		6.29
Energy																					Energy
Risk grades 1-8																					Risk grades 1-8	$	350,757	$	10,562	$	10,339	$	7,060	$	3,958	$	4,518	$	392,527	$	68,437	$	848,158	5.94
Risk grade 9																					Risk grade 9	32,434		712		1,831		270		—		737		10,136		2,574		48,694		9.00
Risk grade 10																					Risk grade 10	—		115		703		668		—		—		860		478		2,824		10.00
Risk grade 11																					Risk grade 11	11,517		1,168		17,711		1,607		—		573		19,133		3,479		55,188		11.00
Risk grade 12																					Risk grade 12	—		34		4,777		90		—		323		4,641		99		9,964		12.00
Risk grade 13																					Risk grade 13	—		443		1,690		1,423		—		—		7,529		2,298		13,383		13.00
																						$	394,708	$	13,034	$	37,051	$	11,118	$	3,958	$	6,151	$	434,826	$	77,365	$	978,211	6.55
W/A risk grade																					W/A risk grade	6.37		8.13		9.98		8.77		7.19		7.84		6.26		6.76		6.55
Commercial real estate:	Commercial real estate:																				Commercial real estate:
Buildings, land, other	Buildings, land, other																				Buildings, land, other
Risk grades 1-8	Risk grades 1-8	$	1,167,872	$	1,010,418	$	829,640	$	660,047	$	430,971	$	752,461	$	62,672	$	53,480	$	4,967,561	6.98	Risk grades 1-8	$	1,153,181	$	1,146,764	$	862,629	$	578,768	$	517,822	$	842,409	$	44,525	$	75,360	$	5,221,458	6.90
Risk grade 9	Risk grade 9	26,056		93,113		67,546		66,365		45,477		92,060		4,413		1,042		396,072		9.00	Risk grade 9	13,873		143,504		70,218		48,372		29,691		34,746		4,669		6,858		351,931		9.00
Risk grade 10	Risk grade 10	1,362		26,080		29,357		39,853		65,702		42,528		4,147		2,876		211,905		10.00	Risk grade 10	14,376		16,956		69,882		51,903		65,363		55,732		—		—		274,212		10.00
Risk grade 11	Risk grade 11	7,416		7,108		13,425		42,660		10,487		59,730		3,038		211		144,075		11.00	Risk grade 11	3,995		19,766		11,351		7,615		32,698		40,245		3,000		5,872		124,542		11.00
Risk grade 12	Risk grade 12	1,226		5,214		169		1,372		840		3,340		51		0		12,212		12.00	Risk grade 12	1,896		1,723		2,511		824		2,051		2,492		—		—		11,497		12.00
Risk grade 13	Risk grade 13	200		800		0		0		0		250		63		0		1,313		13.00	Risk grade 13	200		—		300		—		—		250		—		—		750		13.00
		$	1,204,132	$	1,142,733	$	940,137	$	810,297	$	553,477	$	950,369	$	74,384	$	57,609	$	5,733,138	7.34		$	1,187,521	$	1,328,713	$	1,016,891	$	687,482	$	647,625	$	975,874	$	52,194	$	88,090	$	5,984,390	7.27
W/A risk grade	W/A risk grade	7.09		7.34		7.46		7.48		7.73		7.26		7.41		6.84		7.34			W/A risk grade	7.21		7.27		7.40		7.37		7.38		7.04		7.30		7.15		7.27
Construction	Construction																				Construction
Risk grades 1-8	Risk grades 1-8	$	272,025	$	480,166	$	224,389	$	753	$	1,164	$	1,786	$	160,654	$	0	$	1,140,937	7.01	Risk grades 1-8	$	429,990	$	284,149	$	299,927	$	20,457	$	—	$	2,593	$	144,950	$	—	$	1,182,066	7.03
Risk grade 9	Risk grade 9	31,402		8,370		0		39,688		0		0		14,608		0		94,068		9.00	Risk grade 9	37,113		32,002		—		—		513		—		13,307		—		82,935		9.00
Risk grade 10	Risk grade 10	6,133		0		27,479		0		0		0		3,838		0		37,450		10.00	Risk grade 10	—		—		—		—		—		—		—		—		—		10.00
Risk grade 11	Risk grade 11	0		0		0		0		0		945		0		0		945		11.00	Risk grade 11	—		—		—		—		—		—		—		—		—		11.00
Risk grade 12	Risk grade 12	680		0		0		0		0		0		0		0		680		12.00	Risk grade 12	—		1,432		—		—		—		—		—		—		1,432		12.00
Risk grade 13	Risk grade 13	0		0		0		0		0		0		0		0		0		13.00	Risk grade 13	—		200		—		—		—		—		—		—		200		13.00
		$	310,240	$	488,536	$	251,868	$	40,441	$	1,164	$	2,731	$	179,100	$	0	$	1,274,080	7.25		$	467,103	$	317,783	$	299,927	$	20,457	$	513	$	2,593	$	158,257	$	—	$	1,266,633	7.16
W/A risk grade	W/A risk grade	6.87		7.18		7.74		8.98		7.29		8.02		7.00		0		7.25			W/A risk grade	7.13		6.87		7.46		7.45		9.00		6.79		7.24		—		7.16
Total commercial real estate	Total commercial real estate	$	1,514,372	$	1,631,269	$	1,192,005	$	850,738	$	554,641	$	953,100	$	253,484	$	57,609	$	7,007,218	7.33	Total commercial real estate	$	1,654,624	$	1,646,496	$	1,316,818	$	707,939	$	648,138	$	978,467	$	210,451	$	88,090	$	7,251,023	7.25
W/A risk grade	W/A risk grade	7.04		7.29		7.52		7.55		7.73		7.26		7.12		6.84		7.33			W/A risk grade	7.19		7.19		7.41		7.38		7.38		7.04		7.26		7.15		7.25

In the ~~tables~~table above, certain loans are reported as ~~2020~~2021 originations and have risk grades of 11 or higher. These loans were, for the most part, first originated in various years prior to ~~2020~~2021 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, ~~2019.~~2020. Refer to our 2020 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
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 6.17 $ 4,788,857 5.90 $ 1,488,301 6.78 $ 4,523,271 7.25 $ 1,274,098 6.88 $ 5,797,369
Risk grade 9 9.00 247,212 9.00 32,163 9.00 163,714 9.00 21,509 9.00 185,223
Risk grade 10 10.00 71,472 10.00 51,898 10.00 103,626 10.00 15,243 10.00 118,869
Risk grade 11 11.00 53,887 11.00 14,760 11.00 84,057 11.00 1,144 11.00 85,201
Risk grade 12 12.00 18,189 12.00 45,514 12.00 8,529 12.00 665 12.00 9,194
Risk grade 13 13.00 7,849 13.00 20,246 13.00 383 13.00 0 13.00 383
Total 6.44 $ 5,187,466 6.39 $ 1,652,882 7.01 $ 4,883,580 7.31 $ 1,312,659 7.07 $ 6,196,239

~~Table of Contents~~


	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
Risk grades 1-8	6.13	$	4,506,121	5.99	$	968,144	6.97	$	5,047,873	6.99	$	1,110,025	6.98	$	6,157,898
Risk grade 9	9.00	256,198		9.00	133,547		9.00	325,227		9.00	72,287		9.00	397,514
Risk grade 10	10.00	125,977		10.00	46,427		10.00	258,454		10.00	38,962		10.00	297,416
Risk grade 11	11.00	47,196		11.00	63,912		11.00	149,362		11.00	856		11.00	150,218
Risk grade 12	12.00	14,528		12.00	13,741		12.00	15,224		12.00	1,684		12.00	16,908
Risk grade 13	13.00	5,321		13.00	9,427		13.00	513		13.00	—		13.00	513
Total	6.45	$	4,955,341	6.85	$	1,235,198	7.34	$	5,796,653	7.22	$	1,223,814	7.32	$	7,020,467

Information about the payment status of consumer loans, segregated by portfolio segment and year of origination, as of September 30, ~~2020~~2021 was as follows:


		2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term		Total			2021		2020		2019		2018		2017		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	$	787	$	850	$	1,434	$	858	$	540	$	4,558	$	1,535	$	492	$	11,054	Past due 30-89 days	$	396	$	34	$	277	$	370	$	326	$	1,187	$	174	$	1,384	$	4,148
Past due 90 or more days	Past due 90 or more days	0		139		894		542		351		2,028		600		207		4,761		Past due 90 or more days	—		—		110		11		226		645		967		142		2,101
Total past due	Total past due	787		989		2,328		1,400		891		6,586		2,135		699		15,815		Total past due	396		34		387		381		552		1,832		1,141		1,526		6,249
Current loans	Current loans	253,392		188,770		106,947		93,143		75,216		142,983		414,331		17,156		1,291,938		Current loans	235,725		283,853		111,449		62,416		54,827		132,108		464,440		11,972		1,356,790
Total	Total	$	254,179	$	189,759	$	109,275	$	94,543	$	76,107	$	149,569	$	416,466	$	17,855	$	1,307,753	Total	$	236,121	$	283,887	$	111,836	$	62,797	$	55,379	$	133,940	$	465,581	$	13,498	$	1,363,039
Consumer and other:	Consumer and other:																			Consumer and other:
Past due 30-89 days	Past due 30-89 days	$	1,328	$	326	$	288	$	75	$	2	$	1	$	4,313	$	296	$	6,629	Past due 30-89 days	$	1,527	$	283	$	182	$	89	$	63	$	18	$	481	$	1,035	$	3,678
Past due 90 or more days	Past due 90 or more days	69		189		3		0		0		1		372		39		673		Past due 90 or more days	576		10		—		90		—		—		—		353		1,029
Total past due	Total past due	1,397		515		291		75		2		2		4,685		335		7,302		Total past due	2,103		293		182		179		63		18		481		1,388		4,707
Current loans	Current loans	38,114		32,214		7,985		3,131		2,070		950		376,762		30,012		491,238		Current loans	39,156		20,924		10,442		3,268		1,844		1,391		374,993		26,196		478,214
Total	Total	$	39,511	$	32,729	$	8,276	$	3,206	$	2,072	$	952	$	381,447	$	30,347	$	498,540	Total	$	41,259	$	21,217	$	10,624	$	3,447	$	1,907	$	1,409	$	375,474	$	27,584	$	482,921

Revolving loans that converted to term during the three and nine months ended September 30, 2021 and 2020 were as follows:


							Three Months Ended September 30,				Nine Months Ended September 30,
		Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020			2021		2020		2021		2020
Commercial and industrial	Commercial and industrial	$	10,224	$	25,340	Commercial and industrial	$	12,009	$	10,224	$	39,551	$	25,340
Energy	Energy	7,144		38,642		Energy	52,055		7,144		57,871		38,642
Commercial real estate:	Commercial real estate:					Commercial real estate:
Buildings, land and other	Buildings, land and other	637		8,094		Buildings, land and other	6,012		637		37,093		8,094
Construction	Construction	0		0		Construction	—		—		—		—
Consumer real estate	Consumer real estate	421		2,132		Consumer real estate	330		421		1,172		2,132
Consumer and other	Consumer and other	5,494		15,338		Consumer and other	1,523		5,494		7,017		15,338
Total	Total	$	23,920	$	89,546	Total	$	71,929	$	23,920	$	142,704	$	89,546

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 ~~2019~~2020 Form 10-K, totaled ~~113.1~~130.4 at ~~September 30, 2020~~August 31, 2021 (most recent date available) and ~~127.9~~118.1 at December 31, ~~2019.~~2020. A ~~lower~~higher TLI value implies ~~less~~more favorable economic conditions.

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Allowance For Credit Losses - Loans. The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectibility over the loans' contractual terms, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless (i) management has a reasonable expectation that a trouble debt restructuring will be executed with an individual borrower or (ii) such extension or renewal options are not unconditionally cancellable by us and, in such cases, the borrower is likely to meet applicable conditions and likely to request extension or renewal. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. The allowance for credit losses is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

~~Table of Contents~~

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.

~~In calculating the~~ Our allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles. Common characteristics and risk profiles include the type/purpose of loan, underlying collateral, geographical similarity and historical/expected credit loss patterns. In developing these loan pools for the purposes of modeling expected credit losses, we also analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors. For modeling purposes, our loan pools include (i) commercial and industrial and energy - non-revolving, (ii) commercial and industrial and energy - revolving, (iii) commercial real estate - owner occupied, (iv) commercial real estate - non-owner occupied, (v) commercial real estate - construction/land development, (vi) consumer real estate and (vii) consumer and other. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentationmethodology is ~~necessary.~~

For each loan pool, we measure expected credit losses over the life of each loan utilizing a combination of models which measure (i) probability of default (“PD”), which is the likelihood that loan will stop performing/default, (ii) probability of attrition (“PA”), which is the likelihood that a loan will pay-off prior to maturity, (iii) loss given default (“LGD”), which is the expected loss rate for loans in default and (iv) exposure at default (“EAD”), which is the estimated outstanding principal balance of the loans upon default, including the expected funding of unfunded commitments outstanding as of the measurement date. For certain commercial loan portfolios, the PD is calculated using a transition matrix to determine the likelihood of a customer’s risk grade migrating from one specified range of risk grades to a different specified range. Expected credit losses are calculated as the product of PD (adjusted for attrition), LGD and EAD. This methodology builds on default probabilities already incorporated into our risk grading process by utilizing pool-specific historical loss rates to calculate expected credit losses. These pool-specific historical loss rates may be adjusted for current macroeconomic assumptions, as further discussed below, and other factors such as differences in underwriting standards, portfolio mix, or when historical asset terms do not reflect the contractual terms of the financial assets being evaluated as of the measurement date. Each time we measure expected credit losses, we assess the relevancy of historical loss information and consider any necessary adjustments to address any differences in asset-specific characteristics. Due to their short-term nature, expected credit losses for overdrafts included in consumer and other loans are based solely upon a weighting of recent historical charge-offs over a period of three years.

~~The measurement of expected credit losses is impacted by loan/borrower attributes and certain macroeconomic variables. Significant loan/borrower attributes utilized~~more fully described in our modeling processes include, among other things, (i) origination date, (ii) maturity date, (iii) payment type, (iv) collateral type and amount, (v) current risk grade, (vi) current unpaid balance and commitment utilization rate, (vii) payment status/delinquency history and (viii) expected recoveries of previously charged-off amounts. Significant macroeconomic variables utilized in our modeling processes include, among other things, (i) Gross State Product for Texas and U.S. Gross Domestic Product, (ii) selected market interest rates including U.S. Treasury rates, bank prime rate, 30-year fixed mortgage rate, BBB corporate bond rate, among others, (iii) unemployment rates, (iv) commercial and residential property prices in Texas and the U.S. as a whole, (v) West Texas Intermediate crude oil price and (vi) total stock market index.

PD and PA were estimated by analyzing internally-sourced data related to historical performance of each loan pool over a complete economic cycle. PD and PA are adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period. We have determined that we are reasonably able to forecast the macroeconomic variables used in our modeling processes with an acceptable degree of confidence for a total of two years with the last twelve months of the forecast period encompassing a reversion process whereby the forecasted macroeconomic variables are reverted to their historical mean utilizing a rational, systematic basis. The macroeconomic variables utilized as inputs in our modeling processes were subjected to a variety of analysis procedures and were selected primarily based on statistical relevancy and correlation to our historical credit losses. By reverting these modeling inputs to their historical mean and considering loan/borrower specific attributes, our models will yield a measurement of expected credit losses that reflects our average historical loss rates for periods subsequent to the twelve-month reversion period. The LGD is based on historical recovery averages for each loan pool, adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a two-year forecast period, with the final twelve months of the forecast period encompassing a reversion process, which management considers to be both reasonable and supportable. This same forecast/reversion period is used for all macroeconomic variables used in all of our models. EAD is estimated using a linear regression model that estimates the average percentage of the loan balance that remains at the time of a default event.

~~Table of Contents~~2020 Form 10-K.

Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor (“Q-Factor”) adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor adjustments include, among other things, the impact of (i) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (ii) actual and expected changes in international, national, regional, and local economic and business conditions and developments that affect the collectibility of the loan pools, (iii) changes in the nature and volume of the loan pools and in the terms of the underlying loans, (iv) changes in the experience, ability, and depth of our lending management and staff, (v) changes in volume and severity of past due financial assets, the volume of non-accrual assets, and the volume and severity of adversely classified or graded assets, (vi) changes in the quality of our credit review function, (vii) changes in the value of the underlying collateral for loans that are non-collateral dependent, (viii) the existence, growth, and effect of any concentrations of credit and (ix) other factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters or health pandemics.

In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by our internal appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. The fair value of collateral supporting collateral dependent construction loans is based on an “as is” valuation.

The following table presents details of the allowance for credit losses on loans segregated by loan portfolio segment as of September 30, ~~2020, calculated in accordance with the CECL methodology described above.~~2021 and December 31, 2020. 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
Modeled expected credit losses $ 68,896 $ 21,644 $ 125,965 $ 10,226 $ 7,420 $ 234,151
Q-Factor and other qualitative adjustments (1,647) 24,630 (8,685) 51 31 14,380
Specific allocations 5,256 8,357 1,313 0 18 14,944
Total $ 72,505 $ 54,631 $ 118,593 $ 10,277 $ 7,469 $ 263,475

The following table presents details of the allowance for credit losses on loans segregated by loan portfolio segment as of December 31, 2019, calculated in accordance with our prior incurred loss methodology described in our 2019 Form 10-K.

Commercial
and
Industrial Energy Commercial
Real Estate Consumer
Real Estate Consumer
and Other Total
Historical valuation allowances $ 29,015 $ 7,873 $ 21,947 $ 2,690 $ 7,562 $ 69,087
Specific valuation allowances 7,849 20,246 383 0 5 28,483
General valuation allowances 9,840 5,196 4,201 904 (409) 19,732
Macroeconomic valuation allowances 4,889 4,067 4,506 519 884 14,865
Total $ 51,593 $ 37,382 $ 31,037 $ 4,113 $ 8,042 $ 132,167

~~Table of Contents~~


September 30, 2021	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
Modeled expected credit losses	$	45,395	$	6,962	$	17,033	$	5,934	$	6,412	$	81,736
Q-Factor and other qualitative adjustments	14,081		104		134,071		59		1,440		149,755
Specific allocations	4,290		13,383		950		36		—		18,659
Total	$	63,766	$	20,449	$	152,054	$	6,029	$	7,852	$	250,150
December 31, 2020
Modeled expected credit losses	$	65,645	$	8,910	$	125,126	$	7,926	$	6,945	$	214,552
Q-Factor and other qualitative adjustments	2,877		21,216		9,253		—		—		33,346
Specific allocations	5,321		9,427		513		—		18		15,279
Total	$	73,843	$	39,553	$	134,892	$	7,926	$	6,963	$	263,177

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, ~~2020~~2021 and ~~2019.~~2020. 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, 2020
September 30, 2021														September 30, 2021
Beginning balance	Beginning balance	$	98,536	$	40,817	$	93,425	$	8,998	$	8,285	$	250,061	Beginning balance	$	65,271	$	28,010	$	147,993	$	6,154	$	7,860	$	255,288
Credit loss expense		(18,547)		13,814		25,368		1,794		1,161		23,590
Credit loss expense (benefit)														Credit loss expense (benefit)	(1,020)		(7,720)		4,007		(982)		2,692		(3,023)
Charge-offs	Charge-offs	(8,605)		0		(242)		(1,088)		(4,219)		(14,154)		Charge-offs	(1,611)		—		—		—		(5,073)		(6,684)
Recoveries	Recoveries	1,121		0		42		573		2,242		3,978		Recoveries	1,126		159		54		857		2,373		4,569
Net charge-offs	Net charge-offs	(7,484)		0		(200)		(515)		(1,977)		(10,176)		Net charge-offs	(485)		159		54		857		(2,700)		(2,115)
Ending balance	Ending balance	$	72,505	$	54,631	$	118,593	$	10,277	$	7,469	$	263,475	Ending balance	$	63,766	$	20,449	$	152,054	$	6,029	$	7,852	$	250,150
September 30, 2019
September 30, 2020														September 30, 2020
Beginning balance	Beginning balance	$	57,714	$	25,818	$	35,914	$	5,637	$	9,846	$	134,929	Beginning balance	$	98,536	$	40,817	$	93,425	$	8,998	$	8,285	$	250,061
Credit loss expense		(3,527)		8,788		(607)		(650)		3,997		8,001

Credit loss expense (benefit)														Credit loss expense (benefit)	(18,547)		13,814		25,368		1,794		1,161		23,590
Charge-offs	Charge-offs	(2,705)		(2,000)		0		(557)		(6,357)		(11,619)		Charge-offs	(8,605)		—		(242)		(1,088)		(4,219)		(14,154)
Recoveries	Recoveries	1,185		740		46		454		2,823		5,248		Recoveries	1,121		—		42		573		2,242		3,978
Net charge-offs	Net charge-offs	(1,520)		(1,260)		46		(103)		(3,534)		(6,371)		Net charge-offs	(7,484)		—		(200)		(515)		(1,977)		(10,176)
Ending balance	Ending balance	$	52,667	$	33,346	$	35,353	$	4,884	$	10,309	$	136,559	Ending balance	$	72,505	$	54,631	$	118,593	$	10,277	$	7,469	$	263,475
Nine months ended:
September 30, 2020
Beginning balance		$	51,593	$	37,382	$	31,037	$	4,113	$	8,042	$	132,167
Impact of adopting ASC 326		21,263		(10,453)		(13,519)		2,392		(2,248)		(2,565)
Credit loss expense		10,737		96,478		104,716		3,716		8,096		223,743
Charge-offs		(14,815)		(68,842)		(3,826)		(1,508)		(13,402)		(102,393)
Recoveries		3,727		66		185		1,564		6,981		12,523
Net charge-offs		(11,088)		(68,776)		(3,641)		56		(6,421)		(89,870)
Ending balance		$	72,505	$	54,631	$	118,593	$	10,277	$	7,469	$	263,475
September 30, 2019
Beginning balance		$	48,580	$	29,052	$	38,777	$	6,103	$	9,620	$	132,132
Credit loss expense		9,999		7,478		(2,972)		859		10,040		25,404
Charge-offs		(8,782)		(4,000)		(617)		(2,936)		(17,157)		(33,492)
Recoveries		2,870		816		165		858		7,806		12,515
Net charge-offs		(5,912)		(3,184)		(452)		(2,078)		(9,351)		(20,977)
Ending balance		$	52,667	$	33,346	$	35,353	$	4,884	$	10,309	$	136,559

Table of Contents


	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
Nine months ended:
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
September 30, 2020
Beginning balance	$	51,593	$	37,382	$	31,037	$	4,113	$	8,042	$	132,167
Impact of adopting ASC 326	21,263		(10,453)		(13,519)		2,392		(2,248)		(2,565)
Credit loss expense (benefit)	10,737		96,478		104,716		3,716		8,096		223,743
Charge-offs	(14,815)		(68,842)		(3,826)		(1,508)		(13,402)		(102,393)
Recoveries	3,727		66		185		1,564		6,981		12,523
Net (charge-offs) recoveries	(11,088)		(68,776)		(3,641)		56		(6,421)		(89,870)
Ending balance	$	72,505	$	54,631	$	118,593	$	10,277	$	7,469	$	263,475

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, ~~2020~~2021 and December 31, ~~2019.~~2020.

September 30, 2020 December 31, 2019
Loan
Balance Specific Allocations Loan
Balance Specific Allocations
Commercial and industrial $ 22,930 $ 5,256 $ 24,360 $ 7,849
Energy 56,420 8,357 65,244 20,246
Paycheck Protection Program 0 0 0 0
Commercial real estate:
Buildings, land and other 25,611 1,313 8,609 383
Construction 680 0 665 0
Consumer real estate 1,335 0 570 0
Consumer and other 18 18 5 5
Total $ 106,994 $ 14,944 $ 99,453 $ 28,483


	September 30, 2021				December 31, 2020
	Loan Balance		Specific Allocations		Loan Balance		Specific Allocations
Commercial and industrial	$	22,717	$	4,290	$	21,287	$	5,321
Energy	25,671		13,383		22,888		9,427
Paycheck Protection Program	—		—		—		—
Commercial real estate:
Buildings, land and other	28,619		750		34,057		513
Construction	1,632		200		1,684		—
Consumer real estate	302		36		561		—
Consumer and other	—		—		18		18
Total	$	78,941	$	18,659	$	80,495	$	15,279

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Note 4 - Goodwill and Other Intangible Assets

Goodwill and other intangible assets are presented in the table below. As of September 30, 2020, we evaluated recent potential triggering events that might be indicators that our goodwill was impaired. The events include the economic disruption and uncertainty surrounding the COVID-19 pandemic and the circumstances surrounding recent volatility in the market price of crude oil. Based on our evaluation, we concluded that our goodwill was not more than likely impaired as of that date.


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Goodwill	Goodwill	$	654,952	$	654,952	Goodwill	$	654,952	$	654,952
Other intangible assets:	Other intangible assets:					Other intangible assets:
Core deposits	Core deposits	$	1,465	$	2,043	Core deposits	$	845	$	1,296
Customer relationships	Customer relationships	306		438		Customer relationships	174		267
		$	1,771	$	2,481		$	1,019	$	1,563

The estimated aggregate future amortization expense for intangible assets remaining as of September 30, ~~2020~~2021 is as follows:


Remainder of 2020		$	208
2021		697
Remainder of 2021				Remainder of 2021	$	153
2022	2022	481		2022	481
2023	2023	282		2023	282
2024	2024	87		2024	87
2025				2025	11
Thereafter	Thereafter	16		Thereafter	5
		$	1,771		$	1,019

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Note 5 - Deposits

Deposits were as follows:


		September 30, 2020		Percentage of Total		December 31, 2019		Percentage of Total			September 30, 2021		Percentage of Total		December 31, 2020		Percentage of Total
Non-interest-bearing demand deposits:	Non-interest-bearing demand deposits:									Non-interest-bearing demand deposits:
Commercial and individual	Commercial and individual	$	13,852,404	41.4	%	$	10,212,265	36.9	%	Commercial and individual	$	15,997,472	40.4	%	$	13,914,754	39.7	%
Correspondent banks	Correspondent banks	208,836		0.6		246,181		0.9		Correspondent banks	223,466		0.6		242,225		0.7
Public funds	Public funds	784,530		2.3		415,183		1.5		Public funds	930,645		2.3		960,072		2.8
Total non-interest-bearing demand deposits	Total non-interest-bearing demand deposits	14,845,770		44.3		10,873,629		39.3		Total non-interest-bearing demand deposits	17,151,583		43.3		15,117,051		43.2
Interest-bearing deposits:	Interest-bearing deposits:									Interest-bearing deposits:
Private accounts:	Private accounts:									Private accounts:
Savings and interest checking	Savings and interest checking	8,176,608		24.4		7,147,327		25.9		Savings and interest checking	10,326,315		26.1		9,132,789		26.1
Money market accounts	Money market accounts	8,684,470		25.9		7,888,433		28.5		Money market accounts	10,381,703		26.2		8,977,585		25.6
Time accounts of $100,000 or more		791,004		2.4		736,481		2.7
Time accounts under $100,000		339,174		1.0		347,418		1.2
Time accounts										Time accounts	1,086,894		2.7		1,135,575		3.3
Total private accounts	Total private accounts	17,991,256		53.7		16,119,659		58.3		Total private accounts	21,794,912		55.0		19,245,949		55.0
Public funds:	Public funds:									Public funds:
Savings and interest checking	Savings and interest checking	583,214		1.8		548,399		2.0		Savings and interest checking	580,174		1.5		597,503		1.7
Money market accounts	Money market accounts	76,088		0.2		73,180		0.3		Money market accounts	61,028		0.1		50,070		0.1
Time accounts of $100,000 or more		3,092		0		24,672		0.1
Time accounts under $100,000		83		0		25		0
Time accounts										Time accounts	25,070		0.1		5,188		—
Total public funds	Total public funds	662,477		2.0		646,276		2.4		Total public funds	666,272		1.7		652,761		1.8
Total interest-bearing deposits	Total interest-bearing deposits	18,653,733		55.7		16,765,935		60.7		Total interest-bearing deposits	22,461,184		56.7		19,898,710		56.8
Total deposits	Total deposits	$	33,499,503	100.0	%	$	27,639,564	100.0	%	Total deposits	$	39,612,767	100.0	%	$	35,015,761	100.0	%

The following table presents additional information about our deposits:

September 30,
2020 December 31,
2019
Deposits from the Certificate of Deposit Account Registry Service (CDARS) deposits $ 369 $ 361
Deposits from foreign sources (primarily Mexico) 845,950 805,828
Deposits not covered by deposit insurance 17,265,358 13,115,796


	September 30, 2021		December 31, 2020
Deposits from the Certificate of Deposit Account Registry Service (CDARS) deposits	$	—	$	372
Deposits from foreign sources (primarily Mexico)	1,007,416		884,169
Total deposits not covered by deposit insurance	21,419,285		18,694,320
Time deposits not covered by deposit insurance	239,598		237,298

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Note 6 - Off-Balance-Sheet Arrangements, Commitments, Guarantees and Contingencies

Financial Instruments with Off-Balance-Sheet Risk. In the normal course of business, we enter into various transactions, which, in accordance with generally accepted accounting principles are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. As more fully discussed in our ~~2019~~2020 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, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Commitments to extend credit	Commitments to extend credit	$	9,586,212	$	9,306,043	Commitments to extend credit	$	10,262,077	$	9,814,475
Standby letters of credit	Standby letters of credit	260,683		260,587		Standby letters of credit	225,311		241,345
Deferred standby letter of credit fees	Deferred standby letter of credit fees	1,716		1,276		Deferred standby letter of credit fees	1,935		1,723

Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures. The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. Off-balance-sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit detailed in the table above. For the period of exposure, the estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment or other off-balance-sheet exposure. The likelihood and expected amount of funding are based on historical utilization rates. The amount of the allowance represents management's best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment. ~~Estimating credit losses on amounts expected to be funded uses the same~~Our allowance methodology asis more fully described ~~for loans~~ in ~~Note 3 - Loans as if such commitments were funded.~~our 2020 Form 10-K.

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The following table details activity in the allowance for credit losses on off-balance-sheet credit exposures.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Beginning balance	Beginning balance	$	46,939	$	500	$	500	$	500	Beginning balance	$	48,596	$	46,939	$	44,152	$	500
Impact of adopting ASC 326	Impact of adopting ASC 326	0		0		39,377		0		Impact of adopting ASC 326	—		—		—		39,377
Credit loss expense (benefit)		(3,276)		0		3,786		0
Credit loss expense										Credit loss expense	3,023		(3,276)		7,467		3,786
Ending balance	Ending balance	$	43,663	$	500	$	43,663	$	500	Ending balance	$	51,619	$	43,663	$	51,619	$	43,663

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 September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Amortization of lease right-of-use assets	Amortization of lease right-of-use assets	$	8,521	$	7,415	$	24,545	$	19,698	Amortization of lease right-of-use assets	$	8,172	$	8,521	$	24,584	$	24,545
Short-term lease expense	Short-term lease expense	172		1,199		1,343		3,316		Short-term lease expense	384		172		1,118		1,343
Non-lease components (including taxes, insurance, common maintenance, etc.)	Non-lease components (including taxes, insurance, common maintenance, etc.)	2,586		3,114		8,410		7,022		Non-lease components (including taxes, insurance, common maintenance, etc.)	2,864		2,586		8,205		8,410
Total	Total	$	11,279	$	11,728	$	34,298	$	30,036	Total	$	11,420	$	11,279	$	33,907	$	34,298

Right-of-use lease assets totaled ~~$298.6~~$278.6 million at September 30, ~~2020~~2021 and ~~$297.7~~$292.1 million at December 31, ~~2019~~2020 and are reported as a component of premises and equipment on our accompanying consolidated balance sheets. The related lease liabilities totaled ~~$328.9~~$310.3 million at September 30, ~~2020~~2021 and ~~$323.7~~$323.0 million at December 31, ~~2019~~2020 and are reported as a component of accrued interest payable and other liabilities in the accompanying consolidated balance sheets. Lease payments under operating leases that were applied to our operating lease liability totaled $7.9 million and $24.0 million during the three and nine months ended September 30, 2021 and $8.0 million and $23.8 million during the three and nine months ended September 30, ~~2020 and $7.6 million and $19.7 million during the three and nine months ended September 30, 2019.~~2020. There has been 0no significant change in our expected future minimum lease payments since December 31, ~~2019.~~2020. See the ~~2019~~2020 Form 10-K for information regarding these commitments.

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Litigation. We are subject to various claims and legal actions that have arisen in the course of conducting business. Management does not expect the ultimate disposition of these matters to have a material adverse impact on our financial statements.

In May of 2020, a purported class action lawsuit was filed against Frost Bank in a Texas Federal court alleging that Frost Bank had refused to pay agent fees to purported agents of borrowers under the PPP in violation of SBA regulations. The Plaintiff's motion to dismiss the Federal lawsuit was effected and as a result the Federal lawsuit is resolved. In July of 2020, another purported class action lawsuit was filed against Frost Bank in a California Federal court alleging that Frost Bank had refused to pay agent fees to purported agents of borrowers under the PPP in violation of SBA regulations. Frost Bank believes the claims to be without merit. In October of 2020, a lawsuit was filed against Frost Bank in Texas State court alleging, among other claims, that Frost Bank refused to provide a PPP loan to the purported applicant. Frost Bank believes the claims to be without merit.

Note 7 - Capital and Regulatory Matters

Banks and bank holding companies are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.

Cullen/Frost’s and Frost Bank’s Common Equity Tier 1 capital (“CET1”) includes common stock and related paid-in capital, net of treasury stock, and retained earnings. In connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include most components of accumulated other comprehensive income in ~~Common Equity Tier 1.~~CET1. We also elected to exclude ~~for a five-year transitional period,~~ the effects of credit loss accounting under CECL from ~~Common Equity Tier 1,~~CET1 for a five-year transitional period, as further discussed ~~below. Common Equity Tier 1 for both Cullen/Frost~~in our 2020 Form 10-K. This CECL transitional adjustment totaled $62.3 million and ~~Frost Bank~~$63.7 million at September 30, 2021 and December 31, 2020, respectively. CET1 is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities. Frost Bank's ~~Common Equity Tier 1~~CET1 is also reduced by its equity investment in its financial subsidiary, Frost Insurance Agency (“FIA”).

Tier 1 capital includes ~~Common Equity Tier 1 capital~~CET1 and additional Tier 1 capital. ~~Cullen/Frost and Frost Bank did 0t have any additional Tier 1 capital beyond Common Equity Tier 1 at September 30, 2020.~~ For Cullen/Frost, additional Tier 1 capital included ~~$144.5~~$145.5 million of 4.450% non-cumulative perpetual preferred stock at September 30, 2021 and December 31, ~~2019,~~2020, the details of which are further discussed below. Frost Bank did 0t have any additional Tier 1 capital beyond Common Equity Tier 1 at September 30, 2021 or December 31, ~~2019.~~2020.

Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital for both Cullen/Frost and Frost Bank includes a permissible portion of the allowances for credit losses on securities, loans and off-balance-sheet credit exposures. Tier 2 capital for Cullen/Frost also includes $100.0 million of qualified subordinated debt and $133.0 million of trust preferred securities at both September 30, ~~2020~~2021 and December 31, ~~2019.~~

As discussed in Note 1 - Significant Accounting Policies, in connection with the adoption of ASC 326, we recognized an after-tax cumulative effect reduction to retained earnings totaling $29.3 million. In February 2019, the federal bank regulatory agencies issued a final rule (the “2019 CECL Rule”) that revised certain capital regulations to account for changes to credit loss accounting under U.S. GAAP. The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year period, the day-one adverse effects of CECL on their regulatory capital ratios (three-year transition option). In March 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three-year transition option2020. All $13.0 million of the ~~2019 CECL Rule and also provides banking organizations that~~trust preferred securities issued by WNB Capital Trust I were required under U.S. GAAP (as of January 2020) to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). We elected to adopt the five-year transition option. Accordingly, a CECL transitional amount totaling $63.7 million has been added back to CET1 as of September 30, 2020. The CECL transitional amount includes $29.3 million related to cumulative effect of adopting CECL and $34.4 million related to the estimated incremental effect of CECL since adoption.

In April 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA. Federal bank regulatory agencies have issued an interim final rule that permits banks to neutralize the regulatory capital effects of participatingredeemed in the Paycheck Protection Program Lending Facility (the “PPP Facility”) and clarify that PPP loans have a zero percent risk weight under applicable risk-based capital rules. Specifically, a bank may exclude all PPP loans pledged as collateral to the PPP Facility from its average total consolidated assets for the purposes of calculating its leverage ratio, while PPP loans that are not pledged as collateral to the PPP Facility will be included. Our PPP loans are included in the calculation of our leverage ratio as of September 30, 2020 as we did not utilize the PPP Facility for funding purposes.October 2021.

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The following table presents actual and required capital ratios as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 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 ~~2019~~2020 Form 10-K for a more detailed discussion of the Basel III Capital Rules. After a review of risk-weight classifications during the first quarter of 2019, risk-weightings for certain loans were reclassified. Amounts reported as of December 31, 2019 have been revised to reflect these reclassifications.

Actual Minimum Capital Required - Basel III Required to be
Considered Well
Capitalized
Capital
Amount Ratio Capital
Amount Ratio Capital
Amount Ratio
September 30, 2020
Common Equity Tier 1 to Risk-Weighted Assets
Cullen/Frost $ 3,003,029 12.71 % $ 1,654,073 7.00 % $ 1,535,925 6.50 %
Frost Bank 3,010,290 12.76 1,651,191 7.00 1,533,249 6.50
Tier 1 Capital to Risk-Weighted Assets
Cullen/Frost 3,003,029 12.71 2,008,517 8.50 1,890,369 8.00
Frost Bank 3,010,290 12.76 2,005,018 8.50 1,887,076 8.00
Total Capital to Risk-Weighted Assets
Cullen/Frost 3,471,898 14.69 2,481,109 10.50 2,362,961 10.00
Frost Bank 3,246,159 13.76 2,476,787 10.50 2,358,845 10.00
Leverage Ratio
Cullen/Frost 3,003,029 7.85 1,530,584 4.00 1,913,230 5.00
Frost Bank 3,010,290 7.87 1,530,076 4.00 1,912,596 5.00

December 31, 2019
Common Equity Tier 1 to Risk-Weighted Assets
Cullen/Frost $ 2,857,250 12.36 % $ 1,617,886 7.00 % $ 1,502,323 6.50 %
Frost Bank 2,958,326 12.82 1,615,206 7.00 1,499,834 6.50
Tier 1 Capital to Risk-Weighted Assets
Cullen/Frost 3,001,736 12.99 1,964,576 8.50 1,849,013 8.00
Frost Bank 2,958,326 12.82 1,961,322 8.50 1,845,950 8.00
Total Capital to Risk-Weighted Assets
Cullen/Frost 3,367,403 14.57 2,426,829 10.50 2,311,266 10.00
Frost Bank 3,090,993 13.40 2,422,809 10.50 2,307,438 10.00
Leverage Ratio
Cullen/Frost 3,001,736 9.28 1,293,188 4.00 1,616,485 5.00
Frost Bank 2,958,326 9.15 1,292,743 4.00 1,615,929 5.00


	Actual				Minimum Capital Required - Basel III				Required to be Considered Well Capitalized
	Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio
September 30, 2021
Common Equity Tier 1 to Risk-Weighted Assets
Cullen/Frost	$	3,300,979	13.42	%	$	1,722,459	7.00	%	$	1,599,426	6.50	%
Frost Bank	3,215,116		13.09		1,719,451		7.00		1,596,633		6.50
Tier 1 Capital to Risk-Weighted Assets
Cullen/Frost	3,446,431		14.01		2,091,558		8.50		1,968,525		8.00
Frost Bank	3,215,116		13.09		2,087,905		8.50		1,965,087		8.00
Total Capital to Risk-Weighted Assets
Cullen/Frost	3,911,272		15.90		2,583,689		10.50		2,460,656		10.00
Frost Bank	3,446,957		14.03		2,579,177		10.50		2,456,359		10.00
Leverage Ratio
Cullen/Frost	3,446,431		7.52		1,833,156		4.00		2,291,445		5.00
Frost Bank	3,215,116		7.02		1,832,498		4.00		2,290,623		5.00




December 31, 2020
Common Equity Tier 1 to Risk-Weighted Assets
Cullen/Frost	$	3,058,447	12.86	%	$	1,664,867	7.00	%	$	1,545,948	6.50	%
Frost Bank	3,030,093		12.77		1,661,620		7.00		1,542,933		6.50
Tier 1 Capital to Risk-Weighted Assets
Cullen/Frost	3,203,899		13.47		2,021,624		8.50		1,902,705		8.00
Frost Bank	3,030,093		12.77		2,017,682		8.50		1,898,995		8.00
Total Capital to Risk-Weighted Assets
Cullen/Frost	3,672,912		15.44		2,497,300		10.50		2,378,381		10.00
Frost Bank	3,266,106		13.76		2,492,430		10.50		2,373,743		10.00
Leverage Ratio
Cullen/Frost	3,203,899		8.07		1,589,004		4.00		1,986,255		5.00
Frost Bank	3,030,093		7.63		1,588,200		4.00		1,985,250		5.00

As of September 30, ~~2020,~~2021, 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, ~~2020~~2021 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, ~~2020,~~2021, that Cullen/Frost and Frost Bank meet all capital adequacy requirements to which they are subject.

Preferred Stock. On March 16, 2020, we redeemed all 6,000,000 shares of our 5.375% Non-Cumulative Perpetual Preferred Stock, Series A, (“Series A Preferred Stock”) at a redemption price of $25 per share, or an aggregate redemption of $150.0 million. When issued, the net proceeds of the Series A Preferred Stock totaled $144.5 million after deducting $5.5 million of issuance costs including the underwriting discount and professional service fees, among other things. Upon redemption, these issuance costs were reclassified to retained earnings and reported as a reduction of net income available to common shareholders. On November 19, 2020, we issued 150,000 shares, or $150.0 million in aggregate liquidation preference, of our 4.450% Non-Cumulative Perpetual Preferred Stock, Series B, par value $0.01 and liquidation preference $1,000 per share (“Series B Preferred Stock”). Each share of Series B Preferred Stock issued and outstanding is represented by 40 depositary shares, each representing a 1/40th ownership interest in a share of the Series B Preferred Stock (equivalent to a liquidation preference of $25 per share). Dividends on the Series B Preferred Stock will be non-cumulative and, if declared, accrue and are payable quarterly, in arrears, at a rate of 4.450% per annum. The Series B Preferred Stock qualifies as Tier 1 capital for the purposes of the regulatory capital calculations. The net proceeds from the issuance and sale of the Series B Preferred Stock,

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after deducting $4.5 million of issuance costs including the underwriting discount and professional service fees, among other things, were approximately $145.5 million.

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awards. On ~~July 24, 2019,~~January 27, 2021, 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. NaN shares were repurchased under this plan during the first nine months of 2021. Under ~~this~~a prior plan, we repurchased 177,834 shares at a total cost of $13.7 million during the first quarter of ~~2020 and 202,724 shares at a total cost of $17.2 million during the third quarter of 2019.~~2020. Under the Basel III Capital Rules, Cullen/Frost may not repurchase or redeem any of its subordinated notes and, in some cases, its common stock without the prior approval of the Federal Reserve Board.

Dividend Restrictions. In the ordinary course of business, Cullen/Frost is dependent upon dividends from Frost Bank to provide funds for the payment of dividends to shareholders and to provide for other cash requirements, including to repurchase its common stock. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of Frost Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years. Under the foregoing dividend restrictions and while maintaining its “well capitalized” status, at September 30, ~~2020,~~2021, Frost Bank could pay aggregate dividends of up to ~~$482.1~~$445.8 million to Cullen/Frost without prior regulatory approval.

Under the terms of the junior subordinated deferrable interest debentures that Cullen/Frost has issued to Cullen/Frost Capital Trust II, ~~and WNB Capital Trust I,~~ Cullen/Frost has the right at any time during the term of the debentures to defer the payment of interest at any time or from time to time for an extension period not exceeding 20 consecutive quarterly periods with respect to each extension period. In the event that we have elected to defer interest on the debentures, we may not, with certain exceptions, declare or pay any dividends or distributions on our capital stock or purchase or acquire any of our capital stock.

Note 8 - Derivative Financial Instruments

The fair value of derivative positions outstanding is included in accrued interest receivable and other assets and accrued interest payable and other liabilities in the accompanying consolidated balance sheets and in the net change in each of these financial statement line items in the accompanying consolidated statements of cash flows.

Interest Rate Derivatives. We utilize interest rate swaps, caps and floors to mitigate exposure to interest rate risk and to facilitate the needs of our customers. Our objectives for utilizing these derivative instruments are described in our ~~2019~~2020 Form 10-K.

The notional amounts and estimated fair values of interest rate derivative contracts are presented in the following table. The fair values of interest rate derivative contracts are estimated utilizing internal valuation ~~models~~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 0zero as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.


		September 30, 2020				December 31, 2019					September 30, 2021			December 31, 2020
		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		$	0	$	0	$	2,545	$	6

Loan/lease interest rate swaps – liabilities	Loan/lease interest rate swaps – liabilities	4,036		(167)		6,000		(138)		Loan/lease interest rate swaps – liabilities	2,758	$	(59)	3,724	$	(134)
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	0		0		122,788		67		Loan/lease interest rate swaps – assets	127,420	641		—	—
Loan/lease interest rate swaps – liabilities	Loan/lease interest rate swaps – liabilities	1,192,762		(36,975)		1,002,860		(19,483)		Loan/lease interest rate swaps – liabilities	997,411	(22,874)		1,173,173	(33,812)
Loan/lease interest rate caps – assets	Loan/lease interest rate caps – assets	306,171		1,197		107,835		266		Loan/lease interest rate caps – assets	405,163	2,915		356,601	1,241
Customer counterparties:	Customer counterparties:									Customer counterparties:
Loan/lease interest rate swaps – assets	Loan/lease interest rate swaps – assets	1,192,762		95,462		1,002,860		43,857		Loan/lease interest rate swaps – assets	997,411	49,630		1,173,173	84,424
Loan/lease interest rate swaps – liabilities	Loan/lease interest rate swaps – liabilities	0		0		122,788		(310)		Loan/lease interest rate swaps – liabilities	127,420	(1,761)		—	—
Loan/lease interest rate caps – liabilities	Loan/lease interest rate caps – liabilities	306,171		(1,197)		107,835		(266)		Loan/lease interest rate caps – liabilities	405,163	(2,915)		356,601	(1,241)

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The weighted-average rates paid and received for interest rate swaps outstanding at September 30, ~~2020~~2021 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	3.39	%	0.15	%	Fair value hedge loan/lease interest rate swaps	2.75	%	0.09	%
Non-hedging interest rate swaps – financial institution counterparties	Non-hedging interest rate swaps – financial institution counterparties	4.00		1.93		Non-hedging interest rate swaps – financial institution counterparties	3.78		1.87
Non-hedging interest rate swaps – customer counterparties	Non-hedging interest rate swaps – customer counterparties	1.93		4.00		Non-hedging interest rate swaps – customer counterparties	1.87		3.78

The weighted-average strike rate for outstanding interest rate caps was ~~3.67%~~3.12% at September 30, ~~2020.~~2021.

Commodity Derivatives. We enter into commodity swaps and option contracts that are not designated as hedging instruments primarily to accommodate the business needs of our customers. Upon the origination of a commodity swap or option contract with a customer, we simultaneously enter into an offsetting contract with a third party financial institution to mitigate the exposure to fluctuations in commodity prices.

The notional amounts and estimated fair values of non-hedging commodity swap and option derivative positions outstanding are presented in the following table. We obtain dealer quotations and use internal valuation ~~models~~methods with observable market data inputs to value our commodity derivative positions.


			September 30, 2020			December 31, 2019					September 30, 2021			December 31, 2020
		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	2,296	$	18,718	1,214	$	2,796	Oil – assets	Barrels	5,632	$	21,271	3,056	$	8,341
Oil – liabilities	Oil – liabilities	Barrels	3,089	(9,132)		2,148	(6,916)		Oil – liabilities	Barrels	12,228	(147,576)		6,391	(32,112)
Natural gas – assets	Natural gas – assets	MMBTUs	5,623	932		8,295	2,131		Natural gas – assets	MMBTUs	18,908	3,312		9,281	1,529
Natural gas – liabilities	Natural gas – liabilities	MMBTUs	18,181	(5,879)		2,689	(70)		Natural gas – liabilities	MMBTUs	39,901	(53,923)		15,079	(3,265)
Customer counterparties:	Customer counterparties:								Customer counterparties:
Oil – assets	Oil – assets	Barrels	3,106	9,461		2,172	7,208		Oil – assets	Barrels	12,276	148,742		6,391	32,670
Oil – liabilities	Oil – liabilities	Barrels	2,279	(18,506)		1,190	(2,652)		Oil – liabilities	Barrels	5,584	(21,245)		3,056	(8,264)
Natural gas – assets	Natural gas – assets	MMBTUs	19,940	6,161		2,689	83		Natural gas – assets	MMBTUs	39,901	54,202		17,636	3,451
Natural gas – liabilities	Natural gas – liabilities	MMBTUs	3,864	(915)		8,295	(2,039)		Natural gas – liabilities	MMBTUs	18,908	(3,310)		6,724	(1,458)

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

September 30, 2020

December 31, 2019

September 30, 2021

December 31, 2020

Notional
Currency

Notional
Amount

Estimated
Fair Value

Notional
Amount

Estimated
Fair Value

Notional
Currency

Notional
Amount

Estimated
Fair Value

Notional
Amount

Estimated
Fair Value

Financial institution counterparties:

Forward contracts – assets

CAD

658

—

Forward contracts – liabilities

CAD

4,593

(33)

Customer counterparties:

Forward contracts – assets

CAD

4,583

Forward contracts – assets

CAD

658

—

Gains, Losses and Derivative Cash Flows. For fair value hedges, the changes in the fair value of both the derivative hedging instrument and the hedged item are included in other non-interest income or other non-interest expense. The extent that such changes in fair value do not offset represents hedge ineffectiveness. Net cash flows from interest rate swaps on commercial loans/leases designated as hedging instruments in effective hedges of fair value are included in interest income on loans. For non-hedging derivative instruments, gains and losses due to changes in fair value and all cash flows are included in other non-interest income and other non-interest expense.

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Amounts included in the consolidated statements of income related to interest rate derivatives designated as hedges of fair value were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
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	$	(36)	$	24	$	(79)	$	78	Amount of gain (loss) included in interest income on loans	$	(21)	$	(36)	$	(74)	$	(79)
Amount of (gain) loss included in other non-interest expense	Amount of (gain) loss included in other non-interest expense	2		(1)		6		0		Amount of (gain) loss included in other non-interest expense	3		2		8		6

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

During the first ~~quarter~~three months of 2020, we sold certain non-hedge related, short-term put options on U.S. Treasury securities with an aggregate notional amount of $500 million and realized gains totaling approximately $6.0 million in connection with the sales. The put options were not exercised and expired in March 2020.

Amounts included in the consolidated statements of income related to non-hedge related derivative instruments are presented in the table below.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Non-hedging interest rate derivatives:	Non-hedging interest rate derivatives:									Non-hedging interest rate derivatives:
Other non-interest income	Other non-interest income	$	280	$	215	$	2,615	$	1,188	Other non-interest income	$	946	$	280	$	2,674	$	2,615
Other non-interest expense	Other non-interest expense	1		0		1		0		Other non-interest expense	—		1		(1)		1
Non-hedging commodity derivatives:	Non-hedging commodity derivatives:									Non-hedging commodity derivatives:
Other non-interest income	Other non-interest income	379		109		1,057		322		Other non-interest income	1,143		379		3,266		1,057
Non-hedging foreign currency derivatives:	Non-hedging foreign currency derivatives:									Non-hedging foreign currency derivatives:
Other non-interest income	Other non-interest income	10		12		28		41		Other non-interest income	4		10		34		28
Non-hedging put options:	Non-hedging put options:									Non-hedging put options:
Other non-interest income	Other non-interest income	0		0		5,980		0		Other non-interest income	—		—		—		5,980

Counterparty Credit Risk. Our credit exposure relating to interest rate swaps, commodity swaps/options and foreign currency forward contracts with bank customers was approximately ~~$103.0~~$227.4 million at September 30, ~~2020.~~2021. This credit exposure is partly mitigated as transactions with customers are generally secured by the collateral, if any, securing the underlying transaction being hedged. Our credit exposure, net of collateral pledged, relating to interest rate swaps, commodity swaps/options and foreign currency forward contracts with upstream financial institution counterparties was approximately ~~$19.2~~$12.5 million at September 30, ~~2020.~~2021. This amount was primarily related to initial margin payments to the CME and excess collateral we posted to counterparties. Collateral levels for upstream financial institution counterparties are monitored and adjusted as necessary. See Note 9 – Balance Sheet Offsetting and Repurchase Agreements for additional information regarding our credit exposure with upstream financial institution counterparties. At September 30, ~~2020,~~2021, we had ~~$48.6~~$200.9 million in cash collateral related to derivative contracts on deposit with other financial institution counterparties.

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Note 9 - Balance Sheet Offsetting and Repurchase Agreements

Balance Sheet Offsetting. Certain financial instruments, including resell and repurchase agreements and derivatives, may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements or similar agreements. Our derivative transactions with upstream financial institution counterparties are generally executed under International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Nonetheless, we do not generally offset such financial instruments for financial reporting purposes.

Information about financial instruments that are eligible for offset in the consolidated balance sheet as of September 30, ~~2020~~2021 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, 2020
September 30, 2021								September 30, 2021
Financial assets:	Financial assets:							Financial assets:
Derivatives:	Derivatives:							Derivatives:
Loan/lease interest rate swaps and caps	Loan/lease interest rate swaps and caps	$	1,197	$	0	$	1,197	Loan/lease interest rate swaps and caps	$	3,556	$	—	$	3,556
Commodity swaps and options	Commodity swaps and options	19,650		0		19,650		Commodity swaps and options	24,583		—		24,583
Foreign currency forward contracts	Foreign currency forward contracts	0		0		0		Foreign currency forward contracts	2		—		2
Total derivatives	Total derivatives	20,847		0		20,847		Total derivatives	28,141		—		28,141
Resell agreements	Resell agreements	20,000		0		20,000		Resell agreements	7,903		—		7,903
Total	Total	$	40,847	$	0	$	40,847	Total	$	36,044	$	—	$	36,044
Financial liabilities:	Financial liabilities:							Financial liabilities:
Derivatives:	Derivatives:							Derivatives:
Loan/lease interest rate swaps		$	37,142	$	0	$	37,142
Loan/lease interest rate swaps and caps								Loan/lease interest rate swaps and caps	$	22,933	$	—	$	22,933
Commodity swaps and options	Commodity swaps and options	15,011		0		15,011		Commodity swaps and options	201,499		—		201,499
Foreign currency forward contracts		0		0		0

Total derivatives	Total derivatives	52,153		0		52,153		Total derivatives	224,432		—		224,432
Repurchase agreements	Repurchase agreements	1,574,367		0		1,574,367		Repurchase agreements	2,200,029		—		2,200,029
Total	Total	$	1,626,520	$	0	$	1,626,520	Total	$	2,424,461	$	—	$	2,424,461


				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, 2020
September 30, 2021										September 30, 2021
Financial assets:	Financial assets:									Financial assets:
Derivatives:	Derivatives:									Derivatives:
Counterparty A	Counterparty A	$	8	$	(8)	$	0	$	0	Counterparty A	$	4	$	(4)	$	—	$	—
Counterparty B	Counterparty B	5,996		(5,996)		0		0		Counterparty B	12,537		(12,537)		—		—

Other counterparties	Other counterparties	14,843		(14,510)		(327)		6		Other counterparties	15,600		(15,600)		—		—
Total derivatives	Total derivatives	20,847		(20,514)		(327)		6		Total derivatives	28,141		(28,141)		—		—
Resell agreements	Resell agreements	20,000		0		(20,000)		0		Resell agreements	7,903		—		(7,903)		—
Total	Total	$	40,847	$	(20,514)	$	(20,327)	$	6	Total	$	36,044	$	(28,141)	$	(7,903)	$	—
Financial liabilities:	Financial liabilities:									Financial liabilities:
Derivatives:	Derivatives:									Derivatives:
Counterparty A	Counterparty A	$	7,178	$	(8)	$	(7,170)	$	0	Counterparty A	$	4,577	$	(4)	$	(4,573)	$	—
Counterparty B	Counterparty B	14,386		(5,996)		(8,210)		180		Counterparty B	77,110		(12,537)		(60,860)		3,713
Counterparty C	Counterparty C	94		0		(94)		0		Counterparty C	19		—		(19)		—

Other counterparties	Other counterparties	30,495		(14,510)		(13,971)		2,014		Other counterparties	142,726		(15,600)		(122,984)		4,142
Total derivatives	Total derivatives	52,153		(20,514)		(29,445)		2,194		Total derivatives	224,432		(28,141)		(188,436)		7,855
Repurchase agreements	Repurchase agreements	1,574,367		0		(1,574,367)		0		Repurchase agreements	2,200,029		—		(2,200,029)		—
Total	Total	$	1,626,520	$	(20,514)	$	(1,603,812)	$	2,194	Total	$	2,424,461	$	(28,141)	$	(2,388,465)	$	7,855

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Information about financial instruments that are eligible for offset in the consolidated balance sheet as of December 31, ~~2019~~2020 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, 2019
December 31, 2020								December 31, 2020
Financial assets:	Financial assets:							Financial assets:
Derivatives:	Derivatives:							Derivatives:
Loan/lease interest rate swaps and caps	Loan/lease interest rate swaps and caps	$	339	$	0	$	339	Loan/lease interest rate swaps and caps	$	1,241	$	—	$	1,241
Commodity swaps and options	Commodity swaps and options	4,927		0		4,927		Commodity swaps and options	9,870		—		9,870

Total derivatives	Total derivatives	5,266		0		5,266		Total derivatives	11,111		—		11,111
Resell agreements	Resell agreements	31,299		0		31,299		Resell agreements	—		—		—
Total	Total	$	36,565	$	0	$	36,565	Total	$	11,111	$	—	$	11,111
Financial liabilities:	Financial liabilities:							Financial liabilities:
Derivatives:	Derivatives:							Derivatives:
Loan/lease interest rate swaps		$	19,621	$	0	$	19,621
Loan/lease interest rate swaps and caps								Loan/lease interest rate swaps and caps	$	33,946	$	—	$	33,946
Commodity swaps and options	Commodity swaps and options	6,986		0		6,986		Commodity swaps and options	35,377		—		35,377
Foreign currency forward contracts		33		0		33

Total derivatives	Total derivatives	26,640		0		26,640		Total derivatives	69,323		—		69,323
Repurchase agreements	Repurchase agreements	1,668,142		0		1,668,142		Repurchase agreements	2,068,147		—		2,068,147
Total	Total	$	1,694,782	$	0	$	1,694,782	Total	$	2,137,470	$	—	$	2,137,470


				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, 2019
December 31, 2020										December 31, 2020
Financial assets:	Financial assets:									Financial assets:
Derivatives:	Derivatives:									Derivatives:
Counterparty A	Counterparty A	$	39	$	(39)	$	0	$	0	Counterparty A	$	2	$	(2)	$	—	$	—
Counterparty B	Counterparty B	1,650		(1,650)		0		0		Counterparty B	5,838		(5,838)		—		—
Counterparty C		1		(1)		0		0

Other counterparties	Other counterparties	3,576		(3,546)		0		30		Other counterparties	5,271		(5,271)		—		—
Total derivatives	Total derivatives	5,266		(5,236)		0		30		Total derivatives	11,111		(11,111)		—		—
Resell agreements	Resell agreements	31,299		0		(31,299)		0		Resell agreements	—		—		—		—
Total	Total	$	36,565	$	(5,236)	$	(31,299)	$	30	Total	$	11,111	$	(11,111)	$	—	$	—
Financial liabilities:	Financial liabilities:									Financial liabilities:
Derivatives:	Derivatives:									Derivatives:
Counterparty A	Counterparty A	$	5,192	$	(39)	$	(5,153)	$	0	Counterparty A	$	6,430	$	(2)	$	(6,428)	$	—
Counterparty B	Counterparty B	7,424		(1,650)		(5,774)		0		Counterparty B	20,722		(5,838)		(14,700)		184
Counterparty C	Counterparty C	135		(1)		(134)		0		Counterparty C	71		—		(71)		—

Other counterparties	Other counterparties	13,889		(3,546)		(10,343)		0		Other counterparties	42,100		(5,271)		(35,832)		997
Total derivatives	Total derivatives	26,640		(5,236)		(21,404)		0		Total derivatives	69,323		(11,111)		(57,031)		1,181
Repurchase agreements	Repurchase agreements	1,668,142		0		(1,668,142)		0		Repurchase agreements	2,068,147		—		(2,068,147)		—
Total	Total	$	1,694,782	$	(5,236)	$	(1,689,546)	$	0	Total	$	2,137,470	$	(11,111)	$	(2,125,178)	$	1,181

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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, ~~2020~~2021 and December 31, ~~2019~~2020 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, 2020
September 30, 2021												September 30, 2021
Repurchase agreements:	Repurchase agreements:											Repurchase agreements:
U.S. Treasury	U.S. Treasury	$	99,365	$	0	$	0	$	0	$	99,365	U.S. Treasury	$	1,122,968	$	—	$	—	$	—	$	1,122,968

Residential mortgage-backed securities	Residential mortgage-backed securities	1,475,002		0		0		0		1,475,002		Residential mortgage-backed securities	1,077,061		—		—		—		1,077,061
Total borrowings	Total borrowings	$	1,574,367	$	0	$	0	$	0	$	1,574,367	Total borrowings	$	2,200,029	$	—	$	—	$	—	$	2,200,029
Gross amount of recognized liabilities for repurchase agreements	Gross amount of recognized liabilities for repurchase agreements									$	1,574,367	Gross amount of recognized liabilities for repurchase agreements									$	2,200,029
Amounts related to agreements not included in offsetting disclosures above	Amounts related to agreements not included in offsetting disclosures above									$	0	Amounts related to agreements not included in offsetting disclosures above									$	—

December 31, 2019
December 31, 2020												December 31, 2020
Repurchase agreements:	Repurchase agreements:											Repurchase agreements:
U.S. Treasury	U.S. Treasury	$	435,904	$	0	$	0	$	0	$	435,904	U.S. Treasury	$	692,860	$	—	$	—	$	—	$	692,860

Residential mortgage-backed securities	Residential mortgage-backed securities	1,232,238		0		0		0		1,232,238		Residential mortgage-backed securities	1,375,287		—		—		—		1,375,287
Total borrowings	Total borrowings	$	1,668,142	$	0	$	0	$	0	$	1,668,142	Total borrowings	$	2,068,147	$	—	$	—	$	—	$	2,068,147
Gross amount of recognized liabilities for repurchase agreements	Gross amount of recognized liabilities for repurchase agreements									$	1,668,142	Gross amount of recognized liabilities for repurchase agreements									$	2,068,147
Amounts related to agreements not included in offsetting disclosures above	Amounts related to agreements not included in offsetting disclosures above									$	0	Amounts related to agreements not included in offsetting disclosures above									$	—

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Note 10 - Stock-Based Compensation

A combined summary of activity in our active stock plans is presented in the table. Performance stock units outstanding are presented assuming attainment of the maximum payout rate as set forth by the performance criteria. As of September 30, ~~2020,~~2021, there were ~~1,109,864~~917,440 shares remaining available for grant for future stock-based compensation awards.

Director Deferred
Stock Units
Outstanding Non-Vested Stock
Awards/Stock Units
Outstanding Performance Stock Units Outstanding Stock Options
Outstanding
Number of Units Weighted-
Average
Fair Value
at Grant Number
of Shares/Units Weighted-
Average
Fair Value
at Grant Number of Units Weighted-
Average
Fair Value
at Grant Number
of Shares Weighted-
Average
Exercise
Price
Balance, January 1, 2020 55,370 $ 74.76 440,647 $ 90.22 177,288 $ 83.48 1,980,866 $ 64.60
Authorized — — — — — — — —
Granted 10,428 73.84 458 65.43 — — — —
Exercised/vested (12,938) 71.09 (1,640) 76.07 (41,755) 69.70 (140,615) 53.65
Forfeited/expired — — (2,813) 90.20 (6,894) 81.33 (5,427) 75.74
Balance, September 30, 2020 52,860 $ 75.47 436,652 $ 90.24 128,639 $ 88.07 1,834,824 $ 65.41

~~Table of Contents~~


	Director Deferred Stock Units Outstanding			Non-Vested Stock Awards/Stock Units Outstanding			Performance Stock Units Outstanding			Stock Options Outstanding
	Number of Units	Weighted- Average Fair Value at Grant		Number of Shares/Units	Weighted- Average Fair Value at Grant		Number of Units	Weighted- Average Fair Value at Grant		Number of Shares	Weighted- Average Exercise Price
Balance, January 1, 2021	52,860	$	75.47	470,359	$	86.24	201,257	$	77.18	1,739,559	$	66.11
Authorized	—	—		—	—		—	—		—	—
Granted	5,940	117.90		—	—		—	—		—	—
Exercised/vested	(2,499)	92.03		(1,213)	98.90		(35,131)	92.27		(611,201)	61.86
Forfeited/expired	—	—		(26,439)	87.08		(9,752)	75.70		—	—
Balance, September 30, 2021	56,301	$	79.21	442,707	$	86.16	156,374	$	73.88	1,128,358	$	68.41

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 September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
New shares issued from available authorized shares	New shares issued from available authorized shares	0		0		0		0		New shares issued from available authorized shares	—		—		—		—
Issued from available treasury stock		53,425		71,284		196,948		225,184
Shares issued from available treasury stock										Shares issued from available treasury stock	21,968		53,425		650,044		196,948
Total	Total	53,425		71,284		196,948		225,184		Total	21,968		53,425		650,044		196,948

Proceeds from stock option exercises	Proceeds from stock option exercises	$	2,698	$	5,665	$	7,544	$	13,506	Proceeds from stock option exercises	$	1,128	$	2,698	$	37,810	$	7,544

Stock-based compensation expense is recognized ratably over the requisite service period for all awards. For most stock option awards, the service period generally matches the vesting period. For stock options granted to certain executive officers and for non-vested stock units granted to all participants, the service period does not extend past the date the participant reaches 65 years of age. Deferred stock units granted to non-employee directors generally have immediate vesting and the related expense is fully recognized on the date of grant. For performance stock units, the service period generally matches the three-year performance period specified by the award, however, the service period does not extend past the date the participant reaches 65 years of age. Expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued.

Stock-based compensation expense and the related income tax benefit is presented in the following table.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Stock options		$	0	$	330	$	0	$	1,091

Non-vested stock awards/stock units	Non-vested stock awards/stock units	1,999		1,536		6,325		5,727		Non-vested stock awards/stock units	$	1,559	$	1,999	$	5,210	$	6,325
Director deferred stock units	Director deferred stock units	0		0		770		780		Director deferred stock units	—		—		700		770
Performance stock units	Performance stock units	444		809		1,132		3,095		Performance stock units	426		444		1,846		1,132
Total	Total	$	2,443	$	2,675	$	8,227	$	10,693	Total	$	1,985	$	2,443	$	7,756	$	8,227
Income tax benefit	Income tax benefit	$	450	$	452	$	1,539	$	1,768	Income tax benefit	$	281	$	450	$	1,162	$	1,539

Unrecognized stock-based compensation expense at September 30, ~~2020~~2021 is presented in the table below. Unrecognized stock-based compensation expense related to performance stock units is presented assuming attainment of the maximum payout rate as set forth by the performance criteria.


Non-vested stock awards/stock units	$	~~12,337~~10,918
Performance stock units	~~4,651~~4,450
Total	$	~~16,988~~15,368

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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 ~~2019~~2020 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 September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net income	Net income	$	95,056	$	111,836	$	242,881	$	339,918	Net income	$	107,975	$	95,056	$	342,058	$	242,881
Less: Preferred stock dividends	Less: Preferred stock dividends	0		2,016		2,016		6,047		Less: Preferred stock dividends	1,668		—		5,488		2,016
Redemption of preferred stock	Redemption of preferred stock	0		0		5,514		0		Redemption of preferred stock	—		—		—		5,514
Net income available to common shareholders	Net income available to common shareholders	95,056		109,820		235,351		333,871		Net income available to common shareholders	106,307		95,056		336,570		235,351
Less: Earnings allocated to participating securities	Less: Earnings allocated to participating securities	877		876		2,236		2,761		Less: Earnings allocated to participating securities	932		877		3,228		2,236
Net earnings allocated to common stock	Net earnings allocated to common stock	$	94,179	$	108,944	$	233,115	$	331,110	Net earnings allocated to common stock	$	105,375	$	94,179	$	333,342	$	233,115

Distributed earnings allocated to common stock	Distributed earnings allocated to common stock	$	44,546	$	44,370	$	133,511	$	131,069	Distributed earnings allocated to common stock	$	47,740	$	44,546	$	139,224	$	133,511
Undistributed earnings allocated to common stock	Undistributed earnings allocated to common stock	49,633		64,574		99,604		200,041		Undistributed earnings allocated to common stock	57,635		49,633		194,118		99,604
Net earnings allocated to common stock	Net earnings allocated to common stock	$	94,179	$	108,944	$	233,115	$	331,110	Net earnings allocated to common stock	$	105,375	$	94,179	$	333,342	$	233,115

Weighted-average shares outstanding for basic earnings per common share	Weighted-average shares outstanding for basic earnings per common share	62,726,542		62,566,128		62,655,393		62,786,501		Weighted-average shares outstanding for basic earnings per common share	63,652,020		62,726,542		63,522,884		62,655,393
Dilutive effect of stock compensation	Dilutive effect of stock compensation	193,116		592,866		263,028		725,911		Dilutive effect of stock compensation	444,636		193,116		489,219		263,028
Weighted-average shares outstanding for diluted earnings per common share	Weighted-average shares outstanding for diluted earnings per common share	62,919,658		63,158,994		62,918,421		63,512,412		Weighted-average shares outstanding for diluted earnings per common share	64,096,656		62,919,658		64,012,103		62,918,421

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 September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Expected return on plan assets, net of expenses	Expected return on plan assets, net of expenses	$	(3,073)	$	(2,693)	$	(9,217)	$	(8,079)	Expected return on plan assets, net of expenses	$	(3,210)	$	(3,073)	$	(9,630)	$	(9,217)
Interest cost on projected benefit obligation	Interest cost on projected benefit obligation	1,252		1,618		3,757		4,854		Interest cost on projected benefit obligation	835		1,252		2,506		3,757
Net amortization and deferral	Net amortization and deferral	1,330		1,406		3,989		4,218		Net amortization and deferral	1,529		1,330		4,587		3,989
Net periodic expense (benefit)	Net periodic expense (benefit)	$	(491)	$	331	$	(1,471)	$	993	Net periodic expense (benefit)	$	(846)	$	(491)	$	(2,537)	$	(1,471)

Our non-qualified defined benefit pension plan is not funded. ~~NaN~~No contributions to the qualified defined benefit pension plan were made during the nine months ended September 30, ~~2020.~~2021. We do not expect to make any contributions to the qualified defined benefit plan during the remainder of ~~2020.~~2021.

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Note 13 - Income Taxes

Income tax expense was as follows:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2020			2019			2020			2019				2021			2020			2021			2020
Current income tax expense (benefit)	Current income tax expense (benefit)	$	(33,614)		$	14,480		$	20,328		$	43,984		Current income tax expense (benefit)	$	13,849		$	(33,614)		$	31,639		$	20,328
Deferred income tax expense (benefit)	Deferred income tax expense (benefit)	43,130			(950)			(8,803)			(1,625)			Deferred income tax expense (benefit)	(516)			43,130			4,672			(8,803)
Income tax expense, as reported	Income tax expense, as reported	$	9,516		$	13,530		$	11,525		$	42,359		Income tax expense, as reported	$	13,333		$	9,516		$	36,311		$	11,525
Effective tax rate	Effective tax rate	9.1		%	10.8		%	4.5		%	11.1		%	Effective tax rate	11.0		%	9.1		%	9.6		%	4.5		%

We had a net deferred tax liability totaling ~~$122.4~~$78.9 million at September 30, ~~2020~~2021 and ~~$75.8~~$117.5 million at December 31, ~~2019. NaN~~2020. No valuation allowance for deferred tax assets was recorded at September 30, ~~2020~~2021 as management believes it is more likely than not that all of the deferred tax assets will be realized against deferred tax liabilities and projected future taxable income.

The effective income tax rates differed from the U.S. statutory federal income tax rates of 21% during the comparable periods primarily due to the effect of tax-exempt income from loans, securities and life insurance policies and the income tax effects associated with stock-based compensation. The effective tax rates during 2020 were also impacted by a one-time, discrete tax benefit associated with an asset contribution to a charitable trust during the second quarter. There were 0

~~Table of Contents~~

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 ~~2016.~~2017.

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, 2020 Three Months Ended
September 30, 2019
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 $ 20,332 $ 4,269 $ 16,063 $ 107,786 $ 22,635 $ 85,151
Change in net unrealized gain on securities transferred to held to maturity (294) (62) (232) (305) (64) (241)
Reclassification adjustment for net (gains) losses included in net income 0 0 0 (97) (21) (76)
Total securities available for sale and transferred securities 20,038 4,207 15,831 107,384 22,550 84,834
Defined-benefit post-retirement benefit plans:
Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit) 1,330 280 1,050 1,406 295 1,111
Total defined-benefit post-retirement benefit plans 1,330 280 1,050 1,406 295 1,111
Total other comprehensive income (loss) $ 21,368 $ 4,487 $ 16,881 $ 108,790 $ 22,845 $ 85,945

Nine Months Ended
September 30, 2020 Nine Months Ended
September 30, 2019
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 $ 406,959 $ 85,462 $ 321,497 $ 464,072 $ 97,455 $ 366,617
Change in net unrealized gain on securities transferred to held to maturity (979) (206) (773) (957) (201) (756)
Reclassification adjustment for net (gains) losses included in net income (108,989) (22,888) (86,101) (266) (56) (210)
Total securities available for sale and transferred securities 296,991 62,368 234,623 462,849 97,198 365,651
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) 3,989 837 3,152 4,218 886 3,332
Total defined-benefit post-retirement benefit plans 3,989 837 3,152 4,218 886 3,332
Total other comprehensive income (loss) $ 300,980 $ 63,205 $ 237,775 $ 467,067 $ 98,084 $ 368,983


	Three Months Ended September 30, 2021						Three Months Ended September 30, 2020
	Before Tax Amount		Tax Expense, (Benefit)		Net of Tax Amount		Before Tax Amount		Tax Expense, (Benefit)		Net of Tax Amount
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	(80,668)	$	(16,941)	$	(63,727)	$	20,332	$	4,269	$	16,063
Change in net unrealized gain on securities transferred to held to maturity	(237)		(49)		(188)		(294)		(62)		(232)
Reclassification adjustment for net (gains) losses included in net income	—		—		—		—		—		—
Total securities available for sale and transferred securities	(80,905)		(16,990)		(63,915)		20,038		4,207		15,831
Defined-benefit post-retirement benefit plans:

Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)	1,529		321		1,208		1,330		280		1,050
Total defined-benefit post-retirement benefit plans	1,529		321		1,208		1,330		280		1,050
Total other comprehensive income (loss)	$	(79,376)	$	(16,669)	$	(62,707)	$	21,368	$	4,487	$	16,881

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	Nine Months Ended September 30, 2021						Nine Months Ended September 30, 2020
	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	$	(209,779)	$	(44,054)	$	(165,725)	$	406,959	$	85,462	$	321,497
Change in net unrealized gain on securities transferred to held to maturity	(741)		(155)		(586)		(979)		(206)		(773)
Reclassification adjustment for net (gains) losses included in net income	—		—		—		(108,989)		(22,888)		(86,101)
Total securities available for sale and transferred securities	(210,520)		(44,209)		(166,311)		296,991		62,368		234,623
Defined-benefit post-retirement benefit plans:

Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)	4,587		963		3,624		3,989		837		3,152
Total defined-benefit post-retirement benefit plans	4,587		963		3,624		3,989		837		3,152
Total other comprehensive income (loss)	$	(205,933)	$	(43,246)	$	(162,687)	$	300,980	$	63,205	$	237,775

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


									Securities Available For Sale		Defined Benefit Plans		Accumulated Other Comprehensive Income
Balance January 1, 2021								Balance January 1, 2021	$	563,801	$	(50,831)	$	512,970
Other comprehensive income (loss) before reclassifications								Other comprehensive income (loss) before reclassifications	(166,311)		—		(166,311)
Reclassification of amounts included in net income								Reclassification of amounts included in net income	—		3,624		3,624
Net other comprehensive income (loss) during period								Net other comprehensive income (loss) during period	(166,311)		3,624		(162,687)
Balance at September 30, 2021								Balance at September 30, 2021	$	397,490	$	(47,207)	$	350,283
		Securities Available For Sale		Defined Benefit Plans		Accumulated Other Comprehensive Income
Balance January 1, 2020	Balance January 1, 2020	$	313,304	$	(45,934)	$	267,370	Balance January 1, 2020	$	313,304	$	(45,934)	$	267,370
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	320,724		0		320,724		Other comprehensive income (loss) before reclassifications	320,724		—		320,724
Reclassification of amounts included in net income	Reclassification of amounts included in net income	(86,101)		3,152		(82,949)		Reclassification of amounts included in net income	(86,101)		3,152		(82,949)
Net other comprehensive income (loss) during period	Net other comprehensive income (loss) during period	234,623		3,152		237,775		Net other comprehensive income (loss) during period	234,623		3,152		237,775

Balance at September 30, 2020	Balance at September 30, 2020	$	547,927	$	(42,782)	$	505,145	Balance at September 30, 2020	$	547,927	$	(42,782)	$	505,145

Balance January 1, 2019		$	(16,103)	$	(47,497)	$	(63,600)
Other comprehensive income (loss) before reclassifications		365,861		0		365,861
Reclassification of amounts included in net income		(210)		3,332		3,122
Net other comprehensive income (loss) during period		365,651		3,332		368,983

Balance at September 30, 2019		$	349,548	$	(44,165)	$	305,383

Table of Contents

Note 15 – Operating Segments

We are managed under a matrix organizational structure whereby our 2 primary operating segments, Banking and Frost Wealth Advisors, overlap a regional reporting structure. See our ~~2019~~2020 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
Revenues from (expenses to) external customers:
Three months ended:	Three months ended:									Three months ended:
September 30, 2021										September 30, 2021
Net interest income (expense)										Net interest income (expense)	$	247,381	$	536	$	(1,795)	$	246,122
Credit loss expense										Credit loss expense	(6)		6		—		—
Non-interest income										Non-interest income	51,279		42,369		(459)		93,189
Non-interest expense										Non-interest expense	185,891		31,086		1,026		218,003
Income (loss) before income taxes										Income (loss) before income taxes	112,775		11,813		(3,280)		121,308
Income tax expense (benefit)										Income tax expense (benefit)	12,029		2,481		(1,177)		13,333
Net income (loss)										Net income (loss)	100,746		9,332		(2,103)		107,975
Preferred stock dividends										Preferred stock dividends	—		—		1,668		1,668

Net income (loss) available to common shareholders										Net income (loss) available to common shareholders	$	100,746	$	9,332	$	(3,771)	$	106,307
Revenues from (expenses to) external customers										Revenues from (expenses to) external customers	$	298,660	$	42,905	$	(2,254)	$	339,311
September 30, 2020	September 30, 2020	$	293,855	$	35,282	$	(2,113)	$	327,024	September 30, 2020
September 30, 2019		307,312		37,549		(2,630)		342,231
Net interest income (expense)										Net interest income (expense)	$	244,685	$	602	$	(1,864)	$	243,423
Credit loss expense (benefit)										Credit loss expense (benefit)	20,300		2		—		20,302
Non-interest income										Non-interest income	49,170		34,680		(249)		83,601
Non-interest expense										Non-interest expense	170,290		30,052		1,808		202,150
Income (loss) before income taxes										Income (loss) before income taxes	103,265		5,228		(3,921)		104,572
Income tax expense (benefit)										Income tax expense (benefit)	9,758		1,098		(1,340)		9,516

Net income (loss) available to common shareholders										Net income (loss) available to common shareholders	$	93,507	$	4,130	$	(2,581)	$	95,056
Revenues from (expenses to) external customers										Revenues from (expenses to) external customers	$	293,855	$	35,282	$	(2,113)	$	327,024
Nine months ended:	Nine months ended:									Nine months ended:
September 30, 2021										September 30, 2021
Net interest income (expense)										Net interest income (expense)	$	748,036	$	1,530	$	(5,407)	$	744,159
Credit loss expense										Credit loss expense	57		6		—		63
Non-interest income										Non-interest income	154,003		124,512		(843)		277,672
Non-interest expense										Non-interest expense	548,151		91,037		4,211		643,399
Income (loss) before income taxes										Income (loss) before income taxes	353,831		34,999		(10,461)		378,369
Income tax expense (benefit)										Income tax expense (benefit)	32,811		7,350		(3,850)		36,311
Net income (loss)										Net income (loss)	321,020		27,649		(6,611)		342,058
Preferred stock dividends										Preferred stock dividends	—		—		5,488		5,488

Net income (loss) available to common shareholders										Net income (loss) available to common shareholders	$	321,020	$	27,649	$	(12,099)	$	336,570
Revenues from (expenses to) external customers										Revenues from (expenses to) external customers	$	902,039	$	126,042	$	(6,250)	$	1,021,831
September 30, 2020	September 30, 2020	$	1,003,469	$	111,493	$	(7,090)	$	1,107,872	September 30, 2020
September 30, 2019		918,672		111,064		(8,182)		1,021,554
Net income (loss):
Three months ended:
September 30, 2020		$	93,507	$	4,130	$	(2,581)	$	95,056
September 30, 2019		110,583		4,106		(2,853)		111,836
Nine months ended:
September 30, 2020		$	238,023	$	13,642	$	(8,784)	$	242,881
September 30, 2019		334,393		15,403		(9,878)		339,918
Net interest income (expense)										Net interest income (expense)	$	737,977	$	2,163	$	(6,385)	$	733,755
Credit loss expense										Credit loss expense	227,474		—		—		227,474
Non-interest income										Non-interest income	265,492		109,330		(705)		374,117
Non-interest expense										Non-interest expense	525,882		94,225		5,885		625,992
Income (loss) before income taxes										Income (loss) before income taxes	250,113		17,268		(12,975)		254,406
Income tax expense (benefit)										Income tax expense (benefit)	12,090		3,626		(4,191)		11,525
Net income (loss)										Net income (loss)	238,023		13,642		(8,784)		242,881
Preferred stock dividends										Preferred stock dividends	—		—		2,016		2,016
Redemption of preferred stock										Redemption of preferred stock	—		—		5,514		5,514
Net income (loss) available to common shareholders										Net income (loss) available to common shareholders	$	238,023	$	13,642	$	(16,314)	$	235,351
Revenues from (expenses to) external customers										Revenues from (expenses to) external customers	$	1,003,469	$	111,493	$	(7,090)	$	1,107,872

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Note 16 – Fair Value Measurements

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, we utilize valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC Topic 820 establishes a three-level fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. See our ~~2019~~2020 Form 10-K for additional information regarding the fair value hierarchy and a description of our valuation techniques.

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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, ~~2020~~2021 and December 31, ~~2019,~~2020, 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, 2020
September 30, 2021										September 30, 2021
Securities available for sale:	Securities available for sale:									Securities available for sale:
U.S. Treasury	U.S. Treasury	$	1,124,965	$	—	$	—	$	1,124,965	U.S. Treasury	$	1,685,221	$	—	$	—	$	1,685,221
Residential mortgage-backed securities	Residential mortgage-backed securities	—		2,164,162		—		2,164,162		Residential mortgage-backed securities	—		2,491,154		—		2,491,154
States and political subdivisions	States and political subdivisions	—		7,273,005		—		7,273,005		States and political subdivisions	—		7,512,489		—		7,512,489
Other	Other	—		42,348		—		42,348		Other	—		42,358		—		42,358
Trading account securities:	Trading account securities:									Trading account securities:
U.S. Treasury	U.S. Treasury	24,495		—		—		24,495		U.S. Treasury	24,087		—		—		24,087
States and political subdivisions	States and political subdivisions	—		1,313		—		1,313		States and political subdivisions	—		1,205		—		1,205
Derivative assets:	Derivative assets:									Derivative assets:
Interest rate swaps, caps and floors	Interest rate swaps, caps and floors	—		96,659		—		96,659		Interest rate swaps, caps and floors	—		53,186		—		53,186
Commodity swaps and options	Commodity swaps and options	—		35,272		—		35,272		Commodity swaps and options	—		227,527		—		227,527
Foreign currency forward contracts	Foreign currency forward contracts	—		—		—		—		Foreign currency forward contracts	4		—		—		4
Derivative liabilities:	Derivative liabilities:									Derivative liabilities:
Interest rate swaps, caps and floors	Interest rate swaps, caps and floors	—		38,339		—		38,339		Interest rate swaps, caps and floors	—		27,609		—		27,609
Commodity swaps and options	Commodity swaps and options	—		34,432		—		34,432		Commodity swaps and options	—		226,054		—		226,054
Foreign currency forward contracts		—		—		—		—


December 31, 2019
December 31, 2020										December 31, 2020
Securities available for sale:	Securities available for sale:									Securities available for sale:
U.S. Treasury	U.S. Treasury	$	1,948,133	$	—	$	—	$	1,948,133	U.S. Treasury	$	1,119,633	$	—	$	—	$	1,119,633
Residential mortgage-backed securities	Residential mortgage-backed securities	—		2,207,594		—		2,207,594		Residential mortgage-backed securities	—		1,987,679		—		1,987,679
States and political subdivisions	States and political subdivisions	—		7,070,997		—		7,070,997		States and political subdivisions	—		7,287,902		—		7,287,902
Other	Other	—		42,867		—		42,867		Other	—		42,351		—		42,351
Trading account securities:	Trading account securities:									Trading account securities:
U.S. Treasury	U.S. Treasury	24,298		—		—		24,298		U.S. Treasury	23,996		—		—		23,996

States and political subdivisions										States and political subdivisions	—		460		—		460
Derivative assets:	Derivative assets:									Derivative assets:
Interest rate swaps, caps and floors	Interest rate swaps, caps and floors	—		44,196		—		44,196		Interest rate swaps, caps and floors	—		85,665		—		85,665
Commodity swaps and options	Commodity swaps and options	—		12,218		—		12,218		Commodity swaps and options	—		45,535		456		45,991
Foreign currency forward contracts		45		—		—		45

Derivative liabilities:	Derivative liabilities:									Derivative liabilities:
Interest rate swaps, caps and floors	Interest rate swaps, caps and floors	—		20,197		—		20,197		Interest rate swaps, caps and floors	—		35,187		—		35,187
Commodity swaps and options	Commodity swaps and options	—		11,677		—		11,677		Commodity swaps and options	—		45,099		—		45,099
Foreign currency forward contracts		33		—		—		33

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Financial assets measured at fair value on a non-recurring basis during the reported periods include certain collateral dependent loans reported at the fair value of the underlying collateral if repayment is expected solely from the collateral.

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The following table presents collateral dependent loans that were remeasured and reported at fair value through a specific allocation of the allowance for credit losses on loans based upon the fair value of the underlying collateral during the reported periods.

Nine Months Ended
September 30, 2020 Nine Months Ended
September 30, 2019
Level 2 Level 3 Level 2 Level 3
Carrying value before allocations $ 6,388 $ 8,660 $ 2,416 $ 60,010
Specific (allocations) reversals of prior allocations (930) 14,928 1,116 (12,437)
Fair value $ 5,458 $ 23,588 $ 3,532 $ 47,573

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	Nine Months Ended September 30, 2021				Nine Months Ended September 30, 2020
	Level 2		Level 3		Level 2		Level 3
Carrying value before allocations	$	3,329	$	15,274	$	6,388	$	8,660
Specific (allocations) reversals of prior allocations	(336)		(4,791)		(930)		14,928
Fair value	$	2,993	$	10,483	$	5,458	$	23,588

Non-Financial Assets and Non-Financial Liabilities. We do not have any non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Non-financial assets measured at fair value on a non-recurring basis during the reported periods may include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for loan losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other non-interest expense. The following table presents foreclosed assets that were remeasured and reported at fair value during the reported periods:


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2020		2019			2021		2020
Foreclosed assets remeasured at initial recognition:
Carrying value of foreclosed assets prior to remeasurement		$	0	$	1,302
Charge-offs recognized in the allowance for credit losses on loan		0		(76)
Fair value		$	0	$	1,226

Foreclosed assets remeasured subsequent to initial recognition:	Foreclosed assets remeasured subsequent to initial recognition:					Foreclosed assets remeasured subsequent to initial recognition:
Carrying value of foreclosed assets prior to remeasurement	Carrying value of foreclosed assets prior to remeasurement	$	328	$	0	Carrying value of foreclosed assets prior to remeasurement	$	—	$	328
Write-downs included in other non-interest expense	Write-downs included in other non-interest expense	(231)		0		Write-downs included in other non-interest expense	—		(231)
Fair value	Fair value	$	97	$	0	Fair value	$	—	$	97

Financial Instruments Reported at Amortized Cost. The estimated fair values of financial instruments that are reported at amortized cost in our consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, were as follows:


		September 30, 2020				December 31, 2019					September 30, 2021				December 31, 2020
		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	$	7,175,680	$	7,175,680	$	3,788,181	$	3,788,181	Cash and cash equivalents	$	16,253,971	$	16,253,971	$	10,288,853	$	10,288,853
Securities held to maturity	Securities held to maturity	1,951,384		2,058,855		2,030,005		2,048,675		Securities held to maturity	1,759,270		1,825,568		1,945,673		2,052,896
Cash surrender value of life insurance policies	Cash surrender value of life insurance policies	189,148		189,148		187,156		187,156		Cash surrender value of life insurance policies	189,941		189,941		189,984		189,984
Accrued interest receivable	Accrued interest receivable	122,618		122,618		183,850		183,850		Accrued interest receivable	119,232		119,232		181,432		181,432
Level 3 inputs:	Level 3 inputs:									Level 3 inputs:
Loans, net	Loans, net	17,960,402		18,160,904		14,618,165		14,654,615		Loans, net	15,582,520		15,656,269		17,218,132		17,390,683
Financial liabilities:	Financial liabilities:									Financial liabilities:
Level 2 inputs:	Level 2 inputs:									Level 2 inputs:
Deposits	Deposits	33,499,503		33,503,668		27,639,564		27,641,255		Deposits	39,612,767		39,613,343		35,015,761		35,018,185
Federal funds purchased and repurchase agreements		1,608,667		1,608,667		1,695,342		1,695,342
Federal funds purchased										Federal funds purchased	27,200		27,200		48,850		48,850
Repurchase agreements										Repurchase agreements	2,200,029		2,200,029		2,068,147		2,068,147
Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	136,342		137,115		136,299		137,115		Junior subordinated deferrable interest debentures	136,400		137,115		136,357		137,115
Subordinated notes	Subordinated notes	98,982		112,912		98,865		89,077		Subordinated notes	99,139		113,223		99,021		115,717
Accrued interest payable	Accrued interest payable	9,144		9,144		12,393		12,393		Accrued interest payable	2,126		2,126		8,127		8,127

Under ASC Topic 825, entities may choose to measure eligible financial instruments at fair value at specified election dates. The fair value measurement option (i) may be applied instrument by instrument, with certain exceptions, (ii) is generally irrevocable and (iii) is applied only to entire instruments and not to portions of instruments. Unrealized gains and losses on items for which the fair value measurement option has been elected must be reported in earnings at each subsequent reporting date. During the reported periods, we had 0no financial instruments measured at fair value under the fair value measurement option.

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Note 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 ~~2019~~2020 Form 10-K for additional information related to previously issued accounting standards updates.

ASU ~~2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”~~ ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. We adopted ASU 2016-13, as subsequently updated for certain clarifications, targeted relief and codification improvements, as of January 1, 2020. See Note 1 - Significant Accounting Policies for additional information.

~~ASU 2020-4,~~2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU ~~2020-4~~2020-04 provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. ASU ~~2020-4~~2020-04 was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU ~~2020-4~~2020-04 did not significantly impact our financial statements.

ASU ~~2020-8,~~2020-08, “Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs.” ASU ~~2020-8~~2020-08 clarifies the accounting for the amortization of purchase premiums for callable debt securities with multiple call dates. ASU ~~2020-8 will be~~2020-08 became effective for us on January 1, 2021 and isdid not ~~expected to~~ have a significant impact on our financial statements.

ASU 2020-09, “Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762.” ASU 2020-09 amends the ASC to reflect the issuance of an SEC rule related to financial disclosure requirements for subsidiary issuers and guarantors of registered debt securities and affiliates whose securities are pledged as collateral for registered securities. ASU 2020-09 became effective for us on January 4, 2021, concurrent with the effective date of the SEC release, and did not have a significant impact on our financial statements.

ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” ASU 2021-01 clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU 2021-01 was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2021-01 did not significantly impact our financial statements.

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

Financial Review

Cullen/Frost Bankers, Inc.

The following discussion should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, ~~2019,~~2020, and the other information included in the ~~2019~~2020 Form 10-K. Operating results for the three and nine months ended September 30, ~~2020~~2021 are not necessarily indicative of the results for the year ending December 31, ~~2020~~2021 or any future period.

Dollar amounts in tables are stated in thousands, except for per share amounts.

Forward-Looking Statements and Factors that Could Affect Future Results

Certain statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), including statements regarding the potential effects of the ongoing COVID-19 pandemic on our business, financial condition, liquidity and results of operations, notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in our future filings with the SEC, in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of Cullen/Frost or its management or Board of Directors, including those relating to products, services or operations; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes”, “anticipates”, “expects”, “intends”, “targeted”, “continue”, “remain”, “will”, “should”, “may” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

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

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

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

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

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

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

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

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

•The soundness of other financial institutions.

•Political instability.

•Impairment of our goodwill or other intangible assets.

•Acts of God or of war or terrorism.

•The timely development and acceptance of new products and services and perceived overall value of these products and services by users.

•Changes in consumer spending, borrowings and savings habits.

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

•Technological ~~changes.~~changes and the speed of digital transformation.

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

•Our customers' vulnerability to internal and external fraud (including fraudulent e-mail and other communications).

•Acquisitions and integration of acquired businesses.

•Our ability to increase market share and control expenses.

•Our ability to attract and retain qualified employees.

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

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

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

•Changes in our liquidity position.

•Changes in our organization, compensation and benefit plans.

•The impact of the ongoing COVID-19 pandemic and any other pandemic, epidemic or health-related crisis.

•The costs and effects of legal and regulatory developments, the resolution of legal proceedings or regulatory or other governmental inquiries, the results of regulatory examinations or reviews and the ability to obtain required regulatory approvals.

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

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

Further, statements about the potential effects of the ongoing COVID-19 pandemic on our business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, clients, third parties and us.

Forward-looking statements speak only as of the date on which such statements are made. We do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.

Recent Developments Related to COVID-19

~~Overview.~~Our business has been, and continues to be, impacted by the ~~recent and ongoing outbreak of COVID-19. In March 2020,~~ COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the President of the United States. Efforts to limit the spread of COVID-19 have included shelter-in-place orders, the closure of non-essential businesses, travel restrictions, supply chain disruptions and prohibitions on public gatherings, among other things, throughout many parts of the United States and, in particular, the markets in which we operate.pandemic. As the ~~current~~ pandemic is ongoing and dynamic in nature, there are many uncertainties related to COVID-19 including, among other things, ~~its ultimate geographic spread; its severity;~~ the ~~duration of the outbreak; the~~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 contain the outbreak or to mitigate its impact (both economic and health-related). ~~COVID-19 has negatively affected, and is expected~~Refer to ~~continue to negatively affect,~~ our ~~business, financial position and operating results. In light~~2020 Form 10-K for further information regarding (i) the impact of the ~~uncertainties and continuing developments discussed herein, the ultimate adverse impact of~~ COVID-19 ~~cannot be reliably estimated at this time, but it has been and is expected to continue to be material.~~

~~Impact~~pandemic on our ~~Operations.~~ ~~In the State of Texas, many jurisdictions have declared health emergencies. The resulting closures and/or limited~~ operations ~~of non-essential businesses~~ and ~~related economic disruption have impacted~~ our ~~operations~~results thereof, as well as the operations of our customers. Financial services have been identified as a Critical Infrastructure Sector by the Department of Homeland Security. Accordingly, our business remains open. To address the issues arising as a result of COVID-19, and in order to facilitate the continued delivery of essential services while maintaining a high level of safety for our customers as well as our employees, we have implemented our Business Continuity and Health Emergency Response plans. Among other things, significant actions taken under these plans include:

•~~Implemented our communications plans to ensure our employees, customers and critical vendors are kept abreast of developments affecting our operations.~~

•~~Restricted all non-essential travel and large external gatherings and have instituted a mandatory quarantine period for anyone that has traveled to an impacted area.~~

•After temporarily closing all of our financial center lobbies and other corporate facilities to non-employees, except for certain limited cases by appointment only, we reopened our financial center lobbies with limited capacity. We continue to serve our consumer and business customers through our motor-banks, ATMs, internet banking, mobile app and telephone customer service capabilities.

•Expanded remote-access availability so that nearly all of our work-force has the capability to work from home or other remote locations. All activities are performed in accordance with our compliance and information security policies designed to ensure customer data and other information is properly safeguarded.

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•Instituted mandatory social distancing policies for those employees not working remotely. Members of certain operations teams have been split into separate buildings or locations to create redundancy for key functions across the organization.

Notwithstanding the foregoing actions, the COVID-19 outbreak could still greatly affect our routine and essential operations due to staff absenteeism, particularly among key personnel; further limited access to or closures of our branch facilities and other physical offices; operational, technical or security-related risks arising from a remote work-force; and government or regulatory agency orders, among other things. The business and operations of our third-party service providers, many of whom perform critical services for our business, could also be significantly impacted, which in turn could impact ~~us. As a result, we are currently unable to fully assess or predict the extent of the effects of COVID-19~~ on our ~~operations as the ultimate impact will depend on factors that are currently unknown and/or beyond our control.~~

~~Impact on our Financial Position and Results of Operations.~~ ~~Our~~ financial position and ~~results of operations are particularly susceptible~~(ii) legislative and regulatory actions taken related to the ability of our loan customers to meet loan obligations, the availability of our workforce, the availability of our vendors and the decline in the value of assets held by us. While its effects continue to materialize, the COVID-19 pandemic, ~~has resulted in a significant decrease in commercial activity throughout the State of Texas~~particularly as well as nationally. This decrease in commercial activity has caused and may continue to cause our customers (including affected businesses and individuals), vendors and counterparties to be unable to meet existing payment or other obligations to us. The national public health crisis arising from the COVID-19 pandemic (and public expectations about it), combined with certain pre-existing factors, including, but not limited to, international trade disputes, inflation risks and oil price volatility, could further destabilize the financial markets and geographies in which we operate. The resulting economic pressure on consumers and uncertainty regarding the sustainability of any economic improvements has impacted the creditworthiness of potential and current borrowers. Borrower loan defaults that adversely affect our earnings correlate with deteriorating economic conditions (such as the unemployment rate), which, in turn, are likely to impact our borrowers' creditworthiness and our ability to make loans. See further information relatedthey relate to the ~~risk exposure of our loan portfolio under the sections captioned “Loans”~~banking and ~~“Allowance for Credit Losses” elsewhere in this discussion.~~financial services industry.

In addition, the economic pressures and uncertainties arising from the COVID-19 pandemic has resulted in and may continue to result in specific changes in consumer and business spending and borrowing and saving habits, affecting the demand for loans and other products and services we offer. Consumers affected by COVID-19 may continue to demonstrate changed behavior even after the crisis is over. For example, consumers may decrease discretionary spending on a permanent or long-term basis, certain industries may take longer to recover (particularly those that rely on travel or large gatherings) as consumers may be hesitant to return to full social interaction. We lend to customers operating in such industries including energy, retail/strip centers, hotels/lodging, restaurants, entertainment and commercial real estate, among others, that have been significantly impacted by COVID-19 and we are continuing to monitor these customers closely. To help mitigate the adverse effects of COVID-19, loan customers may apply for a deferral of payments, or portions thereof, for up to 90 days. After 90 days, customers may apply for an additional deferral. Additionally, the temporary closures of bank branches and the safety precautions implemented at re-opened branches could result in consumers becoming more comfortable with technology and devaluing face-to-face interaction. Our business is relationship driven and such changes could necessitate changes to our business practices to accommodate changing consumer behaviors. The potential changes in behaviors driven by COVID-19 also present heightened liquidity risks, for example, arising from increased demand for our products and services (such as unusually high draws on credit facilities) or decreased demand for our products and services (such as idiosyncratic, or broad-based, market or other developments that lead to deposit outflows).

~~Legislative and Regulatory Developments.~~Recent actions taken by the ~~federal~~U.S. government ~~and the Federal Reserve and other bank regulatory agencies~~ to further mitigate the economic effects of COVID-19 will also have an impact on our financial position and results of operations. These actions are further discussed below.

~~In an emergency measure aimed at blunting~~During the ~~economic impact~~first quarter of ~~COVID-19, the Federal Reserve lowered the target for the federal funds rate~~2021, President Biden signed a number of executive orders relating to a range of between zero to 0.25% effective on March 16, 2020. This action by the Federal Reserve followed a prior reduction of the targeted federal funds rates to a range of 1.0% to 1.25% effective on March 4, 2020. Our earningsstimulus and cash flows are largely dependent upon our net interest income. Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds. As our balance sheet is more asset sensitive, our earnings are more adversely affected by decreases in market interest rates as the interest rates received on loans and other investments fall more quickly and to a larger degree than the interest rates paid on deposits and other borrowings. The decline in interest rates has already led to new all-time low yields across the US Treasury maturity curve. In September 2020, the Federal Reserve indicated that it expects to maintain the targeted federal funds rate at current levels until such time that labor market conditions have reached levels consistent with the Federal Open Market Committee's assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time. This timeframe is currently expected to last through 2023. Nonetheless, if

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the Federal Reserve decreases the targeted federal funds rates even further in response to the economic effects of COVID-19, overall interest rates will decline further, which will negatively impact our net interest income and further compress our net interest margin.

~~Other actions taken by the Federal Reserve in an effort to provide monetary stimulus to counteract the economic disruption caused by COVID-19 include:~~

•~~Expanded reverse repo operations, adding liquidity to the banking system.~~

•~~Restarted quantitative easing.~~

•~~Lowered the interest rate on the discount window by 1.5% to 0.25%.~~

•~~Reduced reserve requirement ratios to zero percent.~~

•~~Encouraged banks to use their capital and liquidity buffers to lend.~~

•~~Introduced and expanded several new programs that will operate on a temporary basis to help preserve market liquidity.~~

The U.S. government has also enacted certain fiscal stimulus measures in several phases to counteract the economic disruption caused by the COVID-19. The Phase 1 legislation, the Coronavirus Preparedness and Response Supplemental Appropriations Act, was enacted on March 6, 2020 and,relief measures. These orders include, among other things, ~~authorized funding for research~~(i) an extension, through March 31, 2021, of the moratorium on evictions and ~~development~~foreclosures, (ii) an extension, through September 30, 2021, of ~~vaccines~~the deferral of federal student loan payments and ~~allocated money to state~~interest and ~~local governments to aid containment~~(iii) an extension, through June 30, 2021, of certain mortgage forbearance programs and ~~response measures. The Phase 2 legislation,~~guidelines.

On March 11 2021, the ~~Families First Coronavirus Response~~American Rescue Plan Act of 2021 (the “ARP Act”) was enacted, ~~on March 18, 2020~~implementing a $1.9 trillion package of stimulus and provides for paid sick/medical leave, establishes no-cost coverage for coronavirus testing, expands unemployment benefits, expands food assistance, and provides additional funding to states for the ongoing economic consequences of the pandemic, among other provisions. The Phase 3 legislation, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), was enacted on March 27, 2020. Among other provisions, the CARES Act (i) authorized the Secretary of the Treasury to make loans, loan guarantees and other investments, up to $500 billion, for assistance to eligible businesses, States and municipalities with limited, targeted relief for passenger air carriers, cargo air carriers, and businesses critical to maintaining national security, (ii) created a $349 billion loan program called the Paycheck Protection Program (the “PPP”) for loans to small businesses for, among other things, payroll, group health care benefit costs and qualifying mortgage, rent and utility payments, (iii) provided certain credits against the 2020 personal income tax for eligible individuals and their dependents, (iv) expanded eligibility for unemployment insurance and provides eligible recipients with an additional $600 per week on top of the unemployment amount determined by each State and (v) expanded tele-health services in Medicare. The Phase 3.5 legislation, the Paycheck Protection Program and Healthcare Enhancement Act of 2020 (the “PPPHE Act”), was enacted on April 24, 2020.proposals. Among other things, the ~~PPPHE~~ARP Act ~~provided an~~provides (i) additional ~~$310 billion of~~ funding for the PPP program and an expansion of ~~which, $30 billion is specifically allocated~~the program for ~~use by banks~~the benefit of certain nonprofits, (ii) funding for the Small Business Administration (“SBA”) to make targeted grants for restaurants and ~~other insured depository institutions that have assets~~similar establishments, (iii) direct cash payments of up to $1,400 to individuals, subject to income provisions, (iv) an increase in the maximum annual Child Tax Credit, subject to income limitation provisions, (v) $300 a week in expanded unemployment insurance lasting through September 6, 2021 and makes $10,200 in unemployment benefits tax free for households, subject to income limitation provisions, (vi) tax relief making any student loan forgiveness incurred between ~~$10 billion~~December 31, 2020, and ~~$50 billion.~~January 1, 2026 non-taxable income, and (vii) funding to support state and local governments; K-12 schools and higher education; the Centers for Disease Control; public transit; rental assistance; child care; and airline industry workers.

~~The Paycheck Protection Program Flexibility~~On March 27, 2021, the COVID-19 Bankruptcy Relief Extension Act of ~~2020” (the “PPPF Act”)~~2021 was enacted, ~~in June 2020 and modified~~extending the PPP as follows: (i) established a minimum maturity of five years for all loans made after the enactment of the PPPF Act and permits an extension of the maturity of existing loans to five years if the borrower and lender agree; (ii) extended the “covered period” ofbankruptcy relief provisions enacted in the CARES Act ~~from June 30,~~of 2020 bill until March 27, 2022. These provisions provide financially distressed small businesses and individuals greater access to December 31, 2020; (iii) extended the eight-week “covered period” for expenditures that qualify for forgiveness to the earlier of 24 weeks following loan origination or December 31, 2020; (iv) extended the deferral period for payment of principal, interest and fees to the date on which the forgiveness amount is remitted to the lender by the SBA; (v) changed requirements such that the borrower must use at least 60% (down from 75%) of the proceeds of the loan for payroll costs, and up to 40% (up from 25%), for other permitted purposes, as a condition to obtaining forgiveness of the loan; (vi) delayed from June 30, 2020 to December 31, 2020 the date by which employees must be rehired to avoid a reduction in the amount of forgiveness of a loan, and creates a “rehiring safe harbor” that allows businesses to remain eligible for loan forgiveness if they make a good-faith attempt to rehire employees or hire similarly qualified employees, but are unable to do so, or are able to document an inability to return to pre-COVID-19 levels of business activity due to compliance with social distancing measures; and (vii) allows borrowers to receive both loan forgiveness under the PPP and the payroll tax deferral permitted under the CARES Act, rather than having to choose which of the two would be more advantageous.

In July 2020, the CARES Act was amended to extend, through August 8, 2020, the SBA’s authority to make commitments under the PPP. The SBA’s existing authority had previously expired on June 30, 2020. In August 2020, President Trump signed four executive actions to provide additional COVID-19bankruptcy relief. ~~The first action authorized the Lost Wages Assistance Program (“LWAP”~~), which provides for a $400-per-week payment to those currently receiving more than $100 a week in unemployment benefits due to disruptions caused by COVID-19. The LWAP per-week payment is retroactive to the week ending August 1, 2020. The second executive action extended the moratorium on payments and interest accrual on student loans held by the government until the end of 2020. The moratorium was previously set to expire September 30, 2020. The third action instructed the Department of the Treasury and the Department of Housing and Urban Development to help provide temporary assistance to renters and homeowners and promote their ability to avoid eviction or foreclosure. The fourth executive action allows

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employers to defer, for the period from September 1, 2020 through December 31, 2020, the employee portion of Social Security payroll taxes for certain individuals earning less than approximately $104 thousand per year. We are continuing to monitor the potential development of additional legislation and further actions taken by the U.S. government.

The Federal Reserve has created various additional lending facilities and expanded existing facilities to help provide financing in response to the financial disruptions caused by COVID-19. The programs include, among other things, (i) the PPP Facility, which is intended to extend loans to banks making PPP loans, (ii) the Municipal Liquidity Facility, which is intended to facilitate the purchase

Table of eligible notes from states, and certain counties and cities around the country, and (iii) the Main Street Lending Program (“MSLP”), which is intended to facilitate credit flows to businesses affected by the COVID-19 pandemic with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. As more fully discussed in the section captioned “Loans” elsewhere in this discussion, we are currently participating in the PPP as a lender. We do not currently expect to participate in the MSLP.Contents

Banks and bank holding companies have been particularly impacted by the COVID-19 pandemic as a result of disruption and volatility in the global capital markets. This disruption has impacted our cost of capital and may adversely affect our ability to access the capital markets if we need or desire to do so and, although the ultimate impact cannot be reliably estimated at this time in light of the uncertainties and ongoing developments noted herein, such impacts could be material. Furthermore, bank regulatory agencies have been (and are expected to continue to be) very proactive in responding to both market and supervisory concerns arising from the COVID-19 pandemic as well as the potential impact on customers, especially borrowers. As shown during and following the financial crisis of 2007-2008, periods of economic and financial disruption and stress have, in the past, resulted in increased scrutiny of banking organizations. We are closely monitoring the potential for new laws and regulations impacting lending and funding practices as well as capital and liquidity standards. Such changes could require us to maintain significantly more capital, with common equity as a more predominant component, or manage the composition of our assets and liabilities to comply with formulaic liquidity requirements. Furthermore, provisions of the CARES Act allow, but do not require, the FDIC to guarantee deposit obligations of banks in non-interest-bearing transaction accounts through December 31, 2020. Participation in any such guarantee program may result in fees and other assessments as the FDIC determines and may include special assessments. Other provisions of the CARES Act as well as actions taken by bank regulators, such as potential relief for working with borrowers who are distressed as a result of the effects of COVID-19, could similarly impact aggregate deposit insurance expense.

Application of Critical Accounting Policies and Accounting Estimates

We follow accounting and reporting policies that conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While we base estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.

We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements.

Accounting policies related to the allowance for 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. As discussed in Note 1 - Summary of Significant Accounting Policies, our policies related to allowances for credit losses changed on January 1, 2020 in connection with the adoption of a new accounting standard update as codified in Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses. In the case of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with Accounting Standards Codification (“ASC”) Topic 326 (“ASC ~~326,~~326”) Financial Instruments - Credit Losses, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. The amount of each allowance account represents management's best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the

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performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. ~~For~~Refer to the 2020 Form 10-K for additional information regarding critical accounting ~~policies, refer to Note 1 - Summary~~policies.

Table of ~~Significant Accounting Policies and Note 3 - Loans in the notes to consolidated financial statements.~~Contents

Overview

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

Results of Operations

Net income available to common shareholders totaled $106.3 million, or $1.65 per diluted common share, and $336.6 million, or $5.22 per diluted common share, for the three and nine months ended September 30, 2021 compared to $95.1 million, or $1.50 per diluted common share, and $235.4 million, or $3.71 per diluted common share, for the three and nine months ended September 30, ~~2020 compared to $109.8 million, or $1.73 per diluted common share, and $333.9 million, or $5.24 per diluted common share, for the three and nine months ended September 30, 2019.~~2020.

Selected data for the comparable periods was as follows:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2020			2019			2020			2019				2021			2020			2021			2020
Taxable-equivalent net interest income	Taxable-equivalent net interest income	$	267,041		$	276,618		$	805,216		$	825,547		Taxable-equivalent net interest income	$	269,321		$	267,041		$	813,266		$	805,216
Taxable-equivalent adjustment	Taxable-equivalent adjustment	23,618			23,611			71,461			72,640			Taxable-equivalent adjustment	23,199			23,618			69,107			71,461
Net interest income	Net interest income	243,423			253,007			733,755			752,907			Net interest income	246,122			243,423			744,159			733,755
Credit loss expense	Credit loss expense	20,302			8,001			227,474			25,404			Credit loss expense	—			20,302			63			227,474
Net interest income after credit loss expense	Net interest income after credit loss expense	223,121			245,006			506,281			727,503			Net interest income after credit loss expense	246,122			223,121			744,096			506,281
Non-interest income	Non-interest income	83,601			89,224			374,117			268,647			Non-interest income	93,189			83,601			277,672			374,117
Non-interest expense	Non-interest expense	202,150			208,864			625,992			613,873			Non-interest expense	218,003			202,150			643,399			625,992
Income before income taxes	Income before income taxes	104,572			125,366			254,406			382,277			Income before income taxes	121,308			104,572			378,369			254,406
Income tax expense\(benefit)	Income tax expense\(benefit)	9,516			13,530			11,525			42,359			Income tax expense\(benefit)	13,333			9,516			36,311			11,525
Net income	Net income	95,056			111,836			242,881			339,918			Net income	107,975			95,056			342,058			242,881
Preferred stock dividends	Preferred stock dividends	—			2,016			2,016			6,047			Preferred stock dividends	1,668			—			5,488			2,016
Redemption of preferred stock	Redemption of preferred stock	—			—			5,514			—			Redemption of preferred stock	—			—			—			5,514
Net income available to common shareholders	Net income available to common shareholders	$	95,056		$	109,820		$	235,351		$	333,871		Net income available to common shareholders	$	106,307		$	95,056		$	336,570		$	235,351
Earnings per common share – basic	Earnings per common share – basic	$	1.50		$	1.74		$	3.72		$	5.28		Earnings per common share – basic	$	1.66		$	1.50		$	5.25		$	3.72
Earnings per common share – diluted	Earnings per common share – diluted	1.50			1.73			3.71			5.24			Earnings per common share – diluted	1.65			1.50			5.22			3.71
Dividends per common share	Dividends per common share	0.71			0.71			2.13			2.09			Dividends per common share	0.75			0.71			2.19			2.13
Return on average assets	Return on average assets	0.96		%	1.35		%	0.85		%	1.41		%	Return on average assets	0.90		%	0.96		%	1.00		%	0.85		%
Return on average common equity	Return on average common equity	9.30			11.83			7.95			12.79			Return on average common equity	9.87			9.30			10.72			7.95
Average shareholders’ equity to average assets	Average shareholders’ equity to average assets	10.31			11.87			10.80			11.48			Average shareholders’ equity to average assets	9.44			10.31			9.65			10.80

Net income available to common shareholders ~~decreased $14.8~~increased $11.3 million, or ~~13.4%~~11.8%, for the three months ended September 30, ~~2020~~2021 and ~~decreased $98.5~~increased $101.2 million, or ~~29.5%~~43.0%, for the nine months ended September 30, ~~2020~~2021 compared to the same periods in ~~2019.~~2020. The ~~decrease~~increase during the three months ended September 30, ~~2020~~2021 was primarily the result of a ~~$12.3~~$20.3 million ~~increase~~decrease in credit loss expense, a $9.6 million ~~decrease~~increase in non-interest income and a $2.7 million increase in net interest ~~income and a $5.6 million decrease in non-interest~~ income partly offset by a ~~$6.7~~$15.9 million ~~decrease~~increase in non-interest expense and a ~~$4.0~~$3.8 million ~~decrease~~increase in income tax expense. The ~~decrease~~increase during the nine months ended September 30, ~~2020~~2021 was primarily the result of a ~~$202.1~~$227.4 million ~~increase~~decrease in credit loss expense and a ~~$19.2~~$10.4 million ~~decrease~~increase in net interest income partly offset by a $96.4 million decrease in non-interest income, a $24.8 million increase in income tax expense and a ~~$12.1~~$17.4 million increase in non-interest ~~expense partly offset by a $105.5 million increase in non-interest income and a $30.8 million decrease in income tax~~ expense. ~~The increase in credit~~Credit loss expense during ~~the comparable periods resulted from~~2020 was impacted by both our adoption of a new credit loss accounting standard and the adverse events impacting our loan portfolio, including those arising from the COVID-19 pandemic and the significant volatility in oil prices. ~~The increase in non-interest~~Non-interest income during ~~the nine months ended September 30,~~ 2020 was ~~primarily related to~~impacted by a $109.0 million net gain on securities ~~transactions.~~transactions during the first quarter. Net income available to common shareholders ~~for the nine months ended September 30,~~during 2020 was also impacted by the reclassification of $5.5 million of issuance costs associated with our preferred stock to retained earnings upon redemption of the preferred ~~stock in the first quarter.~~stock.

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 ~~66.2%~~72.8% of total revenue during the first nine months of 2020. Excluding the revenue associated with the $109.0 million net gain on securities transactions realized during the first quarter of 2020, net interest income would have represented 73.5% of total revenue during the first nine months of 2020.2021. Net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period. The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and net interest margin.

The Federal Reserve influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Our loan portfolio is significantly affected by changes in the prime interest rate. The prime rate began ~~2019~~2020 at ~~5.50%~~4.75% and ~~decreased 50 basis points during the third quarter of 2019 (25 basis points in each of August and September) and 25 basis points in October 2019 to end the year at 4.75%. During 2020, the prime rate~~ decreased 150 basis points in March 2020 to 3.25% where it remained through September 30, ~~2020.~~2021. Our loan portfolio is also impacted by changes in the London Interbank Offered Rate (LIBOR). At September 30, 2021, the one-month and three-month U.S. dollar LIBOR interest rates were 0.08% and 0.13%, respectively, while at September 30, 2020, the one-month and three-month U.S. dollar LIBOR interest rates were 0.15% and 0.23%~~, respectively, while at September 30, 2019, the one-month and three-month U.S. dollar LIBOR interest rates were 2.02% and 2.09%~~, respectively. The target range for the federal funds rate, which is the cost of immediately available overnight funds, began ~~2019~~2020 at ~~2.25%~~1.50% to ~~2.50%~~1.75% and decreased 50 basis points during the third quarter of 2019 (25 basis points in each of August and September) and 25 basis points in October 2019 to end the year at 1.50 to 1.75%. During 2020, the target range for the federal funds rate decreased 150 basis points in March 2020 to zero to 0.25% where it remained through September 30, ~~2020.~~2021. As noted in ~~the section captioned “Recent Developments Related to COVID-19” elsewhere in this discussion,~~our 2020 Form 10-K, the decrease in the target range for the federal funds rate in March 2020 was largely an emergency measure by the Federal Reserve aimed at blunting the economic impact of COVID-19.

We are primarily funded by core deposits, with non-interest-bearing demand deposits historically being a significant source of funds. This lower-cost funding base is expected to have a positive impact on our net interest income and net interest margin in a rising interest rate environment. ~~Though federal prohibitions on the payment of interest on demand deposits were repealed in 2011, we have not experienced any significant additional interest costs as a result.~~ 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.

The following table presents the changes in taxable-equivalent net interest income and identifies the changes due to differences in the average volume of earning assets and interest-bearing liabilities and the changes due to changes in the average interest rate on those assets and liabilities. The changes in net interest income due to changes in both average volume and average interest rate have been allocated to the average volume change or the average interest rate change in proportion to the absolute amounts of the change in each. The comparison between the quarters includes an additional change factor that shows the effect of the difference in the number of days in each period for assets and liabilities that accrue interest based upon the actual number of days in the period, as further discussed below.


	Three Months Ended
	September 30, 2021 vs. September 30, 2020
	Increase (Decrease) Due to Change in
	Rate		Volume		Number of days		Total
Interest-bearing deposits	$	1,030	$	3,288	$	—	$	4,318
Federal funds sold	3		(6)		—		(3)
Resell agreements	1		(9)		—		(8)
Securities:
Taxable	(1,857)		33		—		(1,824)
Tax-exempt	(802)		(796)		—		(1,598)
Loans, net of unearned discounts	18,752		(18,987)		—		(235)
Total earning assets	17,127		(16,477)		—		650
Savings and interest checking	(147)		142		—		(5)
Money market deposit accounts	404		311		—		715
Time accounts	(2,382)		(50)		—		(2,432)
Public funds	—		2		—		2
Federal funds purchased	3		(1)		—		2
Repurchase agreements	(38)		195		—		157
Junior subordinated deferrable interest debentures	(69)		—		—		(69)
Subordinated notes	—		—		—		—

Total interest-bearing liabilities	(2,229)		599		—		(1,630)
Net change	$	19,356	$	(17,076)	$	—	$	2,280

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Three Months Ended
September 30, 2020 vs. September 30, 2019
Increase (Decrease) Due to Change in
Rate Volume Number of days Total
Interest-bearing deposits $ (14,019) $ 6,772 $ — $ (7,247)
Federal funds sold and resell agreements (600) (575) — (1,175)
Securities:
Taxable (2,937) (6,625) — (9,562)
Tax-exempt — 949 — 949
Loans, net of unearned discounts (58,920) 40,855 — (18,065)
Total earning assets (76,476) 41,376 — (35,100)
Savings and interest checking (1,016) 189 — (827)
Money market deposit accounts (17,919) 1,658 — (16,261)
Time accounts (1,747) 387 — (1,360)
Public funds (1,790) (2) — (1,792)
Federal funds purchased and repurchase agreements (5,441) 883 — (4,558)
Junior subordinated deferrable interest debentures (726) 1 — (725)
Subordinated notes (2) 2 — —
Total interest-bearing liabilities (28,641) 3,118 — (25,523)
Net change $ (47,835) $ 38,258 $ — $ (9,577)


		Nine Months Ended									Nine Months Ended
		September 30, 2020 vs. September 30, 2019									September 30, 2021 vs. September 30, 2020
		Increase (Decrease) Due to Change in									Increase (Decrease) Due to Change in
		Rate		Volume		Number of days		Total			Rate		Volume		Number of days		Total
Interest-bearing deposits	Interest-bearing deposits	$	(37,564)	$	21,192	$	40	$	(16,332)	Interest-bearing deposits	$	(9,821)	$	10,844	$	(40)	$	983
Federal funds sold and resell agreements		(1,983)		(1,459)		3		(3,439)
Federal funds sold										Federal funds sold	(331)		(375)		(2)		(708)
Resell agreements										Resell agreements	(76)		(75)		(1)		(152)
Securities:	Securities:									Securities:
Taxable	Taxable	(1,087)		(14,088)		—		(15,175)		Taxable	(8,901)		(1,683)		—		(10,584)
Tax-exempt	Tax-exempt	784		(451)		—		333		Tax-exempt	—		(8,617)		—		(8,617)
Loans, net of unearned discounts	Loans, net of unearned discounts	(142,044)		90,004		1,883		(50,157)		Loans, net of unearned discounts	3,221		5,126		(1,883)		6,464
Total earning assets	Total earning assets	(181,894)		95,198		1,926		(84,770)		Total earning assets	(15,908)		5,220		(1,926)		(12,614)
Savings and interest checking	Savings and interest checking	(3,403)		435		4		(2,964)		Savings and interest checking	(428)		435		(4)		3
Money market deposit accounts	Money market deposit accounts	(48,768)		3,881		49		(44,838)		Money market deposit accounts	(9,025)		2,061		(49)		(7,013)
Time accounts	Time accounts	(1,785)		1,719		42		(24)		Time accounts	(8,576)		67		(42)		(8,551)
Public funds	Public funds	(4,599)		442		5		(4,152)		Public funds	(1,627)		209		(5)		(1,423)
Federal funds purchased and repurchase agreements		(12,820)		1,534		15		(11,271)
Federal funds purchased										Federal funds purchased	(73)		6		(1)		(68)
Repurchase agreements										Repurchase agreements	(3,668)		1,366		(14)		(2,316)
Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	(1,510)		2		—		(1,508)		Junior subordinated deferrable interest debentures	(979)		1		—		(978)
Subordinated notes	Subordinated notes	—		—		—		—		Subordinated notes	(6)		6		—		—
Federal home loan bank advances	Federal home loan bank advances	—		318		—		318		Federal home loan bank advances	—		(318)		—		(318)
Total interest-bearing liabilities	Total interest-bearing liabilities	(72,885)		8,331		115		(64,439)		Total interest-bearing liabilities	(24,382)		3,833		(115)		(20,664)
Net change	Net change	$	(109,009)	$	86,867	$	1,811	$	(20,331)	Net change	$	8,474	$	1,387	$	(1,811)	$	8,050

Taxable-equivalent net interest income for the three months ended September 30, ~~2020 decreased $9.6~~2021 increased $2.3 million, or ~~3.5%~~0.9%, while taxable-equivalent net interest income for the nine months ended September 30, ~~2020 decreased $20.3~~2021 increased $8.1 million, or ~~2.5%~~1.0%, compared to the same periods in ~~2019.~~2020. Taxable-equivalent net interest income for the nine months ended September 30, ~~2020~~2021 included ~~274~~273 days compared to ~~273~~274 days for the same period in ~~2019~~2020 as a result of the leap year. The additional day added approximately $1.8 million to taxable-equivalent net interest income during the nine months ended September 30, 2020. Excluding the impact of the additional day results in an effective ~~decrease~~increase in taxable-equivalent net interest income of approximately ~~$22.1~~$9.9 million during the nine months ended September 30, ~~2020.~~2021. The taxable-equivalent net interest margin decreased 8148 basis points from ~~3.76% during the three months ended September 30, 2019 to~~ 2.95% during the three months ended September 30, 2020 to 2.47% during the three months ended September 30, 2021 while the taxable-equivalent net interest margin decreased 6059 basis points from ~~3.80% during the nine months ended September 30, 2019 to~~ 3.20% during the nine months ended September 30, ~~2020.~~

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2020 to 2.61% during the nine months ended September 30, 2021.

The ~~decreases~~increase in taxable-equivalent net interest income during the three months ended September 30, 2021 was primarily related to an increase in the average taxable-equivalent yield on loans and interest bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and decreases in the average costs of interest-bearing deposit liabilities and other borrowed funds combined with increases in the average volumes of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve). The impact of these items was partly offset by decreases in the average volume of loans and tax-exempt securities combined with a decrease in the average yield on taxable and tax-exempt securities. The increase in taxable-equivalent net interest income during the nine months ended September 30, 2021 was primarily related to decreases in the average costs of interest-bearing deposit liabilities and other borrowed funds combined with increases in the average volumes of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and loans and an increase in the average taxable-equivalent yield on loans. The positive impact of these items was partly offset by decreases in the average yields on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and taxable securities combined with decreases in the average volumes of tax-exempt and taxable securities and increases in the average volumes of interest-bearing deposit liabilities and repurchase agreements. The decreases in taxable-equivalent net interest margin during the three and nine months ended September 30, ~~2020~~2021 were primarily related to ~~decreases~~increases in the relative proportion of average ~~yields on loans and~~ interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) to average total interest-earning assets combined with the aforementioned decreases in market interest rates. Interest-bearing deposits made up approximately 34.7% of average interest-earning assets during the three months ended September 30, 2021 compared to ~~a significantly lesser extent, decreases~~16.0% during the same period in 2020 while interest-bearing deposits made up approximately 30.4% of average interest-earning assets during the nine months ended September 30, 2021 compared to 13.1% during the same period in 2020.

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The average volume of interest-earning assets for the three months ended September 30, 2021 increased $7.2 billion while the average volume of interest-earning assets for the nine months ended September 30, 2021 increased $8.0 billion compared to the same periods in 2020. The increase in the average volume of ~~taxable securities (based on amortized cost) and increases~~interest-earning assets during the three months ended September 30, 2021 included a $9.4 billion increase in ~~the~~ average ~~volume of interest-bearing deposit liabilities. The impact of these items was partly offset by increases in the average volumes of loans and~~ interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) ~~combined with decreases~~partly offset by a $2.0 billion decrease in ~~the~~ average ~~cost of interest-bearing deposit liabilities~~loans (of which approximately $1.8 billion related to PPP loans, as further discussed below), a $123.4 million decrease in average tax-exempt securities, a $54.0 million decrease in average taxable securities, a $12.1 million decrease in average resell agreements and ~~other borrowed funds.~~

~~The~~a $9.5 million decrease in average ~~volume of interest-earning assets for the three and nine months ended September 30, 2020 increased $7.1 billion and $5.0 billion compared to the same periods in 2019, respectively.~~federal funds sold. The increase in the average volume of interest-earning assets ~~for~~during the ~~three~~nine months ended September 30, ~~2020~~2021 included ~~a $4.3~~an $8.4 billion increase in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve), a ~~$3.7 billion~~$131.9 million increase in average loans (of which approximately ~~$3.2 billion~~$369.2 million related to PPP loans, as further discussed below) ~~and~~partly offset by a ~~$312.5~~$231.0 million ~~increase~~decrease in average tax-exempt securities, ~~partly offset by~~ a ~~$1.1 billion~~$134.7 million decrease in average taxable securities, ~~and~~ a ~~$180.6~~$95.1 million decrease in average federal funds sold and ~~resale agreements. The increase in the average volume of interest-earning assets for the nine months ended September 30, 2020 included~~ a $3.0 billion increase in average interest-bearing deposits, a $2.6 billion increase in average loans (of which $1.9 billion related to PPP loans, as further discussed below) and a $256.8 million increase in average tax-exempt securities partly offset by a $723.5$16.8 million decrease in average ~~taxable securities and a $108.2 million decrease in average federal funds sold and~~ resell agreements.

The average taxable-equivalent yield on interest-earning assets decreased ~~117~~51 basis points from ~~4.21% during the three months ended September 30, 2019 to~~ 3.04% during the three months ended September 30, 2020 to 2.53% during the three months ended September 30, 2021 while the average taxable-equivalent yield on interest-earning assets decreased 9268 basis points from ~~4.27% during the nine months ended September 30, 2019 to~~ 3.35% during the nine months ended September 30, ~~2020.~~2020 to 2.67% during the nine months ended September 30, 2021. The average taxable-equivalent ~~yields~~yield on interest-earning assets ~~were primarily~~during 2021 was impacted by the aforementioned changes in market interest rates and changes in the volume and relative mix of interest-earning assets.

The average taxable-equivalent yield on loans ~~decreased 143~~increased 43 basis points from ~~5.16% during the three months ended September 30, 2019 to~~ 3.73% during the three months ended September 30, 2020 to 4.16% during the three months ended September 30, 2021 while the average taxable-equivalent yield on loans ~~decreased 119~~increased 2 basis points from ~~5.27% during the nine months ended September 30, 2019 to~~ 4.08% during the nine months ended September 30, ~~2020.~~2020 to 4.10% during the nine months ended September 30, 2021. The average taxable-equivalent ~~yield~~yields on loans ~~was negatively impacted by lower average market interest rates~~ during the three and nine months ended September 30, ~~2020~~2021 were positively impacted by higher average yields on PPP loans but negatively impacted by lower average market interest rates compared to the same periods in ~~2019.~~2020. The average volume of loans for the three and nine months ended September 30, ~~2020 increased $3.7~~2021 decreased $2.0 billion, or ~~25.4%~~10.8%, and ~~$2.6 billion,~~increased $131.9 million, or ~~17.8%~~0.8%, respectively, compared to the same periods in ~~2019.~~2020. The decrease in average loans during the three months ended September 30, 2021 compared to the same period in 2020 was primarily due to an increase in the average volume of PPP loans forgiven by the SBA during the three months ended September 30, 2021 compared to the same period in 2020. Loans made up approximately ~~49.4%~~36.8% and 40.3% of average interest-earning assets during ~~both of~~ the three and nine months ended September 30, ~~2020,~~2021, respectively, compared to ~~48.7% and 49.0%~~49.4% during each of the same respective periods in ~~2019 respectively. As discussed in the section captioned “Loans” elsewhere in this discussion, in~~2020.

In April 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act. ~~Through September 30,~~In 2020, we ~~have~~ funded ~~approximately~~ $3.3 billion of ~~SBA-approved~~ PPP loans of which approximately $3.2 billion were funded during the second quarter of 2020. As of September 30, 2021, approximately $3.1 billion of these 2020 originated PPP loans have been forgiven by the SBA or repaid by the customer. During the first nine months of 2021, we funded an additional $1.4 billion of PPP loans, most of which was during the first quarter. As of September 30, 2021, approximately $703.9 million of these 2021 originated PPP loans have been forgiven by the SBA or repaid by the customer. During the three and nine months ended September 30, 2021, we recognized $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 yield adjustment and this amount is included in interest income on loans. During the three and nine months ended September 30, 2020, we recognized approximately $21.1 million and $40.4 million, respectively, in PPP loan related deferred processing fees (net of amortization of related deferred origination costs) ~~as a yield adjustment and this amount is included in interest income on loans.~~. As a result of the inclusion of these net fees in interest income, the average ~~yield~~yields on PPP loans ~~was approximately~~were 8.72% and 6.23% during the three and nine months ended September 30, 2021, respectively, and 3.65% and 3.86% during the three and nine months ended September 30, 2020, respectively, compared to the stated interest rate of 1.0% on these loans. ~~As of~~

The increase in the average yield on PPP Loans during the three and nine months ended September 30, 2021 compared to the same periods in 2020 was primarily due to a decrease in the average expected lives of the PPP loans funded in 2021 compared to 2020. Furthermore, the average fee percentage for 2021 originations was higher due to a smaller average loan size relative to 2020. In return for processing and booking a PPP loan, the SBA paid lenders a processing fee tiered by the size of the loan (5% for loans of not more than $350 thousand; 3% for loans of more than $350 thousand and less than $2 million; and 1% for loans of at least $2 million). For PPP loans funded through September 30, 2021, we expect to recognize additional PPP loan related deferred processing fees (net of deferred origination costs) totaling approximately ~~$58.5~~$11.5 million as a yield adjustment over the remaining ~~terms~~expected lives of these loans. Of this amount, we expect to recognize approximately 75% in 2021 and the remainder in 2022.

The average taxable-equivalent yield on securities was ~~3.44%~~3.35% during the three months ended September 30, ~~2020, increasing 1~~2021, decreasing 9 basis ~~point~~points from ~~3.43%~~3.44% during the same period in ~~2019~~2020 while the average taxable-equivalent yield on securities

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was ~~3.48%~~3.37% during the nine months ended September 30, ~~2020, increasing 7~~2021, decreasing 11 basis points from ~~3.41%~~3.48% during the same period in 2019. The average taxable-equivalent yields on securities during the three and nine months ended September 30, 2020 were positively impacted by increases in the relative proportion tax-exempt securities to total securities.

2020. The average yield on taxable securities decreased 2418 basis points from ~~2.45% during the three months ended September 30, 2019 to~~ 2.21% during the three months ended September 30, 2020 to 2.03% during the three months ended September 30, 2021 while the average yield on taxable securities decreased 329 basis points from ~~2.35% during the nine months ended September 30, 2019 to~~ 2.32% during the nine months ended September 30, ~~2020.~~ 2020 to 2.03% during the nine months ended September 30, 2021.

The average taxable-equivalent yield on tax-exempt securities ~~remained unchanged at~~decreased 4 basis points from 4.08% during the three months ended September 30, 2020 ~~and 2019~~to 4.04% during the three months ended September 30, 2021 while the average taxable-equivalent yield on tax-exempt securities ~~increased 1 basis point from 4.06%~~remained flat at 4.07% during both the nine months ended September 30, ~~2019 to 4.07% during the nine months ended September 30,~~2021 and 2020. Tax exempt securities made up approximately ~~66.9%~~66.8% and ~~66.6%~~66.7% of total average securities during the three and nine months ended September 30, ~~2020,~~2021, respectively, compared to ~~60.7%~~66.9% and ~~62.3%~~66.6% during the same respective periods in ~~2019.~~2020. The average volume of total securities ~~(based on carrying amount)~~ during the three months ended

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September 30, ~~2020~~2021 decreased ~~$764.0~~$177.4 million, or ~~5.7%~~1.4%, compared to the same period in ~~2019~~2020 while the average volume of total securities ~~(based on carrying amount)~~ during the nine months ended September 30, ~~2020~~2021 decreased ~~$466.7~~$365.7 million, or ~~3.5%~~2.9%, compared to the same period in ~~2019.~~2020. Securities made up approximately ~~34.5% and 37.1%~~28.4% of average interest-earning assets during the three months ended September 30, 2021 compared to 34.5% during the same period in 2020 while securities made up approximately 29.2% of average interest-earning assets during the nine months ended September 30, 2021 compared to 37.1% during the same period in 2020. The decreases during the three and nine months ended September 30, ~~2020, respectively, compared to 45.3% and 45.1% during the same respective periods in 2019. The decreases~~2021 were ~~partly~~primarily related to an increase in the ~~impact~~relative proportion of ~~PPP loans and increased~~interest-earning assets invested in interest-bearing deposits ~~on total average interest-earning assets.~~(primarily amounts held in an interest-bearing account at the Federal Reserve).

Average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) for the three ~~and~~months ended September 30, 2021 increased $9.4 billion, or 159.5%, compared to the same period in 2020 while average interest-bearing deposits for the nine months ended September 30, ~~2020~~2021 increased ~~$4.3~~$8.4 billion, or ~~276.1%~~186.1%, ~~and $3.0 billion, or 201.87%, respectively,~~ compared to the same ~~periods~~period in ~~2019.~~2020. Interest-bearing deposits made up approximately ~~16.0% and 13.1%~~34.7% of average interest-earning assets during the three ~~and~~months ended September 30, 2021 compared to 16.0% during the same period in 2020 while interest-bearing deposits made up approximately 30.4% of average interest-earning assets during the nine months ended September 30, ~~2020, respectively,~~2021 compared to ~~5.3% and 5.1%~~13.1% during the same ~~periods~~period in ~~2019.~~2020. The increases in the average volume of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) were primarily due to increases in the average volumes of deposits and other borrowed funds and the proceeds from the sale of securities. The average yield on interest-bearing deposits was 0.10% and 0.32% during the three and nine months ended September 30, 2021 compared to the same periods in 2020 were primarily due to increases in the average volume of customer deposits and, to a lesser extent, repurchase agreements. The average yield on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) was 0.15% and 0.12% during the three and nine months ended September 30, 2021, respectively, compared to ~~2.19%~~0.10% and ~~2.41%~~0.32 % during the same periods in ~~2019, respectively.~~2020. The average yields on interest-bearing deposits during 2021 and during the second and third quarters of 2020 were negatively impacted by ~~lower~~a decrease in the interest ~~rates~~rate paid on excess reserves held at the Federal Reserve ~~for the three and nine months ended September 30,~~to 0.10% during March 2020, ~~compared~~although this rate ultimately increased 5 basis points to ~~the same periods~~0.15% in ~~2019.~~June 2021.

Average federal funds sold and average resell agreements for the three ~~and nine~~ months ended September 30, ~~2020~~2021 decreased ~~$180.6~~$9.5 million, or ~~85.3%~~85.0%, and ~~$108.2~~$12.1 million, or ~~45.9%~~60.5%, respectively, compared to the same ~~periods~~period in ~~2019.~~2020 while average federal funds sold and average resell agreements for the nine months ended September 30, 2021 decreased $95.1 million, or 91.1%, and $16.8 million, or 73.2%, respectively, compared to the same period in 2020. Federal funds sold and resell agreements were not a significant component of interest-earning assets during the comparable periods. The average ~~yield~~yields on federal funds sold and resell agreements ~~was 0.24%~~were 0.48% and ~~0.91%~~0.29%, respectively, during the three months ended September 30, 2021, compared to 0.18% and 0.27%, respectively, during the same period in 2020 while the average yields on federal funds sold and resell agreements were 0.18% and 0.24%, respectively, during the nine months ended September 30, ~~2020, respectively,~~2021, compared to ~~2.21%~~0.91% and ~~2.42%~~0.93%, respectively, during the same ~~respective periods~~period in ~~2019.~~2020. The average yields on federal funds sold and resell agreements during 2021 were negatively impacted by lower average market interest ~~rates for the three and nine months ended September 30, 2020 compared to the same periods in 2019.~~rates.

The average rate paid on interest-bearing liabilities was ~~0.15%~~0.10% during the three months ended September 30, ~~2020,~~2021, decreasing 605 basis points from ~~0.75%~~0.15% during the same period in ~~2019~~2020 while the average rate paid on interest-bearing liabilities was ~~0.27%~~0.10% during the nine months ended September 30, ~~2020,~~2021, decreasing 5217 basis points from ~~0.79%~~0.27% during the same period in ~~2019.~~2020. Average deposits increased ~~$6.5~~$6.2 billion, or ~~24.8%~~19.0%, during the three months ended September 30, ~~2020~~2021 compared to the same period in ~~2019~~2020 and included a ~~$2.3~~$3.8 billion increase in average interest-bearing deposits and a ~~$4.3~~$2.4 billion increase in average non-interest bearing deposits. Average deposits increased ~~$4.4~~$7.1 billion, or ~~16.8%~~23.2%, during the nine months ended September 30, ~~2020~~2021 compared to the same period in ~~2019~~2020 and included a ~~$1.6~~$3.9 billion increase in average interest-bearing deposits and a ~~$2.8~~$3.2 billion increase in average non-interest bearing deposits. The ratio of average interest-bearing deposits to total average deposits was ~~55.6%~~56.5% and ~~57.3%~~56.8% during the three and nine months ended September 30, ~~2020,~~2021, respectively, compared to ~~60.9%~~55.6% and 57.3% during ~~each of~~ the same respective periods in ~~2019.~~2020. 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 ~~0.12%~~0.07% and ~~0.07%~~0.04%, respectively, during the three months ended September 30, ~~2020~~2021 compared to ~~0.63%~~0.12% and ~~0.39%~~0.07%, respectively, during the same period in ~~2019.~~2020. The average cost of ~~interest-bearing~~interest-

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bearing deposits and total deposits was ~~0.21%~~0.07% and ~~0.12%~~0.04%, respectively, during the nine months ended September 30, ~~2020~~2021 compared to ~~0.67%~~0.21% and ~~0.41%~~0.12%, respectively, during the same period in ~~2019.~~2020. The average cost of deposits during ~~the three~~2020 and ~~nine months ended September 30, 2020 was~~2021 were impacted by decreases in the interest rates we pay on most of our interest-bearing deposit products as a result of the aforementioned decreases in market interest rates.

In April 2020, we borrowed an aggregate $1.3 billion from the Federal Home Loan Bank (“FHLB”) to provide additional liquidity in light of our significant PPP lending volume. These advances were subsequently paid-off in May 2020 as we determined additional liquidity resources were not necessary. Average FHLB advances totaled $146.0 million during the nine months ended September 30, 2020 while the average cost of these advances was 0.29%. The cost of the advances was partly offset by dividends received on the FHLB stock we were required to purchase in connection with the advances. The FHLB stock was redeemed in connection with the repayment of the advances.

Our net interest spread, which represents the difference between the average rate earned on earning assets and the average rate paid on interest-bearing liabilities, was ~~2.89%~~2.43% and ~~3.08%~~2.57% during the three and nine months ended September 30, ~~2020,~~2021, respectively, compared to ~~3.46%~~2.89% and ~~3.48%~~3.08% during the same periods in ~~2019.~~2020. The net interest spread, as well as the net interest margin, will be impacted by future changes in short-term and long-term interest rate levels, as well as the impact from the competitive environment. A discussion of the effects of changing interest rates on net interest income is set forth in Item 3. Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.

Our hedging policies permit the use of various derivative financial instruments, including interest rate swaps, swaptions, caps and floors, to manage exposure to changes in interest rates. Details of our derivatives and hedging activities are set forth in Note 8 - Derivative Financial Instruments in the accompanying notes to consolidated financial statements included elsewhere in

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this report. Information regarding the impact of fluctuations in interest rates on our derivative financial instruments is set forth in Item 3. Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.

Our net interest income and net interest margin have been, and we currently expect them to continue to be, impacted by the aforementioned decreases in market interest rates and the expectation that interest rates will remain at these low levels for some period of time in light of the on-going economic disruption arising from the COVID-19 pandemic. Notwithstanding the foregoing, our participation in the PPP ~~as discussed above,~~ is expected to continue to positively impact net interest income and net interest margin in the near ~~term.~~term, as discussed above.

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 September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Credit loss expense related to:
Credit loss expense (benefit) related to:										Credit loss expense (benefit) related to:
Loans	Loans	$	23,590	$	8,001	$	223,743	$	25,404	Loans	$	(3,023)	$	23,590	$	(7,402)	$	223,743
Off-balance-sheet credit exposures	Off-balance-sheet credit exposures	(3,276)		—		3,786		—		Off-balance-sheet credit exposures	3,023		(3,276)		7,467		3,786
Securities held to maturity	Securities held to maturity	(12)		—		(55)		—		Securities held to maturity	—		(12)		(2)		(55)
Total	Total	$	20,302	$	8,001	$	227,474	$	25,404	Total	$	—	$	20,302	$	63	$	227,474

~~Credit loss expense for the three and nine months ended September 30, 2019 was calculated under the prior incurred loss accounting methodology.~~ 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

~~The components of non-interest income were as follows:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Trust and investment management fees $ 31,469 $ 31,649 $ 97,002 $ 93,794
Service charges on deposit accounts 19,812 22,941 60,043 65,529
Insurance commissions and fees 11,456 11,683 38,609 40,207
Interchange and debit card transaction fees 3,503 4,117 9,724 11,265
Other charges, commissions and fees 8,370 10,108 25,398 28,103
Net gain (loss) on securities transactions — 96 108,989 265
Other 8,991 8,630 34,352 29,484
Total $ 83,601 $ 89,224 $ 374,117 $ 268,647

Total non-interest income for the three and nine months ended September 30, ~~2020 decreased $5.6~~2021 increased $9.6 million, or ~~6.3%~~11.5%, and ~~increased $105.5~~decreased $96.4 million, or ~~39.3%~~25.8%, respectively, compared to the same periods in ~~2019.~~2020. Excluding the $109.0 million ~~and $265 thousand~~ in net gains on securities transactions during the nine months ended September 30, 2020, ~~and 2019, respectively,~~ total non-interest income ~~decreased $3.3~~increased $12.5 million, or ~~1.2%~~4.7%, during the nine months ended September 30, ~~2020.~~2021. Changes in the various components of non-interest income are discussed in more detail below.

Trust and Investment Management Fees. Trust and investment management fees for the three and nine months ended September 30, ~~2020 decreased $180 thousand,~~2021 increased $5.9 million, or ~~0.6%~~18.8%, and increased ~~$3.2~~$13.6 million, or ~~3.4%~~14.0%, respectively, compared to the same periods in ~~2019.~~2020. Investment management fees are the most significant component of trust and investment management fees, making up approximately ~~82.7%~~82.4% and ~~82.5%~~82.7% of total trust and investment management fees for the first nine months of

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2021 and 2020, ~~and 2019,~~ respectively. The ~~decrease~~increase in trust and investment management fees during the three months ended September 30, ~~2020~~2021 was primarily due to ~~decreases~~increases in investment management fees (up $3.6 million, or 13.1%), oil and gas fees ~~(down $1.2~~(up $1.6 million), and custody fees ~~(down $267~~(up $519 thousand) ~~and tax fees (down $229 thousand) mostly offset by an increase in trust investment fees (up $1.4 million)~~. The increase in trust and investment management fees during the nine months ended September 30, ~~2020~~2021 was primarily due to increases in ~~trust~~ investment management fees (up ~~$2.8 million)~~$10.9 million, or 13.7%), ~~estate fees (up $987 thousand), real estate fees (up $575 thousand) partly offset by decreases in~~ oil and gas fees ~~(down $784 thousand)~~(up $1.4 million) and ~~tax~~custody fees ~~(down ($332 thousand)~~(up $1.0 million). Investment management fees and other custodial account fees are generally based on

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the market value of assets within ~~a trust account.~~an account and are thus impacted by volatility in the equity and bond markets. The increases in ~~trust~~ investment management fees and custody fees during the three and nine months ended September 30, 2021 were primarily related to ~~an increase~~higher average equity valuations as well as increases in the number of accounts. ~~The fluctuations in estate fees, real estate fees, custody fees and tax fees were primarily related to variation in transaction volume.~~ Oil and gas fees during the ~~second~~three and ~~third quarters of 2020~~nine months ended September 30, 2021 were impacted by ~~the sharp decline~~an increases in oil prices in March 2020. Though the $40 price per barrel of oil as of September 30, 2020 has rebounded from recent lows, it still remains significantly lower than the $61 price per barrel as of December 31, 2019. Volatility in the equity and bond markets impacts the market value of trust assets and the related investment fees. Investor concerns related to the uncertain economic outlook arising from the COVID-19 pandemic caused significant market volatility resulting in significant declines in market valuations, particularly among equity securities, during the latter part of the first quarter of 2020 and the early part of the second quarter of 2020. Market valuations as of September 30, 2020 have rebounded from the recent declines.gas prices.

At September 30, ~~2020,~~2021, trust assets, including both managed assets and custody assets, were primarily composed of equity securities ~~(50.8%~~(47.1% of assets), fixed income securities ~~(34.5%~~(32.2% of assets), alternative investments (6.8% of assets) and cash equivalents ~~(8.7%~~(8.5% of assets). The estimated fair value of these assets was $41.2 billion (including managed assets of $18.2 billion and custody assets of $22.9 billion) at September 30, 2021, compared to $38.6 billion (including managed assets of $16.9 billion and custody assets of $21.7 billion) at December 31, 2020 and $36.6 billion (including managed assets of $16.2 billion and custody assets of $20.4 billion) at September 30, 2020, compared to $37.8 billion (including managed assets of $16.4 billion and custody assets of $21.4 billion) at December 31, 2019 and $36.4 billion (including managed assets of $15.7 billion and custody assets of $20.7 billion) at September 30, 2019.2020.

Service Charges on Deposit Accounts. Service charges on deposit accounts for the three ~~and~~months ended September 30, 2021 increased $1.4 million, or 7.1%, while service charges on deposit accounts for the nine months ended September 30, ~~2020 decreased $3.1~~2021 increased $1.0 million, or ~~13.6%, and $5.5 million, or 8.4%~~1.7%, compared to the same periods in ~~2019.~~2020. The ~~decreases were~~increase during the three months ended September 30, 2021 was primarily related to ~~decreases~~increases in ~~overdraft/insufficient funds~~commercial service charges (up $1.1 million) and overdraft charges on commercial accounts (up $517 thousand) partly offset by a decrease in overdraft charges on consumer accounts (down $332 thousand). The increase during the nine months ended September 30, 2021 was primarily related to an increase in commercial service charges (up $2.4 million) partly offset by a decrease in overdraft charges on consumer accounts (down $1.5 million).

Commercial service charges increased $1.1 million and ~~commercial accounts. Overdraft/insufficient funds~~$2.4 million during the three and nine months ended September 30, 2021 compared to the same periods in 2020. Commercial service charges during the three and nine months ended September 30, 2021 were impacted by an increase in the volume of billable services relative to the same periods in 2020.

Overdraft charges totaled $7.8 million ($5.9 million consumer and $1.9 million commercial) during the three months ended September 30, 2021 compared to $7.6 million ($6.2 million consumer and $1.3 million commercial) during the ~~three months ended September 30, 2020 compared to $11.2 million ($8.8 million consumer and $2.4 million commercial) during the~~ same period in ~~2019. Overdraft/insufficient funds~~2020. Overdraft charges totaled ~~$23.7~~$22.2 million ($~~18.8~~17.3 million consumer and $4.9 million commercial) during the nine months ended September 30, ~~2020~~2021 compared to ~~$31.1~~$23.7 million ($~~24.3~~18.8 million consumer and ~~$6.8~~$4.9 million commercial) during the same period in 2019. Consumer overdraft/insufficient funds charges decreased $2.6 million and $5.5 million during the three months and nine months ended September 30, 2020, respectively, while commercial overdrafts/insufficient funds charges decreased $1.1 million and $1.9 million during the same respective periods.2020. The ~~decreases~~fluctuations in ~~overdraft/insufficient funds~~overdraft charges during the three and nine months ended September 30, ~~2020~~2021 were ~~primarily related to a decrease~~impacted by fluctuations in the ~~volume~~volumes of fee assessed overdrafts relative to the same periods in ~~2019.~~

~~Commercial service~~2020. Furthermore, in April 2021, we implemented a new overdraft grace feature for certain consumer demand deposit accounts whereby no fees will be assessed on overdrafts of $100 or less, subject to certain qualifying conditions such as a minimum direct deposit. This new feature reduced overdraft charges ~~increased $727 thousand~~on consumer accounts by approximately $1.0 million and ~~$2.7~~$1.1 million during the ~~three~~second and ~~nine months ended September 30, 2020,~~third quarters of 2021, respectively. The increases in commercial service charges were impacted by a lower earnings credit rate partly offset by decreases in the volume of billable services. The earnings credit rate is the value given to deposits maintained by treasury management customers. Earnings credits applied to customer deposit balances offset service fees that would otherwise be charged. Because average market interest rates in 2020 have been lower compared to 2019, deposit balances have become less valuable and are yielding a lower earnings credit.impact on future quarters will depend on future overdraft volumes.

Insurance Commissions and Fees. Insurance commissions and fees for the three and nine months ended September 30, ~~2020 decreased $227~~2021 increased $292 thousand, or ~~1.9%~~2.5%, and ~~$1.6~~$1.2 million, or ~~4.0%~~3.2%, respectively, compared to the same periods in ~~2019.~~2020. The ~~decreases were~~increase during the three months ended September 30, 2021 was the result of ~~decreases~~increases in commission income ~~(down $90 thousand~~(up $168 thousand) and ~~$926 thousand~~contingent income (up $124 thousand). The increase during the nine months ended September 30, 2021 was the result of increases in contingent income (up $1.1 million) and commission income (up $123 thousand).

The increase in commission income during the three months ended September 30, 2021 was primarily related to an increase in commercial lines property and casualty commissions partly offset by a decrease in benefit plan commissions. The increase in commission income during the nine months ended September 30, 2021 was primarily related to increases in life insurance commissions and commercial lines property and casualty commissions mostly offset by a decrease in benefit plan commissions. The increases in commercial lines property and casualty commissions were related to increased market rates while the increase in life insurance commissions during the nine months ended September 30, 2021 and decreases in benefit plan commissions during the three and nine months ended September 30, 2020, respectively) and contingent income (down $136 thousand and $672 thousand during the three and nine months ended September 30, 2020, respectively). The decreases in commission income were primarily related to decreases in benefit plan commissions and, during the nine months ended September 30, 2020, life insurance commissions partly offset by increases in both commercial lines and personal lines property and casualty commissions and, during the three months ended September 30, 2020, life insurance commissions. The decreases in benefit plan commissions2021 were related to decreased business volumes, premium reductions and flat to lower market rates. The increases in commercial lines and personal lines property and casualty commissions were primarily related to increased rates. The fluctuations ~~in life insurance commissions were related to changes~~ in business volumes.

Contingent income totaled ~~$117~~$241 thousand and ~~$3.2~~$4.3 million during the three and nine months ended September 30, ~~2020,~~2021, respectively, compared to ~~$254~~$117 thousand and ~~$3.8~~$3.2 million during the same periods in ~~2019.~~2020. Contingent income primarily consists of amounts received from various property and casualty insurance carriers related to the loss performance of insurance policies previously placed. These performance related contingent payments are seasonal in nature and are mostly received during the first quarter of each year. This performance related contingent income totaled $3.2 million and $2.1 million ~~and $2.8 million~~ during

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the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~decrease~~increase in performance related contingent income during ~~2020~~2021 was related to ~~lower~~ growth within the portfolio combined with ~~a deterioration~~improvement in the loss performance of insurance policies previously placed. During the first quarter of 2021, a severe weather event in Texas resulted in a significant increase in property and casualty claims and losses. This deterioration in loss performance is expected to impact the determination of performance related contingent payments we receive in 2022; however, such impact is not determinable at this time. Contingent income also includes amounts received from various benefit plan insurance companies related to the volume of business generated and/or the subsequent retention of such business. This benefit plan related contingent income totaled ~~$77~~$201 thousand and $1.1 million during the three and nine months ended September 30, ~~2020,~~2021, respectively, compared to ~~$193~~$77 thousand and $1.1 million during the same periods in ~~2019.~~

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~~Notwithstanding normal seasonal variation, commission income during the second and third quarters of~~ 2020, was partly impacted by reduced business volumes resulting from the COVID-19 pandemic, relative to the first quarter of 2020. Commission income in future periods may be similarly impacted. Benefit plan commissions may be particularly impacted by the effects of temporary furloughs and permanent layoffs. The COVID-19 pandemic has also given rise to a hard insurance market characterized by decreased capacity for most types of insurance coupled with more stringent underwriting standards among insurers. This may cause clients to drop or adjust coverage choices as part of expense control measures. Reduced business volumes may also adversely impact the level of contingent commissions we receive in 2021.respectively.

Interchange and ~~Debit~~ Card Transaction Fees. Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions. Interchange and ~~debit~~ card transaction fees consist of income from debit and credit card usage, point of sale income from PIN-based ~~debit~~ card transactions and ATM service fees. Interchange and ~~debit~~ card transaction fees are reported net of related network costs.

Net interchange and card transaction fees for the three and nine months ended September 30, 2021 increased $1.0 million, or 28.2%, and increased $3.5 million, or 36.0%, respectively, compared to the same periods in 2020 primarily due to increased transaction volumes as well the impact of new card products partly offset by increases in network costs. Transaction volumes during second and third quarters of 2020 were more impacted by the onset of the COVID-19 pandemic. A comparison of gross and net interchange and ~~debit~~ card transaction fees for the reported periods is presented in the table below. Net revenues from interchange and debit card transactions during the reported periods were impacted by reduced transaction volumes, in part related to the COVID-19 pandemic, and increased network costs.

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Income from debit card transactions $ 6,097 $ 6,191 $ 17,429 $ 17,569
ATM service fees 842 1,069 2,522 3,136
Gross interchange and debit card transaction fees 6,939 7,260 19,951 20,705
Network costs 3,436 3,143 10,227 9,440
Net interchange and debit card transaction fees $ 3,503 $ 4,117 $ 9,724 $ 11,265


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Income from card transactions	$	7,721	$	6,097	$	21,666	$	17,429
ATM service fees	841		842		2,492		2,522
Gross interchange and card transaction fees	8,562		6,939		24,158		19,951
Network costs	4,072		3,436		10,934		10,227
Net interchange and card transaction fees	$	4,490	$	3,503	$	13,224	$	9,724

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, ~~2020 decreased $1.7~~2021 increased $1.4 million, or ~~17.2%~~16.9%, compared to the same period in ~~2019.~~2020. The ~~decrease~~increase was primarily related to ~~decreases~~an increase in ~~income from the placement of money market accounts (down $1.3 million) and~~ income from the sale of mutual funds ~~(down $113~~(up $1.3 million) and, to a lesser extent, increases in income from the sale of annuities (up $246 thousand), ~~among other things.~~merchant services rebates (up $174 thousand) and funds transfer service charges (up $167 thousand) partly offset by decreases in capital markets advisory fees (down $321 thousand), fees on unused commitments (down $300 thousand) and letter of credit fees (down $236 thousand). Other charges, commissions and fees for the nine months ended September 30, ~~2020 decreased $2.7~~2021 increased $1.3 million, or ~~9.6%~~5.2%, compared to the same period in ~~2019.~~2020. The ~~decrease included~~increase was primarily related to increases in income from the sale of mutual funds (up $2.6 million), funds transfer service charges (up $474 thousand), merchant services rebates (up $402 thousand) and income from the sale of annuities (up $359 thousand). These items were partly offset by decreases in income from the placement of money market accounts (down ~~$1.6~~$1.7 million)~~; letter of credit~~, which was impacted by lower average market rates, and a decrease in fees on unused commitments (down ~~$519 thousand); income from the sale of life insurance (down $398 thousand); and funds transfer service charges (down $200 thousand);~~$1.3 million), among other things. The decreases in these items were partly offset by increases in income from the sale of annuities (up $263 thousand) and mutual funds (up $165 thousand) and an increase in brokerage commissions (up $118 thousand). Income from the placement of money market accounts was impacted by a decrease in market rates. The other aforementioned revenue streams were impacted by fluctuations in transaction volumes.

Net Gain/Loss on Securities Transactions. ~~During~~No securities were sold during the first nine months ~~ended September 30, 2020 and 2019, we sold certain available-for-sale securities with amortized costs totaling $1.0 billion and $8.2 billion, respectively. We realized a net gain~~ of ~~$109.0 million on the 2020 sales and a net gain of $265 thousand on the 2019 sales.~~2021. During the first quarter of 2020, we sold $483.1 million of residential mortgage-backed securities and realized a net gain of $1.9 million on those sales. The proceeds from these sales were reinvested into other residential mortgage-backed securities that had lower pre-payment rates. We also sold $519.1 million of 30-year U.S Treasury securities during the first quarter of 2020 and realized a net gain of $107.1 million on those sales. These U.S. Treasury securities were purchased during the fourth quarter of 2019 to hedge, in effect, against falling interest rates. Prior to their sale, these securities had significant unrealized holding gains as a result of decreases in market interest rates during the first quarter of 2020. We elected to sell these securities to provide liquidity and realize the gains.

During the first nine months of 2019, we purchased and subsequently sold $7.4 billion of U.S. Treasury securities in connection with our tax planning strategies related to the Texas franchise tax. The gross proceeds from the sales of these securities outside of Texas are included in total revenues/receipts from all sources reported for Texas franchise tax purposes, which results in a reduction in the overall percentage of revenues/receipts apportioned to Texas and subjected to taxation under the Texas franchise tax. We realized a net gain of $99 thousand on those sales. We also sold certain available-for-sale U.S. Treasury securities with an amortized cost totaling $548.9 million and certain available-for-sale municipal securities with an

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amortized cost totaling $310.7 million. We realized a net gain of $166 thousand on those sales. The proceeds from the sales provided short-term liquidity and were subsequently reinvested in other higher yielding securities.

Other Non-Interest Income. Other non-interest income for the three months ended September 30, ~~2020 increased $361~~2021 decreased $422 thousand, or ~~4.2%~~4.7%, compared to the same period in ~~2019.~~2020. The ~~increase~~decrease was primarily related to ~~an increase~~decreases in sundry and other miscellaneous income ~~(up~~(down $1.3 million) ~~and~~, public finance underwriting fees ~~(up $833~~(down $815 thousand) and earnings on the cash

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surrender value of life insurance (down $402 thousand) partly offset by ~~a decrease~~increases in ~~gains on the sale of foreclosed~~income from customer foreign exchange and ~~other assets (down $1.3 million), among other things. Sundry~~derivative transactions (up $1.6 million and ~~other miscellaneous income during the third quarter of 2020 included $1.0 million related to a Visa rebate and $512~~$407 thousand, related to settlements. The increase in public finance underwriting fees was primarily related to increased business volumes. Gains on the sale of foreclosed and other assets included a $1.3 million gain on the sale of a branch facility during the third quarter of 2019.

respectively). Other non-interest income for the nine months ended September 30, ~~2020 increased $4.9~~2021 decreased $8.1 million, or ~~16.5%~~23.6%, compared to the same period in ~~2019.~~2020. Other non-interest income during the nine months ended September 30, 2020 included approximately $6.0 million in gains realized on the sale of certain non-hedge related, short-term put options on U.S. Treasury securities with an aggregate notional amount of $500 million. The put options were not exercised and expired in March 2020. The ~~increase~~decrease in other non-interest income during the nine months ended September 30, ~~2020~~2021 was also partly related to ~~increases~~decreases in sundry and other miscellaneous income (down $3.6 million), public finance underwriting fees (down $1.9 million) and earnings on the cash surrender value of life insurance (down $994 thousand). The decrease from these items was partly offset by an increase in gains on the sales of assets (up ~~$2.4~~$1.2 million), and increases in income from customer derivative and trading activities (up $1.6 million) and public finance underwriting fees (up $1.5 million). The aforementioned items were partly offset by decreases in gains on the sale of foreclosed and other assets (down $5.9 million) and income from customer foreign exchange transactions ~~(down $464 thousand), among other things.~~(up $1.9 million and $593 thousand, respectively). Sundry ~~and other miscellaneous~~ income during the first nine months of 2020 included $2.8 million related to the recovery of prior write-offs, $1.0 million related to a Visa volume-related bonus and $512 thousand related to settlements and $2.8 million related to the recovery of prior write-offs. Sundry and other miscellaneous income during 2019 included $1.1 million related to the recovery of prior write-offs, $278 thousand related to a distribution on a private equity investment and $250 thousand related to a settlement.settlements. The ~~fluctuations~~decreases in ~~income from customer derivative and trading activities,~~ public finance underwriting fees ~~and income from foreign exchange transactions were~~was primarily ~~related~~due to ~~changes~~a decrease in business ~~volumes.~~volume. The decreases in earnings on the cash surrender value of life insurance were due to lower yields on the investments within the bank-owned life insurance portfolio. Gains on the sale of ~~foreclosed and other~~ assets ~~included gains on~~include $1.8 million related to the sale of ~~various branch~~certain parking lots in downtown San Antonio in 2021 and ~~operational facilities totaling~~ $758 thousand ~~and $6.7 million, during~~related to the ~~nine months ended September 30, 2020 and 2019, respectively.~~sale of a branch facility in 2020.

Non-Interest Expense

~~The components of non-interest expense were as follows:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Salaries and wages $ 93,323 $ 93,812 $ 282,485 $ 277,078
Employee benefits 16,074 21,002 59,824 64,579
Net occupancy 25,466 24,202 76,116 64,602
Technology, furniture and equipment 26,482 22,415 77,768 66,236
Deposit insurance 2,372 2,491 7,796 7,752
Intangible amortization 212 274 710 904
Other 38,221 44,668 121,293 132,722
Total $ 202,150 $ 208,864 $ 625,992 $ 613,873

Total non-interest expense for the three and nine months ended September 30, ~~2020 decreased $6.7~~2021 increased $15.9 million, or ~~3.2%~~7.8%, and increased ~~$12.1~~$17.4 million, or ~~2.0%~~2.8%, respectively, compared to the same periods in ~~2019.~~2020. 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, ~~2020 decreased $489 thousand,~~2021 increased $6.1 million, or ~~0.5%~~6.6%, and ~~increased $5.4~~$7.5 million, or ~~2.0%~~2.6%, respectively, compared to the same periods in ~~2019. Despite an increase~~2020. The increases in ~~salaries, due to an increase in the number of employees and normal, annual merit and market increases,~~ salaries and wages during the ~~three months ended September 30, 2020, decreased~~comparable periods were primarily ~~as a result of decreases~~related to increases in incentive compensation ~~commissions~~ and, ~~stock-based compensation. Salaries and wages during the nine months ended September 30, 2020 increased primarily due~~ to ~~an increase in salaries, due to an increase in the number of employees and normal, annual merit and market increases. This increase was partly offset by an increase~~a lesser extent, decreases in salary costs deferred as loan origination costs, up $5.9 million primarily in connection with the high volume of PPP loan originations during the second quarter of 2020, and decreases in incentive compensation, stock-based compensation and commissions. Salary costs deferred in connection with loan originations ~~will be recognized as a yield adjustment component of interest income over the remaining terms~~and increases in commissions. The impacts of these ~~loans.~~

~~Table~~items were partly offset by decreases in salaries, due to a decrease in the number of ~~Contents~~employees, and decreases in stock-based compensation.

Employee Benefits. Employee benefits expense for the three and nine months ended September 30, ~~2020 decreased $4.9~~2021 increased $5.5 million, or ~~23.5%~~34.2%, and ~~decreased $4.8~~$3.0 million, or ~~7.4%~~5.0%, respectively, compared to the same periods in ~~2019.~~2020. The ~~decreases in employee benefits expense~~increases were primarily related to ~~decreases~~increases in certain discretionary benefit plan expenses and, to a lesser extent, increases in medical benefits expense and payroll taxes partly offset by decreases in expenses related to our defined benefit retirement and restoration plans, ~~partly offset by increases in medical benefits expense and payroll taxes,~~ among other things.

Our defined benefit retirement and restoration plans were frozen ~~effective as of December 31,~~in 2001 ~~and were replaced by a profit sharing plan (which was merged with and into our 401(k) plan during 2019). Management believes these actions~~which has helped to reduce the volatility in retirement plan expense. ~~However, we~~We nonetheless still have funding obligations related to ~~the defined benefit and restoration~~these plans and could recognize ~~retirement~~additional expense related to these plans in future years, which would be dependent on the return earned on plan assets, the level of interest rates and employee turnover. A prolonged negative impact on the value of stocks and other asset classes due to the COVID-19 pandemic could result in a significant reduction to pension plan asset values and expected returns, which could impact the level of future funding and expense. See Note 12 - Defined Benefit Plans for additional information related to our net periodic pension benefit/cost.

Net Occupancy. Net occupancy expense for the three and nine months ended September 30, ~~2020~~2021 increased ~~$1.3~~$1.7 million, or ~~5.2%~~6.8%, and ~~increased $11.5~~$3.8 million, or ~~17.8%~~5.0%, respectively, compared to the same periods in ~~2019.~~2020. The increase during the three months ended September 30, ~~2020~~2021 was primarily related to increases in ~~depreciation on leasehold improvements (up $842 thousand), property taxes (up $805 thousand) and building depreciation (up $300 thousand), among other things, partly offset by a decrease in~~ repairs and maintenance/service contracts expense ~~(down $602~~(up $920 thousand). and depreciation on leasehold improvements (up $420 thousand), among other things. The increase during the nine months ended September 30, ~~2020~~2021 was primarily related to increases in ~~lease~~repairs and maintenance/service contracts expense (up ~~$4.5~~$1.9 million), and depreciation on leasehold improvements (up ~~$3.2 million), property taxes (up $2.4 million) and building depreciation (up $1.3~~$1.6 million), among other things, partly offset by a decrease in ~~repairs and maintenance/service contracts~~lease expense (down ~~$1.2 million). Net~~$467 thousand), among other things. The increases in the aforementioned components of net occupancy expense ~~was~~during the comparable periods were impacted, ~~by the commencement of the lease of our new corporate headquarters building in San Antonio in June 2019, as well as renewals of other leases related to existing facilities and new locations,~~ in part, ~~related to~~by our expansion within the Houston market area.

Technology, Furniture and Equipment. Technology, furniture and equipment expense for the three and nine months ended September 30, ~~2020~~2021 increased ~~$4.1~~$2.0 million, or ~~18.1%~~7.6%, and ~~$11.5~~$6.7 million, or ~~17.4%~~8.7%, respectively, compared to the same periods in ~~2019.~~2020. The ~~increases were~~increase during the three months ended September 30, 2021 was primarily related to increases in cloud services expense (up ~~$2.6 million~~$1.4 million) and ~~$6.5 million, respectively),~~ depreciation of furniture and equipment (up ~~$1.2 thousand and $3.2 million, respectively),~~$604 thousand) partly offset by a decrease in software maintenance (down $298 thousand). The increase during the nine months ended September 30, 2021 was primarily related to increases in cloud services expense (up ~~$299 thousand~~$4.6 million) and ~~$2.1 million respectively)~~depreciation of furniture and ~~software amortization~~equipment (up ~~$481 thousand and $1.1 million, respectively)~~$1.9 million).

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Deposit Insurance. Deposit insurance expense totaled $3.1 million and $8.9 million for the three and nine months ended September 30, 2021, respectively, compared to $2.4 million and $7.8 million for the three and nine months ended September 30, ~~2020 compared~~2020. The increases were primarily related to ~~$2.5 million and $7.8 million for~~increases in total assets partly offset by a decrease in the three and nine months ended September 30, 2019. Provisions of the CARES Act allow, but do not require, the FDIC to expand deposit insurance coverage for non-interest-bearing transaction accounts through December 31, 2020. Such action could result in additional deposit insurance expense. Other provisions of the CARES Act as well as actions taken by bank regulators, such as potential relief for working with borrowers who are distressed as a result of the effects of COVID-19, could similarly impact aggregate deposit insurance expense.assessment rate.

Other Non-Interest Expense. Other non-interest expense for the three and nine months ended September 30, ~~2020~~2021 decreased ~~$6.4~~$204 thousand, or 0.5%, and $4.5 million, or ~~14.4%, and $11.4 million, or 8.6%~~3.7%, respectively, compared to the same periods in ~~2019.~~2020. The decrease during the three months ended September 30, ~~2020~~2021 included decreases in outside computer service expense (down $1.6 million), amortization of deferred costs associated with loan commitments (down $868 thousand) and professional services expense (down $742 thousand), among other things. The impact of the aforementioned items was partly offset by increases in sundry and other miscellaneous expenses (up $924 thousand); fraud losses (up $555 thousand); travel, meals and entertainment ~~expense (down $3.1 million); professional services expense (down $1.6 million)~~(up $538 thousand); and advertising/promotions expense (down $1.2 million); among other things. The decrease during the nine months ended September 30, 2020 included decreases in travel, meals and entertainment expense (down $6.1 million); advertising/promotions expense (down $3.7 million); professional services expense (down $1.1 million); and business development expense (down $702(up $332 thousand); among other things.

The decrease in other non-interest expense during the nine months ended September 30, ~~2020 was also partly due to an increase~~2021 included decreases in outside computer service expense (down $3.8 million); travel, meals and entertainment expense (down $2.9 million); professional services expense (down $2.6 million); advertising/promotions expense (down $898 thousand); amortization of deferred costs ~~deferred as loan origination costs, up $1.9 million primarily in connection with the high volume of PPP loan originations during the second quarter of 2020. Costs deferred in connection~~associated with loan ~~originations will be recognized as a yield adjustment component~~commitments (down $805 thousand); business development expense (down $799 thousand); and losses on the sale/write-down of ~~interest income over the remaining terms of these loans.~~foreclosed and other assets (down $627 thousand); among other things. The impact of ~~the aforementioned~~these items was partly offset by increases in sundry and other miscellaneous expenses (up $3.1 million); donations expense (up ~~$1.1~~$2.6 million)~~, telephone/data communications expense~~; and fraud losses (up ~~$907 thousand), and platform fees related to investment services (up $727 thousand)~~$1.9 million), among other things. Donations expense during the first nine months of 2021 was impacted by $3.3 million in contributions to the Frost Charitable Foundation.

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Results of Segment Operations

~~Our operations~~We are managed ~~along~~under a matrix organizational structure whereby our two primary operating ~~segments:~~segments, Banking and Frost Wealth ~~Advisors.~~Advisors, overlap a regional reporting structure. A third operating segment, Non-Banks, is for the most part the parent holding company, as well as certain other insignificant non-bank subsidiaries of the parent that, for the most part, have little or no activity. A description of each ~~business and~~segment, the methodologies used to measure segment financial performance isand 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. ~~Net income (loss) by~~Segment operating ~~segment is presented below:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Banking $ 93,507 $ 110,583 $ 238,023 $ 334,393
Frost Wealth Advisors 4,130 4,106 13,642 15,403
Non-Banks (2,581) (2,853) (8,784) (9,878)
Consolidated net income $ 95,056 $ 111,836 $ 242,881 $ 339,918
results are discussed in more detail below.

Banking

Net income for the three and nine months ended September 30, ~~2020 decreased $17.1~~2021 increased $7.2 million, or ~~15.4%~~7.7%, and ~~decreased $96.4~~$83.0 million, or ~~28.8%~~34.9%, respectively, compared to the same periods in ~~2019.~~2020. The ~~decrease~~increase during the three months ended September 30, ~~2020~~2021 was primarily the result of a ~~$12.3~~$20.3 million ~~increase~~decrease in credit loss expense, a ~~$9.9~~$2.7 million ~~decrease~~increase in net interest income and a ~~$3.5~~$2.1 million ~~decrease~~increase in non-interest income partly offset by a ~~$4.8~~$15.6 million ~~decrease~~increase in non-interest expense and a ~~$3.9~~$2.3 million ~~decrease~~increase in income tax expense. The ~~decrease~~increase during the nine months ended September 30, ~~2020~~2021 was primarily the result of a ~~$202.1~~$227.4 million ~~increase~~decrease in credit loss expense and a ~~$19.8~~$10.1 million ~~decrease~~increase in net interest income ~~and~~partly offset by a ~~$9.0~~$111.5 million decrease in non-interest income, a $22.3 million increase in non-interest expense, ~~partly offset by a $104.6 million increase in non-interest income~~ and a ~~$29.9~~$20.7 million ~~decrease~~increase in income tax expense.

Net interest income for the three and nine months ended September 30, ~~2020 decreased $9.9~~2021 increased $2.7 million, or ~~3.9%~~1.1%, and ~~decreased $19.8~~$10.1 million, or ~~2.6%~~1.4%, respectively, compared to the same periods in ~~2019.~~2020. The ~~decreases were~~increase during the three months ended September 30, 2021 was primarily related to an increase in the average taxable-equivalent yield on loans and interest bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and decreases in the average ~~yields on loans,~~costs of interest-bearing ~~deposits~~deposit liabilities and ~~federal~~other borrowed funds ~~sold and resell agreements~~ combined with to a significantly lesser extent, decreases in the average volumes of taxable securities (based on amortized cost) and increases in the average volume of interest bearing liabilities. The impact of these items was partly offset by increases in the average volumes of ~~loans and~~ interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) ~~combined with~~. The impact of these items was partly offset by decreases in the average ~~cost~~volume of loans and tax-exempt securities combined with a decrease in the average yield on taxable and tax-exempt securities. The increase in net interest income during the nine months ended September 30, 2021 was primarily related to decreases in the average costs of interest-bearing deposit liabilities and other borrowed ~~funds.~~funds combined with increases in the average volumes of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and loans and an increase in the average taxable-equivalent yield on loans. The positive impact of these items was partly offset by decreases in the average yields on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and taxable securities combined with decreases in the average volumes of tax-exempt and taxable securities and increases in the average volumes of interest-bearing deposit liabilities and repurchase agreements. Net interest income for the first nine months of 2020 was also positively impacted by the additional day as a result of leap year. See the analysis of net interest income included in the section captioned “Net Interest Income” included elsewhere in this discussion.

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The Banking segment recorded a credit loss benefit totaling $6 thousand for the three months ended September 30, 2021 compared to a credit loss expense totaling $20.3 million for the same period in 2020. Credit loss expense ~~for~~totaled $57 thousand during the ~~three and~~ nine months ended September 30, ~~2020 totaled $20.3 million and $227.5 million, respectively,~~2021 compared to ~~$8.0 million and $25.4~~$227.5 million for the same ~~periods~~period in 2019. The increases resulted from both our adoption of a new credit loss accounting standard and the adverse events impacting our loan portfolio, including those arising from the COVID-19 pandemic and the significant decline in oil prices.2020. 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 ~~and nine~~ months ended September 30, ~~2020 decreased $3.5~~2021 increased $2.1 million, or ~~6.7% and increased $104.6 million, or 65.0%~~4.3%, ~~respectively,~~ compared to the same ~~periods~~period in ~~2019.~~2020. The ~~decrease during the three months ended September 30, 2020~~increase was primarily due to ~~decreases~~increases in ~~services~~service charges on deposit ~~accounts;~~accounts and interchange and debit card ~~transaction fees; other charges, commissions and fees; and insurance commissions and~~transactions fees partly offset by ~~an increase~~a decrease in other non-interest income. The increase ~~during~~in service charges on deposit accounts was primarily related to increases in commercial service charges and overdraft charges on commercial accounts partly offset by a decrease in overdraft charges on consumer accounts. The increase in interchange and debit card transactions fees was due to increased transaction volumes as well as the impact of new card products partly offset by increases in network costs. The decrease in other non-interest income was primarily related to decreases in sundry and other miscellaneous income, public finance underwriting fees and earnings on the cash surrender value of life insurance partly offset by increases in income from customer foreign exchange and derivative transactions.

Non-interest income for the nine months ended September 30, 2021 decreased $111.5 million, or 42.0%, compared to the same period in 2020. Non-interest income for the nine months ended September 30, 2020 ~~was primarily due to~~included a $109.0 million net gain on securities ~~transactions.~~transactions recognized during the first quarter of 2020. Excluding the net gain on securities transactions, ~~during the nine months ended September 30, 2020,~~ total non-interest income for the Banking segment decreased ~~$4.1~~$2.5 million, or ~~2.6%~~1.6%, during the first nine months of 2021 compared to the same period in ~~2019.~~2020. This decrease was primarily due to ~~decreases~~a decrease in ~~services charges on deposit accounts; insurance commissions and fees; interchange and debit card transaction fees; and~~ other ~~charges, commissions and fees~~non-interest income partly offset by an increase in other non-interest income. The decreases in services charges on deposit accounts during the three and nine months ended September 30, 2020 were primarily related to decreases in overdraft/insufficient funds charges on consumer and commercial accounts due to decreases in transaction volumes. The decreasesincreases in interchange and ~~debit~~ card ~~transactions~~transaction fees, during the three and nine months ended September 30, 2020 were impacted by reduced transaction volumes, in part related to the COVID-19 pandemic. The decrease in other charges, commissions and fees during the three and nine months ended September 30, 2020 included decreases in letter of credit fees and funds transfer service charges, among other things. The decreases in insurance commissions and fees ~~for the three~~ and ~~nine months ended September 30, 2020 were the result of decreases~~ in commission income and contingent income, which are further discussed below in relation to Frost Insurance Agency. The increase in other non-interest income during the three months ended September 30, 2020 was primarily related to an increase in sundry and other

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~~miscellaneous income and public finance underwriting fees partly offset by a decrease in gains~~service charges on ~~the sale of foreclosed and other assets, among other things. The increase in other~~deposit accounts. Other non-interest income during the nine months ended September 30, 2020 included approximately $6.0 million in gains realized on the sale of certain non-hedge related, short-term put options on U.S. Treasury securities with an aggregate notional amount of $500 ~~million.~~million during the first quarter. The put options were not exercised and expired in March 2020. The ~~increase~~decrease in other non-interest income during the nine months ended September 30, ~~2020~~2021 was also partly related to ~~increases~~decreases in sundry and other miscellaneous income, public finance underwriting fees and earnings on the cash surrender value of life insurance. The decrease from these items was partly offset by an increase in gains on the sales of assets and increases in income from customer derivative and ~~trading activities~~foreign exchange transactions. The increase in interchange and ~~public finance underwriting fees. The aforementioned items were~~debit card transactions fees was due to increased transaction volumes as well as the impact of new card products partly offset by ~~decreases~~increases in ~~gains~~network costs. The increase in insurance commissions and fees was the result of an increase in contingent income and, to a lesser extent, commission income, which is further discussed below in relation to Frost Insurance Agency. The increase in service charges on the sale of foreclosed and other assets and income from customer foreign exchange transactions, among other things. The fluctuations in 2020 income from customer derivative and trading activities, public finance underwriting fees and income from foreign exchange transactions weredeposit accounts was primarily related to ~~changes~~an increase in ~~business volumes.~~commercial service charges partly offset by a decrease in overdraft charges on consumer accounts. See the analysis of these categories of non-interest income included in the section captioned “Non-Interest Income” included elsewhere in this discussion.

Non-interest expense ~~decreased $4.8~~increased $15.6 million, or ~~2.7%~~9.2%, for ~~the~~ three months ended September 30, ~~2020~~2021 and ~~increased $9.0~~$22.3 million, or ~~1.7%~~4.2%, for the nine months ended September 30, ~~2020,~~2021, compared to the same periods in ~~2019.~~2020. The ~~decrease~~increase during the three months ended September 30, 2021 was primarily due to ~~decreases~~increases in ~~other non-interest expense~~employee benefit expense; salaries and ~~employee benefits partly offset by increases in~~wages; net occupancy expense; and technology, furniture and equipment ~~expense and net occupancy~~ expense. The increase during the nine months ended September 30, 2021 was primarily ~~related~~due to increases in salaries and wages; technology, furniture and equipment ~~expense,~~expense; employee benefit expense; and net occupancy ~~expense and salaries and wages partly offset by a decrease in other non-interest expense and employee benefits.~~expense. The decreases in other non-interest expense during the three and nine months ended September 30, 2020 included decreases in travel, meals and entertainment expense; professional services expense; advertising/promotions expense; and business development expense among other things. The decrease in other non-interest expense during the nine months ended September 30, 2020 was also partly due to an increase in costs deferred as loan origination costs in connection with the high volume of PPP loan originations during the second quarter of 2020. The impact of the aforementioned items was partly offset by increases ~~in donations expense, and telephone/data communications expense, among other things. The decreases~~ in employee benefits expense during the three and nine months ended September 30, ~~2020~~2021 were primarily related to ~~decreases~~increases in certain discretionary benefit plan expenses and, ~~expenses related~~ to ~~ourdefined benefit retirement and restoration plans partly offset by~~a lesser extent, increases in medical benefits expense and payroll taxes partly offset by decreases in expenses related to our defined benefit retirement and restoration plans, among other things. The increases in salaries and wages during the three and nine months ended September 30, 2021 were primarily related to increases in incentive compensation and, to a lesser extent, decreases in salary costs deferred in connection with loan originations and increases in commissions. The impacts of these items were partly offset by decreases in salaries, due to a decrease in the number of employees, and decreases in stock-based compensation. The increase in net occupancy expense during the three months ended September 30, 2021 was primarily related to increases in repairs and maintenance/service contracts expense and depreciation on leasehold improvements, among other things. The increase in net occupancy expense during the nine months ended September 30, 2021 was primarily related to increases in repairs and maintenance/service contracts expense and depreciation on leasehold improvements, among other things, partly offset by a decrease in lease expense, among other things. The increase in technology, furniture and equipment expense during the three ~~and nine~~ months ended September 30, ~~2020 were~~2021 was primarily related to increases in cloud services expense and depreciation of furniture and equipment software maintenance and software amortization. The increases in net occupancy expense during the three and nine months ended September 30, 2020 were primarily related to increases in depreciation on leasehold improvements, property taxes, and building depreciation, among other things, and, for the nine months ended September 30, 2020, an increase in lease expense. The increases from these items were partly offset by ~~decreases~~a decrease in ~~repairs and maintenance/service contracts expense.~~software maintenance. The increase ~~in salaries and wages~~ during the nine months ended September 30, ~~2020~~2021 was primarily related to ~~an increase~~increases in ~~salaries, due to an increase in the number~~cloud services expense and depreciation of ~~employees~~furniture and normal, annual merit and market increases, partly offset by an increase in salary costs deferred as loan origination costs, primarily in connection with the high volume of PPP loan originations during the second quarter of 2020, and decreases in incentive compensation, stock-based compensation and commissions.equipment. See the analysis of these categories of non-interest expense included in the section captioned “Non-Interest Expense” included elsewhere in this discussion.

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Frost Insurance Agency, which is included in the Banking operating segment, had gross commission revenues of $11.7 million and $39.9 million during the three and nine months ended September 30, 2021 compared to $11.5 million and $38.7 million during the three and nine months ended September 30, ~~2020 compared~~2020. The increase in commission income during the three months ended September 30, 2021 was primarily related to ~~$11.7 million~~an increase in commercial lines property and ~~$40.3 million~~casualty commissions partly offset by a decrease in benefit plan commissions. The increase in commission income during the nine months ended September 30, 2021 was primarily related to increases in life insurance commissions and commercial lines property and casualty commissions mostly offset by a decrease in benefit plan commissions. The increases in commercial lines property and casualty commissions were related to increased market rates while the increase in life insurance commissions during the nine months ended September 30, 2021 and decreases in benefit plan commissions during the three and nine months ended September 30, 2019. The decreases for the three and nine months ended September 30, 2020 were the result of decreases in commission income and contingent incomes. The decreases in commission income were primarily related to decreases in benefit plan commissions and, during the nine months ended September 30, 2020, life insurance commissions partly offset by increases in both commercial lines and personal lines property and casualty commissions and, during the three months ended September 30, 2020, life insurance commissions. The decreases in benefit plan commissions2021 were related to decreased business volumes, premium reductions and flat to lower market rates. The increases in commercial lines and personal lines property and casualty commissions were primarily related to increased rates. The fluctuations ~~in life insurance commissions were related to changes~~ in business volumes. ~~The decrease in contingent income during 2020 was partly due to lower growth and a deterioration in the loss performance of insurance policies previously placed.~~ See the analysis of insurance commissions and fees included in the section captioned “Non-Interest Income” included elsewhere in this discussion.

Frost Wealth Advisors

Net income for the three and nine months ended September 30, ~~2020~~2021 increased ~~$24 thousand,~~$5.2 million, or ~~0.6%~~126.0%, and ~~decreased $1.8~~$14.0 million, or ~~11.4%~~102.7%, respectively, compared to the same periods in ~~2019. During~~2020. The increase during the three months ended September 30, ~~2020~~2021 was primarily the result of a ~~$2.3~~$7.7 million ~~decrease~~increase in non-interest ~~expense was mostly~~income partly offset by a ~~$1.9~~$1.4 million ~~decrease in non-interest income, a $387 thousand decrease in net interest income and a $7 thousand~~ increase in income tax expense and a $1.0 million increase in non-interest expense. The ~~decrease in net income~~increase during the nine months ended September 30, ~~2020~~2021 was primarily ~~related to~~the result of a ~~$2.7 million increase in non-interest expense and a $875~~

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~~thousand decrease in net interest income partly offset by a $1.3~~$15.2 million increase in non-interest income and ~~$467~~a $3.2 million decrease in non-interest expense partly offset by a $3.7 million increase in income tax expense and a $633 thousand decrease in ~~income tax expense.~~net interest income.

Net interest income for the three and nine months ended September 30, ~~2020~~2021 decreased ~~$387~~$66 thousand, or ~~39.1%~~11.0%, and ~~$875~~$633 thousand, or ~~28.8%~~29.3%, respectively, compared to the same periods in ~~2019.~~2020. These decreases were primarily due to decreases in the average funds transfer prices allocated to the funds provided by Frost Wealth Advisors. The decreases in the average funds transfer ~~prices were~~price was primarily due to decreases in market interest rates. 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, ~~2020 decreased $1.9~~2021 increased $7.7 million, or ~~5.1%~~22.2%, and ~~increased $1.3~~$15.2 million, or ~~1.2%~~13.9%, respectively, compared to the same periods in ~~2019.~~2020. The ~~decrease during the three months ended September 30, 2020 was~~increases were primarily ~~related~~due to ~~a decrease in other charges, commissions and fees. The increase during the nine months end September 30, 2020 was primarily related to an increase~~increases in trust and investment management fees ~~partly offset by decreases~~and, to a lesser extent, increases in other charges, commissions and fees. Trust and investment management fee income is the most significant income component for Frost Wealth Advisors. Investment management fees are the most significant component of trust and investment management fees, making up approximately ~~82.7%~~82.4% of total trust and investment management fees for the first nine months of ~~2020. Trust~~2021. The increases in trust and investment management fees during the comparable periods were primarily due to increases in investment management fees, oil and gas fees and custody fees. The increases in investment management fees and custody fees during the three and nine months ended September 30, ~~2020~~2021 were primarily related to higher average equity valuations as well as increases in the number of accounts. Oil and gas fees during the three and nine months ended September 30, 2021 were impacted by an increases ~~in trust investment fees, estate fees and real estate fees and decreases~~ in oil and gas ~~fees and tax fees.~~prices. The ~~decrease~~increases in other charges, commissions and fees during the three and nine months ~~ended~~ September 30, ~~2020 was~~2021 were primarily related to ~~decreases~~increases inincome from the ~~placement~~sale of ~~money market accounts and~~ mutual funds ~~among other things, partly offset by an increase in~~and income from the ~~placement~~sale of annuities. The ~~decrease~~increase in other charges, commissions and fees during the nine months ended September 30, ~~2020~~2021 was ~~primarily due to decreases~~partly offset by a decrease in income from the placement of money market accounts, and life insurance, among other things, partly offset by increases in income from the placement of annuities and mutual funds and an increase in brokerage commissions. Income from the placement of money market accountswhich was impacted by ~~a decrease in~~lower average market rates. ~~The other aforementioned revenue streams were impacted by fluctuations in transaction volumes.~~ See the analysis of trust and investment management fees ~~particularly as it relates to the effects of the COVID-19 pandemic,~~ and other charges, commissions and fees included in the section captioned “Non-Interest Income” included elsewhere in this discussion.

Non-interest expense for the three ~~and~~months ended September 30, 2021 increased $1.0 million, or 3.4%, compared to the same period in 2020, while non-interest expense for the nine months ended September 30, ~~2020~~2021 decreased ~~$2.3~~$3.2 million, or ~~7.1%~~3.4%, ~~and increased $2.7 million, or 2.9%, respectively,~~ compared to the same ~~periods~~period in ~~2019.~~2020. The ~~decrease~~increase during the three months ended September 30, ~~2020~~2021 was primarily due to increases in technology, furniture and equipment expense and salaries and wages partly offset by a decrease in employee benefits expense. The decrease during the nine months ended September 30, 2021 was primarily due to decreases in other non-interest expense and ~~salaries and wages. The increase during the nine months ended September 30, 2020 was primarily due to increases in net occupancy~~employee benefit expense partly offset by ~~a decrease~~an increase in ~~other non-interest~~technology, furniture and equipment expense.

The ~~decreases~~increases in ~~other non-interest~~technology, furniture and equipment expense during the three and nine months ended September 30, ~~2020~~2021 were primarily related to increases in cloud service expenses partly offset by decreases in ~~travel, meals and entertainment expense and professional~~ service ~~expense, among other things. Salaries~~contract expense. The increase in salaries and wages during the three months ended September 30, ~~2020 were impacted by decreases in incentive compensation, commissions and stock-based compensation despite an increase in salaries,~~2021 was primarily due to an increase in incentive compensation and commissions partly offset by a decrease in salaries due to a decrease in the number of ~~employees~~employees. The decreases in employee benefit expense during the three and ~~normal, annual merit and market increases.~~nine months ended September 30, 2021 were primarily due to decreases in certain discretionary benefit plan expenses, among other things. The ~~increase~~decrease in ~~net occupancy~~other non-interest expense during the nine months ~~end~~ended September 30, ~~2020~~2021 was primarily related to a decreases in outside computer service expense; travel, meals and entertainment expense; and professional service expense; partly offset by an increase in ~~lease~~subscriptions expense.

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Non-Banks

The Non-Banks operating segment had net losses of ~~$2.6~~$2.1 million and ~~$8.8~~$6.6 million during the three and nine months ended September 30, ~~2020,~~2021, respectively, compared to a net losses of ~~$2.9~~$2.6 million and ~~$9.9~~$8.8 million during the same periods in ~~2019.~~2020. The decreases in the net losses for the three and nine months ended September 30, ~~2020~~2021 were primarily due to decreases in other non-interest expense and net interest expense. The decreases in other non-interest expense were primarily due to decreases in professional services expense and travel, meals and entertainment expense. The decreases in net interest expense were primarily related to decreases in the average rates paid on our long term ~~borrowings, and increases in income tax benefit.~~borrowings.

Income Taxes

During the three months ended September 30, ~~2020,~~2021, we recognized income tax expense of $13.3 million, for an effective tax rate of 11.0%, compared to $9.5 million, for an effective tax rate of 9.1%, ~~compared to~~for the same period in 2020. During the nine months ended September 30, 2021, we recognized income tax expense of ~~$13.5~~$36.3 million, for an effective tax rate of ~~10.8%~~9.6%, ~~during the same period in 2019. During the nine months ended September 30, 2020, we recognized~~compared to income tax expense of $11.5 million, for an effective tax rate of 4.5%, ~~compared to income tax expense of $42.4 million, for an effective tax rate of 11.1%,~~ for the same period in ~~2019.~~2020.

The effective income tax rates differed from the U.S. statutory federal income tax rate of 21% during ~~2020~~2021 and ~~2019~~2020 primarily due to the effect of tax-exempt income from loans, securities and life insurance policies and the income tax effects associated with stock-based compensation, among other things, and their relative proportion to total pre-tax net income. The ~~decreases~~increases in the effective tax rates during ~~2020~~2021 were primarily related to ~~a decrease~~increases in pre-tax net ~~income.~~income, partly off-set by the impact of higher discrete tax benefits associated with stock-based compensation. The effective tax ~~rates~~rate during the nine months ended September 30, 2020 ~~were~~was also impacted by a one-time, discrete tax benefit associated with an asset contribution to a charitable trust during the second quarter.

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Average Balance Sheet

Average assets totaled ~~$37.0~~$45.0 billion for the nine months ended September 30, ~~2020~~2021 representing an increase of ~~$5.3~~$8.0 billion, or ~~16.7%~~21.8%, compared to average assets for the same period in ~~2019.~~2020. Earning assets increased ~~$5.0~~$8.0 billion, or ~~17.0%~~23.4%, during the first nine months of ~~2020~~2021 compared to the same period in ~~2019.~~2020. The increase in earning assets was primarily related to a ~~$2.9~~$8.4 billion increase in average interest-bearing deposits ~~federal funds sold and resell agreements; a $2.6 billion increase~~(primarily amounts held in ~~average loans;~~an interest-bearing account at the Federal Reserve) and a ~~$256.8~~$131.9 million increase in average ~~tax-exempt securities~~loans partly offset by a ~~$723.5~~$231.0 million decrease in average tax-exempt securities, a $134.7 million decrease in average taxable ~~securities. Average premises~~securities, a $95.1 million decrease in average federal funds sold and ~~equipment increased $206.6~~a $16.8 million ~~or 24.8%,~~decrease in part due to the commencement of the lease on our new downtown San Antonio headquarters in the second quarter of 2019 as well as the commencement of other new leases associated with various new branch locations.average resell agreements. Average deposits increased ~~$4.4~~$7.1 billion, or ~~16.8%~~23.2%, during the first nine months of ~~2020~~2021 compared to the same period in ~~2019.~~2020. Growth in average deposits was related to increased customer balances, impacted by the unprecedented amount of stimulus dollars injected into the economy, as well as new customer accounts. The increase included a ~~$2.8~~$3.2 billion increase in non-interest bearing deposits and a ~~$1.6~~$3.9 billion increase in interest-bearing deposit accounts. Average non-interest bearing deposits made up ~~42.7%~~43.2% and ~~39.1%~~42.7% of average total deposits during the first nine months of ~~2020~~2021 and ~~2019,~~2020, respectively.

Loans

Details of our loan portfolio are presented in Note 3 - Loans ~~were as follows as of~~in the ~~dates indicated:~~

September 30,
2020 Percentage
of Total December 31,
2019 Percentage
of Total
Commercial and industrial $ 4,820,018 26.4 % $ 5,187,466 35.2 %
Energy:
Production 1,108,753 6.1 1,348,900 9.2
Service 163,197 0.9 192,996 1.3
Other 91,418 0.4 110,986 0.8
Total energy 1,363,368 7.4 1,652,882 11.2
Paycheck Protection Program 3,226,980 17.7 — —
Commercial real estate:
Commercial mortgages 5,412,731 29.7 4,594,113 31.1
Construction 1,274,080 7.0 1,312,659 8.9
Land 320,407 1.8 289,467 2.0
Total commercial real estate 7,007,218 38.5 6,196,239 42.0
Consumer real estate:
Home equity loans 340,226 1.9 375,596 2.6
Home equity lines of credit 434,171 2.4 354,671 2.4
Other 533,356 2.9 464,146 3.1
Total consumer real estate 1,307,753 7.2 1,194,413 8.1
Total real estate 8,314,971 45.7 7,390,652 50.1
Consumer and other 498,540 2.8 519,332 3.5
Total loans $ 18,223,877 100.0 % $ 14,750,332 100.0 %

accompanying notes to consolidated financial statements included elsewhere in this report. Loans ~~increased $3.5~~decreased $1.6 billion, or ~~23.5%~~9.4%, ~~compared to~~from $17.5 billion at December 31, ~~2019.~~2020 to $15.8 billion at September 30, 2021. As further discussed below, during the second quarter of 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act. Excluding PPP loans, total loans would have otherwise ~~increased $246.6~~decreased $42.6 million, or ~~1.7%~~0.3%, from $15.0 billion at December 31, ~~2019,~~2020 to $15.0 billion at September 30, 2021, and decreased ~~$341.4~~$333.4 million, or 2.2%, from total loans of $15.3 billion at March 31, 2020, near the beginning of the COVID-19 pandemic. 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 ~~2019~~2020 Form 10-K for a more detailed discussion of our loan origination and risk management processes. ~~Other than in connection with our making PPP loans as described below, it is possible that the effects of COVID-19 could continue to result in less demand for our loan products.~~

Commercial and ~~industrial.~~Industrial. Commercial and industrial loans decreased ~~$367.4~~$25.7 million, or ~~7.1%~~0.5%, ~~during the first nine months of 2020.~~from $5.0 billion at December 31, 2020 to $4.9 billion at September 30, 2021. Our commercial and industrial loans are a diverse group of loans to small, medium and large businesses. The purpose of these loans varies from supporting seasonal working capital needs to term financing of equipment. While some short-term loans may be made on an unsecured basis, most are secured by the assets being financed with collateral margins that are consistent with our loan policy guidelines. The commercial and industrial loan portfolio also includes commercial leases and purchased shared national credits ("SNC"s).

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Energy. Energy loans include loans to entities and individuals that are engaged in various energy-related activities including (i) the development and production of oil or natural gas, (ii) providing oil and gas field servicing, (iii) providing energy-related transportation services, (iv) providing equipment to support oil and gas drilling, (v) refining petrochemicals, or (vi) trading oil, gas and related commodities. Energy loans decreased ~~$289.5~~$257.0 million, or ~~17.5%~~20.8%, from $1.2 billion at December 31, ~~2019.~~2020 to $978.2 million at September 30, 2021. We have recently made efforts to reduce our exposure to energy loans. Nonetheless energy loans remain our largest industry concentration totaling 6.2% of total loans (6.5% excluding PPP loans) at September 30, 2021, down from 7.1% of total loans (8.2% excluding PPP loans) at December 31, 2020. 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 ~~$838.1~~$648.7 million at September 30, ~~2020,~~2021, decreasing ~~$110.7~~$139.3 million, or ~~11.7%~~17.7%, from ~~$948.8~~$788.1 million at December 31, ~~2019.~~2020. At September 30, ~~2020, 41.3%~~2021, 28.5% of outstanding purchased SNCs were related to the energy industry while ~~19.4%~~23.0% were related to the construction industry, ~~and 11.3%~~15.0% were related to the real estate management industry and 13.1% were related to the financial services industry. The remaining purchased SNCs were diversified throughout various other industries, with no other single industry exceeding 10% of the total purchased SNC portfolio. Additionally, almost all of the outstanding balance of purchased SNCs was included in the energy and commercial and industrial portfolio, with the remainder included in the real estate categories. SNC participations are originated in the normal course of business to meet the needs of our customers. As a matter of policy, we generally only participate in SNCs for companies headquartered in or which have significant operations within our market areas. In addition, we must have direct access to the company’s management, an existing banking relationship or the expectation of broadening the relationship with other banking products and services within the following 12 to 24 months. SNCs are reviewed at least quarterly for credit quality and business development successes.

Commercial Real Estate. Commercial real estate loans ~~totaled~~increased $230.6 million, or 3.3%, from $7.0 billion at December 31, 2020 to $7.3 billion at September 30, 2020, increasing $811.0 million, or 13.1%, compared to $6.2 billion at December 31, 2019. The increase in commercial real estate loans was related to new loan production and the funding of prior committed amounts. The growth was broad-based across various property types and related to both previously existing and new customers.2021. Commercial real estate loans represented ~~84.3%~~84.2% of total real estate loans at September 30, ~~2020~~2021 compared to ~~83.8%~~84.1% at December 31, ~~2019.~~2020. The majority of our commercial real estate loan portfolio consists of commercial real estate mortgages, which includes both permanent and intermediate term loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. At September 30, 2021, approximately 48.8% of the outstanding principal balance of our commercial real estate loans were secured by owner-occupied properties. Consequently, these loans must undergo the analysis and underwriting process of a commercial and industrial loan, as well as that of a real estate loan. ~~At September 30, 2020, approximately 46% of the outstanding principal balance of our commercial real estate loans were secured by owner-occupied properties.~~

Consumer Real Estate and Other Consumer Loans. The consumer loan portfolio, including all consumer real estate and consumer installment loans, totaled $1.8 billion at both September 30, ~~2020~~2021 and ~~$1.7 billion at~~ December 31, ~~2019.~~2020. Consumer real estate loans increased ~~$113.3~~$32.3 million, or ~~9.5%~~2.4%, from December 31, ~~2019.~~2020. Combined, home equity loans and lines of credit made up ~~59.2%~~58.7% and ~~61.1%~~58.8% of the consumer real estate loan total at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. We offer home equity loans up to 80% of the estimated value of the personal residence of the borrower, less the value of existing mortgages and home improvement loans. ~~In general, we do~~We have not ~~originate~~generally originated 1-4 family mortgage ~~loans;~~loans since 2000; however, from time to time, we ~~may invest~~invested in such loans to meet the needs of our customers or for other regulatory compliance purposes. Nonetheless, we expect to begin regular production of 1-4 family mortgage loans for portfolio investment purposes in the second half of 2022. Consumer and other loans decreased ~~$20.8~~$22.8 million, or ~~4.0%~~4.5%, from December 31, ~~2019.~~2020. The consumer and other loan portfolio primarily consists of automobile loans, overdrafts, unsecured revolving credit products, personal loans secured by cash and cash equivalents and other similar types of credit facilities.

Paycheck Protection Program. ~~In April 2020, we began originating~~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. ~~Terms of the PPP loans include the following (i) maximum amount limited~~Refer to the lesser of $10 million or an amount calculated using a payroll-based formula, (ii) maximum loan term of five years, (iii) interest rate of 1.00%, (iv) no collateral or personal guarantees are required, (v) no payments are required until the date on which the forgiveness amount relating to the loan is remitted to the lender and (vi) loan forgiveness up to the full principal amount of the loan and any accrued interest, subject to certain requirements including that no more than 40% of the loan forgiveness amount may be attributable to non-payroll costs. In return2020 Form 10-K for processing and booking a PPP loan, the SBA paid lenders a processing fee tiered by the size of the loan (5% for loans of not more than $350 thousand; 3% for loans of more than $350 thousand and less than $2 million; and 1% for loans of at least $2 million).additional details.

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~~Through September 30, 2020, we have funded approximately $3.3 billion of SBA-approved PPP loans.~~ During the three and nine months ended September 30, ~~2020,~~2021, we recognized approximately ~~$21.1~~$26.5 million and ~~$40.4~~$88.9 million, respectively, in PPP loan related deferred processing fees (net of amortization of related deferred origination costs) as yield adjustments and these amounts are included in interest income on loans during ~~each respective~~this period. During the three and nine months ended September 30, 2020, we recognized approximately $21.1 million and $40.4 million, respectively, in PPP loan related deferred net processing fees. As a result of the inclusion of these net fees in interest income, the average ~~yield~~yields on PPP loans ~~was approximately~~were 8.72% and 6.23% during the three and nine months ended September 30, 2021, respectively, and 3.65% and 3.86% during the three and nine months ended September 30, 2020, respectively, compared to the stated interest rate of 1.0% on these loans. ~~As of~~For PPP loans funded through September 30, ~~2020,~~2021, we expect to recognize additional PPP loan related deferred processing fees ~~(net~~

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(net of deferred origination costs) totaling approximately ~~$58.5~~$11.5 million as a yield adjustment over the remaining ~~terms~~expected lives of these loans.

Of this amount, we expect to recognize approximately 75% in 2021 and the remainder in 2022.

Accruing Past Due Loans.

~~Non-Performing Assets~~

~~Non-performing assets and accruing~~ Accruing past due loans are presented in the ~~table below. Troubled debt restructurings on non-accrual status are reported as non-accrual loans. Troubled debt restructurings on accrual status are reported separately.~~following table. Also see Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.

September 30,
2020 December 31,
2019
Non-accrual loans:
Commercial and industrial $ 21,566 $ 26,038
Energy 54,041 65,761
Paycheck Protection Program — —
Commercial real estate:
Buildings, land and other 13,525 8,912
Construction 680 665
Consumer real estate 1,748 922
Consumer and other 18 5
Total non-accrual loans 91,578 102,303
Restructured loans 3,932 6,098
Foreclosed assets:
Real estate 850 1,084
Other — —
Total foreclosed assets 850 1,084
Total non-performing assets $ 96,360 $ 109,485
Ratio of non-performing assets to:
Total loans and foreclosed assets 0.53 % 0.74 %
Total loans, excluding PPP loans, and foreclosed assets 0.64 0.74
Total assets 0.24 0.32
Accruing past due loans:
30 to 89 days past due $ 96,935 $ 50,784
90 or more days past due 35,706 7,421
Total accruing past due loans $ 132,641 $ 58,205
Ratio of accruing past due loans to total loans:
30 to 89 days past due 0.53 % 0.34 %
90 or more days past due 0.20 0.05
Total accruing past due loans 0.73 % 0.39 %
Ratio of accruing past due loans to total loans, excluding PPP loans:
30 to 89 days past due 0.65 % 0.34 %
90 or more days past due 0.24 0.05
Total accruing past due loans 0.89 % 0.39 %


			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
September 30, 2021
Commercial and industrial	$	4,929,656	$	41,936	0.85	%	$	7,522	0.15	%	$	49,458	1.00	%
Energy	978,211		1,237		0.13		965		0.10		2,202		0.23
Paycheck Protection Program	827,820		—		—		—		—		—		—
Commercial real estate:
Buildings, land and other	5,984,390		20,910		0.35		12,224		0.20		33,134		0.55
Construction	1,266,633		—		—		—		—		—		—
Consumer real estate	1,363,039		3,832		0.28		1,985		0.15		5,817		0.43
Consumer and other	482,921		3,678		0.76		1,029		0.21		4,707		0.97
Total	$	15,832,670	$	71,593	0.45		$	23,725	0.15		$	95,318	0.60
Excluding PPP loans	$	15,004,850	$	71,593	0.48		$	23,725	0.16		$	95,318	0.64
December 31, 2020
Commercial and industrial	$	4,955,341	$	45,126	0.91	%	$	5,615	0.11	%	$	50,741	1.02	%
Energy	1,235,198		10,037		0.81		3,696		0.30		13,733		1.11
Paycheck Protection Program	2,433,849		—		—		—		—		—		—
Commercial real estate:
Buildings, land and other	5,796,653		18,959		0.33		1,275		0.02		20,234		0.35
Construction	1,223,814		856		0.07		—		—		856		0.07
Consumer real estate	1,330,774		8,084		0.61		2,469		0.19		10,553		0.80
Consumer and other	505,680		5,537		1.09		1,233		0.24		6,770		1.33
Total	$	17,481,309	$	88,599	0.51		$	14,288	0.08		$	102,887	0.59
Excluding PPP loans	$	15,047,460	$	88,599	0.59		$	14,288	0.09		$	102,887	0.68

~~Non-performing assets include non-accrual~~Accruing past due loans ~~troubled debt restructurings and foreclosed assets. Non-performing assets~~ at September 30, ~~2020~~2021 decreased ~~$13.1~~$7.6 million ~~from~~compared to December 31, ~~2019~~2020. The decrease was primarily ~~due~~related to decreases in ~~non-accrual~~past due energy loans (down $11.5 million) and past due consumer real estate loans (down $4.7 million) and, to a lesser extent, past due consumer and other loans (down $2.1 million), past due commercial and industrial loans ~~which, for the most part, were related to the recognition of charge-offs,~~(down $1.3 million) and ~~a decrease in restructured loans. These decreases were~~past due construction loans (down $856 thousand) partly offset by an increase in ~~non-accrual~~past due non-construction related commercial real estate loans (up $12.9 million).

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


	September 30, 2021							December 31, 2020
			Non-Accrual Loans							Non-Accrual Loans
	Total Loans		Amount			Percent of Loans in Category		Total Loans		Amount			Percent of Loans in Category
Commercial and industrial	$	4,929,656	$	19,349		0.39	%	$	4,955,341	$	19,849		0.40	%
Energy	978,211		23,347			2.39		1,235,198		23,168			1.88
Paycheck Protection Program	827,820		—			—		2,433,849		—			—
Commercial real estate:
Buildings, land and other	5,984,390		12,247			0.20		5,796,653		15,737			0.27
Construction	1,266,633		1,632			0.13		1,223,814		1,684			0.14
Consumer real estate	1,363,039		480			0.04		1,330,774		993			0.07
Consumer and other	482,921		—			—		505,680		18			—
Total	$	15,832,670	$	57,055		0.36		$	17,481,309	$	61,449		0.35
Excluding PPP loans	$	15,004,850	$	57,055		0.38		$	15,047,460	$	61,449		0.41
Allowance for credit losses on loans			$	250,150						$	263,177
Ratio of allowance for credit losses on loans to non-accrual loans			438.44		%					428.29		%

Non-accrual loans at September 30, 2021 decreased $4.4 million from December 31, 2020 primarily due to a decrease in non-accrual non-construction related commercial real estate loans. The decrease was primarily related to principal payments and loans returning to accrual status.

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

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principal recovery is reasonably assured. Classification of a loan as non-accrual does not preclude the ultimate collection of loan principal or interest. Non-accrual commercial and industrial loans included one credit relationship in excess of $5.0 million totaling ~~$9.4~~$7.3 million at September 30, ~~2020.~~2021. This credit relationship was previously reported as non-accrual with an aggregate balance of ~~$8.4~~$9.0 million at December 31, ~~2019.~~2020. We recognized a charge-off totaling $861 thousand related to this relationship during the third quarter of 2021 while the remainder of the decrease was related to principal payments made by the borrower. Non-accrual energy loans included ~~three~~one credit ~~relationships~~relationship in excess of $5 million totaling ~~$53.7~~$11.4 million at September 30, ~~2020 and two~~2021. This credit ~~relationships in excess~~relationship was previously reported as non-accrual with an aggregate balance of ~~$5 million totaling $61.7~~$20.1 million at December 31, ~~2019. During~~2020. The decrease in the ~~nine months ended September 30, 2020, we charged off $68.8 million~~aggregate balance of this credit relationship was related to ~~energy loans. Of that amount, $48.8 million related to credit relationships previously reported as non-accrual as of December 31, 2019.~~principal payments made by the borrower. Non-accrual real estate loans primarily consist of land development, 1-4 family residential construction credit relationships and loans secured by office buildings and religious facilities. There were no non-accrual commercial real estate loans in excess of $5.0 million at September 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

Restructured loans totaled $3.9 million at September 30, 2020 and consisted of a single credit relationship including commercial and industrial loans, a commercial real estate loan and a consumer loan. Restructured loans at December 31, 2019 totaled $6.1 million and consisted of three credit relationships primarily related to commercial real estate.

Foreclosed assets represent property acquired as the result of borrower defaults on loans. Foreclosed assets are recorded at estimated fair value, less estimated selling costs, at the time of foreclosure. Write-downs occurring at foreclosure are charged against the allowance for loan losses. Regulatory guidelines require us to reevaluate the fair value of foreclosed assets on at least an annual basis. Our policy is to comply with the regulatory guidelines. Write-downs are provided for subsequent declines in value and are included in other non-interest expense along with other expenses related to maintaining the properties. Write-downs of foreclosed assets totaled $231 thousand during the nine months ended September 30, 2020, while there were no write-downs of foreclosed assets during the nine months ended September 30, 2019.

Accruing past due loans at September 30, 2020 increased $74.4 million compared to December 31, 2019. The increase was primarily related to increases in all loan portfolio segments with the largest increases in past due commercial and industrial loans (up $30.5 million), commercial real estate loans (up $21.2 million) and energy (up $15.5 million).

Potential problem loans consist of loans that are performing in accordance with contractual terms but for which management has concerns about the ability of an obligor to continue to comply with repayment terms because of the obligor’s potential operating or financial difficulties. Management monitors these loans closely and reviews their performance on a regular basis. At September 30, 2020 and December 31, 2019, we had $126.0 million and $46.8 million in loans of this type which are not included in any one of the non-performing non-accrual, restructured or 90 days past due loan categories. At September 30, 2020, potential problem loans consisted of 12 credit relationships. Of the total outstanding balance at September 30, 2020, 63.7% was related to the energy industry and 20.6% was related to the hotel/lodging industry. Weakness in these organizations’ operating performance and financial condition, among other factors, have caused us to heighten the attention given to these credits.

Certain borrowers are currently unable to meet their contractual payment obligations because of the adverse effects of COVID-19. In an effort to mitigate these effects, loan customers may apply for a deferral of payments, or portions thereof, for up to 90 days. After 90 days, customers may apply for an additional deferral, and a small proportion of our customers have requested such an additional deferral. In the absence of other intervening factors, such short-term modifications made on a good faith basis are not categorized as troubled debt restructurings, nor are loans granted payment deferrals related to COVID-19 reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral). The COVID-19 pandemic has contributed to an increased risk of delinquencies, defaults and foreclosures. As a result of the COVID-19 pandemic, a significant number and amount of our loans have experienced ratings downgrades, credit deterioration and defaults. We have a significant amount of loans in certain industries that have been particularly impacted. These include energy, retail/strip centers, hotels/lodging, restaurants, entertainment and commercial real estate, among others. See additional information about the effects of and risks associated with the COVID-19 pandemic in the section captioned “Recent Developments Related to COVID-19” elsewhere in this discussion and Part II. Other Information, Item 1A. Risk Factors elsewhere in this report.

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Allowance for Credit Losses

As discussed in Note 1 - Summary of Significant Accounting Policies in the accompanying notes to consolidated financial statements, our policies and procedures related to accounting for credit losses changed on January 1, 2020 in connection with the adoption of a new accounting standard update as codified in Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses. In the case of loans and securities, allowances for credit losses are contra-asset valuation accounts, calculated in accordance with Accounting Standards Codification (“ASC”) Topic 326 (“ASC ~~326,~~326”) Financial Instruments - Credit Losses, that are deducted from the amortized cost basis of these assets to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. The amount of each allowance account represents management's best estimate of current expected credit losses (“CECL”) on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and the view of the regulatory

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authorities toward classification of assets. ~~For~~See our 2020 Form 10-K for additional information regarding ~~critical~~our accounting policies ~~refer~~related to ~~Note 1 - Summary of Significant Accounting Policies and Note 3 - Loans in the accompanying notes to consolidated financial statements.~~credit losses.

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:~~segments.

September 30,
2020 June 30,
2020 Post ASC 326 Adoption on January 1,
2020 December 31,
2019
Commercial and industrial $ 72,505 $ 98,536 $ 72,856 $ 51,593
Energy 54,631 40,817 26,929 37,382
Commercial real estate 118,593 93,425 17,518 31,037
Consumer real estate 10,277 8,998 6,505 4,113
Consumer and other 7,469 8,285 5,794 8,042
Total $ 263,475 $ 250,061 $ 129,602 $ 132,167

Upon the adoption of ASC 326 on January 1, 2020, the total amount of the allowance for credit losses on loans estimated using the CECL methodology decreased $2.6 million compared to the total amount of the allowance for credit losses on loans estimated as of December 31, 2019 using the prior incurred loss model. Fluctuations in the estimated allowances by portfolio segment offset one another, for the most part, and, as a result, the overall estimated amount of allowance for credit losses did not significantly change as a result of the change in methodology. The manner in which credit loss allowances are allocated to the individual portfolio segments was partly impacted by a change in the way the underlying loans within each segment are pooled for modeling purposes. The impact of varying economic conditions and portfolio stress factors are now a component of the credit loss models applied to each modeling pool. In that regard, the amounts allocated to the underlying pools of loans within each portfolio segment more directly reflect the economic variables and portfolio stress factors that correlate with credit losses within each portfolio. Under the prior methodology, allocations in excess of those derived from historical loss rates were recognized as an overlay on each of the various portfolios based upon management judgment. Nonetheless, despite fluctuations in the allocation of portions of the overall allowance to the various portfolio segments, the entire allowance is available to absorb any credit losses within the entire loan portfolio. The remainder of this discussion focuses on expected credit losses estimated as of September 30, 2020 compared to the post ASC 326 estimate of expected credit losses as of January 1, 2020 and, in some cases, June 30, 2020.


	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, 2021
Commercial and industrial	$	63,766	31.1	%	$	4,929,656	1.29	%
Energy	20,449		6.2		978,211		2.09
Paycheck Protection Program	—		5.2		827,820		—
Commercial real estate	152,054		45.8		7,251,023		2.10
Consumer real estate	6,029		8.6		1,363,039		0.44
Consumer and other	7,852		3.1		482,921		1.63
Total	$	250,150	100.0	%	$	15,832,670	1.58
Excluding PPP loans	$	250,150			$	15,004,850	1.67
December 31, 2020
Commercial and industrial	$	73,843	28.4	%	$	4,955,341	1.49	%
Energy	39,553		7.1		1,235,198		3.20
Paycheck Protection Program	—		13.9		2,433,849		—
Commercial real estate	134,892		40.1		7,020,467		1.92
Consumer real estate	7,926		7.6		1,330,774		0.60
Consumer and other	6,963		2.9		505,680		1.38
Total	$	263,177	100.0	%	$	17,481,309	1.51
Excluding PPP loans	$	263,177			$	15,047,460	1.75

The allowance allocated to commercial and industrial loans totaled ~~$72.5~~$63.8 million, or ~~1.50%~~1.29% of total commercial and industrial loans, at September 30, ~~2020~~2021 decreasing ~~$351 thousand,~~$10.1 million, or ~~0.5%~~13.6%, compared to ~~$72.9~~$73.8 million, or ~~1.40%~~1.49% of total commercial and industrial loans ~~post ASC 326 adoption~~ on ~~January 1,~~December 31, 2020. Modeled expected credit losses ~~increased $11.7~~decreased $20.3 million while Q-Factor and other qualitative adjustments related to commercial and industrial loans ~~decreased $9.4~~increased $11.2 million. Specific allocations for commercial and industrial loans that were evaluated for expected credit losses on an individual basis decreased $1.0 million from ~~$7.9~~$5.3 million ~~post ASC 326 adoption on January 1,~~at December 31, 2020 to ~~$5.3~~$4.3 million at September 30, ~~2020.~~2021. The allowance allocated to energy loans totaled ~~$54.6~~$20.4 million, or ~~4.01%~~2.09% of total energy loans, at September 30, ~~2020 increasing $27.7~~2021 decreasing $19.1 million, or ~~102.9%~~48.3%, compared to ~~$26.9~~$39.6 million, or ~~1.63%~~3.20% of total energy loans ~~post ASC 326 adoption~~ on ~~January 1,~~December 31, 2020. Modeled expected credit losses related to energy loans ~~increased $15.8~~decreased $1.9 million while Q-Factor and other qualitative adjustments related to energy loans ~~increased $23.8~~

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decreased $21.1 million. Specific allocations for energy loans that were evaluated for expected credit losses on an individual basis totaled ~~$20.2~~$13.4 million post ASC 326 adoption on January 1, 2020. The loans to which these specific allocations were related were subsequently charged off and there were $8.4 million of specific allocations related to energy loans at September 30, 2021 increasing $4.0 million, or 42.0%, compared to $9.4 million on December 31, 2020. The increase in specific allocations for energy loans was primarily related to several newly downgraded credit relationships with specific allocations totaling $8.2 million partly offset by reductions in allocations for certain other loans due to principal payments received and the recognition of charge-offs. The allowance allocated to commercial real estate loans totaled ~~$118.6~~$152.1 million, or ~~1.69%~~2.10% of total commercial real estate loans, at September 30, ~~2020~~2021 increasing ~~$101.1~~$17.2 million, or ~~577.0%~~12.7%, compared to ~~$17.5~~$134.9 million, or ~~0.28%~~1.92% of total commercial real estate loans ~~post ASC 326 adoption~~ on ~~January 1,~~December 31, 2020. Modeled expected credit losses related to commercial real estate loans ~~increased $110.6~~decreased $108.1 million while Q-Factor and other qualitative adjustments related to commercial real estate loans ~~decreased $10.5~~increased $124.8 million. Specific allocations for commercial real estate loans that were evaluated for expected credit losses on an individual basis increased from ~~$383~~$513 thousand ~~post ASC 326 adoption~~ on ~~January 1,~~December 31, 2020 to ~~$1.3 million~~$950 thousand at September 30, ~~2020.~~2021. The allowance allocated to consumer real estate loans totaled ~~$10.3~~$6.0 million, or ~~0.79%~~0.44% of total consumer real estate loans, at September 30, ~~2020 increasing $3.8~~2021 decreasing $1.9 million, or ~~58.0%~~23.9%, compared to ~~$6.5~~$7.9 million, or ~~0.54%~~0.60% of total consumer real estate loans ~~post ASC 326 adoption~~ on ~~January 1,~~December 31, 2020. Modeled expected credit losses related to consumer real estate loans ~~increased $4.3~~decreased $2.0 million while Q-Factor and other qualitative adjustments related to consumer real estate loans ~~decreased $540~~increased $59 thousand. The allowance allocated to consumer loans totaled ~~$7.5~~$7.9 million, or ~~1.50%~~1.63% of total consumer loans, at September 30, ~~2020~~2021 increasing ~~$1.7 million,~~$889 thousand, or ~~28.9%~~12.8%, compared to ~~$5.8~~$7.0 million, or ~~1.12%~~1.38% of total consumer loans, ~~post ASC 326 adoption~~ on ~~January 1,~~December 31, 2020. Modeled expected credit losses related to consumer loans ~~increased $1.8 million~~decreased $533 thousand while Q-Factor and other qualitative adjustments related to consumer loans ~~decreased $123 thousand.~~increased $1.4 million.

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As more fully described in ~~Note 3 - Loans in the accompanying consolidated financial statements,~~our 2020 Form 10-K, we measure expected credit losses over the life of each loan utilizing a combination of models which measure probability of default and loss given default, among other things. The measurement of expected credit losses is impacted by loan/borrower attributes and certain macroeconomic variables. Models are adjusted to reflect current impact of certain macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period.

In estimating expected credit losses as of September 30, ~~2020,~~2021, we utilized the Moody’s Analytics September ~~2020 CF~~2021 Consensus Scenario (the “September CF2021 Consensus Scenario”) to forecast the macroeconomic variables used in our models. The September CF2021 Consensus Scenario was based on the review of a variety of surveys of baseline forecasts of the U.S. economy. The September CF2021 Consensus Scenario projections included, among other things, (i) U.S. Gross Domestic Product (“GDP”) annualized quarterly growth ~~rates~~rate of ~~27.4% and~~ 8.7% in the ~~third and~~ fourth ~~quarters~~quarter of ~~2020, respectively,~~2021, followed by annualized quarterly growth rates in the range of ~~5.0%~~4.0% to ~~7.0%~~6.9% during ~~2021~~2022 and ~~3.0% to 5.0%~~an average annualized growth rate of 4.9% through the end of the forecast period in the third quarter of ~~2022;~~2023; (ii) a U.S. unemployment rate of ~~8.9%~~4.7% in ~~the third quarter of 2020 improving to 6.6% by~~ the fourth quarter of 2021 ~~and 6.3%~~improving to 4.0% by the end of the forecast period in the third quarter of ~~2022~~2023 with Texas unemployment rates slightly ~~less~~higher at those dates; and (iii) anprojected average 10 year Treasury rate of ~~0.64%~~1.42% in the ~~third quarter of 2020, dropping to a low of 0.30% in the third~~fourth quarter of 2021, ~~and~~ increasing to ~~0.92%~~average projected rates of 1.66% during 2022 and 2.15% by the end of the forecast period in the third quarter of ~~2022. The~~2023. Furthermore, the September CF2021 Consensus Scenario ~~also projected~~projects an average oil ~~prices~~price in the range of ~~$42~~approximately $62 to $66 per barrel through the end of the forecast period in the third quarter of ~~2020, $38 per barrel in the fourth quarter of 2020, $47 per barrel on average for the year in 2021 and $52 in the third quarter of 2022.~~

For our estimate of expected credit losses during the first and second quarters of 2020, our outlook for oil prices was significantly more negative as a result of the assumed persistence of the oil price war between Saudi Arabia and Russia and increasing oil supplies in the face of decreasing global demand resulting from the COVID-19 pandemic. As a result, we used significant qualitative adjustments in the determination of the allowance for credit losses on energy loans. For the third quarter of 2020, we continue to make qualitative adjustments related to the impact of oil price volatility in the determination of the allowance for credit losses on energy loans, as further discussed below.2023.

In estimating expected credit losses as of ~~June 30,~~December 31, 2020, we utilized the Moody’s Analytics ~~June~~December 2020 ~~CF Consensus~~Baseline Scenario (the ~~“June CF~~“December 2020 Baseline Scenario”) to forecast the macroeconomic variables used in our models. The ~~June CF~~December 2020 Baseline Scenario was based on the review of a variety of surveys of baseline forecasts of the U.S. economy. The ~~June CF~~December Baseline Scenario projections included, among other things, (i) ~~a 36.9% decline in the~~ U.S. GDP inannualized quarterly growth rate of 4.6% for the ~~second~~fourth quarter of 2020 followed by ~~a 23.5% rebound~~projected annualized quarterly growth rates in the ~~third quarter~~range of ~~2020; (ii) a U.S. unemployment rate of 15.8% for in the second quarter of 2020 improving~~approximately 3.0% to ~~9.6% by the fourth quarter of 2020~~8.0% during 2021 and ~~6.5% by~~6.0% to 7.5% through the end of the forecast period in the ~~second~~fourth quarter of 2022; (ii) a U.S. unemployment rate of 6.7% in the fourth quarter of 2020 and an average projected rate of 7.0% in 2021 and 6.0% in 2022, with the fourth quarter of 2022 ~~with Texas~~projected to be 5.4% (Texas unemployment rates are projected to be slightly less atfor those ~~dates;~~periods); and (iii) an average 10 year Treasury rate of ~~0.67%~~0.79% in the ~~second~~fourth quarter of 2020, ~~dropping~~increasing to ~~a low~~an average projected rate of ~~0.34%~~1.05% in ~~the second quarter of~~ 2021 and ~~increasing to 0.91% by the end of the forecast period~~2.04% in ~~the second quarter of~~ 2022. The ~~June CF~~December 2020 Baseline Scenario also projected average oil prices of ~~$26 per barrel in the second quarter of 2020, $32~~$40 per barrel in the fourth quarter of 2020, ~~$42~~$45 per barrel on average for the year in 2021 and ~~$50~~$55 per barrel on average for the year in 2022, with the ~~second~~fourth quarter of ~~2022.~~

~~The economic forecast used in our initial estimate of expected credit losses under ASC 326 on January 1, 2020~~2022 projected ~~that the Texas unemployment rate would remain below 4.0% through 2021. The increases in modeled expected credit losses across all of our loan portfolios as of September 30, 2020 compared~~ to the modeled expected credit losses as of our initial adoption of ASC 326 on January 1, 2020 were primarily the result of changes in our economic forecast, particularly forecasts related to unemployment and the gross domestic product, as well as changes in portfolio volumes and risk attributes, as discussed below.

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be $59 per barrel.

The overall loan portfolio, excluding PPP loans which are fully guaranteed by the SBA, ~~increased $246.6~~as of September 30, 2021 decreased $42.6 million, or ~~1.7%~~0.3%, ~~which~~compared to December 31, 2020. This decrease included a ~~$811.0~~$25.7 million, or ~~13.1%~~0.5%, decrease in commercial and industrial loans, a $257.0 million, or 20.8%, decrease in energy loans and a $22.8 million, or 4.5%, decrease in consumer and other loans partly offset by a $230.6 million, or 3.3%, increase in commercial real estate loans and a ~~$113.3~~$32.3 million, or ~~9.5%~~2.4%, increase in consumer real estate loans partly offset by a $367.4 million, or 7.1%, decrease in commercial and industrial loans, a $289.5 million, or 17.5%, decrease in energy loans and a $20.8 million, or 4.0% decrease in consumer and other loans. The weighted average risk grade for commercial and industrial loans ~~did not significantly change totaling 6.42~~decreased to 6.29 at September 30, ~~2020~~2021 compared to ~~6.44~~6.45 at December 31, ~~2019.~~2020. Commercial and industrial loans graded “watch” and “special mention” (risk grades 9 and 10) ~~increased $28.8~~decreased $116.6 million during the first nine months of ~~2020~~2021 while classified commercial and industrial loans decreased ~~$9.7~~$1.6 million. Classified loans consist of loans having a risk grade of 11, 12 or 13. The weighted-average risk grade for energy loans ~~increased~~decreased to ~~7.39~~6.55 at September 30, ~~2020~~2021 from ~~6.39~~6.85 at December 31, ~~2019.~~2020. The ~~increase~~decrease in the weighted average risk grade was primarily related to a ~~$106.3~~$128.5 million ~~increase in classified energy loans and a $155.7 million increase~~decrease in energy loans graded “watch” and “special ~~mention,” while~~mention” (risk grades 9 and 10) and an $8.5 million decrease in classified energy loans. Pass grade energy loans decreased $120.0 million and the weighted-average risk grade of pass grade energy loans decreased ~~$551.5 million.~~slightly from 5.99 at December 31, 2020 to 5.94 at September 30, 2021. The weighted average risk grade for commercial real estate loans ~~increased~~decreased to ~~7.33~~7.25 at September 30, ~~2020~~2021 from ~~7.07~~7.32 at December 31, ~~2019. Commercial~~2020. Pass grade commercial real estate loans increased $245.6 million while commercial real estate loans graded as “watch” and “special mention” increased ~~$435.4~~$14.1 million ~~while~~and classified commercial real estate loans ~~increased $64.4~~decreased $29.2 million.

As noted above our credit loss models utilized the economic forecasts in the Moody’s CF Consensus Scenario for September ~~2020 in the third quarter~~2021 for our estimated expected credit losses as of ~~2020~~September 30, 2021 and the ~~Moody's CF Consensus~~Moody’s Baseline Scenario for ~~June~~December 2020 ~~in the second quarter~~for our estimate of expected credit losses as of December 31, 2020. We qualitatively ~~adjust~~adjusted the model results based on ~~this scenario~~these scenarios for various risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These ~~Q-Factor~~qualitative factor (“Q-Factor”) adjustments are discussed below.

Q-Factor adjustments are based upon management judgment and current assessment as to the impact of risks related to changes in lending policies and procedures; economic and business conditions; loan portfolio attributes and credit concentrations; and external factors, among other things, that are not already captured within the modeling inputs, assumptions and other processes. Management assesses the potential impact of such items within a range of severely negative impact to positive impact and adjusts the modeled expected credit loss by an aggregate adjustment percentage based upon the assessment.

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As a result of this assessment as of September 30, ~~2020,~~2021, modeled expected credit losses were adjusted upwards by a weighted-average Q-Factor adjustment of approximately ~~1.1%~~1.9%, ~~increasing slightly~~up from ~~0.7%~~approximately 1.2% at ~~June 30, 2020 and decreasing from 12.9% upon the adoption of ASC 326 on January 1, 2020 (as further discussed below).~~December 31, 2020. The weighted-average Q-Factor adjustment at September 30, ~~2020~~2021 was based on a ~~positive expected~~limited negative impact related to changes in lending policies, procedures and underwriting standards; ~~a limited negative expected~~no impact ~~associated with~~to changes in loan portfolio attributes and concentrations, changes in risk grades, changes in the volumes and severity of loan delinquencies and adverse classifications and potential deterioration of collateral values; a negative expected impact associated with national, regional and local economic and business conditions and developments that affect the collectability of loans and a severely negative impact from other risk factors associated with our commercial real estate construction and land loan portfolios, particularly the risks related to expected extensions.

In ~~connection with our assessment of Q-Factor adjustments for our initial estimate of expected credit losses upon~~ the adoption of ASC 326 on January 1, 2020, modeled expected credit losses were adjusted upwards by a weighted-average Q-Factor adjustment of approximately 12.9%, which included a 10% upward adjustment to modeled expected credit losses related to risks associated with model uncertainty and under-prediction. This adjustment was based upon the results of certain back testing procedures performed on our credit loss models. The Q-Factor adjustment as of September 30, 2020 and June 30, 2020 did not include this additional 10% upward adjustment related to risks associated with model uncertainty and under-prediction. While management believes this adjustment is appropriate in a relatively benign or moderately stressful economic environment, management nonetheless believes this adjustment is not currently appropriate given the extreme levels and volatility in macroeconomic indicators under the current economic conditions and the fact that such conditions are expected to persist for the foreseeable future. The increase in weighted-average Q-Factor adjustment during the thirdfirst quarter of 2020, ~~compared~~unprecedented economic conditions due to the second quarter reflects increased risk primarily associated with our commercial real estate loan portfolio coupled with the increase in the relative proportion of such loans within our total loan portfolio.

~~Management also made certain other qualitative adjustments for loans within certain industries that are expected to be more significantly impacted by~~ the COVID-19 pandemic and oil and gas price volatility ~~and declines as described below.~~

~~In early March 2020, Saudi Arabia announced significant price discounts on oil which~~ resulted in a sharp decrease in global oil prices including the benchmark WTI. Saudi Arabia further announced that it would significantly increase its production leading Russia to respond in kind. These actions arosesignificant spikes in the ~~face~~unemployment rate and the level of ~~increasing global supplies~~unemployment claims as well as severe declines in the level of the U.S. and ~~decreasing global demand. The subsequent worsening global~~Texas GDPs, among other things. In some cases, our expected credit loss models consider these economic outlook and decreased demand resulting from the COVID-19 pandemic resulted in further decreases in energy prices. The WTI price per barrel of crude oil was approximately $40 as of September 30, 2020 up from $20 per barrel as of March 31, 2020 but still down from approximately $61 per barrel as of December 31, 2019. In late March 2020, we establishedvariables on a ~~special Energy Oversight Council~~three- to ~~oversee and assess the credit quality of our energy loan portfolio.~~

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four-quarter lag basis. As of September 30, 2021, the significant spikes in several of these variables are no longer impacting our model results; however, as the economy has entered recovery, the models are now being impacted by exceptionally positive changes in certain variables which has resulted in lower estimates of expected credit losses. Notwithstanding the foregoing, management believes there are still significant headwinds impacting the recovery of the U.S. and Texas economies and certain categories of our loan portfolio. As a result, we have provided additional qualitative adjustments for certain categories of loans, as further described below.

As of December 31, 2020, we provided an additional qualitative adjustment for energy production loans. As more fully described in our ~~energy loan portfolio. This~~2020 Form 10-K, this adjustment was estimated based on borrowing base determinations for our energy production loans using current engineering ~~valuations and a projected oil price deck of $30 for 2020 and increasing to $36 for 2021 and $40 for 2022.~~valuations. We also ~~perform~~performed an analysis of our customers' secondary sources of capital. ~~Through this process at September 30, 2020, we~~As a result of the estimated ~~an aggregate~~ borrowing base deficiency on energy production loans totaling approximately $44.4 million compared to an aggregate borrowing base deficiency of approximately $36.0 million at June 30, 2020. The June 30, 2020 borrowing base determinations were also based on a projected oil price deck of $30deficiencies for ~~2020 and increasing to $36 for 2021 and $40 for 2022. Management believes that~~ the ~~aggregate borrowing base deficiency amount should serve as the appropriate level of expected credit losses for energy production loans. Accordingly, this resulted in~~identified credits, we provided an additional qualitative adjustment of ~~$24.4~~approximately $21.1 million for energy production loans at December 31, 2020. Using a similar methodology as of September 30, ~~2020, up from $20.5 million at June 30, 2020.~~

We performed a separate assessment of other energy loans which are primarily made up of borrowers associated with oilfield services such as transportation and logistics; equipment manufacturing and other services, among other things. Business activity among oilfield service firms has experienced contraction since March 2020; however, there are indications that the pace of contraction has significantly lessened during the third quarter of 2020 relative to the second quarter. There has been a significant decrease in the number of active oil rigs in Texas since March 2020, though the rate of decline in utilization has slowed considerably in the third quarter of 2020 relative to the second quarter. Based on the level of modeled expected credit losses for this portfolio and the expectation of more stabilized conditions with regard to business activity related to oilfield services,2021, we determined that no additional qualitative adjustment ~~for non-production energy loans~~ was necessary as there were no longer any significant borrowing base deficiencies within the energy production portfolio a result of ~~September 30, 2020. As of June 30, 2020, we provided an additional qualitative adjustment of $5.0 million~~higher market prices for ~~non-production energy loans based upon the more negative prevailing outlook for business activity~~oil and ~~rig utilization at that time.~~gas and lower line balances on production loans.

~~In late June 2020, we established a special~~Our Commercial Real Estate Oversight Council, ~~to oversee~~in its oversight and ~~assess~~assessment of the credit quality of our ~~non-owner occupied and construction~~ commercial real estate loan ~~portfolios. Due to the adverse economic effects of the COVID-19 pandemic, management~~portfolios, believes these portfolios continue to have an elevated level of risk ~~that requires a higher level of oversight, particularly as it relates to monitoring risk grades, payment deferrals, covenant modifications~~notwithstanding recent economic stimulus efforts by federal and ~~structuring issues, among other things.~~

~~In estimating current expected credit losses as~~state governments. As of September 30, ~~2020,~~2021, we ~~determined that~~provided additional qualitative adjustments totaling $133.5 million for various categories of our ~~credit loss models for our owner occupied~~ commercial real estate loan ~~portfolio were overly sensitive to the volatility of the forecasted Texas unemployment rate and the forecasted U.S. GDP. The modeled loss rate~~portfolio. This amount includes $58.5 million for this portfolio was significantly higher than the modeled loss rate for our commercial and industrial loan portfolio. Management believes that the loss rates for our owner occupied commercial real estate loan portfolio and our commercial and industrial loan portfolio should be similar due to the fact that that the loans within both portfolios are underwritten with the assumption that the primary repayment source is the cash flow from the operations of the borrower. This differs from non-owner occupied real estate where the primary repayment source is the cash flow generated by the underlying real estate being financed. Furthermore, our owner occupied commercial real estate loan portfolio and our commercial and industrial loan portfolio have a similar customer base. The loans within our owner occupied commercial real estate loan portfolio generally have a longer term than the loans within our commercial and industrial loan portfolio, which increases the modeled loss rate of the portfolio, despite the fact that this portfolio generally experiences lower losses in the case of default due to higher collateral valuations relative to the amount of the underlying loans. In light of the foregoing, management reduced the modeled loss allocation for owner occupiedowner-occupied commercial real estate loans, ~~by $45.4~~$58.3 million ~~as of September 30, 2020. Of this amount, $3.3 million was reallocated to the non-owner occupied~~for non-owner-occupied commercial real estate ~~loan portfolio~~loans and ~~$2.3~~$16.7 million ~~was reallocated to the~~for commercial real estate construction ~~loan portfolio. Additional~~loans. These additional qualitative adjustments ~~were made for these portfolios as we believe our borrowers' ability~~are largely related to ~~access~~ the capital markets for the sale or refinancing of assets, including those under construction, may be impaired for a significant amount of time. This would require secondary sources of capital and liquidity to support completed projects, access to which may take considerably longer to stabilize than was expected at the time the loans to these borrowers were originally underwritten. Additionally, management reallocated an additional $27.1 million for specific industries within the commercial real estate loan portfolio that have been particularly impacted by the economicon-going effects of the COVID-19 pandemic, as further discussed ~~below. The net~~below, and to compensate for the effect of ~~these additional qualitative adjustments, when combined with~~unusually large positive changes in certain economic variables used by our credit loss models. Furthermore, management believes that there are still significant headwinds impacting the ~~aforementioned 1.1% weighted-average Q-Factor adjustment, was an overall negative qualitative adjustment to~~recovery of the ~~allowance for credit losses on commercial real estate loans totaling $8.7 million.~~U.S. and Texas economies and certain categories of our loan portfolio.

The COVID-19 pandemic has resulted in a significant decrease in commercial activity throughout the State of Texas as well as nationally. Efforts to limit the spread of COVID-19 ~~have~~ led to the closure of non-essential businesses, travel restrictions, supply chain disruptions and prohibitions on public gatherings, among other things, throughout many parts of the United States and, in particular, the markets in which we operate. ~~Aside from~~Nonetheless, by late 2020, the ~~energy industry,~~markets in which ~~is discussed above,~~ we operate had substantially reopened. We lend to customers operating in certain ~~other~~ industries (detailed in the table below) that have been, and are expected to continue to be, more significantly impacted by the effects

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of the COVID-19 pandemic. ~~These industries are presented in the following table and include amounts reported as both commercial and industrial loans and commercial real estate loans while PPP loans are excluded.~~

Outstanding Balance at September 30, 2020 Percentage of Total Loans, Excluding PPP Loans Allocated Allowance Allocated Allowance as a Percentage of Outstanding Balance
Retail/strip centers $ 860,889 5.74 % $ 19,105 2.22 %
Hotels/lodging 281,411 1.88 14,014 4.98
Restaurants 273,625 1.82 13,057 4.77
Entertainment 128,373 0.86 5,821 4.53
Total $ 1,544,298 10.30 % $ 51,997 3.37 %

We are continuing to monitor customers in these industries closely. In assessing these portfolios for an additional qualitative adjustment, ~~as of September 30, 2020,~~ we performed a comprehensive review of the financial condition and overall outlook of the borrowers within these portfolios. Based on this analysis, we determined that there continues to be an elevated level of risk ~~due to state and nationwide restrictions impacting each of~~associated with these industries. As a result, we provided an additional qualitative adjustment related to the effects of ~~$27.1~~the COVID-19 pandemic totaling $58.8 million as of September 30, 2021, of which ~~for the most part,~~$52.9 million was allocated to commercial real estate loans and $5.9 million was allocated to commercial and industrial loans. ~~This amount is up from $10.9 million at June 30, 2020.~~

~~Activity~~These amounts are included in the ~~allowance~~totals detailed above. As of December 31, 2020, we provided a similar additional qualitative adjustment totaling $47.1 million, the details of which are described in our 2020 Form 10-K.

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These industries that management believes are particularly impacted by the effects of the COVID-19 pandemic are presented in the following table as of September 30, 2021 and December 31, 2020 and include amounts reported as both commercial and industrial loans and commercial real estate loans while PPP loans are excluded.


	Outstanding Balance		Percentage of Total Loans, Excluding PPP Loans		Allocated Allowance		Allocated Allowance as a Percentage of Outstanding Balance
September 30, 2021
Hotels/lodging	$	302,622	2.02	%	$	32,033	10.59	%
Restaurants	280,718		1.87		18,804		6.70
Entertainment	111,386		0.74		10,301		9.25
Total	$	694,726	4.63	%	$	61,138	8.80	%
December 31, 2020
Retail/strip centers	$	916,633	6.09	%	$	21,049	2.30	%
Hotels/lodging	268,825		1.79		24,546		9.13
Restaurants	277,054		1.84		20,617		7.44
Entertainment	126,266		0.84		6,151		4.87
Total	$	1,588,778	10.56	%	$	72,363	4.55	%

As of September 30, 2021, we provided an additional qualitative adjustment for our commercial and industrial loan portfolio totaling $13.4 million, of which $5.9 million was included in the $58.8 million additional qualitative adjustment for COVID-19 impacted industries discussed above. An additional $7.5 million was provided based upon management's assessment of the risk associated with the long-term sustainability of borrowers within our small business commercial and industrial portfolio. The majority of these borrowers have been bolstered by PPP funding from the SBA which has helped them to sustain their operations amid on-going pandemic-related shutdowns and other restrictions. Nonetheless, management believes there is a significant amount of uncertainty associated with the long-term viability of many of these businesses when this government supplemented funding runs out. Furthermore, on March 27, 2021, the COVID-19 Bankruptcy Relief Extension Act of 2021 was enacted, extending the bankruptcy relief provisions enacted in the CARES Act of 2020 until March 27, 2022. These provisions provide financially distressed small businesses and individuals greater access to bankruptcy relief. In that regard, we also provided an additional qualitative adjustment for our consumer and other loan portfolio totaling $1.4 million in light of the level of unsecured loans within this portfolio and other risk factors.

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Balance at beginning of period $ 250,061 $ 134,929 $ 132,167 $ 132,132
Impact of adopting ASC 326 — — (2,565) —
Credit loss expense 23,590 8,001 223,743 25,404
Charge-offs:
Commercial and industrial (8,605) (2,705) (14,815) (8,782)
Energy — (2,000) (68,842) (4,000)
Commercial real estate (242) — (3,826) (617)
Consumer real estate (1,088) (557) (1,508) (2,936)
Consumer and other (4,219) (6,357) (13,402) (17,157)
Total charge-offs (14,154) (11,619) (102,393) (33,492)
Recoveries:
Commercial and industrial 1,121 1,185 3,727 2,870
Energy — 740 66 816
Commercial real estate 42 46 185 165
Consumer real estate 573 454 1,564 858
Consumer and other 2,242 2,823 6,981 7,806
Total recoveries 3,978 5,248 12,523 12,515
Net charge-offs (10,176) (6,371) (89,870) (20,977)
Balance at end of period $ 263,475 $ 136,559 $ 263,475 $ 136,559
Ratio of allowance for credit losses on loans to:
Total loans 1.45 % 0.93 % 1.45 % 0.93 %
Total loans - excluding PPP loans 1.76 0.93 1.76 0.93
Non-accrual loans 287.71 140.14 287.71 140.14
Ratio of annualized net charge-offs to:
Average total loans 0.22 0.17 0.71 0.20
Average total loans - excluding PPP loans 0.27 0.17 0.80 0.20


	Credit Loss Expense (Benefit)		Net (Charge-Offs) Recoveries		Average Loans		Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans
Three months ended:
September 30, 2021
Commercial and industrial	$	(1,020)	$	(485)	$	4,823,302	(0.04)	%
Energy	(7,720)		159		968,044		0.07
Paycheck Protection Program	—		—		1,364,945		—
Commercial real estate	4,007		54		7,194,723		—
Consumer real estate	(982)		857		1,353,830		0.25
Consumer and other	2,692		(2,700)		484,490		(2.21)
Total	$	(3,023)	$	(2,115)	$	16,189,334	(0.05)
Excluding PPP loans	$	(3,023)	$	(2,115)	$	14,824,389	(0.06)
September 30, 2020
Commercial and industrial	$	(18,547)	$	(7,484)	$	4,915,056	(0.61)	%
Energy	13,814		—		1,386,637		—
Paycheck Protection Program	—		—		3,204,125		—
Commercial real estate	25,368		(200)		6,859,902		(0.01)
Consumer real estate	1,794		(515)		1,282,784		(0.16)
Consumer and other	1,161		(1,977)		500,683		(1.57)
Total	$	23,590	$	(10,176)	$	18,149,187	(0.22)
Excluding PPP loans	$	23,590	$	(10,176)	$	14,945,062	(0.27)
Nine months ended:
September 30, 2021
Commercial and industrial	$	(8,886)	$	(1,191)	$	4,778,049	(0.03)	%
Energy	(19,048)		(56)		1,051,471		(0.01)
Paycheck Protection Program	—		—		2,276,087		—
Commercial real 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)
September 30, 2020
Commercial and industrial	$	10,737	$	(11,088)	$	5,137,360	(0.29)	%
Energy	96,478		(68,776)		1,507,739		(6.09)
Paycheck Protection Program	—		—		1,906,840		—
Commercial real estate	104,716		(3,641)		6,596,873		(0.07)
Consumer real estate	3,716		56		1,239,946		0.01
Consumer and other	8,096		(6,421)		513,775		(1.67)
Total	$	223,743	$	(89,870)	$	16,902,533	(0.71)
Excluding PPP loans	$	223,743	$	(89,870)	$	14,995,693	(0.80)

~~Credit~~We recorded a net credit loss benefit related to loans totaling $3.0 million and $7.4 million for the three and nine months ended September 30, 2021, respectively, compared to a net credit loss expense related to loans ~~increased $198.3~~totaling $23.6 million and $223.7 million for the same respective periods in 2020. The net credit loss benefit related to loans during the first nine months ~~ended September 30, 2020 compared~~of 2021 primarily reflects improvements in forecasted economic conditions and oil price trends relative to the ~~same period~~prevailing conditions in ~~2019.~~2020. Credit loss expense related to loans during the first nine months ~~ended September 30,~~of 2020 ~~primarily reflects~~reflected the ~~increase in expected credit losses resulting from a deterioration in forecasted economic conditions and the current and~~ uncertain future impacts associated with the COVID-19 pandemic and ~~recent~~the significant volatility in oil prices. Credit loss expense during the first nine months of 2020 also ~~reflects~~reflected the level of net charge-offs, the expected deterioration ofin credit quality and other changes within the loan ~~portfolio during the first nine months of 2020.~~portfolio. The ratio of the allowance for credit losses on loans to total loans was ~~1.45% (1.76%~~1.58% (1.67% excluding PPP loans) at September 30, 2021 compared to 1.51% (1.75% excluding PPP loans) at December 31, 2020. Management believes

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~~loans) at September 30, 2020 compared to 0.90% at December 31, 2019. 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 expect credit losses could also change, which could affect the level of future credit loss expense related to loans.

Allowance for Credit Losses - Off-Balance-Sheet Credit Exposures. ~~Upon the adoption of ASC 326~~The allowance for credit losses on ~~January 1,~~off-balance-sheet credit exposures totaled approximately $51.6 million and $44.2 million at September 30, 2021 and December 31, 2020, ~~the total amount~~respectively. The level of the allowance for credit losses on off-balance-sheet credit exposures ~~estimated using~~depends upon the ~~CECL methodology increased $39.4 million compared to the total amount~~volume of the allowance for credit losses on off-balance-sheet credit exposures estimated as of December 31, 2019 using the prior incurred loss model. The increase reflects the impact of assuming portions of all of theseoutstanding commitments, will fund in the future and applying our credit loss modeling processes to such amounts as if such amounts were funded loans. Previously, we only recognized a liability for estimated incurred credit losses on off-balance-sheet credit exposures when the borrowers to which such commitments were extended exceeded certain risk grades and had not violated any underlying covenants that would relieve us of any obligation to fund additional amounts under the commitment. Subsequent to the adoption of ASC 326 on January 1, 2020, we recognized credit loss expense related to off-balance-sheet credit exposures totaling $3.8 million during the first nine months of 2020 to increase the amount of the related allowance for credit losses on off-balance-sheet credit exposures to $43.7 million as of September 30, 2020. The increase primarily reflects changes in underlying risk grades, ~~and~~the expected utilization of available funds ~~an increase in overall off-balance-sheet credit exposures~~ and ~~a deterioration in~~ forecasted economic conditions ~~and the current and uncertain future impacts associated with COVID-19. Further information regarding~~impacting our loan portfolio. Our policies and methodology used to estimate the allowance for credit losses on off-balance-sheet credit exposures ~~is presented~~are further described in ~~Note 6 - Off-Balance-Sheet Arrangements, Commitments, Guarantees and Contingencies~~our 2020 Form 10-K. Credit loss expense related to off-balance-sheet credit exposures totaled $7.5 million during the first nine months of 2021 compared to $3.8 million during the same period in ~~the accompanying notes to consolidated financial statements.~~2020.

Capital and Liquidity

Capital. Shareholders’ equity totaled ~~$4.1~~$4.4 billion and $4.3 billion at September 30, ~~2020~~2021 and ~~$3.9 billion~~ December 31, ~~2019.~~2020, respectively. In addition to net income of ~~$242.9~~$342.1 million, other sources of capital during the nine months ended September 30, ~~2020~~2021 included ~~other comprehensive income, net of tax, of $237.8 million; $8.2 million related to stock-based compensation and $7.5~~$37.8 million in proceeds from stock option ~~exercises.~~exercises and $7.8 million related to stock-based compensation. Additionally, we issued ~~$7.0~~$1.7 million of common stock held in treasury to our 401(k) ~~plan. During the second quarter of 2020, we began to issue shares of our common stock directly to our 401(k)~~ plan in connection with matching contributions. ~~Previously, we contributed the matching contributions in cash which were then utilized to purchase shares of our common stock on the open market.~~ Uses of capital during the nine months ended September 30, ~~2020~~2021 included ~~a $150.0 million redemption~~other comprehensive loss, net of ~~preferred stock, $136.8~~tax, of $162.7 million; $146.0 million of dividends paid on preferred and common ~~stock, $29.3 million related to the cumulative effect of adopting a new accounting principle~~stock; and ~~$14.0~~$1.3 million of treasury stock purchases. ~~See Note 1 - Significant Accounting Policies.~~

The accumulated other comprehensive income/loss component of shareholders’ equity totaled a net, after-tax, unrealized gain of ~~$505.1~~$350.3 million at September 30, ~~2020~~2021 compared to ~~$267.4~~$513.0 million at December 31, ~~2019.~~2020. The change was primarily due to a ~~$235.4~~$165.7 million net, after-tax, ~~increase~~decrease in the net unrealized gain on securities available for sale.

Under the Basel III Capital Rules, we have elected to opt-out of the requirement to include most components of accumulated other comprehensive income in regulatory capital. Accordingly, amounts reported as accumulated other comprehensive income/loss do not increase or reduce regulatory capital and are not included in the calculation of our regulatory capital ratios. In connection with the adoption of ASC 326 on January 1, 2020, we also elected to exclude, for a transitional period, the effects of credit loss accounting under CECL in the calculation of our regulatory capital and regulatory capital ratios. Regulatory agencies for banks and bank holding companies utilize capital guidelines designed to measure capital and take into consideration the risk inherent in both on-balance-sheet and off-balance-sheet items. See Note 7 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report.

We paid a quarterly dividend of $0.75 per common share during the third quarter of 2021, a quarterly dividend of $0.72 per common share during each of the first and second quarters of 2021 and a quarterly dividend of $0.71 per common share during each the first, second and third quarters of ~~2020, respectively, and quarterly dividends of $0.67, $0.71 and $0.71 per common share during the first, second and third quarters of 2019, respectively. This equates~~2020. These dividend amounts equate to a common stock dividend payout ratio of ~~57.3%~~41.7% and ~~39.6%~~57.3% during the first nine months of ~~2020~~2021 and ~~2019,~~2020, 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.

~~Table of Contents~~

issuance costs were reclassified to retained earnings and reported as a reduction of net income available to common shareholders.

On November 19, 2020 we issued 150,000 shares, or $150.0 million in aggregate liquidation preference, of our 4.450% Non-Cumulative Perpetual Preferred Stock, Series B, par value $0.01 and liquidation preference $1,000 per share (“Series B Preferred Stock”). Each share of Series B Preferred Stock issued and outstanding is represented by 40 depositary shares, each representing a 1/40th ownership interest in a share of the Series B Preferred Stock (equivalent to a liquidation preference of $25 per share). Dividends on the Series B Preferred Stock, if declared, accrue and are payable quarterly, in arrears, at a rate of 4.450% per annum. The net proceeds from the issuance and sale of the depositary shares representing the Series B Preferred Stock, after deducting underwriting discount and commissions, and the payment of expenses, were approximately $145.5 million. Under the terms of the Series B Preferred Stock, in the event that we do not declare and pay dividends on the Series B Preferred Stock for the most recent dividend period, we may not, with certain exceptions, declare or pay dividends on, or

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purchase, redeem or otherwise acquire, shares of our common stock or any of our securities that rank junior to the Series B Preferred Stock. See Note 7 – Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report.

Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. On ~~July 24, 2019,~~January 27, 2021 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. WeNo shares were repurchased under this plan during the first nine months of 2021. Under a prior plan, we repurchased 177,834 shares at a total cost of $13.7 million during ~~the first quarter of 2020 and 202,724 shares at a total cost of $17.2 million during the third quarter of 2019. No further repurchases were made under this plan prior to its expiration on July 24,~~ 2020. See Note 7 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements and Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds, each included elsewhere in this report.

Liquidity. As more fully discussed in our ~~2019~~2020 Form 10-K, our liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs. Our principal source of funding has been our customer deposits, supplemented by our short-term and long-term borrowings as well as maturities of securities and loan amortization. As of September 30, ~~2020,~~2021, we had approximately ~~$6.6~~$15.4 billion held in an interest-bearing account at the Federal Reserve. We also have the ability to borrow funds as a member of the Federal Home Loan Bank (“FHLB”). As of September 30, ~~2020,~~2021, based upon available, pledgeable collateral, our total borrowing capacity with the FHLB was approximately ~~$2.7~~$3.1 billion. Furthermore, at September 30, ~~2020,~~2021, we had approximately ~~$8.1~~$8.0 billion in securities that were unencumbered by a pledge and could be used to support additional borrowings through repurchase agreements or the Federal Reserve discount window, as needed.

Since Cullen/Frost is a holding company and does not conduct operations, its primary sources of liquidity are dividends upstreamed from Frost Bank and borrowings from outside sources. Banking regulations may limit the amount of dividends that may be paid by Frost Bank. See Note 7 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report regarding such dividends. At September 30, ~~2020,~~2021, Cullen/Frost had liquid assets, including cash and resell agreements, totaling ~~$207.6~~$438.1 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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Consolidated Average Balance Sheets and Interest Income Analysis - Quarter To Date

(Dollars in thousands - taxable-equivalent basis)


		September 30, 2020						September 30, 2019							September 30, 2021						September 30, 2020
		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	$	5,887,903	$	1,512	0.10	%	$	1,565,515	$	8,759	2.19	%	Interest-bearing deposits	$	15,278,296	$	5,830	0.15	%	$	5,887,903	$	1,512	0.10	%
Federal funds sold and resell agreements		31,165		19		0.24		211,756		1,194		2.21
Federal funds sold														Federal funds sold	1,676		2		0.48		11,153		5		0.18
Resell agreements														Resell agreements	7,907		6		0.29		20,012		14		0.27
Securities:	Securities:													Securities:
Taxable	Taxable	4,201,559		22,560		2.21		5,278,040		32,122		2.45		Taxable	4,147,511		20,736		2.03		4,201,559		22,560		2.21
Tax-exempt	Tax-exempt	8,478,804		80,566		4.08		8,166,344		79,617		4.08		Tax-exempt	8,355,422		78,968		4.04		8,478,804		80,566		4.08
Total securities	Total securities	12,680,363		103,126		3.44		13,444,384		111,739		3.43		Total securities	12,502,933		99,704		3.35		12,680,363		103,126		3.44
Loans, net of unearned discounts	Loans, net of unearned discounts	18,149,187		170,127		3.73		14,471,414		188,192		5.16		Loans, net of unearned discounts	16,189,334		169,892		4.16		18,149,187		170,127		3.73
Total Earning Assets and Average Rate Earned	Total Earning Assets and Average Rate Earned	36,748,618		274,784		3.04		29,693,069		309,884		4.21		Total Earning Assets and Average Rate Earned	43,980,146		275,434		2.53		36,748,618		274,784		3.04
Cash and due from banks	Cash and due from banks	512,557						479,357						Cash and due from banks	569,715						512,557
Allowance for credit losses on loans and securities	Allowance for credit losses on loans and securities	(259,973)						(136,783)						Allowance for credit losses on loans and securities	(255,214)						(259,973)
Premises and equipment, net	Premises and equipment, net	1,053,725						954,989						Premises and equipment, net	1,029,242						1,053,725
Accrued interest and other assets	Accrued interest and other assets	1,380,138						1,257,836						Accrued interest and other assets	1,450,373						1,380,138
Total Assets	Total Assets	$	39,435,065					$	32,248,468					Total Assets	$	46,774,262					$	39,435,065

Liabilities:	Liabilities:													Liabilities:
Non-interest-bearing demand deposits:	Non-interest-bearing demand deposits:													Non-interest-bearing demand deposits:
Commercial and individual	Commercial and individual	$	13,782,790					$	9,819,992					Commercial and individual	$	15,829,582					$	13,782,790
Correspondent banks	Correspondent banks	243,946						207,394						Correspondent banks	234,720						243,946
Public funds	Public funds	558,703						289,079						Public funds	934,428						558,703
Total non-interest-bearing demand deposits	Total non-interest-bearing demand deposits	14,585,439						10,316,465						Total non-interest-bearing demand deposits	16,998,730						14,585,439
Interest-bearing deposits:	Interest-bearing deposits:													Interest-bearing deposits:
Private accounts	Private accounts													Private accounts
Savings and interest checking	Savings and interest checking	8,076,797		313		0.02		6,711,866		1,140		0.07		Savings and interest checking	10,317,162		308		0.01		8,076,797		313		0.02
Money market deposit accounts	Money market deposit accounts	8,555,381		1,940		0.09		7,763,380		18,201		0.93		Money market deposit accounts	10,024,138		2,655		0.11		8,555,381		1,940		0.09
Time accounts	Time accounts	1,120,021		3,116		1.11		1,022,716		4,476		1.74		Time accounts	1,101,498		684		0.25		1,120,021		3,116		1.11
Public funds	Public funds	536,917		28		0.02		537,599		1,820		1.34		Public funds	674,274		30		0.02		536,917		28		0.02
Total interest-bearing deposits	Total interest-bearing deposits	18,289,116		5,397		0.12		16,035,561		25,637		0.63		Total interest-bearing deposits	22,117,072		3,677		0.07		18,289,116		5,397		0.12
Total deposits	Total deposits	32,874,555						26,352,026						Total deposits	39,115,802						32,874,555
Federal funds purchased and repurchase agreements		1,578,122		482		0.12		1,290,963		5,040		1.53
Federal funds purchased														Federal funds purchased	27,002		9		0.13		33,917		7		0.08
Repurchase agreements														Repurchase agreements	2,188,171		632		0.11		1,544,205		475		0.12
Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	136,337		700		2.05		136,279		1,425		4.18		Junior subordinated deferrable interest debentures	136,395		631		1.85		136,337		700		2.05
Subordinated notes	Subordinated notes	98,968		1,164		4.70		98,811		1,164		4.71		Subordinated notes	99,125		1,164		4.70		98,968		1,164		4.70

Total Interest-Bearing Funds and Average Rate Paid	Total Interest-Bearing Funds and Average Rate Paid	20,102,543		7,743		0.15		17,561,614		33,266		0.75		Total Interest-Bearing Funds and Average Rate Paid	24,567,765		6,113		0.10		20,102,543		7,743		0.15
Accrued interest and other liabilities	Accrued interest and other liabilities	682,525						542,091						Accrued interest and other liabilities	790,289						682,525
Total Liabilities	Total Liabilities	35,370,507						28,420,170						Total Liabilities	42,356,784						35,370,507
Shareholders’ Equity	Shareholders’ Equity	4,064,558						3,828,298						Shareholders’ Equity	4,417,478						4,064,558
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	39,435,065					$	32,248,468					Total Liabilities and Shareholders’ Equity	$	46,774,262					$	39,435,065
Net interest income	Net interest income			$	267,041					$	276,618			Net interest income			$	269,321					$	267,041
Net interest spread	Net interest spread					2.89	%					3.46	%	Net interest spread					2.43	%					2.89	%
Net interest income to total average earning assets	Net interest income to total average earning assets					2.95	%					3.76	%	Net interest income to total average earning assets					2.47	%					2.95	%

For these computations: (i) average balances are presented on a daily average basis, (ii) information is shown on a taxable-equivalent basis assuming a 21% tax rate, (iii) average loans include loans on non-accrual status, and (iv) average securities include unrealized gains and losses on securities available for sale while yields are based on average amortized cost.

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Consolidated Average Balance Sheets and Interest Income Analysis - Year To Date

(Dollars in thousands - taxable-equivalent basis)


		September 30, 2020						September 30, 2019							September 30, 2021						September 30, 2020
		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	$	4,491,737	$	10,894	0.32	%	$	1,487,947	$	27,226	2.41	%	Interest-bearing deposits	$	12,849,827	$	11,877	0.12	%	$	4,491,737	$	10,894	0.32	%
Federal funds sold and resell agreements		127,409		884		0.91		235,612		4,323		2.42
Federal funds sold														Federal funds sold	9,331		13		0.18		104,425		721		0.91
Resell agreements														Resell agreements	6,169		11		0.24		22,984		163		0.93
Securities:	Securities:													Securities:
Taxable	Taxable	4,246,298		71,950		2.32		4,969,843		87,125		2.35		Taxable	4,111,574		61,366		2.03		4,246,298		71,950		2.32
Tax-exempt	Tax-exempt	8,468,372		243,961		4.07		8,211,558		243,628		4.06		Tax-exempt	8,237,397		235,344		4.07		8,468,372		243,961		4.07
Total securities	Total securities	12,714,670		315,911		3.48		13,181,401		330,753		3.41��		Total securities	12,348,971		296,710		3.37		12,714,670		315,911		3.48
Loans, net of unearned discounts	Loans, net of unearned discounts	16,902,533		515,912		4.08		14,351,562		566,069		5.27		Loans, net of unearned discounts	17,034,405		522,376		4.10		16,902,533		515,912		4.08
Total Earning Assets and Average Rate Earned	Total Earning Assets and Average Rate Earned	34,236,349		843,601		3.35		29,256,522		928,371		4.27		Total Earning Assets and Average Rate Earned	42,248,703		830,987		2.67		34,236,349		843,601		3.35
Cash and due from banks	Cash and due from banks	525,627						495,222						Cash and due from banks	543,514						525,627
Allowance for credit losses on loans and securities	Allowance for credit losses on loans and securities	(219,312)						(136,271)						Allowance for credit losses on loans and securities	(261,568)						(219,312)
Premises and equipment, net	Premises and equipment, net	1,040,451						833,861						Premises and equipment, net	1,038,467						1,040,451
Accrued interest and other assets	Accrued interest and other assets	1,371,366						1,228,440						Accrued interest and other assets	1,434,859						1,371,366
Total Assets	Total Assets	$	36,954,481					$	31,677,774					Total Assets	$	45,003,975					$	36,954,481

Liabilities:	Liabilities:													Liabilities:
Non-interest-bearing demand deposits:	Non-interest-bearing demand deposits:													Non-interest-bearing demand deposits:
Commercial and individual	Commercial and individual	$	12,330,235					$	9,699,019					Commercial and individual	$	15,129,135					$	12,330,235
Correspondent banks	Correspondent banks	239,911						204,975						Correspondent banks	245,630						239,911
Public funds	Public funds	471,321						315,249						Public funds	887,234						471,321
Total non-interest-bearing demand deposits	Total non-interest-bearing demand deposits	13,041,467						10,219,243						Total non-interest-bearing demand deposits	16,261,999						13,041,467
Interest-bearing deposits:	Interest-bearing deposits:													Interest-bearing deposits:
Private accounts	Private accounts													Private accounts
Savings and interest checking	Savings and interest checking	7,575,992		1,012		0.02		6,753,063		3,976		0.08		Savings and interest checking	9,903,558		1,015		0.01		7,575,992		1,012		0.02
Money market deposit accounts	Money market deposit accounts	8,221,183		13,532		0.22		7,682,565		58,370		1.02		Money market deposit accounts	9,652,001		6,519		0.09		8,221,183		13,532		0.22
Time accounts	Time accounts	1,115,666		11,629		1.39		963,082		11,653		1.62		Time accounts	1,122,169		3,078		0.37		1,115,666		11,629		1.39
Public funds	Public funds	580,437		1,504		0.35		535,034		5,656		1.41		Public funds	672,424		81		0.02		580,437		1,504		0.35
Total interest-bearing deposits	Total interest-bearing deposits	17,493,278		27,677		0.21		15,933,744		79,655		0.67		Total interest-bearing deposits	21,350,152		10,693		0.07		17,493,278		27,677		0.21
Total deposits	Total deposits	30,534,745						26,152,987						Total deposits	37,612,151						30,534,745
Federal funds purchased and repurchase agreements		1,378,349		4,005		0.38		1,238,197		15,276		1.63
Federal funds purchased														Federal funds purchased	33,937		24		0.09		31,547		92		0.38
Repurchase agreements														Repurchase agreements	2,030,266		1,597		0.10		1,346,802		3,913		0.38
Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	136,323		2,893		2.83		136,265		4,401		4.31		Junior subordinated deferrable interest debentures	136,380		1,915		1.87		136,323		2,893		2.83
Subordinated notes	Subordinated notes	98,929		3,492		4.71		98,772		3,492		4.71		Subordinated notes	99,085		3,492		4.70		98,929		3,492		4.71
Federal Home Loan Bank advances	Federal Home Loan Bank advances	145,985		318		0.29		—		—		—		Federal Home Loan Bank advances	—		—		—		145,985		318		0.29
Total Interest-Bearing Funds and Average Rate Paid	Total Interest-Bearing Funds and Average Rate Paid	19,252,864		38,385		0.27		17,406,978		102,824		0.79		Total Interest-Bearing Funds and Average Rate Paid	23,649,820		17,721		0.10		19,252,864		38,385		0.27
Accrued interest and other liabilities	Accrued interest and other liabilities	669,297						416,288						Accrued interest and other liabilities	747,473						669,297
Total Liabilities	Total Liabilities	32,963,628						28,042,509						Total Liabilities	40,659,292						32,963,628
Shareholders’ Equity	Shareholders’ Equity	3,990,853						3,635,265						Shareholders’ Equity	4,344,683						3,990,853
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	36,954,481					$	31,677,774					Total Liabilities and Shareholders’ Equity	$	45,003,975					$	36,954,481
Net interest income	Net interest income			$	805,216					$	825,547			Net interest income			$	813,266					$	805,216
Net interest spread	Net interest spread					3.08	%					3.48	%	Net interest spread					2.57	%					3.08	%
Net interest income to total average earning assets	Net interest income to total average earning assets					3.20	%					3.80	%	Net interest income to total average earning assets					2.61	%					3.20	%

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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 ~~2019~~2020 Form 10-K. There has been no significant change in the types of market risks we face since December 31, ~~2019.~~2020.

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, ~~2020,~~2021, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of ~~1.9%~~3.6% and ~~5.3%~~9.0%, respectively, relative to the flat-rate case over the next 12 months, while a 25 basis point ratable decrease in interest rates would result in a negative variance in net interest income of ~~1.5%~~3.0% relative to the flat-rate case over the next 12 months. ~~The~~For modeling purposes, as of December 31, 2020, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of 2.3% and 6.2%, respectively, relative to the flat-rate case over the next 12 months, while a 25 basis point ratable decrease in interest rates would result in a negative variance in net interest income of 1.8% relative to the flat-rate case over the next 12 months. Both the September 30, 2021 and December 31, 2020 model simulations for increased interest rates were impacted by the assumption, for modeling purposes, that we will begin to pay interest on commercial demand deposits (those not already receiving an earnings credit rate) in the fourth ~~quarter~~and first quarters of 2020, as further discussed below. For modeling purposes, as of September 30, 2019, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of 0.2% and 1.3%,2021, respectively, relative to the flat-rate case over the next 12 months, while 100 and 200 basis point ratable decreases in interest rates would result in negative variances in net interest income of 1.7% and 5.7%, respectively, relative to the flat-rate case over the next 12 months. The September 30, 2019 model simulations for increased interest rates were impacted by the assumption, for modeling purposes, that we would begin to pay interest on commercial demand deposits (those not already receiving an earnings credit rate) in the fourth quarter of 2019, as further discussed below. The likelihood of a decrease in interest rates beyond 25 basis points as of September 30, 2021 and December 31, 2020 was considered remote given prevailing interest rate levels.

The model simulations as of September 30, ~~2020~~2021 indicate that our projected balance sheet is more asset sensitive in comparison to our balance sheet as of ~~September 30, 2019.~~December 31, 2020. The ~~shift to a more~~increased asset ~~sensitive position~~sensitivity was primarily due to an increase in the relative proportion of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and federal funds sold to projected average interest-earning assets. 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. The shift to a more asset sensitive position was also partly due to a decrease in the assumed interest rate paid on projected commercial demand deposits (those not already receiving an earnings credit rate), as further discussed below.

We do not currently pay interest on a significant portion of our commercial demand deposits. Any interest rate that would ultimately be paid on these commercial demand deposits would likely depend upon a variety of factors, some of which are beyond our control. Our modeling ~~simulation~~simulations as of September 30, 2021 and December 31, 2020 ~~assumed~~assume a ~~moderate~~slightly aggressive pricing structure with regards to interest payments on commercial demand deposits (those not already receiving an earnings credit) with interest payments assumed to begin in the fourth ~~quarter~~and first quarters of ~~2020.~~2021 and 2020, respectively. This ~~moderate~~ pricing structure on commercial demand deposits assumes a deposit pricing beta of 25%. The pricing beta is a measure of how much deposit rates reprice, up or down, given a defined change in market rates. Our modeling simulation as of September 30, 2019 assumed a much more aggressive pricing structure with regards to interest payments for commercial demand deposits (those not already receiving and earnings credit) with interest payments assumed to begin in the fourth quarter of 2019. We modified our assumed pricing structure during 2020 compared to 2019 based upon our market observations during the most recent interest rate cycle.

As of September 30, ~~2020,~~2021, the effects of a 200 basis point increase and a 25 basis point decrease in interest rates on our derivative holdings would not result in a significant variance in our net interest income.

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

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Item 4. Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by management, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report. No change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the last fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

We are subject to various claims and legal actions that have arisen in the course of conducting business. Management does not expect the ultimate disposition of these matters to have a material adverse impact on our financial statements.

Item 1A. Risk Factors

~~Refer to~~There has been no material change in the risk factors disclosed under Item 1A. of our ~~2019~~2020 Form ~~10-K for a discussion of certain material risks and uncertainties that management believed affect our business. The following risk factors are provided to supplement that discussion.~~

~~Our business, financial condition, liquidity and results of operations have been, and will likely continue to be, adversely affected by the COVID-19 pandemic.~~

The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, our business, financial condition, liquidity and results of operations. The extent to which the COVID-19 pandemic will continue to negatively affect our business, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic (including the possibility of resurgence of COVID-19 after initial abatement), the effectiveness of our Business Continuity and Health Emergency Response plans, the direct and indirect impact of the pandemic on our employees, customers, clients, counterparties and service providers, as well as other market participants, and actions taken, or that may yet be taken, or inaction by governmental authorities and other third parties in response to the pandemic.

~~The COVID-19 pandemic has contributed to:~~

•Increased unemployment and business disruption and decreased consumer and business confidence and consumer and commercial activity generally, leading to an increased risk of delinquencies, defaults and foreclosures.

•Higher and more volatile credit loss expense and potential for increased charge-offs, particularly as customers may need to draw on their committed credit lines to help finance their businesses and activities.

•~~Ratings downgrades, credit deterioration and defaults in many industries, particularly energy, retail/strip centers, hotels/lodging, restaurants, entertainment and commercial real estate.~~

•~~A sudden and significant reduction in the valuation of the equity, fixed-income and commodity markets and the significant increase in the volatility of those markets.~~

•~~A decrease in the rates and yields on U.S. Treasury securities, which may lead to decreased net interest income.~~

•~~Increased demands on capital and liquidity, leading us to cease repurchases of our common stock in order to preserve capital and provide added liquidity.~~

•~~A reduction in the value of the assets that we manage or otherwise administer or service for others, affecting related fee income and demand for our services.~~

•~~Heightened cybersecurity, information security and operational risks as a result of work-from-home arrangements and impacts on our service providers.~~

Any disruption to our ability to deliver financial products or services to, or interact with, our clients and customers could result in losses or increased operational costs, regulatory fines, penalties and other sanctions, or harm our reputation.

As noted in the section captioned “Recent Developments Related to COVID-19” in Part I. Financial Information, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations elsewhere in this report, the Federal Reserve has taken various actions and the U.S. government has enacted several fiscal stimulus measures to counteract the economic disruption caused by the COVID-19 pandemic and provide economic assistance to individual households and businesses, stabilize the markets and support economic growth. The success of these measures is unknown and they may not be sufficient to fully mitigate the negative impact of the COVID-19 pandemic. We face an increased risk of litigation and governmental, regulatory and third-party scrutiny as a result of the effects of COVID-19 on market and economic conditions and actions governmental authorities take in response to those conditions. Furthermore, various governmental programs such as the PPP are complex and our participation may lead to additional litigation and governmental, regulatory and third-party scrutiny, negative publicity and damage to our reputation. For example, our participation in the PPP as a lender may adversely affect our revenue and results of operations depending on the timing and amount of forgiveness, if any, to which our borrowers will be entitled.

The length of the pandemic and the efficacy of the extraordinary measures being put in place to address it are unknown. Until the pandemic subsides, we expect continued draws on lines of credit, reduced fee income and revenues related to investment management, insurance and brokerage operations and increased customer and client defaults, including defaults of

~~Table of Contents~~

unsecured loans. Even after the pandemic subsides, the U.S. economy may continue to experience a recession, and we anticipate our businesses would be materially and adversely affected by a prolonged recession. To the extent the pandemic adversely affects our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in the section entitled “Risk Factors” in our 2019 Form 10-K and subsequent Quarterly Reports on Form 10-Q. See the section captioned “Recent Developments Related to COVID-19” in Part I. Financial Information, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations elsewhere in this report for further discussion.

~~We Are Subject To Volatility Risk In Crude Oil Prices~~

As of September 30, 2020, we had $1.4 billion of energy loans which comprised approximately 7.4% of our loan portfolio at that date. Furthermore, energy production and related industries represent a large part of the economies in some of our primary markets. In recent years, actions by certain members of the Organization of Petroleum Exporting Countries (“OPEC”) impacting crude oil production levels have led to increased global oil supplies, which has resulted in significant declines in market oil prices. Decreased market oil prices compressed margins for many U.S. and Texas-based oil producers, particularly those that utilize higher-cost production technologies such as hydraulic fracking and horizontal drilling, as well as oilfield service providers, energy equipment manufacturers and transportation suppliers, among others. In March of 2020, disagreements between members of OPEC signaled that production levels would rise and led to a significant decline in market oil prices. While oil prices have recovered from recent lows, on-going oil price volatility and depressed market oil prices, are expected to continue due to the uncertainties and economic impacts of COVID-19. See the section captioned “Recent Developments Related to COVID-19” in Part I. Financial Information, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations elsewhere in this report for further discussion. The price per barrel of crude oil was approximately $40 as of September 30, 2020 down from $61 as of December 31, 2019. We have experienced increased losses within our energy portfolio recently as a result of depressed oil prices and increased oil price volatility, relative to our historical experience. Continued and further depressed oil prices and increased oil price volatility could have further negative impacts on the U.S. economy, in particular, the economies of energy-dominant states such as Texas, and our borrowers and customers.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, ~~2020.~~2021. Dollar amounts in thousands.

Period Total Number of
Shares Purchased Average Price
Paid Per Share Total Number of
Shares Purchased
as Part of Publicly
Announced Plan Maximum
Number of Shares
(or Approximate
Dollar Value)
That May Yet Be
Purchased Under
the Plan at the
End of the Period
July 1, 2020 to July 31, 2020 400 (1) $ 70.56 — $ —
August 1, 2020 to August 31, 2020 — — — —
September 1, 2020 to September 30, 2020 — — — —
Total 400 —


Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan	Maximum Number of Shares (or Approximate Dollar Value) That May Yet Be Purchased Under the Plan at the End of the Period
July 1, 2021 to July 31, 2021	478	(1)	$	112.62	—	$	100,000
August 1, 2021 to August 31, 2021	—		—		—	100,000
September 1, 2021 to September 30, 2021	—		—		—	100,000
Total	478				—

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

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

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Item 6. Exhibits

(a) Exhibits


Exhibit Number			Description
10.1(1)			Executive Change-in-Control Severance Plan
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)~~(2)			Section 1350 Certification of the Corporation's Chief Executive Officer
32.2~~(1)~~(2)			Section 1350 Certification of the Corporation's Chief Financial Officer
101.INS~~(2)~~(3)			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)~~(4)			Cover Page Interactive Data File

(1)Management contract or compensatory plan or arrangement.

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

~~(2)~~(3)The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

~~(3)~~(4)Formatted as Inline XBRL and contained within the Inline XBRL Instance Document in Exhibit 101.

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Signatures

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

Cullen/Frost Bankers, Inc.

(Registrant)

Date:

October ~~29, 2020~~28, 2021

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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	January 1, 2020
	Pre-Adoption Allowance		Impact of Adoption		Post-Adoption Allowance		Cumulative Effect on Retained Earnings
Securities held to maturity:
U.S. Treasury	$	0	$	0	$	0	$	0
Residential mortgage-backed securities	0		0		0		0
States and political subdivisions	0		215		215		(170)
Other	0		0		0		0
Total	$	0	$	215	$	215	$	(170)
Loans:
Commercial and industrial	$	51,593	$	21,263	$	72,856	$	(16,798)
Energy	37,382		(10,453)		26,929		8,258
Commercial real estate	31,037		(13,519)		17,518		10,680
Consumer real estate	4,113		2,392		6,505		(1,890)
Consumer and other	8,042		(2,248)		5,794		1,776
Total	$	132,167	$	(2,565)	$	129,602	$	2,026
Off-balance-sheet credit exposures	$	500	$	39,377	$	39,877	$	(31,108)


	Three Months Ended September 30, 2020						Three Months Ended September 30, 2019
	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	$	20,332	$	4,269	$	16,063	$	107,786	$	22,635	$	85,151
Change in net unrealized gain on securities transferred to held to maturity	(294)		(62)		(232)		(305)		(64)		(241)
Reclassification adjustment for net (gains) losses included in net income	0		0		0		(97)		(21)		(76)
Total securities available for sale and transferred securities	20,038		4,207		15,831		107,384		22,550		84,834
Defined-benefit post-retirement benefit plans:

Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)	1,330		280		1,050		1,406		295		1,111
Total defined-benefit post-retirement benefit plans	1,330		280		1,050		1,406		295		1,111
Total other comprehensive income (loss)	$	21,368	$	4,487	$	16,881	$	108,790	$	22,845	$	85,945


	September 30, 2020			December 31, 2019
Non-accrual loans:
Commercial and industrial	$	21,566		$	26,038
Energy	54,041			65,761
Paycheck Protection Program	—			—
Commercial real estate:
Buildings, land and other	13,525			8,912
Construction	680			665
Consumer real estate	1,748			922
Consumer and other	18			5
Total non-accrual loans	91,578			102,303
Restructured loans	3,932			6,098
Foreclosed assets:
Real estate	850			1,084
Other	—			—
Total foreclosed assets	850			1,084
Total non-performing assets	$	96,360		$	109,485
Ratio of non-performing assets to:
Total loans and foreclosed assets	0.53		%	0.74		%
Total loans, excluding PPP loans, and foreclosed assets	0.64			0.74
Total assets	0.24			0.32
Accruing past due loans:
30 to 89 days past due	$	96,935		$	50,784
90 or more days past due	35,706			7,421
Total accruing past due loans	$	132,641		$	58,205
Ratio of accruing past due loans to total loans:
30 to 89 days past due	0.53		%	0.34		%
90 or more days past due	0.20			0.05
Total accruing past due loans	0.73		%	0.39		%
Ratio of accruing past due loans to total loans, excluding PPP loans:
30 to 89 days past due	0.65		%	0.34		%
90 or more days past due	0.24			0.05
Total accruing past due loans	0.89		%	0.39		%


	September 30, 2020		June 30, 2020		Post ASC 326 Adoption on January 1, 2020		December 31, 2019
Commercial and industrial	$	72,505	$	98,536	$	72,856	$	51,593
Energy	54,631		40,817		26,929		37,382
Commercial real estate	118,593		93,425		17,518		31,037
Consumer real estate	10,277		8,998		6,505		4,113
Consumer and other	7,469		8,285		5,794		8,042
Total	$	263,475	$	250,061	$	129,602	$	132,167