false2021Q30000039263December 31P1Y00000392632021-01-012021-09-300000039263us-gaap:CommonStockMemberexch:XNYS2021-01-012021-09-300000039263us-gaap:SeriesBPreferredStockMemberexch:XNYS2021-01-012021-09-30xbrli:shares00000392632021-10-21iso4217:USDxbrli:shares00000392632021-09-30iso4217:USD00000392632020-12-310000039263us-gaap:SeriesBPreferredStockMember2020-12-310000039263us-gaap:SeriesBPreferredStockMember2021-09-3000000392632021-07-012021-09-3000000392632020-07-012020-09-3000000392632020-01-012020-09-300000039263us-gaap:PreferredStockMember2021-06-300000039263us-gaap:CommonStockMember2021-06-300000039263us-gaap:AdditionalPaidInCapitalMember2021-06-300000039263us-gaap:RetainedEarningsMember2021-06-300000039263us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-300000039263us-gaap:TreasuryStockMember2021-06-3000000392632021-06-300000039263us-gaap:RetainedEarningsMember2021-07-012021-09-300000039263us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-07-012021-09-300000039263us-gaap:TreasuryStockMember2021-07-012021-09-300000039263us-gaap:AdditionalPaidInCapitalMember2021-07-012021-09-300000039263us-gaap:PreferredStockMember2021-09-300000039263us-gaap:CommonStockMember2021-09-300000039263us-gaap:AdditionalPaidInCapitalMember2021-09-300000039263us-gaap:RetainedEarningsMember2021-09-300000039263us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-09-300000039263us-gaap:TreasuryStockMember2021-09-300000039263us-gaap:PreferredStockMember2020-06-300000039263us-gaap:CommonStockMember2020-06-300000039263us-gaap:AdditionalPaidInCapitalMember2020-06-300000039263us-gaap:RetainedEarningsMember2020-06-300000039263us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300000039263us-gaap:TreasuryStockMember2020-06-3000000392632020-06-300000039263us-gaap:RetainedEarningsMember2020-07-012020-09-300000039263us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-07-012020-09-300000039263us-gaap:TreasuryStockMember2020-07-012020-09-300000039263us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-300000039263us-gaap:PreferredStockMember2020-09-300000039263us-gaap:CommonStockMember2020-09-300000039263us-gaap:AdditionalPaidInCapitalMember2020-09-300000039263us-gaap:RetainedEarningsMember2020-09-300000039263us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-09-300000039263us-gaap:TreasuryStockMember2020-09-3000000392632020-09-300000039263us-gaap:PreferredStockMember2020-12-310000039263us-gaap:CommonStockMember2020-12-310000039263us-gaap:AdditionalPaidInCapitalMember2020-12-310000039263us-gaap:RetainedEarningsMember2020-12-310000039263us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310000039263us-gaap:TreasuryStockMember2020-12-310000039263us-gaap:RetainedEarningsMember2021-01-012021-09-300000039263us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-09-300000039263us-gaap:TreasuryStockMember2021-01-012021-09-300000039263us-gaap:AdditionalPaidInCapitalMember2021-01-012021-09-300000039263us-gaap:PreferredStockMember2019-12-310000039263us-gaap:CommonStockMember2019-12-310000039263us-gaap:AdditionalPaidInCapitalMember2019-12-310000039263us-gaap:RetainedEarningsMember2019-12-310000039263us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310000039263us-gaap:TreasuryStockMember2019-12-3100000392632019-12-310000039263us-gaap:RetainedEarningsMember2020-01-012020-09-300000039263us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-09-300000039263us-gaap:TreasuryStockMember2020-01-012020-09-300000039263us-gaap:AdditionalPaidInCapitalMember2020-01-012020-09-300000039263us-gaap:PreferredStockMember2020-01-012020-09-300000039263us-gaap:RetainedEarningsMember2020-01-010000039263us-gaap:ResidentialMortgageBackedSecuritiesMember2021-09-300000039263us-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263us-gaap:OtherInvestmentsMember2021-09-300000039263us-gaap:ResidentialMortgageBackedSecuritiesMember2020-12-310000039263us-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263us-gaap:OtherInvestmentsMember2020-12-310000039263us-gaap:HeldtomaturitySecuritiesMember2021-09-300000039263us-gaap:HeldtomaturitySecuritiesMember2020-12-310000039263cfr:NotGuaranteedorPreRefundedMembercfr:AaaAAAMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:GuaranteedbytheTexasPSFMembercfr:AaaAAAMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:AaaAAAMembercfr:PreRefundedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:AaaAAAMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:AaaAAAMemberus-gaap:OtherInvestmentsMember2021-09-300000039263cfr:AaAAMembercfr:NotGuaranteedorPreRefundedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:AaAAMembercfr:GuaranteedbytheTexasPSFMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:AaAAMembercfr:PreRefundedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:AaAAMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:AaAAMemberus-gaap:OtherInvestmentsMember2021-09-300000039263cfr:AMembercfr:NotGuaranteedorPreRefundedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:AMembercfr:GuaranteedbytheTexasPSFMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:AMembercfr:PreRefundedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:AMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:AMemberus-gaap:OtherInvestmentsMember2021-09-300000039263cfr:NotGuaranteedorPreRefundedMembercfr:NotratedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:GuaranteedbytheTexasPSFMembercfr:NotratedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:PreRefundedMembercfr:NotratedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:NotratedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:NotratedMemberus-gaap:OtherInvestmentsMember2021-09-300000039263cfr:NotGuaranteedorPreRefundedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:GuaranteedbytheTexasPSFMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:PreRefundedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263cfr:NotGuaranteedorPreRefundedMembercfr:AaaAAAMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:GuaranteedbytheTexasPSFMembercfr:AaaAAAMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:AaaAAAMembercfr:PreRefundedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:AaaAAAMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:AaaAAAMemberus-gaap:OtherInvestmentsMember2020-12-310000039263cfr:AaAAMembercfr:NotGuaranteedorPreRefundedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:AaAAMembercfr:GuaranteedbytheTexasPSFMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:AaAAMembercfr:PreRefundedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:AaAAMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:AaAAMemberus-gaap:OtherInvestmentsMember2020-12-310000039263cfr:AMembercfr:NotGuaranteedorPreRefundedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:AMembercfr:GuaranteedbytheTexasPSFMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:AMembercfr:PreRefundedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:AMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:AMemberus-gaap:OtherInvestmentsMember2020-12-310000039263cfr:NotGuaranteedorPreRefundedMembercfr:NotratedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:GuaranteedbytheTexasPSFMembercfr:NotratedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:PreRefundedMembercfr:NotratedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:NotratedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:NotratedMemberus-gaap:OtherInvestmentsMember2020-12-310000039263cfr:NotGuaranteedorPreRefundedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:GuaranteedbytheTexasPSFMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263cfr:PreRefundedMemberus-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263us-gaap:DebtSecuritiesMember2021-06-300000039263us-gaap:DebtSecuritiesMember2020-06-300000039263us-gaap:DebtSecuritiesMember2020-12-310000039263us-gaap:DebtSecuritiesMember2019-12-310000039263us-gaap:DebtSecuritiesMember2021-07-012021-09-300000039263us-gaap:DebtSecuritiesMember2020-07-012020-09-300000039263us-gaap:DebtSecuritiesMember2021-01-012021-09-300000039263us-gaap:DebtSecuritiesMember2020-01-012020-09-300000039263us-gaap:DebtSecuritiesMember2021-09-300000039263us-gaap:DebtSecuritiesMember2020-09-300000039263us-gaap:USTreasurySecuritiesMember2021-09-300000039263us-gaap:USTreasurySecuritiesMember2020-12-31xbrli:pure0000039263us-gaap:AvailableforsaleSecuritiesMember2021-09-300000039263us-gaap:AvailableforsaleSecuritiesMember2020-12-310000039263us-gaap:CommercialPortfolioSegmentMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMember2020-12-310000039263cfr:EnergyProductionMember2021-09-300000039263cfr:EnergyProductionMember2020-12-310000039263us-gaap:EnergyServiceMember2021-09-300000039263us-gaap:EnergyServiceMember2020-12-310000039263cfr:EnergyOtherMember2021-09-300000039263cfr:EnergyOtherMember2020-12-310000039263cfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:CommercialandIndustrialTotalEnergyLoansMember2020-12-310000039263cfr:PaycheckProtectionProgramMember2021-09-300000039263cfr:PaycheckProtectionProgramMember2020-12-310000039263cfr:CommercialmortgageMember2021-09-300000039263cfr:CommercialmortgageMember2020-12-310000039263us-gaap:ConstructionLoansMember2021-09-300000039263us-gaap:ConstructionLoansMember2020-12-310000039263cfr:CommerciallandloanMember2021-09-300000039263cfr:CommerciallandloanMember2020-12-310000039263us-gaap:CommercialRealEstatePortfolioSegmentMember2021-09-300000039263us-gaap:CommercialRealEstatePortfolioSegmentMember2020-12-310000039263us-gaap:HomeEquityLoanMember2021-09-300000039263us-gaap:HomeEquityLoanMember2020-12-310000039263us-gaap:HomeEquityMember2021-09-300000039263us-gaap:HomeEquityMember2020-12-310000039263cfr:OtherconsumerrealestateloansMember2021-09-300000039263cfr:OtherconsumerrealestateloansMember2020-12-310000039263cfr:TotalconsumerrealestateloansMember2021-09-300000039263cfr:TotalconsumerrealestateloansMember2020-12-310000039263us-gaap:RealEstateLoanMember2021-09-300000039263us-gaap:RealEstateLoanMember2020-12-310000039263us-gaap:ConsumerLoanMember2021-09-300000039263us-gaap:ConsumerLoanMember2020-12-310000039263cfr:CommercialAndIndustrialEnergyFinancingReceivableMemberus-gaap:CommitmentsToExtendCreditMember2021-09-300000039263cfr:CommercialAndIndustrialEnergyFinancingReceivableMemberus-gaap:StandbyLettersOfCreditMember2021-09-300000039263us-gaap:LoansReceivableMember2021-09-300000039263us-gaap:LoansReceivableMember2020-12-310000039263cfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-09-300000039263cfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2020-12-310000039263us-gaap:CommercialPortfolioSegmentMemberus-gaap:NonperformingFinancingReceivableMember2021-09-300000039263us-gaap:NonperformingFinancingReceivableMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:PaycheckProtectionProgramMemberus-gaap:NonperformingFinancingReceivableMember2021-09-300000039263cfr:CommercialRealEstateBuildingsLandAndOtherLoansMemberus-gaap:NonperformingFinancingReceivableMember2021-09-300000039263us-gaap:ConstructionLoansMemberus-gaap:NonperformingFinancingReceivableMember2021-09-300000039263cfr:TotalconsumerrealestateloansMemberus-gaap:NonperformingFinancingReceivableMember2021-09-300000039263us-gaap:ConsumerLoanMemberus-gaap:NonperformingFinancingReceivableMember2021-09-300000039263us-gaap:NonperformingFinancingReceivableMember2021-09-300000039263cfr:NonAccrualLoansMember2021-07-012021-09-300000039263cfr:NonAccrualLoansMember2021-01-012021-09-300000039263cfr:NonAccrualLoansMember2020-07-012020-09-300000039263cfr:NonAccrualLoansMember2020-01-012020-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263cfr:FinancingReceivables30to89DaysPastDueMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:PaycheckProtectionProgramMembercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263cfr:PaycheckProtectionProgramMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263cfr:CommercialRealEstateBuildingsLandAndOtherLoansMembercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-09-300000039263us-gaap:ConstructionLoansMembercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263us-gaap:ConstructionLoansMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263cfr:TotalconsumerrealestateloansMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263us-gaap:ConsumerLoanMembercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263us-gaap:ConsumerLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263cfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMember2021-01-012021-09-300000039263us-gaap:CommercialPortfolioSegmentMember2020-01-012020-09-300000039263cfr:CommercialandIndustrialTotalEnergyLoansMember2021-01-012021-09-300000039263cfr:CommercialandIndustrialTotalEnergyLoansMember2020-01-012020-09-300000039263cfr:CommercialRealEstateBuildingsLandAndOtherFinancingReceivableMember2021-01-012021-09-300000039263cfr:CommercialRealEstateBuildingsLandAndOtherFinancingReceivableMember2020-01-012020-09-300000039263us-gaap:ConstructionLoansMember2021-01-012021-09-300000039263us-gaap:ConstructionLoansMember2020-01-012020-09-300000039263us-gaap:ConsumerLoanMember2021-01-012021-09-300000039263us-gaap:ConsumerLoanMember2020-01-012020-09-30cfr:Item0000039263us-gaap:CommercialPortfolioSegmentMembercfr:RiskGradeOneToEightMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:RevolvingLoansConvertedtoTermMembercfr:RiskGradeOneToEightMember2021-09-30cfr:Grade0000039263us-gaap:CommercialPortfolioSegmentMembercfr:RiskGradeNineMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:RiskGradeNineMembercfr:RevolvingLoansConvertedtoTermMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:RiskGradeTenMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:RiskGradeTenMembercfr:RevolvingLoansConvertedtoTermMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:RiskGradeElevenMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:RevolvingLoansConvertedtoTermMembercfr:RiskGradeElevenMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:RiskGradeTwelveMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:RevolvingLoansConvertedtoTermMembercfr:RiskGradeTwelveMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:RiskGradeThirteenMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:RevolvingLoansConvertedtoTermMembercfr:RiskGradeThirteenMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:RevolvingLoansConvertedtoTermMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:A2021Member2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:A2020Member2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:A2019Member2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:A2018Member2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:A2017Member2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:PriorYearsMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMemberus-gaap:RevolvingCreditFacilityMember2021-09-300000039263cfr:RiskGradeOneToEightMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:RiskGradeOneToEightMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:RiskGradeNineMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:RiskGradeNineMembercfr:RevolvingLoansConvertedtoTermMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:RiskGradeTenMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:RiskGradeTenMembercfr:RevolvingLoansConvertedtoTermMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:CommercialandIndustrialTotalEnergyLoansMembercfr:RiskGradeElevenMember2021-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:RiskGradeElevenMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:CommercialandIndustrialTotalEnergyLoansMembercfr:RiskGradeTwelveMember2021-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:RiskGradeTwelveMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:RiskGradeThirteenMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:RiskGradeThirteenMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:A2021Membercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:A2020Membercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:A2019Membercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:A2018Membercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:A2017Membercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:PriorYearsMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263us-gaap:RevolvingCreditFacilityMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:CommercialRealEstateBuildingsLandAndOtherLoansMembercfr:RiskGradeOneToEightMember2021-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMembercfr:RiskGradeOneToEightMember2021-09-300000039263cfr:RiskGradeNineMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-09-300000039263cfr:RiskGradeNineMembercfr:RevolvingLoansConvertedtoTermMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-09-300000039263cfr:RiskGradeTenMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-09-300000039263cfr:RiskGradeTenMembercfr:RevolvingLoansConvertedtoTermMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-09-300000039263cfr:CommercialRealEstateBuildingsLandAndOtherLoansMembercfr:RiskGradeElevenMember2021-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMembercfr:RiskGradeElevenMember2021-09-300000039263cfr:CommercialRealEstateBuildingsLandAndOtherLoansMembercfr:RiskGradeTwelveMember2021-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMembercfr:RiskGradeTwelveMember2021-09-300000039263cfr:CommercialRealEstateBuildingsLandAndOtherLoansMembercfr:RiskGradeThirteenMember2021-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:RiskGradeThirteenMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-09-300000039263cfr:CommercialRealEstateBuildingsLandAndOtherLoansMembercfr:A2021Member2021-09-300000039263cfr:A2020Membercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-09-300000039263cfr:A2019Membercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-09-300000039263cfr:A2018Membercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-09-300000039263cfr:A2017Membercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-09-300000039263cfr:PriorYearsMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-09-300000039263us-gaap:RevolvingCreditFacilityMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-09-300000039263us-gaap:ConstructionLoansMembercfr:RiskGradeOneToEightMember2021-09-300000039263us-gaap:ConstructionLoansMembercfr:RevolvingLoansConvertedtoTermMembercfr:RiskGradeOneToEightMember2021-09-300000039263us-gaap:ConstructionLoansMembercfr:RiskGradeNineMember2021-09-300000039263us-gaap:ConstructionLoansMembercfr:RiskGradeNineMembercfr:RevolvingLoansConvertedtoTermMember2021-09-300000039263us-gaap:ConstructionLoansMembercfr:RiskGradeTenMember2021-09-300000039263us-gaap:ConstructionLoansMembercfr:RiskGradeTenMembercfr:RevolvingLoansConvertedtoTermMember2021-09-300000039263us-gaap:ConstructionLoansMembercfr:RiskGradeElevenMember2021-09-300000039263us-gaap:ConstructionLoansMembercfr:RevolvingLoansConvertedtoTermMembercfr:RiskGradeElevenMember2021-09-300000039263us-gaap:ConstructionLoansMembercfr:RiskGradeTwelveMember2021-09-300000039263us-gaap:ConstructionLoansMembercfr:RevolvingLoansConvertedtoTermMembercfr:RiskGradeTwelveMember2021-09-300000039263us-gaap:ConstructionLoansMembercfr:RiskGradeThirteenMember2021-09-300000039263us-gaap:ConstructionLoansMembercfr:RevolvingLoansConvertedtoTermMembercfr:RiskGradeThirteenMember2021-09-300000039263us-gaap:ConstructionLoansMembercfr:RevolvingLoansConvertedtoTermMember2021-09-300000039263us-gaap:ConstructionLoansMembercfr:A2021Member2021-09-300000039263us-gaap:ConstructionLoansMembercfr:A2020Member2021-09-300000039263us-gaap:ConstructionLoansMembercfr:A2019Member2021-09-300000039263us-gaap:ConstructionLoansMembercfr:A2018Member2021-09-300000039263us-gaap:ConstructionLoansMembercfr:A2017Member2021-09-300000039263us-gaap:ConstructionLoansMembercfr:PriorYearsMember2021-09-300000039263us-gaap:ConstructionLoansMemberus-gaap:RevolvingCreditFacilityMember2021-09-300000039263cfr:RevolvingLoansConvertedtoTermMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2021-09-300000039263cfr:A2021Memberus-gaap:CommercialRealEstatePortfolioSegmentMember2021-09-300000039263cfr:A2020Memberus-gaap:CommercialRealEstatePortfolioSegmentMember2021-09-300000039263cfr:A2019Memberus-gaap:CommercialRealEstatePortfolioSegmentMember2021-09-300000039263cfr:A2018Memberus-gaap:CommercialRealEstatePortfolioSegmentMember2021-09-300000039263cfr:A2017Memberus-gaap:CommercialRealEstatePortfolioSegmentMember2021-09-300000039263cfr:PriorYearsMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2021-09-300000039263us-gaap:RevolvingCreditFacilityMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:RiskGradeOneToEightMember2020-12-310000039263cfr:RiskGradeOneToEightMembercfr:CommercialandIndustrialTotalEnergyLoansMember2020-12-310000039263cfr:CommercialRealEstateBuildingsLandAndOtherLoansMembercfr:RiskGradeOneToEightMember2020-12-310000039263us-gaap:ConstructionLoansMembercfr:RiskGradeOneToEightMember2020-12-310000039263us-gaap:CommercialRealEstatePortfolioSegmentMembercfr:RiskGradeOneToEightMember2020-12-310000039263us-gaap:CommercialPortfolioSegmentMembercfr:RiskGradeNineMember2020-12-310000039263cfr:RiskGradeNineMembercfr:CommercialandIndustrialTotalEnergyLoansMember2020-12-310000039263cfr:RiskGradeNineMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2020-12-310000039263us-gaap:ConstructionLoansMembercfr:RiskGradeNineMember2020-12-310000039263cfr:RiskGradeNineMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2020-12-310000039263us-gaap:CommercialPortfolioSegmentMembercfr:RiskGradeTenMember2020-12-310000039263cfr:RiskGradeTenMembercfr:CommercialandIndustrialTotalEnergyLoansMember2020-12-310000039263cfr:RiskGradeTenMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2020-12-310000039263us-gaap:ConstructionLoansMembercfr:RiskGradeTenMember2020-12-310000039263cfr:RiskGradeTenMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2020-12-310000039263us-gaap:CommercialPortfolioSegmentMembercfr:RiskGradeElevenMember2020-12-310000039263cfr:CommercialandIndustrialTotalEnergyLoansMembercfr:RiskGradeElevenMember2020-12-310000039263cfr:CommercialRealEstateBuildingsLandAndOtherLoansMembercfr:RiskGradeElevenMember2020-12-310000039263us-gaap:ConstructionLoansMembercfr:RiskGradeElevenMember2020-12-310000039263us-gaap:CommercialRealEstatePortfolioSegmentMembercfr:RiskGradeElevenMember2020-12-310000039263us-gaap:CommercialPortfolioSegmentMembercfr:RiskGradeTwelveMember2020-12-310000039263cfr:CommercialandIndustrialTotalEnergyLoansMembercfr:RiskGradeTwelveMember2020-12-310000039263cfr:CommercialRealEstateBuildingsLandAndOtherLoansMembercfr:RiskGradeTwelveMember2020-12-310000039263us-gaap:ConstructionLoansMembercfr:RiskGradeTwelveMember2020-12-310000039263us-gaap:CommercialRealEstatePortfolioSegmentMembercfr:RiskGradeTwelveMember2020-12-310000039263us-gaap:CommercialPortfolioSegmentMembercfr:RiskGradeThirteenMember2020-12-310000039263cfr:RiskGradeThirteenMembercfr:CommercialandIndustrialTotalEnergyLoansMember2020-12-310000039263cfr:CommercialRealEstateBuildingsLandAndOtherLoansMembercfr:RiskGradeThirteenMember2020-12-310000039263us-gaap:ConstructionLoansMembercfr:RiskGradeThirteenMember2020-12-310000039263cfr:RiskGradeThirteenMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2020-12-310000039263cfr:A2021Membercfr:TotalconsumerrealestateloansMembercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:FinancingReceivables30to89DaysPastDueMembercfr:A2020Member2021-09-300000039263cfr:A2019Membercfr:TotalconsumerrealestateloansMembercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:A2018Membercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:A2017Membercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:PriorYearsMembercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263cfr:TotalconsumerrealestateloansMemberus-gaap:RevolvingCreditFacilityMembercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:RevolvingLoansConvertedtoTermMembercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263cfr:A2021Membercfr:TotalconsumerrealestateloansMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263cfr:TotalconsumerrealestateloansMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMembercfr:A2020Member2021-09-300000039263cfr:A2019Membercfr:TotalconsumerrealestateloansMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:A2018Memberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:A2017Memberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:PriorYearsMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263cfr:TotalconsumerrealestateloansMemberus-gaap:RevolvingCreditFacilityMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:RevolvingLoansConvertedtoTermMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263cfr:A2021Membercfr:TotalconsumerrealestateloansMember2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:A2020Member2021-09-300000039263cfr:A2019Membercfr:TotalconsumerrealestateloansMember2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:A2018Member2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:A2017Member2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:PriorYearsMember2021-09-300000039263cfr:TotalconsumerrealestateloansMemberus-gaap:RevolvingCreditFacilityMember2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:RevolvingLoansConvertedtoTermMember2021-09-300000039263cfr:A2021Memberus-gaap:ConsumerLoanMembercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263us-gaap:ConsumerLoanMembercfr:FinancingReceivables30to89DaysPastDueMembercfr:A2020Member2021-09-300000039263us-gaap:ConsumerLoanMembercfr:A2019Membercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263us-gaap:ConsumerLoanMembercfr:A2018Membercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263us-gaap:ConsumerLoanMembercfr:A2017Membercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263us-gaap:ConsumerLoanMembercfr:PriorYearsMembercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263us-gaap:ConsumerLoanMemberus-gaap:RevolvingCreditFacilityMembercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263us-gaap:ConsumerLoanMembercfr:RevolvingLoansConvertedtoTermMembercfr:FinancingReceivables30to89DaysPastDueMember2021-09-300000039263cfr:A2021Memberus-gaap:ConsumerLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263us-gaap:ConsumerLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMembercfr:A2020Member2021-09-300000039263us-gaap:ConsumerLoanMembercfr:A2019Memberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263us-gaap:ConsumerLoanMembercfr:A2018Memberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263us-gaap:ConsumerLoanMembercfr:A2017Memberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263us-gaap:ConsumerLoanMembercfr:PriorYearsMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263us-gaap:ConsumerLoanMemberus-gaap:RevolvingCreditFacilityMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263us-gaap:ConsumerLoanMembercfr:RevolvingLoansConvertedtoTermMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-09-300000039263cfr:A2021Memberus-gaap:ConsumerLoanMember2021-09-300000039263us-gaap:ConsumerLoanMembercfr:A2020Member2021-09-300000039263us-gaap:ConsumerLoanMembercfr:A2019Member2021-09-300000039263us-gaap:ConsumerLoanMembercfr:A2018Member2021-09-300000039263us-gaap:ConsumerLoanMembercfr:A2017Member2021-09-300000039263us-gaap:ConsumerLoanMembercfr:PriorYearsMember2021-09-300000039263us-gaap:ConsumerLoanMemberus-gaap:RevolvingCreditFacilityMember2021-09-300000039263us-gaap:ConsumerLoanMembercfr:RevolvingLoansConvertedtoTermMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:RevolvingLoansConvertedtoTermMember2021-07-012021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:RevolvingLoansConvertedtoTermMember2020-07-012020-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:RevolvingLoansConvertedtoTermMember2021-01-012021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:RevolvingLoansConvertedtoTermMember2020-01-012020-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-07-012021-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:CommercialandIndustrialTotalEnergyLoansMember2020-07-012020-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-01-012021-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:CommercialandIndustrialTotalEnergyLoansMember2020-01-012020-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-07-012021-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2020-07-012020-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-01-012021-09-300000039263cfr:RevolvingLoansConvertedtoTermMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2020-01-012020-09-300000039263us-gaap:ConstructionLoansMembercfr:RevolvingLoansConvertedtoTermMember2021-07-012021-09-300000039263us-gaap:ConstructionLoansMembercfr:RevolvingLoansConvertedtoTermMember2020-07-012020-09-300000039263us-gaap:ConstructionLoansMembercfr:RevolvingLoansConvertedtoTermMember2021-01-012021-09-300000039263us-gaap:ConstructionLoansMembercfr:RevolvingLoansConvertedtoTermMember2020-01-012020-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:RevolvingLoansConvertedtoTermMember2021-07-012021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:RevolvingLoansConvertedtoTermMember2020-07-012020-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:RevolvingLoansConvertedtoTermMember2021-01-012021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:RevolvingLoansConvertedtoTermMember2020-01-012020-09-300000039263us-gaap:ConsumerLoanMembercfr:RevolvingLoansConvertedtoTermMember2021-07-012021-09-300000039263us-gaap:ConsumerLoanMembercfr:RevolvingLoansConvertedtoTermMember2020-07-012020-09-300000039263us-gaap:ConsumerLoanMembercfr:RevolvingLoansConvertedtoTermMember2021-01-012021-09-300000039263us-gaap:ConsumerLoanMembercfr:RevolvingLoansConvertedtoTermMember2020-01-012020-09-300000039263cfr:RevolvingLoansConvertedtoTermMember2021-07-012021-09-300000039263cfr:RevolvingLoansConvertedtoTermMember2020-07-012020-09-300000039263cfr:RevolvingLoansConvertedtoTermMember2021-01-012021-09-300000039263cfr:RevolvingLoansConvertedtoTermMember2020-01-012020-09-3000000392632021-08-310000039263us-gaap:CommercialPortfolioSegmentMembercfr:ModeledExpectedCreditLossesMember2021-09-300000039263cfr:ModeledExpectedCreditLossesMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:ModeledExpectedCreditLossesMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:ModeledExpectedCreditLossesMember2021-09-300000039263us-gaap:ConsumerLoanMembercfr:ModeledExpectedCreditLossesMember2021-09-300000039263cfr:ModeledExpectedCreditLossesMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:QfactoradjustmentsMember2021-09-300000039263cfr:QfactoradjustmentsMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:QfactoradjustmentsMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:QfactoradjustmentsMember2021-09-300000039263us-gaap:ConsumerLoanMembercfr:QfactoradjustmentsMember2021-09-300000039263cfr:QfactoradjustmentsMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:SpecificValuationAllowancesMember2021-09-300000039263cfr:SpecificValuationAllowancesMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:SpecificValuationAllowancesMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2021-09-300000039263cfr:TotalconsumerrealestateloansMembercfr:SpecificValuationAllowancesMember2021-09-300000039263us-gaap:ConsumerLoanMembercfr:SpecificValuationAllowancesMember2021-09-300000039263cfr:SpecificValuationAllowancesMember2021-09-300000039263us-gaap:LoansReceivableMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:ModeledExpectedCreditLossesMember2020-12-310000039263cfr:ModeledExpectedCreditLossesMembercfr:CommercialandIndustrialTotalEnergyLoansMember2020-12-310000039263cfr:ModeledExpectedCreditLossesMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2020-12-310000039263cfr:TotalconsumerrealestateloansMembercfr:ModeledExpectedCreditLossesMember2020-12-310000039263us-gaap:ConsumerLoanMembercfr:ModeledExpectedCreditLossesMember2020-12-310000039263cfr:ModeledExpectedCreditLossesMember2020-12-310000039263us-gaap:CommercialPortfolioSegmentMembercfr:QfactoradjustmentsMember2020-12-310000039263cfr:QfactoradjustmentsMembercfr:CommercialandIndustrialTotalEnergyLoansMember2020-12-310000039263cfr:QfactoradjustmentsMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2020-12-310000039263cfr:TotalconsumerrealestateloansMembercfr:QfactoradjustmentsMember2020-12-310000039263us-gaap:ConsumerLoanMembercfr:QfactoradjustmentsMember2020-12-310000039263cfr:QfactoradjustmentsMember2020-12-310000039263us-gaap:CommercialPortfolioSegmentMembercfr:SpecificValuationAllowancesMember2020-12-310000039263cfr:SpecificValuationAllowancesMembercfr:CommercialandIndustrialTotalEnergyLoansMember2020-12-310000039263cfr:SpecificValuationAllowancesMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2020-12-310000039263cfr:TotalconsumerrealestateloansMembercfr:SpecificValuationAllowancesMember2020-12-310000039263us-gaap:ConsumerLoanMembercfr:SpecificValuationAllowancesMember2020-12-310000039263cfr:SpecificValuationAllowancesMember2020-12-310000039263us-gaap:LoansReceivableMember2020-12-310000039263us-gaap:CommercialPortfolioSegmentMember2021-06-300000039263cfr:CommercialandIndustrialTotalEnergyLoansMember2021-06-300000039263us-gaap:CommercialRealEstatePortfolioSegmentMember2021-06-300000039263cfr:TotalconsumerrealestateloansMember2021-06-300000039263us-gaap:ConsumerLoanMember2021-06-300000039263us-gaap:LoansReceivableMember2021-06-300000039263us-gaap:CommercialPortfolioSegmentMember2021-07-012021-09-300000039263cfr:CommercialandIndustrialTotalEnergyLoansMember2021-07-012021-09-300000039263us-gaap:CommercialRealEstatePortfolioSegmentMember2021-07-012021-09-300000039263cfr:TotalconsumerrealestateloansMember2021-07-012021-09-300000039263us-gaap:ConsumerLoanMember2021-07-012021-09-300000039263us-gaap:LoansReceivableMember2021-07-012021-09-300000039263us-gaap:CommercialPortfolioSegmentMember2020-06-300000039263cfr:CommercialandIndustrialTotalEnergyLoansMember2020-06-300000039263us-gaap:CommercialRealEstatePortfolioSegmentMember2020-06-300000039263cfr:TotalconsumerrealestateloansMember2020-06-300000039263us-gaap:ConsumerLoanMember2020-06-300000039263us-gaap:LoansReceivableMember2020-06-300000039263us-gaap:CommercialPortfolioSegmentMember2020-07-012020-09-300000039263cfr:CommercialandIndustrialTotalEnergyLoansMember2020-07-012020-09-300000039263us-gaap:CommercialRealEstatePortfolioSegmentMember2020-07-012020-09-300000039263cfr:TotalconsumerrealestateloansMember2020-07-012020-09-300000039263us-gaap:ConsumerLoanMember2020-07-012020-09-300000039263us-gaap:LoansReceivableMember2020-07-012020-09-300000039263us-gaap:CommercialPortfolioSegmentMember2020-09-300000039263cfr:CommercialandIndustrialTotalEnergyLoansMember2020-09-300000039263us-gaap:CommercialRealEstatePortfolioSegmentMember2020-09-300000039263cfr:TotalconsumerrealestateloansMember2020-09-300000039263us-gaap:ConsumerLoanMember2020-09-300000039263us-gaap:LoansReceivableMember2020-09-300000039263us-gaap:CommercialRealEstatePortfolioSegmentMember2021-01-012021-09-300000039263cfr:TotalconsumerrealestateloansMember2021-01-012021-09-300000039263us-gaap:LoansReceivableMember2021-01-012021-09-300000039263us-gaap:CommercialPortfolioSegmentMember2019-12-310000039263cfr:CommercialandIndustrialTotalEnergyLoansMember2019-12-310000039263us-gaap:CommercialRealEstatePortfolioSegmentMember2019-12-310000039263cfr:TotalconsumerrealestateloansMember2019-12-310000039263us-gaap:ConsumerLoanMember2019-12-310000039263us-gaap:LoansReceivableMember2019-12-310000039263us-gaap:CommercialRealEstatePortfolioSegmentMember2020-01-012020-09-300000039263cfr:TotalconsumerrealestateloansMember2020-01-012020-09-300000039263us-gaap:LoansReceivableMember2020-01-012020-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:LoansIndividuallyEvaluatedForImpairmentMember2021-09-300000039263us-gaap:CommercialPortfolioSegmentMembercfr:LoansIndividuallyEvaluatedForImpairmentMember2020-12-310000039263cfr:LoansIndividuallyEvaluatedForImpairmentMembercfr:CommercialandIndustrialTotalEnergyLoansMember2021-09-300000039263cfr:LoansIndividuallyEvaluatedForImpairmentMembercfr:CommercialandIndustrialTotalEnergyLoansMember2020-12-310000039263cfr:LoansIndividuallyEvaluatedForImpairmentMembercfr:PaycheckProtectionProgramMember2021-09-300000039263cfr:SpecificValuationAllowancesMembercfr:PaycheckProtectionProgramMember2021-09-300000039263cfr:LoansIndividuallyEvaluatedForImpairmentMembercfr:PaycheckProtectionProgramMember2020-12-310000039263cfr:SpecificValuationAllowancesMembercfr:PaycheckProtectionProgramMember2020-12-310000039263cfr:LoansIndividuallyEvaluatedForImpairmentMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-09-300000039263cfr:SpecificValuationAllowancesMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2021-09-300000039263cfr:LoansIndividuallyEvaluatedForImpairmentMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2020-12-310000039263cfr:SpecificValuationAllowancesMembercfr:CommercialRealEstateBuildingsLandAndOtherLoansMember2020-12-310000039263us-gaap:ConstructionLoansMembercfr:LoansIndividuallyEvaluatedForImpairmentMember2021-09-300000039263us-gaap:ConstructionLoansMembercfr:SpecificValuationAllowancesMember2021-09-300000039263us-gaap:ConstructionLoansMembercfr:LoansIndividuallyEvaluatedForImpairmentMember2020-12-310000039263us-gaap:ConstructionLoansMembercfr:SpecificValuationAllowancesMember2020-12-310000039263cfr:LoansIndividuallyEvaluatedForImpairmentMembercfr:TotalconsumerrealestateloansMember2021-09-300000039263cfr:LoansIndividuallyEvaluatedForImpairmentMembercfr:TotalconsumerrealestateloansMember2020-12-310000039263us-gaap:ConsumerLoanMembercfr:LoansIndividuallyEvaluatedForImpairmentMember2021-09-300000039263us-gaap:ConsumerLoanMembercfr:LoansIndividuallyEvaluatedForImpairmentMember2020-12-310000039263cfr:LoansIndividuallyEvaluatedForImpairmentMember2021-09-300000039263cfr:LoansIndividuallyEvaluatedForImpairmentMember2020-12-310000039263us-gaap:CoreDepositsMember2021-09-300000039263us-gaap:CoreDepositsMember2020-12-310000039263us-gaap:CustomerRelationshipsMember2021-09-300000039263us-gaap:CustomerRelationshipsMember2020-12-310000039263cfr:CommercialAndIndividualMember2021-09-300000039263cfr:CommercialAndIndividualMember2020-12-310000039263cfr:CorrespondentBanksMember2021-09-300000039263cfr:CorrespondentBanksMember2020-12-310000039263cfr:PublicFundsMember2021-09-300000039263cfr:PublicFundsMember2020-12-310000039263cfr:PrivateAccountsMember2021-09-300000039263cfr:PrivateAccountsMember2020-12-310000039263us-gaap:CommitmentsToExtendCreditMember2021-09-300000039263us-gaap:CommitmentsToExtendCreditMember2020-12-310000039263us-gaap:StandbyLettersOfCreditMember2021-09-300000039263us-gaap:StandbyLettersOfCreditMember2020-12-310000039263cfr:DeferredStandbyLetterOfCreditFeesMember2021-09-300000039263cfr:DeferredStandbyLetterOfCreditFeesMember2020-12-310000039263cfr:CullenFrostMember2021-09-300000039263cfr:CullenFrostMember2020-12-310000039263cfr:CullenFrostMember2021-01-012021-09-300000039263us-gaap:SeriesBPreferredStockMember2020-11-192020-11-190000039263cfr:CullenFrostMember2020-01-012020-12-310000039263cfr:FrostBankMember2021-09-300000039263cfr:FrostBankMember2020-12-310000039263us-gaap:SubordinatedDebtMembercfr:CullenFrostMember2020-12-310000039263us-gaap:SubordinatedDebtMembercfr:CullenFrostMember2021-09-300000039263cfr:TrustPreferredSecuritiesTierTwoCapitalAllowablePortionMembercfr:CullenFrostMember2021-01-012021-09-300000039263cfr:TrustPreferredSecuritiesTierTwoCapitalAllowablePortionMembercfr:CullenFrostMember2020-01-012020-12-310000039263cfr:TrustPreferredSecuritiesTierTwoCapitalAllowablePortionMemberus-gaap:SubsequentEventMembercfr:WNBCapitalTrustIMembercfr:CullenFrostMember2021-10-012021-12-31utr:Rate00000392632020-03-162020-03-160000039263us-gaap:SeriesAPreferredStockMember2020-03-160000039263us-gaap:PreferredStockMember2020-03-162020-03-160000039263us-gaap:PreferredStockMember2013-02-152013-02-150000039263us-gaap:RetainedEarningsMember2020-03-162020-03-1600000392632013-02-152013-02-150000039263us-gaap:SeriesBPreferredStockMember2020-11-190000039263cfr:SeriesBPreferredStockEquivalentDepositarySharesMemberMember2020-11-190000039263cfr:StockRepurchase2021PlanMember2021-01-270000039263cfr:StockRepurchase2021PlanMember2021-01-272021-01-270000039263cfr:StockRepurchase2021PlanMemberus-gaap:TreasuryStockMember2021-01-012021-09-300000039263cfr:Stockrepurchase2019planMemberus-gaap:TreasuryStockMember2020-01-012020-03-31cfr:quarter0000039263us-gaap:NondesignatedMembercfr:FinancialInstitutionCounterpartiesLoanLeaseInterestRateSwapsLiabilitiesMember2020-12-310000039263us-gaap:NondesignatedMembercfr:FinancialInstitutionCounterpartiesLoanLeaseInterestRateSwapsLiabilitiesMember2021-09-300000039263us-gaap:DesignatedAsHedgingInstrumentMembercfr:FinancialInstitutionCounterpartiesLoanLeaseInterestRateSwapsLiabilitiesMember2021-09-300000039263us-gaap:DesignatedAsHedgingInstrumentMembercfr:FinancialInstitutionCounterpartiesLoanLeaseInterestRateSwapsLiabilitiesMember2020-12-310000039263us-gaap:NondesignatedMembercfr:FinancialInstitutionCounterpartiesLoanLeaseInterestRateSwapsAssetsMember2021-09-300000039263us-gaap:NondesignatedMembercfr:FinancialInstitutionCounterpartiesLoanLeaseInterestRateSwapsAssetsMember2020-12-310000039263us-gaap:NondesignatedMembercfr:FinancialInstitutionCounterpartiesLoanLeaseInterestRateCapsAssetsMember2021-09-300000039263us-gaap:NondesignatedMembercfr:FinancialInstitutionCounterpartiesLoanLeaseInterestRateCapsAssetsMember2020-12-310000039263us-gaap:NondesignatedMembercfr:CustomerCounterpartiesLoanLeaseInterestRateSwapsAssetsMember2021-09-300000039263us-gaap:NondesignatedMembercfr:CustomerCounterpartiesLoanLeaseInterestRateSwapsAssetsMember2020-12-310000039263us-gaap:NondesignatedMembercfr:CustomerCounterpartiesLoanLeaseInterestRateSwapsLiabilitiesMember2021-09-300000039263us-gaap:NondesignatedMembercfr:CustomerCounterpartiesLoanLeaseInterestRateSwapsLiabilitiesMember2020-12-310000039263us-gaap:NondesignatedMembercfr:CustomerCounterpartiesLoanLeaseInterestRateCapsLiabilitiesMember2021-09-300000039263us-gaap:NondesignatedMembercfr:CustomerCounterpartiesLoanLeaseInterestRateCapsLiabilitiesMember2020-12-310000039263cfr:WeightedAverageInterestRatePaidMember2021-09-300000039263cfr:WeightedAverageInterestRateReceivedMember2021-09-300000039263cfr:FinancialInstitutionCounterpartiesMembercfr:WeightedAverageInterestRatePaidMember2021-09-300000039263cfr:WeightedAverageInterestRateReceivedMembercfr:FinancialInstitutionCounterpartiesMember2021-09-300000039263cfr:CustomerCounterpartiesMembercfr:WeightedAverageInterestRatePaidMember2021-09-300000039263cfr:WeightedAverageInterestRateReceivedMembercfr:CustomerCounterpartiesMember2021-09-30utr:bbl0000039263cfr:OilCommodityDerivativeMembercfr:FinancialInstitutionCounterpartiesMember2021-09-300000039263cfr:OilCommodityDerivativeMembercfr:FinancialInstitutionCounterpartiesMember2020-12-31utr:MMBTU0000039263cfr:NaturalGasCommodityDerivativeMembercfr:FinancialInstitutionCounterpartiesMember2021-09-300000039263cfr:NaturalGasCommodityDerivativeMembercfr:FinancialInstitutionCounterpartiesMember2020-12-310000039263cfr:OilCommodityDerivativeMembercfr:CustomerCounterpartiesMember2021-09-300000039263cfr:OilCommodityDerivativeMembercfr:CustomerCounterpartiesMember2020-12-310000039263cfr:NaturalGasCommodityDerivativeMembercfr:CustomerCounterpartiesMember2021-09-300000039263cfr:NaturalGasCommodityDerivativeMembercfr:CustomerCounterpartiesMember2020-12-31iso4217:CAD0000039263us-gaap:NondesignatedMemberus-gaap:OtherAssetsMembercfr:FinancialInstitutionCounterpartiesMember2021-09-300000039263cfr:FinancialInstitutionCounterpartiesMemberus-gaap:ForeignExchangeForwardMember2021-09-300000039263us-gaap:NondesignatedMemberus-gaap:OtherAssetsMembercfr:FinancialInstitutionCounterpartiesMember2020-12-310000039263cfr:FinancialInstitutionCounterpartiesMemberus-gaap:ForeignExchangeForwardMember2020-12-310000039263us-gaap:NondesignatedMemberus-gaap:OtherAssetsMembercfr:CustomerCounterpartiesMember2021-09-300000039263cfr:CustomerCounterpartiesMemberus-gaap:ForeignExchangeForwardMember2021-09-300000039263us-gaap:NondesignatedMemberus-gaap:OtherAssetsMembercfr:CustomerCounterpartiesMember2020-12-310000039263cfr:CustomerCounterpartiesMemberus-gaap:ForeignExchangeForwardMember2020-12-310000039263us-gaap:DesignatedAsHedgingInstrumentMembercfr:CommercialLoanLeaseInterestRateSwapsMemberus-gaap:InterestIncomeMember2021-07-012021-09-300000039263us-gaap:DesignatedAsHedgingInstrumentMembercfr:CommercialLoanLeaseInterestRateSwapsMemberus-gaap:InterestIncomeMember2020-07-012020-09-300000039263us-gaap:DesignatedAsHedgingInstrumentMembercfr:CommercialLoanLeaseInterestRateSwapsMemberus-gaap:InterestIncomeMember2021-01-012021-09-300000039263us-gaap:DesignatedAsHedgingInstrumentMembercfr:CommercialLoanLeaseInterestRateSwapsMemberus-gaap:InterestIncomeMember2020-01-012020-09-300000039263us-gaap:DesignatedAsHedgingInstrumentMembercfr:CommercialLoanLeaseInterestRateSwapsMemberus-gaap:OtherExpenseMember2021-07-012021-09-300000039263us-gaap:DesignatedAsHedgingInstrumentMembercfr:CommercialLoanLeaseInterestRateSwapsMemberus-gaap:OtherExpenseMember2020-07-012020-09-300000039263us-gaap:DesignatedAsHedgingInstrumentMembercfr:CommercialLoanLeaseInterestRateSwapsMemberus-gaap:OtherExpenseMember2021-01-012021-09-300000039263us-gaap:DesignatedAsHedgingInstrumentMembercfr:CommercialLoanLeaseInterestRateSwapsMemberus-gaap:OtherExpenseMember2020-01-012020-09-300000039263us-gaap:NondesignatedMemberus-gaap:USTreasurySecuritiesMemberus-gaap:PutOptionMember2020-03-310000039263us-gaap:NondesignatedMemberus-gaap:PutOptionMemberus-gaap:OtherIncomeMember2020-01-012020-03-310000039263us-gaap:NondesignatedMemberus-gaap:InterestRateContractMemberus-gaap:OtherIncomeMember2021-07-012021-09-300000039263us-gaap:NondesignatedMemberus-gaap:InterestRateContractMemberus-gaap:OtherIncomeMember2020-07-012020-09-300000039263us-gaap:NondesignatedMemberus-gaap:InterestRateContractMemberus-gaap:OtherIncomeMember2021-01-012021-09-300000039263us-gaap:NondesignatedMemberus-gaap:InterestRateContractMemberus-gaap:OtherIncomeMember2020-01-012020-09-300000039263us-gaap:NondesignatedMemberus-gaap:InterestRateContractMemberus-gaap:OtherExpenseMember2021-07-012021-09-300000039263us-gaap:NondesignatedMemberus-gaap:InterestRateContractMemberus-gaap:OtherExpenseMember2020-07-012020-09-300000039263us-gaap:NondesignatedMemberus-gaap:InterestRateContractMemberus-gaap:OtherExpenseMember2021-01-012021-09-300000039263us-gaap:NondesignatedMemberus-gaap:InterestRateContractMemberus-gaap:OtherExpenseMember2020-01-012020-09-300000039263us-gaap:NondesignatedMemberus-gaap:CommodityContractMemberus-gaap:OtherIncomeMember2021-07-012021-09-300000039263us-gaap:NondesignatedMemberus-gaap:CommodityContractMemberus-gaap:OtherIncomeMember2020-07-012020-09-300000039263us-gaap:NondesignatedMemberus-gaap:CommodityContractMemberus-gaap:OtherIncomeMember2021-01-012021-09-300000039263us-gaap:NondesignatedMemberus-gaap:CommodityContractMemberus-gaap:OtherIncomeMember2020-01-012020-09-300000039263us-gaap:NondesignatedMemberus-gaap:ForeignExchangeContractMemberus-gaap:OtherIncomeMember2021-07-012021-09-300000039263us-gaap:NondesignatedMemberus-gaap:ForeignExchangeContractMemberus-gaap:OtherIncomeMember2020-07-012020-09-300000039263us-gaap:NondesignatedMemberus-gaap:ForeignExchangeContractMemberus-gaap:OtherIncomeMember2021-01-012021-09-300000039263us-gaap:NondesignatedMemberus-gaap:ForeignExchangeContractMemberus-gaap:OtherIncomeMember2020-01-012020-09-300000039263us-gaap:NondesignatedMemberus-gaap:PutOptionMemberus-gaap:OtherIncomeMember2021-07-012021-09-300000039263us-gaap:NondesignatedMemberus-gaap:PutOptionMemberus-gaap:OtherIncomeMember2020-07-012020-09-300000039263us-gaap:NondesignatedMemberus-gaap:PutOptionMemberus-gaap:OtherIncomeMember2021-01-012021-09-300000039263us-gaap:NondesignatedMemberus-gaap:PutOptionMemberus-gaap:OtherIncomeMember2020-01-012020-09-300000039263cfr:InterestRateSwapsWithUpstreamFinancialInstitutionCounterpartiesMember2021-09-300000039263cfr:LoanLeaseInterestRateSwapsAndCapsMember2021-09-300000039263cfr:CommoditySwapsAndOptionsMember2021-09-300000039263cfr:ForeignCurrencyForwardContractsMember2021-09-300000039263cfr:LoanLeaseInterestRateSwapsMember2021-09-300000039263cfr:CounterpartyaMember2021-09-300000039263cfr:CounterpartybMember2021-09-300000039263cfr:OtherCounterpartiesMember2021-09-300000039263cfr:CounterpartycMember2021-09-300000039263cfr:LoanLeaseInterestRateSwapsAndCapsMember2020-12-310000039263cfr:CommoditySwapsAndOptionsMember2020-12-310000039263cfr:LoanLeaseInterestRateSwapsMember2020-12-310000039263cfr:CounterpartyaMember2020-12-310000039263cfr:CounterpartybMember2020-12-310000039263cfr:OtherCounterpartiesMember2020-12-310000039263cfr:CounterpartycMember2020-12-310000039263cfr:DirectordeferredstockunitsoutstandingMember2020-12-310000039263cfr:NonVestedStockAwardsOutstandingMember2020-12-310000039263us-gaap:PerformanceSharesMembersrt:MaximumMember2020-12-310000039263us-gaap:EmployeeStockOptionMember2020-12-310000039263cfr:DirectordeferredstockunitsoutstandingMember2021-01-012021-09-300000039263cfr:NonVestedStockAwardsOutstandingMember2021-01-012021-09-300000039263us-gaap:PerformanceSharesMembersrt:MaximumMember2021-01-012021-09-300000039263us-gaap:EmployeeStockOptionMember2021-01-012021-09-300000039263cfr:DirectordeferredstockunitsoutstandingMember2021-09-300000039263cfr:NonVestedStockAwardsOutstandingMember2021-09-300000039263us-gaap:PerformanceSharesMembersrt:MaximumMember2021-09-300000039263us-gaap:EmployeeStockOptionMember2021-09-300000039263cfr:NonVestedStockAwardsOutstandingMember2021-07-012021-09-300000039263cfr:NonVestedStockAwardsOutstandingMember2020-07-012020-09-300000039263cfr:NonVestedStockAwardsOutstandingMember2020-01-012020-09-300000039263cfr:DirectordeferredstockunitsoutstandingMember2021-07-012021-09-300000039263cfr:DirectordeferredstockunitsoutstandingMember2020-07-012020-09-300000039263cfr:DirectordeferredstockunitsoutstandingMember2020-01-012020-09-300000039263us-gaap:PerformanceSharesMember2021-07-012021-09-300000039263us-gaap:PerformanceSharesMember2020-07-012020-09-300000039263us-gaap:PerformanceSharesMember2021-01-012021-09-300000039263us-gaap:PerformanceSharesMember2020-01-012020-09-300000039263us-gaap:AvailableforsaleSecuritiesMember2020-12-310000039263us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2020-12-310000039263us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310000039263us-gaap:AvailableforsaleSecuritiesMember2021-01-012021-09-300000039263us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-01-012021-09-300000039263us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-09-300000039263us-gaap:AvailableforsaleSecuritiesMember2021-09-300000039263us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-09-300000039263us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-09-300000039263us-gaap:AvailableforsaleSecuritiesMember2019-12-310000039263us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2019-12-310000039263us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310000039263us-gaap:AvailableforsaleSecuritiesMember2020-01-012020-09-300000039263us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2020-01-012020-09-300000039263us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-09-300000039263us-gaap:AvailableforsaleSecuritiesMember2020-09-300000039263us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2020-09-300000039263us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-09-30cfr:Segment0000039263cfr:BankMember2021-07-012021-09-300000039263cfr:FrostWealthAdvisorsMember2021-07-012021-09-300000039263cfr:NonBanksMember2021-07-012021-09-300000039263cfr:BankMember2020-07-012020-09-300000039263cfr:FrostWealthAdvisorsMember2020-07-012020-09-300000039263cfr:NonBanksMember2020-07-012020-09-300000039263cfr:BankMember2021-01-012021-09-300000039263cfr:FrostWealthAdvisorsMember2021-01-012021-09-300000039263cfr:NonBanksMember2021-01-012021-09-300000039263cfr:BankMember2020-01-012020-09-300000039263cfr:FrostWealthAdvisorsMember2020-01-012020-09-300000039263cfr:NonBanksMember2020-01-012020-09-300000039263us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Member2021-09-300000039263us-gaap:USTreasurySecuritiesMember2021-09-300000039263us-gaap:ResidentialMortgageBackedSecuritiesMemberus-gaap:FairValueInputsLevel2Member2021-09-300000039263us-gaap:ResidentialMortgageBackedSecuritiesMember2021-09-300000039263us-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:FairValueInputsLevel2Member2021-09-300000039263us-gaap:USStatesAndPoliticalSubdivisionsMember2021-09-300000039263us-gaap:OtherInvestmentsMemberus-gaap:FairValueInputsLevel2Member2021-09-300000039263us-gaap:OtherInvestmentsMember2021-09-300000039263us-gaap:FairValueInputsLevel2Membercfr:InterestRateSwapsCapsAndFloorsMember2021-09-300000039263cfr:InterestRateSwapsCapsAndFloorsMember2021-09-300000039263cfr:CommoditySwapsAndOptionsMemberus-gaap:FairValueInputsLevel2Member2021-09-300000039263cfr:CommoditySwapsAndOptionsMemberus-gaap:FairValueInputsLevel3Member2021-09-300000039263cfr:CommoditySwapsAndOptionsMember2021-09-300000039263us-gaap:FairValueInputsLevel1Memberus-gaap:ForeignExchangeForwardMember2021-09-300000039263us-gaap:ForeignExchangeForwardMember2021-09-300000039263us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Member2020-12-310000039263us-gaap:USTreasurySecuritiesMember2020-12-310000039263us-gaap:ResidentialMortgageBackedSecuritiesMemberus-gaap:FairValueInputsLevel2Member2020-12-310000039263us-gaap:ResidentialMortgageBackedSecuritiesMember2020-12-310000039263us-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:FairValueInputsLevel2Member2020-12-310000039263us-gaap:USStatesAndPoliticalSubdivisionsMember2020-12-310000039263us-gaap:OtherInvestmentsMemberus-gaap:FairValueInputsLevel2Member2020-12-310000039263us-gaap:OtherInvestmentsMember2020-12-310000039263us-gaap:FairValueInputsLevel2Membercfr:InterestRateSwapsCapsAndFloorsMember2020-12-310000039263cfr:InterestRateSwapsCapsAndFloorsMember2020-12-310000039263cfr:CommoditySwapsAndOptionsMemberus-gaap:FairValueInputsLevel2Member2020-12-310000039263cfr:CommoditySwapsAndOptionsMemberus-gaap:FairValueInputsLevel3Member2020-12-310000039263cfr:CommoditySwapsAndOptionsMember2020-12-310000039263us-gaap:FairValueInputsLevel2Member2021-09-300000039263us-gaap:FairValueInputsLevel3Member2021-09-300000039263us-gaap:FairValueInputsLevel2Member2020-09-300000039263us-gaap:FairValueInputsLevel3Member2020-09-300000039263us-gaap:FairValueInputsLevel2Memberus-gaap:CarryingReportedAmountFairValueDisclosureMember2021-09-300000039263us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Member2021-09-300000039263us-gaap:FairValueInputsLevel2Memberus-gaap:CarryingReportedAmountFairValueDisclosureMember2020-12-310000039263us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Member2020-12-310000039263us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2021-09-300000039263us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2021-09-300000039263us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2020-12-310000039263us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2020-12-31

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, 2021
Or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ________________ to ________________
Commission file number: 001-13221
Cullen/Frost Bankers, Inc.
(Exact name of registrant as specified in its charter)
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 21, 2021 there were 63,715,008 shares of the registrant’s Common Stock, $.01 par value, outstanding.


Cullen/Frost Bankers, Inc.
Quarterly Report on Form 10-Q
September 30, 2021
Table of Contents
  Page
Item 1.
3
4
5
6
8
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
37
Item 3.
65
Item 4.
65
Item 1.
66
Item 1A.
66
Item 2.
66
Item 3.
66
Item 4.
66
Item 5.
66
Item 6.
67
68
2
Table of Contents
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Cullen/Frost Bankers, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
September 30,
2021 		December 31,
2020
Assets:
Cash and due from banks $ 638,296  $ 529,454 
Interest-bearing deposits 15,601,647  9,758,624 
Federal funds sold 6,125  775 
Resell agreements 7,903  — 
Total cash and cash equivalents 16,253,971  10,288,853 
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 11,731,222  10,437,565 
Trading account securities 25,292  24,456 
Loans, net of unearned discounts 15,832,670  17,481,309 
Less: Allowance for credit losses on loans (250,150) (263,177)
Net loans 15,582,520  17,218,132 
Premises and equipment, net 1,023,170  1,045,578 
Goodwill 654,952  654,952 
Other intangible assets, net 1,019  1,563 
Cash surrender value of life insurance policies 189,941  189,984 
Accrued interest receivable and other assets 638,968  584,561 
Total assets $ 47,860,325  $ 42,391,317 
Liabilities:
Deposits:
Non-interest-bearing demand deposits $ 17,151,583  $ 15,117,051 
Interest-bearing deposits 22,461,184  19,898,710 
Total deposits 39,612,767  35,015,761 
Federal funds purchased 27,200  48,850 
Repurchase agreements 2,200,029  2,068,147 
Junior subordinated deferrable interest debentures, net of unamortized issuance costs 136,400  136,357 
Subordinated notes, net of unamortized issuance costs 99,139  99,021 
Accrued interest payable and other liabilities 1,412,428  730,165 
Total liabilities 43,487,963  38,098,301 
Shareholders’ Equity:
Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; 150,000 Series B shares ($1,000 liquidation preference) issued at September 30, 2021 and December 31, 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
642  642 
Additional paid-in capital 1,004,924  997,168 
Retained earnings 2,920,074  2,750,723 
Accumulated other comprehensive income (loss), net of tax 350,283  512,970 
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 4,372,362  4,293,016 
Total liabilities and shareholders’ equity $ 47,860,325  $ 42,391,317 
See Notes to Consolidated Financial Statements.

3
Table of Contents
Cullen/Frost Bankers, Inc.
Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2021 2020 2021 2020
Interest income:
Loans, including fees $ 168,779  $ 169,002  $ 518,957  $ 512,444 
Securities:
Taxable 20,736  22,560  61,366  71,950 
Tax-exempt 56,882  58,073  169,656  175,968 
Interest-bearing deposits 5,830  1,512  11,877  10,894 
Federal funds sold 2  5  13  721 
Resell agreements 6  14  11  163 
Total interest income 252,235  251,166  761,880  772,140 
Interest expense:
Deposits 3,677  5,397  10,693  27,677 
Federal funds purchased 9  7  24  92 
Repurchase agreements 632  475  1,597  3,913 
Junior subordinated deferrable interest debentures 631  700  1,915  2,893 
Subordinated notes 1,164  1,164  3,492  3,492 
Federal Home Loan Bank advances —  —  —  318 
Total interest expense 6,113  7,743  17,721  38,385 
Net interest income 246,122  243,423  744,159  733,755 
Credit loss expense —  20,302  63  227,474 
Net interest income after credit loss expense 246,122  223,121  744,096  506,281 
Non-interest income:
Trust and investment management fees 37,381  31,469  110,569  97,002 
Service charges on deposit accounts 21,216  19,812  61,058  60,043 
Insurance commissions and fees 11,748  11,456  39,834  38,609 
Interchange and card transaction fees 4,490  3,503  13,224  9,724 
Other charges, commissions and fees 9,785  8,370  26,729  25,398 
Net gain (loss) on securities transactions —  —  —  108,989 
Other 8,569  8,991  26,258  34,352 
Total non-interest income 93,189  83,601  277,672  374,117 
Non-interest expense:
Salaries and wages 99,463  93,323  289,956  282,485 
Employee benefits 21,576  16,074  62,840  59,824 
Net occupancy 27,208  25,466  79,909  76,116 
Technology, furniture and equipment 28,494  26,482  84,508  77,768 
Deposit insurance 3,088  2,372  8,893  7,796 
Intangible amortization 157  212  544  710 
Other 38,017  38,221  116,749  121,293 
Total non-interest expense 218,003  202,150  643,399  625,992 
Income before income taxes 121,308  104,572  378,369  254,406 
Income taxes 13,333  9,516  36,311  11,525 
Net income 107,975  95,056  342,058  242,881 
Preferred stock dividends 1,668  —  5,488  2,016 
Redemption of preferred stock —  —  —  5,514 
Net income available to common shareholders $ 106,307  $ 95,056  $ 336,570  $ 235,351 
Earnings per common share:
Basic $ 1.66  $ 1.50  $ 5.25  $ 3.72 
Diluted 1.65  1.50  5.22  3.71 
See Notes to Consolidated Financial Statements.
4
Cullen/Frost Bankers, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in thousands)
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2021 2020 2021 2020
Net income $ 107,975  $ 95,056  $ 342,058  $ 242,881 
Other comprehensive income (loss), before tax:
Securities available for sale and transferred securities:
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
(237) (294) (741) (979)
Reclassification adjustment for net (gains) losses included in net income
—  —  —  (108,989)
Total securities available for sale and transferred securities
(80,905) 20,038  (210,520) 296,991 
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  1,330  4,587  3,989 
Total defined-benefit post-retirement benefit plans
1,529  1,330  4,587  3,989 
Other comprehensive income (loss), before tax (79,376) 21,368  (205,933) 300,980 
Deferred tax expense (benefit)
(16,669) 4,487  (43,246) 63,205 
Other comprehensive income (loss), net of tax (62,707) 16,881  (162,687) 237,775 
Comprehensive income (loss) $ 45,268  $ 111,937  $ 179,371  $ 480,656 
See Notes to Consolidated Financial Statements.
5
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, 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

6
Cullen/Frost Bankers, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
(Dollars in thousands, except per share amounts)
Preferred
Stock 		Common
Stock 		Additional
Paid-In
Capital 		Retained
Earnings 		Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax 		Treasury
Stock 		Total
Nine months ended:
September 30, 2021
Balance at beginning of period $ 145,452  $ 642  $ 997,168  $ 2,750,723  $ 512,970  $ (113,939) $ 4,293,016 
Net income —  —  —  342,058  —  —  342,058 
Other comprehensive income (loss), net of tax —  —  —  —  (162,687) —  (162,687)
Stock option exercises/stock unit conversions (650,044 shares)
—  —  —  (26,652) —  64,462  37,810 
Stock-based compensation expense recognized in earnings —  —  7,756  —  —  —  7,756 
Purchase of treasury stock (12,103 shares)
—  —  —  —  —  (1,342) (1,342)
Treasury stock issued to the 401(k) stock purchase plan (18,555 shares)
—  —  —  (57) —  1,806  1,749 
Cash dividends – Series B preferred stock (approximately $36.59 per share which is equivalent to approximately $0.91 per depositary share)
—  —  —  (5,488) —  —  (5,488)
Cash dividends – common stock ($2.19 per share)
—  —  —  (140,510) —  —  (140,510)
Balance at end of period $ 145,452  $ 642  $ 1,004,924  $ 2,920,074  $ 350,283  $ (49,013) $ 4,372,362 
September 30, 2020
Balance at beginning of period $ 144,486  $ 642  $ 983,250  $ 2,667,534  $ 267,370  $ (151,614) $ 3,911,668 
Cumulative effect of accounting change —  —  —  (29,252) —  —  (29,252)
Total shareholders' equity at beginning of period, as adjusted 144,486  642  983,250  2,638,282  267,370  (151,614) 3,882,416 
Net income —  —  —  242,881  —  —  242,881 
Other comprehensive income (loss), net of tax —  —  —  —  237,775  —  237,775 
Stock option exercises/stock unit conversions (196,948 shares)
—  —  —  (11,627) —  19,171  7,544 
Stock-based compensation expense recognized in earnings —  —  8,227  —  —  —  8,227 
Redemption of series A preferred stock (6,000,000 shares)
(144,486) —  —  (5,514) —  —  (150,000)
Purchase of treasury stock (182,225 shares)
—  —  —  —  —  (14,000) (14,000)
Treasury stock issued to the 401(k) stock purchase plan (97,843 shares)
—  —  —  (2,563) —  9,524  6,961 
Cash dividends – series A preferred stock (approximately $0.34 per share)
—  —  —  (2,016) —  —  (2,016)
Cash dividends – common stock ($2.13 per share)
—  —  —  (134,762) —  —  (134,762)
Balance at end of period $ —  $ 642  $ 991,477  $ 2,724,681  $ 505,145  $ (136,919) $ 4,085,026 
See accompanying Notes to Consolidated Financial Statements

7
Cullen/Frost Bankers, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Nine Months Ended
September 30,
2021 2020
Operating Activities:
Net income $ 342,058  $ 242,881 
Adjustments to reconcile net income to net cash from operating activities:
Credit loss expense 63  227,474 
Deferred tax expense (benefit) 4,672  (8,803)
Accretion of loan discounts (9,879) (11,905)
Securities premium amortization (discount accretion), net 90,017  93,080 
Net (gain) loss on securities transactions —  (108,989)
Depreciation and amortization 51,550  47,752 
Net (gain) loss on sale/write-down of assets/foreclosed assets (1,885) (6)
Stock-based compensation 7,756  8,227 
Net tax benefit from stock-based compensation 4,505  694 
Earnings on life insurance policies (1,901) (2,895)
Net change in:
Trading account securities (421) (197)
Lease right-of-use assets 17,566  17,419 
Accrued interest receivable and other assets (65,849) (52,842)
Accrued interest payable and other liabilities 114,361  23,208 
Net cash from operating activities 552,613  475,098 
Investing Activities:
Securities held to maturity:
Purchases —  (1,500)
Maturities, calls and principal repayments 171,969  63,333 
Securities available for sale:
Purchases (4,105,085) (8,324,364)
Sales —  1,162,352 
Maturities, calls and principal repayments 3,125,786  8,162,036 
Net change in loans 1,649,429  (3,551,650)
Benefits received on life insurance policies 1,944  903 
Proceeds from sales of premises and equipment 7,033  3,054 
Purchases of premises and equipment (37,088) (81,866)
Proceeds from sales of repossessed properties 809  73 
Net cash from investing activities 814,797  (2,567,629)
Financing Activities:
Net change in deposits 4,597,006  5,859,939 
Net change in short-term borrowings 110,232  (86,675)
Proceeds from Federal Home Loan Bank advances —  1,250,000 
Principal payments on Federal Home Loan Bank advances —  (1,250,000)
Redemption of Series A preferred stock —  (150,000)
Proceeds from stock option exercises 37,810  7,544 
Purchase of treasury stock (1,342) (14,000)
Cash dividends paid on preferred stock (5,488) (2,016)
Cash dividends paid on common stock (140,510) (134,762)
Net cash from financing activities 4,597,708  5,480,030 
Net change in cash and cash equivalents 5,965,118  3,387,499 
Cash and cash equivalents at beginning of period 10,288,853  3,788,181 
Cash and cash equivalents at end of period $ 16,253,971  $ 7,175,680 

See Notes to Consolidated Financial Statements.
8
Notes to Consolidated Financial Statements
(Table amounts in thousands, except for share and per share amounts)
Note 1 - Significant Accounting Policies
Nature of Operations. Cullen/Frost Bankers, Inc. (“Cullen/Frost”) is a financial holding company and a bank holding company headquartered in San Antonio, Texas that provides, through its subsidiaries, a broad array of products and services throughout numerous Texas markets. The terms “Cullen/Frost,” “the Corporation,” “we,” “us” and “our” mean Cullen/Frost Bankers, Inc. and its subsidiaries, when appropriate. In addition to general commercial and consumer banking, other products and services offered include trust and investment management, insurance, brokerage, mutual funds, leasing, treasury management, capital markets advisory and item processing.
Basis of Presentation. The consolidated financial statements in this Quarterly Report on Form 10-Q include the accounts of Cullen/Frost and all other entities in which Cullen/Frost has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and financial reporting policies we follow conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry.
The consolidated financial statements in this Quarterly Report on Form 10-Q have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of our financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2020, included in our Annual Report on Form 10-K filed with the SEC on February 5, 2021 (the “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,
2021 2020
Cash paid for interest $ 23,722  $ 41,634 
Cash paid for income taxes 28,043  44,140 
Significant non-cash transactions:
Unsettled securities transactions 600,874  6,698 
Loans foreclosed and transferred to other real estate owned and foreclosed assets 3,464  140 
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 1,749  6,961 
Accounting Changes, Reclassifications and Restatements. Certain items in prior financial statements have been reclassified to conform to the current presentation.
On January 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” as subsequently updated for certain clarifications, targeted relief and codification improvements, using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Upon adoption, we recognized an after-tax cumulative effect reduction to retained earnings totaling $29.3 million, as detailed in our 2020 Form 10-K.
9
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, 2021 and December 31, 2020 is presented below.
Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Estimated
Fair Value 		Allowance
for Credit
Losses 		Net
Carrying
Amount
September 30, 2021
Residential mortgage-backed securities
$ 527,649  $ 24,332  $ —  $ 551,981  $ —  $ 527,649 
States and political subdivisions
1,230,279  41,840  32  1,272,087  (158) 1,230,121 
Other 1,500  —  —  1,500  —  1,500 
Total $ 1,759,428  $ 66,172  $ 32  $ 1,825,568  $ (158) $ 1,759,270 
December 31, 2020
Residential mortgage-backed securities
$ 528,784  $ 41,742  $ —  $ 570,526  $ —  $ 528,784 
States and political subdivisions
1,415,549  65,321  —  1,480,870  (160) 1,415,389 
Other 1,500  —  —  1,500  —  1,500 
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 $553.1 million and $659.2 million at September 30, 2021 and December 31, 2020, respectively. Accrued interest receivable on held-to-maturity securities totaled $10.8 million and $21.7 million at September 30, 2021 and December 31, 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. The net unamortized, unrealized gain remaining on transferred securities included in accumulated other comprehensive income in the accompanying balance sheet totaled $2.8 million ($2.2 million, net of tax) at September 30, 2021 and $3.5 million ($2.8 million, net of tax) at December 31, 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 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
Not Guaranteed or Pre-Refunded Guaranteed by the Texas PSF Pre-Refunded Total Other
Securities
September 30, 2021
Aaa/AAA $ 95,820  $ 466,028  $ 562,320  $ 1,124,168  $ — 
Aa/AA 106,111  —  —  106,111  — 
A —  —  —  —  — 
Not rated —  —  —  —  1,500 
Total $ 201,931  $ 466,028  $ 562,320  $ 1,230,279  $ 1,500 
December 31, 2020
Aaa/AAA $ 115,016  $ 659,999  $ 470,745  $ 1,245,760  $ — 
Aa/AA
107,065  —  —  107,065  — 
A
62,724  —  —  62,724  — 
Not rated —  —  —  —  1,500 
Total $ 284,805  $ 659,999  $ 470,745  $ 1,415,549  $ 1,500 
10
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, 		Nine Months Ended
September 30,
2021 2020 2021 2020
Beginning balance $ 158  $ 172  $ 160  $ — 
Impact of adopting ASC 326 —  —  —  215 
Credit loss expense (benefit) —  (12) (2) (55)
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, 2021 and December 31, 2020 is presented below.
Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Allowance
for Credit
Losses 		Estimated
Fair Value
September 30, 2021
U.S. Treasury $ 1,670,692  $ 20,609  $ 6,080  $ —  $ 1,685,221 
Residential mortgage-backed securities
2,467,915  37,910  14,671  —  2,491,154 
States and political subdivisions
7,049,872  471,883  9,266  —  7,512,489 
Other 42,358  —  —  —  42,358 
Total $ 11,230,837  $ 530,402  $ 30,017  $ —  $ 11,731,222 
December 31, 2020
U.S. Treasury $ 1,084,542  $ 35,091  $ —  $ —  $ 1,119,633 
Residential mortgage-backed securities
1,916,581  71,102  4  —  1,987,679 
States and political subdivisions
6,683,927  603,975  —  —  7,287,902 
Other 42,351  —  —  —  42,351 
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, 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 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 $4.9 billion and $4.4 billion at September 30, 2021 and December 31, 2020, respectively. Accrued interest receivable on available-for-sale securities totaled $69.0 million and $111.0 million at September 30, 2021 and December 31, 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, 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
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, 2021, no allowance for credit losses has been recognized on available for sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality. This is based upon our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our available for sale securities and in consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, management does not have the intent to sell any of the securities classified as available for sale in the table above
11
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, 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
Held To Maturity
Amortized Cost
Residential mortgage-backed securities $ 65  $ —  $ 515,356  $ 12,228  $ 527,649 
States and political subdivisions 456,778  181,302  88,862  503,337  1,230,279 
Other 1,500  —  —  —  1,500 
Total $ 458,343  $ 181,302  $ 604,218  $ 515,565  $ 1,759,428 
Estimated Fair Value
Residential mortgage-backed securities $ 65  $ —  $ 539,142  $ 12,774  $ 551,981 
States and political subdivisions 464,067  187,495  90,295  530,230  1,272,087 
Other 1,500  —  —  —  1,500 
Total $ 465,632  $ 187,495  $ 629,437  $ 543,004  $ 1,825,568 
Available For Sale
Amortized Cost
U. S. Treasury $ 499,857  $ 533,532  $ 445,697  $ 191,606  $ 1,670,692 
Residential mortgage-backed securities 743  16,678  22,146  2,428,348  2,467,915 
States and political subdivisions 82,366  1,392,877  863,687  4,710,942  7,049,872 
Other —  —  —  —  42,358 
Total $ 582,966  $ 1,943,087  $ 1,331,530  $ 7,330,896  $ 11,230,837 
Estimated Fair Value
U. S. Treasury $ 501,489  $ 548,216  $ 440,328  $ 195,188  $ 1,685,221 
Residential mortgage-backed securities 772  17,559  22,743  2,450,080  2,491,154 
States and political subdivisions 83,932  1,492,026  919,808  5,016,723  7,512,489 
Other —  —  —  —  42,358 
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,
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,
2021 2020 2021 2020
Premium amortization $ (30,240) $ (31,540) $ (92,016) $ (94,873)
Discount accretion 657  637  1,999  1,793 
Net (premium amortization) discount accretion $ (29,583) $ (30,903) $ (90,017) $ (93,080)
12
Trading Account Securities. Trading account securities, at estimated fair value, were as follows:
September 30,
2021 		December 31,
2020
U.S. Treasury $ 24,087  $ 23,996 
States and political subdivisions 1,205  460 
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,
2021 2020 2021 2020
Net gain on sales transactions $ 314  $ 159  $ 716  $ 933 
Net mark-to-market gains (losses) (2) 1  (71) 94 
Net gain (loss) on trading account securities $ 312  $ 160  $ 645  $ 1,027 
Note 3 - Loans
Loans were as follows:
September 30,
2021 		Percentage
of Total 		December 31,
2020 		Percentage
of Total
Commercial and industrial $ 4,929,656  31.1  % $ 4,955,341  28.4  %
Energy:
Production 774,753  4.9  976,473  5.6 
Service 107,585  0.7  116,825  0.7 
Other 95,873  0.6  141,900  0.8 
Total energy 978,211  6.2  1,235,198  7.1 
Paycheck Protection Program 827,820  5.2  2,433,849  13.9 
Commercial real estate:
Commercial mortgages 5,648,541  35.7  5,478,806  31.3 
Construction 1,266,633  8.0  1,223,814  7.0 
Land 335,849  2.1  317,847  1.8 
Total commercial real estate 7,251,023  45.8  7,020,467  40.1 
Consumer real estate:
Home equity loans 320,597  2.0  329,390  1.9 
Home equity lines of credit 478,978  3.0  452,854  2.6 
Other 563,464  3.6  548,530  3.1 
Total consumer real estate 1,363,039  8.6  1,330,774  7.6 
Total real estate 8,614,062  54.4  8,351,241  47.7 
Consumer and other 482,921  3.1  505,680  2.9 
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, 2021, there were no concentrations of loans related to any single industry in excess of 10% of total loans. The largest industry concentration was related to the energy industry, which totaled 6.2% of total loans, or 6.5% excluding PPP loans. Unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled $1.0 billion and $63.7 million, respectively, as of September 30, 2021.
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, 2021 or December 31, 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 $318.8 million at September 30, 2021 and $353.1 million at December 31, 2020.
13
Accrued Interest Receivable. Accrued interest receivable on loans totaled $39.0 million and $48.7 million at September 30, 2021 and December 31, 2020, respectively and is included in accrued interest receivable and other assets in the accompany consolidated balance sheets.
COVID-19 Loan Deferments. Certain borrowers have been unable to meet their contractual payment obligations because of the adverse effects of COVID-19. To help mitigate these effects, loan customers were able to apply for a deferral of payments, or portions thereof, for up to 90 days. After 90 days, customers were able to apply for an additional deferral, and a small proportion of our customers requested such an additional deferral. In the absence of other intervening factors, such short-term modifications made on a good faith basis have not been categorized as troubled debt restructurings, nor have loans granted payment deferrals related to COVID-19 been reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral). As of September 30, 2021, the amount of loans remaining in COVID-19 related deferment was not significant.
Non-Accrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions.
Non-accrual loans, segregated by class of loans, were as follows:
September 30, 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, 2021 by class and year of origination.
2021 2020 2019 2018 2017 Prior Revolving Loans Revolving Loans Converted to Term Total
Commercial and industrial $ 315  $ 7,922  $ 4,211  $ 676  $ 882  $ 370  $ 2,067  $ 2,906  $ 19,349 
Energy —  477  6,467  1,513  —  323  12,170  2,397  23,347 
Paycheck Protection Program —  —  —  —  —  —  —  —  — 
Commercial real estate:
Buildings, land and other 2,096  1,723  2,811  824  2,051  2,742  —  —  12,247 
Construction —  1,632  —  —  —  —  —  —  1,632 
Consumer real estate —  —  —  —  —  443  —  37  480 
Consumer and other —  —  —  —  —  —  —  —  — 
Total $ 2,411  $ 11,754  $ 13,489  $ 3,013  $ 2,933  $ 3,878  $ 14,237  $ 5,340  $ 57,055 
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.
14
An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of September 30, 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
Commercial and industrial $ 42,705  $ 8,634  $ 51,339  $ 4,878,317  $ 4,929,656  $ 7,522 
Energy 1,237  13,233  14,470  963,741  978,211  965 
Paycheck Protection Program —  —  —  827,820  827,820  — 
Commercial real estate:
Buildings, land and other 20,910  19,190  40,100  5,944,290  5,984,390  12,224 
Construction —  —  —  1,266,633  1,266,633  — 
Consumer real estate 4,148  2,101  6,249  1,356,790  1,363,039  1,985 
Consumer and other 3,678  1,029  4,707  478,214  482,921  1,029 
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, 2021 and 2020 are set forth in the following table.
Nine Months Ended
September 30, 2021 		Nine Months Ended
September 30, 2020
Balance at
Restructure 		Balance at
Period-End 		Balance at
Restructure 		Balance at
Period-End
Commercial and industrial $ 1,312  $ 1,237  $ 3,660  $ 1,415 
Energy 3,817  3,566  —  — 
Commercial real estate:
Buildings, land and other 1,888  1,875  6,606  6,585 
Construction —  —  1,192  1,181 
Consumer and other —  —  1,104  104 
$ 7,017  $ 6,678  $ 12,562  $ 9,285 
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.
Additional information related to restructured loans as of or for the nine months ended September 30, 2021 and 2020 is set forth in the following table.
September 30, 2021 September 30, 2020
Restructured loans past due in excess of 90 days at period-end:
Number of loans 1  2 
Dollar amount of loans $ 306  $ 3,682 
Restructured loans on non-accrual status at period end 5,072  5,353 
Charge-offs of restructured loans:
Recognized in connection with restructuring —  — 
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 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
15
on management’s “watch list,” where a significant risk-modifying action is anticipated in the near term. When a loan has a risk grade of 10 or higher, a special assets officer monitors the loan on an on-going basis.
The following tables present weighted-average risk grades for all commercial loans, by class and year of origination/renewal as of September 30, 2021. Paycheck Protection Program (“PPP”) loans are excluded as such loans are fully guaranteed by the Small Business Administration (“SBA”).
2021 2020 2019 2018 2017 Prior Revolving Loans Revolving Loans Converted to Term Total W/A Risk Grade
Commercial and industrial
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 9,569  35,274  30,953  26,216  12,258  18,329  70,412  5,272  208,283  9.00 
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 1,326  8,603  9,644  4,160  3,098  279  7,189  11,799  46,098  11.00 
Risk grade 12 135  7,922  3,263  676  411  370  962  1,974  15,713  12.00 
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 5.97  6.35  6.91  7.04  6.20  5.94  6.17  7.60  6.29 
Energy
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 32,434  712  1,831  270  —  737  10,136  2,574  48,694  9.00 
Risk grade 10 —  115  703  668  —  —  860  478  2,824  10.00 
Risk grade 11 11,517  1,168  17,711  1,607  —  573  19,133  3,479  55,188  11.00 
Risk grade 12 —  34  4,777  90  —  323  4,641  99  9,964  12.00 
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 6.37  8.13  9.98  8.77  7.19  7.84  6.26  6.76  6.55 
Commercial real estate:
Buildings, land, other
Risk grades 1-8 $ 1,153,181  $ 1,146,764  $ 862,629  $ 578,768  $ 517,822  $ 842,409  $ 44,525  $ 75,360  $ 5,221,458  6.90 
Risk grade 9 13,873  143,504  70,218  48,372  29,691  34,746  4,669  6,858  351,931  9.00 
Risk grade 10 14,376  16,956  69,882  51,903  65,363  55,732  —  —  274,212  10.00 
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 1,896  1,723  2,511  824  2,051  2,492  —  —  11,497  12.00 
Risk grade 13 200  —  300  —  —  250  —  —  750  13.00 
$ 1,187,521  $ 1,328,713  $ 1,016,891  $ 687,482  $ 647,625  $ 975,874  $ 52,194  $ 88,090  $ 5,984,390  7.27 
W/A risk grade 7.21  7.27  7.40  7.37  7.38  7.04  7.30  7.15  7.27 
Construction
Risk grades 1-8 $ 429,990  $ 284,149  $ 299,927  $ 20,457  $ —  $ 2,593  $ 144,950  $ —  $ 1,182,066  7.03 
Risk grade 9 37,113  32,002  —  —  513  —  13,307  —  82,935  9.00 
Risk grade 10 —  —  —  —  —  —  —  —  —  10.00 
Risk grade 11 —  —  —  —  —  —  —  —  —  11.00 
Risk grade 12 —  1,432  —  —  —  —  —  —  1,432  12.00 
Risk grade 13 —  200  —  —  —  —  —  —  200  13.00 
$ 467,103  $ 317,783  $ 299,927  $ 20,457  $ 513  $ 2,593  $ 158,257  $ —  $ 1,266,633  7.16 
W/A risk grade 7.13  6.87  7.46  7.45  9.00  6.79  7.24  —  7.16 
Total commercial real estate $ 1,654,624  $ 1,646,496  $ 1,316,818  $ 707,939  $ 648,138  $ 978,467  $ 210,451  $ 88,090  $ 7,251,023  7.25 
W/A risk grade 7.19  7.19  7.41  7.38  7.38  7.04  7.26  7.15  7.25 
In the table above, certain loans are reported as 2021 originations and have risk grades of 11 or higher. These loans were, for the most part, first originated in various years prior to 2021 but were renewed in the current year.
16
The following tables present weighted average risk grades for all commercial loans by class as of December 31, 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 6.13  $ 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, 2021 was as follows:
2021 2020 2019 2018 2017 Prior Revolving Loans Revolving Loans Converted to Term Total
Consumer real estate:
Past due 30-89 days $ 396  $ 34  $ 277  $ 370  $ 326  $ 1,187  $ 174  $ 1,384  $ 4,148 
Past due 90 or more days —  —  110  11  226  645  967  142  2,101 
Total past due 396  34  387  381  552  1,832  1,141  1,526  6,249 
Current loans 235,725  283,853  111,449  62,416  54,827  132,108  464,440  11,972  1,356,790 
Total $ 236,121  $ 283,887  $ 111,836  $ 62,797  $ 55,379  $ 133,940  $ 465,581  $ 13,498  $ 1,363,039 
Consumer and other:
Past due 30-89 days $ 1,527  $ 283  $ 182  $ 89  $ 63  $ 18  $ 481  $ 1,035  $ 3,678 
Past due 90 or more days 576  10  —  90  —  —  —  353  1,029 
Total past due 2,103  293  182  179  63  18  481  1,388  4,707 
Current loans 39,156  20,924  10,442  3,268  1,844  1,391  374,993  26,196  478,214 
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,
2021 2020 2021 2020
Commercial and industrial $ 12,009  $ 10,224  $ 39,551  $ 25,340 
Energy 52,055  7,144  57,871  38,642 
Commercial real estate:
Buildings, land and other 6,012  637  37,093  8,094 
Construction —  —  —  — 
Consumer real estate 330  421  1,172  2,132 
Consumer and other 1,523  5,494  7,017  15,338 
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 2020 Form 10-K, totaled 130.4 at August 31, 2021 (most recent date available) and 118.1 at December 31, 2020. A higher TLI value implies more favorable economic conditions.

17
Allowance For Credit Losses - Loans. The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectibility over the loans' contractual terms, adjusted for expected prepayments when appropriate. Credit loss expense related to loans reflects the totality of actions taken on all loans for a particular period including any necessary increases or decreases in the allowance related to changes in credit loss expectations associated with specific loans or pools of loans. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications. Our allowance methodology is more fully described in our 2020 Form 10-K.
The following table presents details of the allowance for credit losses on loans segregated by loan portfolio segment as of September 30, 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.
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, 2021 and 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
Three months ended:
September 30, 2021
Beginning balance $ 65,271  $ 28,010  $ 147,993  $ 6,154  $ 7,860  $ 255,288 
Credit loss expense (benefit) (1,020) (7,720) 4,007  (982) 2,692  (3,023)
Charge-offs (1,611) —  —  —  (5,073) (6,684)
Recoveries 1,126  159  54  857  2,373  4,569 
Net charge-offs (485) 159  54  857  (2,700) (2,115)
Ending balance $ 63,766  $ 20,449  $ 152,054  $ 6,029  $ 7,852  $ 250,150 
September 30, 2020
Beginning balance $ 98,536  $ 40,817  $ 93,425  $ 8,998  $ 8,285  $ 250,061 
Credit loss expense (benefit) (18,547) 13,814  25,368  1,794  1,161  23,590 
Charge-offs (8,605) —  (242) (1,088) (4,219) (14,154)
Recoveries 1,121  —  42  573  2,242  3,978 
Net charge-offs (7,484) —  (200) (515) (1,977) (10,176)
Ending balance $ 72,505  $ 54,631  $ 118,593  $ 10,277  $ 7,469  $ 263,475 
18
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, 2021 and December 31, 2020.
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 
Note 4 - Goodwill and Other Intangible Assets
Goodwill and other intangible assets are presented in the table below.
September 30,
2021 		December 31,
2020
Goodwill $ 654,952  $ 654,952 
Other intangible assets:
Core deposits $ 845  $ 1,296 
Customer relationships 174  267 
$ 1,019  $ 1,563 
The estimated aggregate future amortization expense for intangible assets remaining as of September 30, 2021 is as follows:
Remainder of 2021 $ 153 
2022 481 
2023 282 
2024 87 
2025 11 
Thereafter 5 
$ 1,019 
19
Note 5 - Deposits
Deposits were as follows:
September 30,
2021 		Percentage
of Total 		December 31,
2020 		Percentage
of Total
Non-interest-bearing demand deposits:
Commercial and individual $ 15,997,472  40.4  % $ 13,914,754  39.7  %
Correspondent banks 223,466  0.6  242,225  0.7 
Public funds 930,645  2.3  960,072  2.8 
Total non-interest-bearing demand deposits 17,151,583  43.3  15,117,051  43.2 
Interest-bearing deposits:
Private accounts:
Savings and interest checking 10,326,315  26.1  9,132,789  26.1 
Money market accounts 10,381,703  26.2  8,977,585  25.6 
Time accounts 1,086,894  2.7  1,135,575  3.3 
Total private accounts 21,794,912  55.0  19,245,949  55.0 
Public funds:
Savings and interest checking 580,174  1.5  597,503  1.7 
Money market accounts 61,028  0.1  50,070  0.1 
Time accounts 25,070  0.1  5,188  — 
Total public funds 666,272  1.7  652,761  1.8 
Total interest-bearing deposits 22,461,184  56.7  19,898,710  56.8 
Total deposits $ 39,612,767  100.0  % $ 35,015,761  100.0  %
The following table presents additional information about our deposits:
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 
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 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,
2021 		December 31,
2020
Commitments to extend credit $ 10,262,077  $ 9,814,475 
Standby letters of credit 225,311  241,345 
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. The amount of the allowance represents management's best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment. Our allowance methodology is more fully described in our 2020 Form 10-K.
20
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,
2021 2020 2021 2020
Beginning balance $ 48,596  $ 46,939  $ 44,152  $ 500 
Impact of adopting ASC 326 —  —  —  39,377 
Credit loss expense 3,023  (3,276) 7,467  3,786 
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,
2021 2020 2021 2020
Amortization of lease right-of-use assets $ 8,172  $ 8,521  $ 24,584  $ 24,545 
Short-term lease expense 384  172  1,118  1,343 
Non-lease components (including taxes, insurance, common maintenance, etc.) 2,864  2,586  8,205  8,410 
Total $ 11,420  $ 11,279  $ 33,907  $ 34,298 
Right-of-use lease assets totaled $278.6 million at September 30, 2021 and $292.1 million at December 31, 2020 and are reported as a component of premises and equipment on our accompanying consolidated balance sheets. The related lease liabilities totaled $310.3 million at September 30, 2021 and $323.0 million at December 31, 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. There has been no significant change in our expected future minimum lease payments since December 31, 2020. See the 2020 Form 10-K for information regarding these commitments.
Litigation. We are subject to various claims and legal actions that have arisen in the course of conducting business. Management does not expect the ultimate disposition of these matters to have a material adverse impact on our financial statements.
Note 7 - Capital and Regulatory Matters
Banks and bank holding companies are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.
Cullen/Frost’s and Frost Bank’s Common Equity Tier 1 capital (“CET1”) includes common stock and related paid-in capital, net of treasury stock, and retained earnings. In connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include most components of accumulated other comprehensive income in CET1. We also elected to exclude the effects of credit loss accounting under CECL from CET1 for a five-year transitional period, as further discussed in our 2020 Form 10-K. This CECL transitional adjustment totaled $62.3 million and $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 CET1 is also reduced by its equity investment in its financial subsidiary, Frost Insurance Agency (“FIA”).
Tier 1 capital includes CET1 and additional Tier 1 capital. For Cullen/Frost, additional Tier 1 capital included $145.5 million of 4.450% non-cumulative perpetual preferred stock at September 30, 2021 and December 31, 2020, the details of which are further discussed below. Frost Bank did not have any additional Tier 1 capital beyond Common Equity Tier 1 at September 30, 2021 or December 31, 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, 2021 and December 31, 2020. All $13.0 million of the trust preferred securities issued by WNB Capital Trust I were redeemed in October 2021.
21
The following table presents actual and required capital ratios as of September 30, 2021 and December 31, 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 2020 Form 10-K for a more detailed discussion of the Basel III Capital Rules.
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, 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, 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, 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,
22
after deducting $4.5 million of issuance costs including the underwriting discount and professional service fees, among other things, were approximately $145.5 million.
Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. On January 27, 2021, our board of directors authorized a $100.0 million stock repurchase program, allowing us to repurchase shares of our common stock over a one-year period from time to time at various prices in the open market or through private transactions. No shares 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. Under the Basel III Capital Rules, Cullen/Frost may not repurchase or redeem any of its subordinated notes and, in some cases, its common stock without the prior approval of the Federal Reserve Board.
Dividend Restrictions. In the ordinary course of business, Cullen/Frost is dependent upon dividends from Frost Bank to provide funds for the payment of dividends to shareholders and to provide for other cash requirements, including to repurchase its common stock. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of Frost Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years. Under the foregoing dividend restrictions and while maintaining its “well capitalized” status, at September 30, 2021, Frost Bank could pay aggregate dividends of up to $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, 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 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 methods with observable market data inputs, or as determined by the Chicago Mercantile Exchange (“CME”) for centrally cleared derivative contracts. CME rules legally characterize variation margin payments for centrally cleared derivatives as settlements of the derivatives' exposure rather than collateral. As a result, the variation margin payment and the related derivative instruments are considered a single unit of account for accounting and financial reporting purposes. Variation margin, as determined by the CME, is settled daily. As a result, derivative contracts that clear through the CME have an estimated fair value of zero as of September 30, 2021 and December 31, 2020.
September 30, 2021 December 31, 2020
Notional
Amount 		Estimated
Fair Value 		Notional
Amount 		Estimated
Fair Value
Derivatives designated as hedges of fair value:
Financial institution counterparties:
Loan/lease interest rate swaps – liabilities 2,758  $ (59) 3,724  $ (134)
Non-hedging interest rate derivatives:
Financial institution counterparties:
Loan/lease interest rate swaps – assets 127,420  641  —  — 
Loan/lease interest rate swaps – liabilities 997,411  (22,874) 1,173,173  (33,812)
Loan/lease interest rate caps – assets 405,163  2,915  356,601  1,241 
Customer counterparties:
Loan/lease interest rate swaps – assets 997,411  49,630  1,173,173  84,424 
Loan/lease interest rate swaps – liabilities 127,420  (1,761) —  — 
Loan/lease interest rate caps – liabilities 405,163  (2,915) 356,601  (1,241)
23
The weighted-average rates paid and received for interest rate swaps outstanding at September 30, 2021 were as follows:
Weighted-Average
Interest
Rate
Paid 		Interest
Rate
Received
Interest rate swaps:
Fair value hedge loan/lease interest rate swaps 2.75  % 0.09  %
Non-hedging interest rate swaps – financial institution counterparties 3.78  1.87 
Non-hedging interest rate swaps – customer counterparties 1.87  3.78 
The weighted-average strike rate for outstanding interest rate caps was 3.12% at September 30, 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 methods with observable market data inputs to value our commodity derivative positions.
September 30, 2021 December 31, 2020
Notional
Units 		Notional
Amount 		Estimated
Fair Value 		Notional
Amount 		Estimated
Fair Value
Financial institution counterparties:
Oil – assets Barrels 5,632  $ 21,271  3,056  $ 8,341 
Oil – liabilities Barrels 12,228  (147,576) 6,391  (32,112)
Natural gas – assets MMBTUs 18,908  3,312  9,281  1,529 
Natural gas – liabilities MMBTUs 39,901  (53,923) 15,079  (3,265)
Customer counterparties:
Oil – assets Barrels 12,276  148,742  6,391  32,670 
Oil – liabilities Barrels 5,584  (21,245) 3,056  (8,264)
Natural gas – assets MMBTUs 39,901  54,202  17,636  3,451 
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, 2021 December 31, 2020
Notional
Currency 		Notional
Amount 		Estimated
Fair Value 		Notional
Amount 		Estimated
Fair Value
Financial institution counterparties:
Forward contracts – assets CAD 658  $ 2  —  — 
Customer counterparties:
Forward contracts – assets CAD 658  2  —  — 
Gains, Losses and Derivative Cash Flows. For fair value hedges, the changes in the fair value of both the derivative hedging instrument and the hedged item are included in other non-interest income or other non-interest expense. The extent that such changes in fair value do not offset represents hedge ineffectiveness. Net cash flows from interest rate swaps on commercial loans/leases designated as hedging instruments in effective hedges of fair value are included in interest income on loans. For non-hedging derivative instruments, gains and losses due to changes in fair value and all cash flows are included in other non-interest income and other non-interest expense.
24
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,
2021 2020 2021 2020
Commercial loan/lease interest rate swaps:
Amount of gain (loss) included in interest income on loans $ (21) $ (36) $ (74) $ (79)
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 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,
2021 2020 2021 2020
Non-hedging interest rate derivatives:
Other non-interest income $ 946  $ 280  $ 2,674  $ 2,615 
Other non-interest expense —  1  (1) 1 
Non-hedging commodity derivatives:
Other non-interest income 1,143  379  3,266  1,057 
Non-hedging foreign currency derivatives:
Other non-interest income 4  10  34  28 
Non-hedging put options:
Other non-interest income —  —  —  5,980 
Counterparty Credit Risk. Our credit exposure relating to interest rate swaps, commodity swaps/options and foreign currency forward contracts with bank customers was approximately $227.4 million at September 30, 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 $12.5 million at September 30, 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, 2021, we had $200.9 million in cash collateral related to derivative contracts on deposit with other financial institution counterparties.
25
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, 2021 is presented in the following tables.
Gross Amount
Recognized 		Gross Amount
Offset 		Net Amount
Recognized
September 30, 2021
Financial assets:
Derivatives:
Loan/lease interest rate swaps and caps $ 3,556  $ —  $ 3,556 
Commodity swaps and options 24,583  —  24,583 
Foreign currency forward contracts 2  —  2 
Total derivatives 28,141  —  28,141 
Resell agreements 7,903  —  7,903 
Total $ 36,044  $ —  $ 36,044 
Financial liabilities:
Derivatives:
Loan/lease interest rate swaps and caps $ 22,933  $ —  $ 22,933 
Commodity swaps and options 201,499  —  201,499 
Total derivatives 224,432  —  224,432 
Repurchase agreements 2,200,029  —  2,200,029 
Total $ 2,424,461  $ —  $ 2,424,461 
Gross Amounts Not Offset
Net Amount
Recognized 		Financial
Instruments 		Collateral Net
Amount
September 30, 2021
Financial assets:
Derivatives:
Counterparty A $ 4  $ (4) $ —  $ — 
Counterparty B 12,537  (12,537) —  — 
Other counterparties 15,600  (15,600) —  — 
Total derivatives 28,141  (28,141) —  — 
Resell agreements 7,903  —  (7,903) — 
Total $ 36,044  $ (28,141) $ (7,903) $ — 
Financial liabilities:
Derivatives:
Counterparty A $ 4,577  $ (4) $ (4,573) $ — 
Counterparty B 77,110  (12,537) (60,860) 3,713 
Counterparty C 19  —  (19) — 
Other counterparties 142,726  (15,600) (122,984) 4,142 
Total derivatives 224,432  (28,141) (188,436) 7,855 
Repurchase agreements 2,200,029  —  (2,200,029) — 
Total $ 2,424,461  $ (28,141) $ (2,388,465) $ 7,855 
26
Information about financial instruments that are eligible for offset in the consolidated balance sheet as of December 31, 2020 is presented in the following tables.
Gross Amount
Recognized 		Gross Amount
Offset 		Net Amount
Recognized
December 31, 2020
Financial assets:
Derivatives:
Loan/lease interest rate swaps and caps $ 1,241  $ —  $ 1,241 
Commodity swaps and options 9,870  —  9,870 
Total derivatives 11,111  —  11,111 
Resell agreements —  —  — 
Total $ 11,111  $ —  $ 11,111 
Financial liabilities:
Derivatives:
Loan/lease interest rate swaps and caps $ 33,946  $ —  $ 33,946 
Commodity swaps and options 35,377  —  35,377 
Total derivatives 69,323  —  69,323 
Repurchase agreements 2,068,147  —  2,068,147 
Total $ 2,137,470  $ —  $ 2,137,470 
Gross Amounts Not Offset
Net Amount
Recognized 		Financial
Instruments 		Collateral Net
Amount
December 31, 2020
Financial assets:
Derivatives:
Counterparty A $ 2  $ (2) $ —  $ — 
Counterparty B 5,838  (5,838) —  — 
Other counterparties 5,271  (5,271) —  — 
Total derivatives 11,111  (11,111) —  — 
Resell agreements —  —  —  — 
Total $ 11,111  $ (11,111) $ —  $ — 
Financial liabilities:
Derivatives:
Counterparty A $ 6,430  $ (2) $ (6,428) $ — 
Counterparty B 20,722  (5,838) (14,700) 184 
Counterparty C 71  —  (71) — 
Other counterparties 42,100  (5,271) (35,832) 997 
Total derivatives 69,323  (11,111) (57,031) 1,181 
Repurchase agreements 2,068,147  —  (2,068,147) — 
Total $ 2,137,470  $ (11,111) $ (2,125,178) $ 1,181 
27
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, 2021 and December 31, 2020 is presented in the following tables.
Remaining Contractual Maturity of the Agreements
Overnight and Continuous Up to 30 Days 30-90 Days Greater than 90 Days Total
September 30, 2021
Repurchase agreements:
U.S. Treasury $ 1,122,968  $ —  $ —  $ —  $ 1,122,968 
Residential mortgage-backed securities 1,077,061  —  —  —  1,077,061 
Total borrowings $ 2,200,029  $ —  $ —  $ —  $ 2,200,029 
Gross amount of recognized liabilities for repurchase agreements $ 2,200,029 
Amounts related to agreements not included in offsetting disclosures above $ — 
December 31, 2020
Repurchase agreements:
U.S. Treasury $ 692,860  $ —  $ —  $ —  $ 692,860 
Residential mortgage-backed securities 1,375,287  —  —  —  1,375,287 
Total borrowings $ 2,068,147  $ —  $ —  $ —  $ 2,068,147 
Gross amount of recognized liabilities for repurchase agreements $ 2,068,147 
Amounts related to agreements not included in offsetting disclosures above $ — 

28
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, 2021, there were 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, 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,
2021 2020 2021 2020
New shares issued from available authorized shares —  —  —  — 
Shares issued from available treasury stock 21,968  53,425  650,044  196,948 
Total 21,968  53,425  650,044  196,948 
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,
2021 2020 2021 2020
Non-vested stock awards/stock units $ 1,559  $ 1,999  $ 5,210  $ 6,325 
Director deferred stock units —  —  700  770 
Performance stock units 426  444  1,846  1,132 
Total $ 1,985  $ 2,443  $ 7,756  $ 8,227 
Income tax benefit $ 281  $ 450  $ 1,162  $ 1,539 
Unrecognized stock-based compensation expense at September 30, 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 $ 10,918 
Performance stock units 4,450 
Total $ 15,368 
29
Note 11 - Earnings Per Common Share
Earnings per common share is computed using the two-class method as more fully described in our 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,
2021 2020 2021 2020
Net income $ 107,975  $ 95,056  $ 342,058  $ 242,881 
Less: Preferred stock dividends 1,668  —  5,488  2,016 
Redemption of preferred stock —  —  —  5,514 
Net income available to common shareholders 106,307  95,056  336,570  235,351 
Less: Earnings allocated to participating securities 932  877  3,228  2,236 
Net earnings allocated to common stock $ 105,375  $ 94,179  $ 333,342  $ 233,115 
Distributed earnings allocated to common stock $ 47,740  $ 44,546  $ 139,224  $ 133,511 
Undistributed earnings allocated to common stock 57,635  49,633  194,118  99,604 
Net earnings allocated to common stock $ 105,375  $ 94,179  $ 333,342  $ 233,115 
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 444,636  193,116  489,219  263,028 
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,
2021 2020 2021 2020
Expected return on plan assets, net of expenses $ (3,210) $ (3,073) $ (9,630) $ (9,217)
Interest cost on projected benefit obligation 835  1,252  2,506  3,757 
Net amortization and deferral 1,529  1,330  4,587  3,989 
Net periodic expense (benefit) $ (846) $ (491) $ (2,537) $ (1,471)
Our non-qualified defined benefit pension plan is not funded. No contributions to the qualified defined benefit pension plan were made during the nine months ended September 30, 2021. We do not expect to make any contributions to the qualified defined benefit plan during the remainder of 2021.

30
Note 13 - Income Taxes
Income tax expense was as follows:
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2021 2020 2021 2020
Current income tax expense (benefit) $ 13,849  $ (33,614) $ 31,639  $ 20,328 
Deferred income tax expense (benefit) (516) 43,130  4,672  (8,803)
Income tax expense, as reported $ 13,333  $ 9,516  $ 36,311  $ 11,525 
Effective tax rate 11.0  % 9.1  % 9.6  % 4.5  %
We had a net deferred tax liability totaling $78.9 million at September 30, 2021 and $117.5 million at December 31, 2020. No valuation allowance for deferred tax assets was recorded at September 30, 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 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 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, 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 
31
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 $ 563,801  $ (50,831) $ 512,970 
Other comprehensive income (loss) before reclassifications
(166,311) —  (166,311)
Reclassification of amounts included in net income
—  3,624  3,624 
Net other comprehensive income (loss) during period (166,311) 3,624  (162,687)
Balance at September 30, 2021 $ 397,490  $ (47,207) $ 350,283 
Balance January 1, 2020 $ 313,304  $ (45,934) $ 267,370 
Other comprehensive income (loss) before reclassifications
320,724  —  320,724 
Reclassification of amounts included in net income
(86,101) 3,152  (82,949)
Net other comprehensive income (loss) during period 234,623  3,152  237,775 
Balance at September 30, 2020 $ 547,927  $ (42,782) $ 505,145 

32
Note 15 – Operating Segments
We are managed under a matrix organizational structure whereby our two primary operating segments, Banking and Frost Wealth Advisors, overlap a regional reporting structure. See our 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
Three months ended:
September 30, 2021
Net interest income (expense) $ 247,381  $ 536  $ (1,795) $ 246,122 
Credit loss expense (6) 6  —  — 
Non-interest income 51,279  42,369  (459) 93,189 
Non-interest expense 185,891  31,086  1,026  218,003 
Income (loss) before income taxes 112,775  11,813  (3,280) 121,308 
Income tax expense (benefit) 12,029  2,481  (1,177) 13,333 
Net income (loss) 100,746  9,332  (2,103) 107,975 
Preferred stock dividends —  —  1,668  1,668 
Net income (loss) available to common shareholders $ 100,746  $ 9,332  $ (3,771) $ 106,307 
Revenues from (expenses to) external customers $ 298,660  $ 42,905  $ (2,254) $ 339,311 
September 30, 2020
Net interest income (expense) $ 244,685  $ 602  $ (1,864) $ 243,423 
Credit loss expense (benefit) 20,300  2  —  20,302 
Non-interest income 49,170  34,680  (249) 83,601 
Non-interest expense 170,290  30,052  1,808  202,150 
Income (loss) before income taxes 103,265  5,228  (3,921) 104,572 
Income tax expense (benefit) 9,758  1,098  (1,340) 9,516 
Net income (loss) available to common shareholders $ 93,507  $ 4,130  $ (2,581) $ 95,056 
Revenues from (expenses to) external customers $ 293,855  $ 35,282  $ (2,113) $ 327,024 
Nine months ended:
September 30, 2021
Net interest income (expense) $ 748,036  $ 1,530  $ (5,407) $ 744,159 
Credit loss expense 57  6  —  63 
Non-interest income 154,003  124,512  (843) 277,672 
Non-interest expense 548,151  91,037  4,211  643,399 
Income (loss) before income taxes 353,831  34,999  (10,461) 378,369 
Income tax expense (benefit) 32,811  7,350  (3,850) 36,311 
Net income (loss) 321,020  27,649  (6,611) 342,058 
Preferred stock dividends —  —  5,488  5,488 
Net income (loss) available to common shareholders $ 321,020  $ 27,649  $ (12,099) $ 336,570 
Revenues from (expenses to) external customers $ 902,039  $ 126,042  $ (6,250) $ 1,021,831 
September 30, 2020
Net interest income (expense) $ 737,977  $ 2,163  $ (6,385) $ 733,755 
Credit loss expense 227,474  —  —  227,474 
Non-interest income 265,492  109,330  (705) 374,117 
Non-interest expense 525,882  94,225  5,885  625,992 
Income (loss) before income taxes 250,113  17,268  (12,975) 254,406 
Income tax expense (benefit) 12,090  3,626  (4,191) 11,525 
Net income (loss) 238,023  13,642  (8,784) 242,881 
Preferred stock dividends —  —  2,016  2,016 
Redemption of preferred stock —  —  5,514  5,514 
Net income (loss) available to common shareholders $ 238,023  $ 13,642  $ (16,314) $ 235,351 
Revenues from (expenses to) external customers $ 1,003,469  $ 111,493  $ (7,090) $ 1,107,872 

33
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 2020 Form 10-K for additional information regarding the fair value hierarchy and a description of our valuation techniques.
Financial Assets and Financial Liabilities. The tables below summarize financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 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
September 30, 2021
Securities available for sale:
U.S. Treasury $ 1,685,221  $ —  $ —  $ 1,685,221 
Residential mortgage-backed securities —  2,491,154  —  2,491,154 
States and political subdivisions —  7,512,489  —  7,512,489 
Other —  42,358  —  42,358 
Trading account securities:
U.S. Treasury 24,087  —  —  24,087 
States and political subdivisions —  1,205  —  1,205 
Derivative assets:
Interest rate swaps, caps and floors —  53,186  —  53,186 
Commodity swaps and options —  227,527  —  227,527 
Foreign currency forward contracts 4  —  —  4 
Derivative liabilities:
Interest rate swaps, caps and floors —  27,609  —  27,609 
Commodity swaps and options —  226,054  —  226,054 
December 31, 2020
Securities available for sale:
U.S. Treasury $ 1,119,633  $ —  $ —  $ 1,119,633 
Residential mortgage-backed securities —  1,987,679  —  1,987,679 
States and political subdivisions —  7,287,902  —  7,287,902 
Other —  42,351  —  42,351 
Trading account securities:
U.S. Treasury 23,996  —  —  23,996 
States and political subdivisions —  460  —  460 
Derivative assets:
Interest rate swaps, caps and floors —  85,665  —  85,665 
Commodity swaps and options —  45,535  456  45,991 
Derivative liabilities:
Interest rate swaps, caps and floors —  35,187  —  35,187 
Commodity swaps and options —  45,099  —  45,099 
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.
34
The following table presents collateral dependent loans that were remeasured and reported at fair value through a specific allocation of the allowance for credit losses on loans based upon the fair value of the underlying collateral during the reported periods.
Nine Months Ended
September 30, 2021 		Nine Months Ended
September 30, 2020
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,
2021 2020
Foreclosed assets remeasured subsequent to initial recognition:
Carrying value of foreclosed assets prior to remeasurement $ —  $ 328 
Write-downs included in other non-interest expense —  (231)
Fair value $ —  $ 97 
Financial Instruments Reported at Amortized Cost. The estimated fair values of financial instruments that are reported at amortized cost in our consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, were as follows:
September 30, 2021 December 31, 2020
Carrying
Amount 		Estimated
Fair Value 		Carrying
Amount 		Estimated
Fair Value
Financial assets:
Level 2 inputs:
Cash and cash equivalents $ 16,253,971  $ 16,253,971  $ 10,288,853  $ 10,288,853 
Securities held to maturity 1,759,270  1,825,568  1,945,673  2,052,896 
Cash surrender value of life insurance policies 189,941  189,941  189,984  189,984 
Accrued interest receivable 119,232  119,232  181,432  181,432 
Level 3 inputs:
Loans, net 15,582,520  15,656,269  17,218,132  17,390,683 
Financial liabilities:
Level 2 inputs:
Deposits 39,612,767  39,613,343  35,015,761  35,018,185 
Federal funds purchased 27,200  27,200  48,850  48,850 
Repurchase agreements 2,200,029  2,200,029  2,068,147  2,068,147 
Junior subordinated deferrable interest debentures 136,400  137,115  136,357  137,115 
Subordinated notes 99,139  113,223  99,021  115,717 
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 no financial instruments measured at fair value under the fair value measurement option.
35
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 2020 Form 10-K for additional information related to previously issued accounting standards updates.
ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other 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 2020-04 was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2020-04 did not significantly impact our financial statements.
ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs.” ASU 2020-08 clarifies the accounting for the amortization of purchase premiums for callable debt securities with multiple call dates. ASU 2020-08 became effective for us on January 1, 2021 and did not 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.
36
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Review
Cullen/Frost Bankers, Inc.
The following discussion should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2020, and the other information included in the 2020 Form 10-K. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results for the year ending December 31, 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 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 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.
37
•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
Our business has been, and continues to be, impacted by the COVID-19 pandemic. As the pandemic is ongoing and dynamic in nature, there are many uncertainties related to COVID-19 including, among other things, the ongoing impact to our customers, employees and vendors; the impact to the financial services and banking industry; and the impact to the economy as a whole as well as the effect of actions taken, or that may yet be taken, or inaction by governmental authorities to contain the outbreak or to mitigate its impact (both economic and health-related). Refer to our 2020 Form 10-K for further information regarding (i) the impact of the COVID-19 pandemic on our operations and our results thereof, as well as the impact on our financial position and (ii) legislative and regulatory actions taken related to the COVID-19 pandemic, particularly as they relate to the banking and financial services industry.
Recent actions taken by the U.S. government to further mitigate the economic effects of COVID-19 will also have an impact on our financial position and results of operations. These actions are further discussed below.
During the first quarter of 2021, President Biden signed a number of executive orders relating to stimulus and relief measures. These orders include, among other things, (i) an extension, through March 31, 2021, of the moratorium on evictions and foreclosures, (ii) an extension, through September 30, 2021, of the deferral of federal student loan payments and interest and (iii) an extension, through June 30, 2021, of certain mortgage forbearance programs and guidelines.
On March 11 2021, the American Rescue Plan Act of 2021 (the “ARP Act”) was enacted, implementing a $1.9 trillion package of stimulus and relief proposals. Among other things, the ARP Act provides (i) additional funding for the PPP program and an expansion of the program for the benefit of certain nonprofits, (ii) funding for the Small Business Administration (“SBA”) to make targeted grants for restaurants and similar establishments, (iii) direct cash payments of up to $1,400 to individuals, subject to income provisions, (iv) an increase in the maximum annual Child Tax Credit, subject to income limitation provisions, (v) $300 a week in expanded unemployment insurance lasting through September 6, 2021 and makes $10,200 in unemployment benefits tax free for households, subject to income limitation provisions, (vi) tax relief making any student loan forgiveness incurred between December 31, 2020, and January 1, 2026 non-taxable income, and (vii) funding to support state and local governments; K-12 schools and higher education; the Centers for Disease Control; public transit; rental assistance; child care; and airline industry workers.
On March 27, 2021, the COVID-19 Bankruptcy Relief Extension Act of 2021 was enacted, extending the bankruptcy relief provisions enacted in the CARES Act of 2020 bill until March 27, 2022. These provisions provide financially distressed small businesses and individuals greater access to bankruptcy relief. We are continuing to monitor the potential development of additional legislation and further actions taken by the U.S. government.

38
Application of Critical Accounting Policies and Accounting Estimates
We follow accounting and reporting policies that conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While we base estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.
We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements.
Accounting policies related to the allowance for credit losses on financial instruments including loans and off-balance-sheet credit exposures are considered to be critical as these policies involve considerable subjective judgment and estimation by management. In the case of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. The amount of each allowance account represents management's best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. Refer to the 2020 Form 10-K for additional information regarding critical accounting policies.

39
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.
Selected data for the comparable periods was as follows:
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2021 2020 2021 2020
Taxable-equivalent net interest income $ 269,321  $ 267,041  $ 813,266  $ 805,216 
Taxable-equivalent adjustment 23,199  23,618  69,107  71,461 
Net interest income 246,122  243,423  744,159  733,755 
Credit loss expense —  20,302  63  227,474 
Net interest income after credit loss expense 246,122  223,121  744,096  506,281 
Non-interest income 93,189  83,601  277,672  374,117 
Non-interest expense 218,003  202,150  643,399  625,992 
Income before income taxes 121,308  104,572  378,369  254,406 
Income tax expense\(benefit) 13,333  9,516  36,311  11,525 
Net income 107,975  95,056  342,058  242,881 
Preferred stock dividends 1,668  —  5,488  2,016 
Redemption of preferred stock —  —  —  5,514 
Net income available to common shareholders $ 106,307  $ 95,056  $ 336,570  $ 235,351 
Earnings per common share – basic $ 1.66  $ 1.50  $ 5.25  $ 3.72 
Earnings per common share – diluted 1.65  1.50  5.22  3.71 
Dividends per common share 0.75  0.71  2.19  2.13 
Return on average assets 0.90  % 0.96  % 1.00  % 0.85  %
Return on average common equity 9.87  9.30  10.72  7.95 
Average shareholders’ equity to average assets 9.44  10.31  9.65  10.80 
Net income available to common shareholders increased $11.3 million, or 11.8%, for the three months ended September 30, 2021 and increased $101.2 million, or 43.0%, for the nine months ended September 30, 2021 compared to the same periods in 2020. The increase during the three months ended September 30, 2021 was primarily the result of a $20.3 million decrease in credit loss expense, a $9.6 million increase in non-interest income and a $2.7 million increase in net interest income partly offset by a $15.9 million increase in non-interest expense and a $3.8 million increase in income tax expense. The increase during the nine months ended September 30, 2021 was primarily the result of a $227.4 million decrease in credit loss expense and a $10.4 million increase in net interest income partly offset by a $96.4 million decrease in non-interest income, a $24.8 million increase in income tax expense and a $17.4 million increase in non-interest expense. Credit loss expense during 2020 was impacted by both our adoption of a new credit loss accounting standard and the adverse events impacting our loan portfolio, including those arising from the COVID-19 pandemic and the significant volatility in oil prices. Non-interest income during 2020 was impacted by a $109.0 million net gain on securities transactions during the first quarter. Net income available to common shareholders during 2020 was also impacted by the reclassification of $5.5 million of issuance costs associated with our preferred stock to retained earnings upon redemption of the preferred stock.
Details of the changes in the various components of net income are further discussed below.

40
Net Interest Income
Net interest income is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is our largest source of revenue, representing 72.8% of total revenue during the first nine months of 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 2020 at 4.75% and decreased 150 basis points in March 2020 to 3.25% where it remained through September 30, 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. The target range for the federal funds rate, which is the cost of immediately available overnight funds, began 2020 at 1.50% to 1.75% and decreased 150 basis points in March 2020 to zero to 0.25% where it remained through September 30, 2021. As noted in 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. 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 
41
Nine Months Ended
September 30, 2021 vs. September 30, 2020
Increase (Decrease) Due to Change in
Rate Volume Number of days Total
Interest-bearing deposits $ (9,821) $ 10,844  $ (40) $ 983 
Federal funds sold (331) (375) (2) (708)
Resell agreements (76) (75) (1) (152)
Securities:
Taxable (8,901) (1,683) —  (10,584)
Tax-exempt —  (8,617) —  (8,617)
Loans, net of unearned discounts 3,221  5,126  (1,883) 6,464 
Total earning assets (15,908) 5,220  (1,926) (12,614)
Savings and interest checking (428) 435  (4) 3 
Money market deposit accounts (9,025) 2,061  (49) (7,013)
Time accounts (8,576) 67  (42) (8,551)
Public funds (1,627) 209  (5) (1,423)
Federal funds purchased (73) 6  (1) (68)
Repurchase agreements (3,668) 1,366  (14) (2,316)
Junior subordinated deferrable interest debentures
(979) 1  —  (978)
Subordinated notes (6) 6  —  — 
Federal home loan bank advances —  (318) —  (318)
Total interest-bearing liabilities (24,382) 3,833  (115) (20,664)
Net change $ 8,474  $ 1,387  $ (1,811) $ 8,050 
Taxable-equivalent net interest income for the three months ended September 30, 2021 increased $2.3 million, or 0.9%, while taxable-equivalent net interest income for the nine months ended September 30, 2021 increased $8.1 million, or 1.0%, compared to the same periods in 2020. Taxable-equivalent net interest income for the nine months ended September 30, 2021 included 273 days compared to 274 days for the same period in 2020 as a result of the leap year. The additional day added approximately $1.8 million to taxable-equivalent net interest income during the nine months ended September 30, 2020. Excluding the impact of the additional day results in an effective increase in taxable-equivalent net interest income of approximately $9.9 million during the nine months ended September 30, 2021. The taxable-equivalent net interest margin decreased 48 basis points from 2.95% during the three months ended September 30, 2020 to 2.47% during the three months ended September 30, 2021 while the taxable-equivalent net interest margin decreased 59 basis points from 3.20% during the nine months ended September 30, 2020 to 2.61% during the nine months ended September 30, 2021.
The increase in taxable-equivalent net interest income during the three months ended September 30, 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, 2021 were primarily related to increases in the relative proportion of average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) to average total interest-earning assets combined with the aforementioned decreases in market interest rates. Interest-bearing deposits made up approximately 34.7% of average interest-earning assets during the three 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, 2021 compared to 13.1% during the same period in 2020.
42
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 interest-earning assets during the three months ended September 30, 2021 included a $9.4 billion increase in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) partly offset by a $2.0 billion decrease in average 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 a $9.5 million decrease in average federal funds sold. The increase in the average volume of interest-earning assets during the nine months ended September 30, 2021 included an $8.4 billion increase in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve), a $131.9 million increase in average loans (of which approximately $369.2 million related to PPP loans, as further discussed below) partly offset by a $231.0 million decrease in average tax-exempt securities, a $134.7 million decrease in average taxable securities, a $95.1 million decrease in average federal funds sold and a $16.8 million decrease in average resell agreements.
The average taxable-equivalent yield on interest-earning assets decreased 51 basis points from 3.04% during the three months ended September 30, 2020 to 2.53% during the three months ended September 30, 2021 while the average taxable-equivalent yield on interest-earning assets decreased 68 basis points from 3.35% during the nine months ended September 30, 2020 to 2.67% during the nine months ended September 30, 2021. The average taxable-equivalent yield on interest-earning assets during 2021 was impacted by the aforementioned changes in market interest rates and changes in the volume and relative mix of interest-earning assets.
The average taxable-equivalent yield on loans increased 43 basis points from 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 increased 2 basis points from 4.08% during the nine months ended September 30, 2020 to 4.10% during the nine months ended September 30, 2021. The average taxable-equivalent yields on loans during the three and nine months ended September 30, 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 2020. The average volume of loans for the three and nine months ended September 30, 2021 decreased $2.0 billion, or 10.8%, and increased $131.9 million, or 0.8%, respectively, compared to the same periods in 2020. The decrease in average loans during the three months ended September 30, 2021 compared to the same period in 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 36.8% and 40.3% of average interest-earning assets during the three and nine months ended September 30, 2021, respectively, compared to 49.4% during each of the same respective periods 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. In 2020, we funded $3.3 billion of PPP loans of which approximately $3.2 billion were funded during the second quarter of 2020. As of September 30, 2021, approximately $3.1 billion of these 2020 originated PPP loans have been forgiven by the SBA or repaid by the customer. During the first nine months of 2021, we funded an additional $1.4 billion of PPP loans, most of which was during the first quarter. As of September 30, 2021, approximately $703.9 million of these 2021 originated PPP loans have been forgiven by the SBA or repaid by the customer. During the three and nine months ended September 30, 2021, 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 result of the inclusion of these net fees in interest income, the average yields on PPP loans 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.
The increase in the average yield on PPP Loans during the three and nine months ended September 30, 2021 compared to the same periods in 2020 was primarily due to a decrease in the average expected lives of the PPP loans funded in 2021 compared to 2020. Furthermore, the average fee percentage for 2021 originations was higher due to a smaller average loan size relative to 2020. In return for processing and booking a PPP loan, the SBA paid lenders a processing fee tiered by the size of the loan (5% for loans of not more than $350 thousand; 3% for loans of more than $350 thousand and less than $2 million; and 1% for loans of at least $2 million). For PPP loans funded through September 30, 2021, we expect to recognize additional PPP loan related deferred processing fees (net of deferred origination costs) totaling approximately $11.5 million as a yield adjustment over the remaining expected lives of these loans. Of this amount, we expect to recognize approximately 75% in 2021 and the remainder in 2022.
The average taxable-equivalent yield on securities was 3.35% during the three months ended September 30, 2021, decreasing 9 basis points from 3.44% during the same period in 2020 while the average taxable-equivalent yield on securities
43
was 3.37% during the nine months ended September 30, 2021, decreasing 11 basis points from 3.48% during the same period in 2020. The average yield on taxable securities decreased 18 basis points from 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 29 basis points from 2.32% during the nine months ended September 30, 2020 to 2.03% during the nine months ended September 30, 2021.
The average taxable-equivalent yield on tax-exempt securities decreased 4 basis points from 4.08% during the three months ended September 30, 2020 to 4.04% during the three months ended September 30, 2021 while the average taxable-equivalent yield on tax-exempt securities remained flat at 4.07% during both the nine months ended September 30, 2021 and 2020. Tax exempt securities made up approximately 66.8% and 66.7% of total average securities during the three and nine months ended September 30, 2021, respectively, compared to 66.9% and 66.6% during the same respective periods in 2020. The average volume of total securities during the three months ended September 30, 2021 decreased $177.4 million, or 1.4%, compared to the same period in 2020 while the average volume of total securities during the nine months ended September 30, 2021 decreased $365.7 million, or 2.9%, compared to the same period in 2020. Securities made up approximately 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, 2021 were primarily related to an increase in the relative proportion of interest-earning assets invested in interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve).
Average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) for the three 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, 2021 increased $8.4 billion, or 186.1%, compared to the same period in 2020. Interest-bearing deposits made up approximately 34.7% of average interest-earning assets during the three 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, 2021 compared to 13.1% during the same period in 2020. The increases in the average volume of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) during the three and nine months ended September 30, 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 0.10% and 0.32 % during the same periods in 2020. The average yields on interest-bearing deposits during 2021 and during the second and third quarters of 2020 were negatively impacted by a decrease in the interest rate paid on excess reserves held at the Federal Reserve to 0.10% during March 2020, although this rate ultimately increased 5 basis points to 0.15% in June 2021.
Average federal funds sold and average resell agreements for the three months ended September 30, 2021 decreased $9.5 million, or 85.0%, and $12.1 million, or 60.5%, respectively, compared to the same period in 2020 while average federal funds sold and average resell agreements for the nine months ended September 30, 2021 decreased $95.1 million, or 91.1%, and $16.8 million, or 73.2%, respectively, compared to the same period in 2020. Federal funds sold and resell agreements were not a significant component of interest-earning assets during the comparable periods. The average yields on federal funds sold and resell agreements were 0.48% and 0.29%, respectively, during the three months ended September 30, 2021, compared to 0.18% and 0.27%, respectively, during the same period in 2020 while the average yields on federal funds sold and resell agreements were 0.18% and 0.24%, respectively, during the nine months ended September 30, 2021, compared to 0.91% and 0.93%, respectively, during the same period in 2020. The average yields on federal funds sold and resell agreements during 2021 were negatively impacted by lower average market interest rates.
The average rate paid on interest-bearing liabilities was 0.10% during the three months ended September 30, 2021, decreasing 5 basis points from 0.15% during the same period in 2020 while the average rate paid on interest-bearing liabilities was 0.10% during the nine months ended September 30, 2021, decreasing 17 basis points from 0.27% during the same period in 2020. Average deposits increased $6.2 billion, or 19.0%, during the three months ended September 30, 2021 compared to the same period in 2020 and included a $3.8 billion increase in average interest-bearing deposits and a $2.4 billion increase in average non-interest bearing deposits. Average deposits increased $7.1 billion, or 23.2%, during the nine months ended September 30, 2021 compared to the same period in 2020 and included a $3.9 billion increase in average interest-bearing deposits and a $3.2 billion increase in average non-interest bearing deposits. The ratio of average interest-bearing deposits to total average deposits was 56.5% and 56.8% during the three and nine months ended September 30, 2021, respectively, compared to 55.6% and 57.3% during the same respective periods in 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 0.07% and 0.04%, respectively, during the three months ended September 30, 2021 compared to 0.12% and 0.07%, respectively, during the same period in 2020. The average cost of interest-
44
bearing deposits and total deposits was 0.07% and 0.04%, respectively, during the nine months ended September 30, 2021 compared to 0.21% and 0.12%, respectively, during the same period in 2020. The average cost of deposits during 2020 and 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 2.43% and 2.57% during the three and nine months ended September 30, 2021, respectively, compared to 2.89% and 3.08% during the same periods in 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 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 is expected to continue to positively impact net interest income and net interest margin in the near 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,
2021 2020 2021 2020
Credit loss expense (benefit) related to:
Loans $ (3,023) $ 23,590  $ (7,402) $ 223,743 
Off-balance-sheet credit exposures 3,023  (3,276) 7,467  3,786 
Securities held to maturity —  (12) (2) (55)
Total $ —  $ 20,302  $ 63  $ 227,474 
See the section captioned “Allowance for Credit Losses” elsewhere in this discussion for further analysis of credit loss expense related to loans and off-balance-sheet credit exposures.
Non-Interest Income
Total non-interest income for the three and nine months ended September 30, 2021 increased $9.6 million, or 11.5%, and decreased $96.4 million, or 25.8%, respectively, compared to the same periods in 2020. Excluding the $109.0 million in net gains on securities transactions during the nine months ended September 30, 2020, total non-interest income increased $12.5 million, or 4.7%, during the nine months ended September 30, 2021. Changes in the various components of non-interest income are discussed in more detail below.
Trust and Investment Management Fees. Trust and investment management fees for the three and nine months ended September 30, 2021 increased $5.9 million, or 18.8%, and increased $13.6 million, or 14.0%, respectively, compared to the same periods in 2020. Investment management fees are the most significant component of trust and investment management fees, making up approximately 82.4% and 82.7% of total trust and investment management fees for the first nine months of
45
2021 and 2020, respectively. The increase in trust and investment management fees during the three months ended September 30, 2021 was primarily due to increases in investment management fees (up $3.6 million, or 13.1%), oil and gas fees (up $1.6 million) and custody fees (up $519 thousand). The increase in trust and investment management fees during the nine months ended September 30, 2021 was primarily due to increases in investment management fees (up $10.9 million, or 13.7%), oil and gas fees (up $1.4 million) and custody fees (up $1.0 million). Investment management fees and other custodial account fees are generally based on the market value of assets within an account and are thus impacted by volatility in the equity and bond markets. The increases in investment management fees and custody fees during the three and nine months ended September 30, 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 oil and gas prices.
At September 30, 2021, trust assets, including both managed assets and custody assets, were primarily composed of equity securities (47.1% of assets), fixed income securities (32.2% of assets), alternative investments (6.8% of assets) and cash equivalents (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.
Service Charges on Deposit Accounts. Service charges on deposit accounts for the three 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, 2021 increased $1.0 million, or 1.7%, compared to the same periods in 2020. The increase during the three months ended September 30, 2021 was primarily related to increases in 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 $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 same period in 2020. Overdraft charges totaled $22.2 million ($17.3 million consumer and $4.9 million commercial) during the nine months ended September 30, 2021 compared to $23.7 million ($18.8 million consumer and $4.9 million commercial) during the same period in 2020. The fluctuations in overdraft charges during the three and nine months ended September 30, 2021 were impacted by fluctuations in the volumes of fee assessed overdrafts relative to the same periods in 2020. Furthermore, in April 2021, we implemented a new overdraft grace feature for certain consumer demand deposit accounts whereby no fees will be assessed on overdrafts of $100 or less, subject to certain qualifying conditions such as a minimum direct deposit. This new feature reduced overdraft charges on consumer accounts by approximately $1.0 million and $1.1 million during the second and third quarters of 2021, respectively. The impact on future quarters will depend on future overdraft volumes.
Insurance Commissions and Fees. Insurance commissions and fees for the three and nine months ended September 30, 2021 increased $292 thousand, or 2.5%, and $1.2 million, or 3.2%, respectively, compared to the same periods in 2020. The increase during the three months ended September 30, 2021 was the result of increases in commission income (up $168 thousand) and contingent income (up $124 thousand). The increase during the nine months ended September 30, 2021 was the result of increases in contingent income (up $1.1 million) and commission income (up $123 thousand).
The increase in commission income during the three months ended September 30, 2021 was primarily related to an increase in commercial lines property and casualty commissions partly offset by a decrease in benefit plan commissions. The increase in commission income during the nine months ended September 30, 2021 was primarily related to increases in life insurance commissions and commercial lines property and casualty commissions mostly offset by a decrease in benefit plan commissions. The increases in commercial lines property and casualty commissions were related to increased market rates while the increase in life insurance commissions during the nine months ended September 30, 2021 and decreases in benefit plan commissions during the three and nine months ended September 30, 2021 were related to fluctuations in business volumes.
Contingent income totaled $241 thousand and $4.3 million during the three and nine months ended September 30, 2021, respectively, compared to $117 thousand and $3.2 million during the same periods in 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 during
46
the nine months ended September 30, 2021 and 2020, respectively. The increase in performance related contingent income during 2021 was related to growth within the portfolio combined with 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 $201 thousand and $1.1 million during the three and nine months ended September 30, 2021, respectively, compared to $77 thousand and $1.1 million during the same periods in 2020, respectively.
Interchange and Card Transaction Fees. Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions. Interchange and card transaction fees consist of income from debit and credit card usage, point of sale income from PIN-based card transactions and ATM service fees. Interchange and card transaction fees are reported net of related network costs.
Net interchange and card transaction fees for the three and nine months ended September 30, 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 card transaction fees for the reported periods is presented in the table below.
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, 2021 increased $1.4 million, or 16.9%, compared to the same period in 2020. The increase was primarily related to an increase in income from the sale of mutual funds (up $1.3 million) and, to a lesser extent, increases in income from the sale of annuities (up $246 thousand), merchant services rebates (up $174 thousand) and funds transfer service charges (up $167 thousand) partly offset by decreases in capital markets advisory fees (down $321 thousand), fees on unused commitments (down $300 thousand) and letter of credit fees (down $236 thousand). Other charges, commissions and fees for the nine months ended September 30, 2021 increased $1.3 million, or 5.2%, compared to the same period in 2020. The increase was primarily related to increases in income from the sale of mutual funds (up $2.6 million), funds transfer service charges (up $474 thousand), merchant services rebates (up $402 thousand) and income from the sale of annuities (up $359 thousand). These items were partly offset by decreases in income from the placement of money market accounts (down $1.7 million), which was impacted by lower average market rates, and a decrease in fees on unused commitments (down $1.3 million), among other things.
Net Gain/Loss on Securities Transactions. No securities were sold during the first nine months of 2021. During the first quarter of 2020, we sold $483.1 million of residential mortgage-backed securities and realized a net gain of $1.9 million on those sales. The proceeds from these sales were reinvested into other residential mortgage-backed securities that had lower pre-payment rates. We also sold $519.1 million of 30-year U.S Treasury securities during the first quarter of 2020 and realized a net gain of $107.1 million on those sales. These U.S. Treasury securities were purchased during the fourth quarter of 2019 to hedge, in effect, against falling interest rates. Prior to their sale, these securities had significant unrealized holding gains as a result of decreases in market interest rates during the first quarter of 2020. We elected to sell these securities to provide liquidity and realize the gains.
Other Non-Interest Income. Other non-interest income for the three months ended September 30, 2021 decreased $422 thousand, or 4.7%, compared to the same period in 2020. The decrease was primarily related to decreases in sundry and other miscellaneous income (down $1.3 million), public finance underwriting fees (down $815 thousand) and earnings on the cash
47
surrender value of life insurance (down $402 thousand) partly offset by increases in income from customer foreign exchange and derivative transactions (up $1.6 million and $407 thousand, respectively). Other non-interest income for the nine months ended September 30, 2021 decreased $8.1 million, or 23.6%, compared to the same period in 2020. Other non-interest income during the nine months ended September 30, 2020 included approximately $6.0 million in gains realized on the sale of certain non-hedge related, short-term put options on U.S. Treasury securities with an aggregate notional amount of $500 million. The put options were not exercised and expired in March 2020. The decrease in other non-interest income during the nine months ended September 30, 2021 was also partly related to decreases in sundry and other miscellaneous income (down $3.6 million), public finance underwriting fees (down $1.9 million) and earnings on the cash surrender value of life insurance (down $994 thousand). The decrease from these items was partly offset by an increase in gains on the sales of assets (up $1.2 million) and increases in income from customer derivative and foreign exchange transactions (up $1.9 million and $593 thousand, respectively). Sundry income during the first nine months of 2020 included $2.8 million related to the recovery of prior write-offs, $1.0 million related to a Visa volume-related bonus and $512 thousand related to settlements. The decreases in public finance underwriting fees was primarily due to a decrease in business volume. The decreases in earnings on the cash surrender value of life insurance were due to lower yields on the investments within the bank-owned life insurance portfolio. Gains on the sale of assets include $1.8 million related to the sale of certain parking lots in downtown San Antonio in 2021 and $758 thousand related to the sale of a branch facility in 2020.
Non-Interest Expense
Total non-interest expense for the three and nine months ended September 30, 2021 increased $15.9 million, or 7.8%, and increased $17.4 million, or 2.8%, respectively, compared to the same periods in 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, 2021 increased $6.1 million, or 6.6%, and $7.5 million, or 2.6%, respectively, compared to the same periods in 2020. The increases in salaries and wages during the comparable periods 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.
Employee Benefits. Employee benefits expense for the three and nine months ended September 30, 2021 increased $5.5 million, or 34.2%, and $3.0 million, or 5.0%, respectively, compared to the same periods in 2020. The increases were primarily related to 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, among other things.
Our defined benefit retirement and restoration plans were frozen in 2001 which has helped to reduce the volatility in retirement plan expense. We nonetheless still have funding obligations related to these plans and could recognize additional expense related to these plans in future years, which would be dependent on the return earned on plan assets, the level of interest rates and employee turnover. See Note 12 - Defined Benefit Plans for additional information related to our net periodic pension benefit/cost.
Net Occupancy. Net occupancy expense for the three and nine months ended September 30, 2021 increased $1.7 million, or 6.8%, and $3.8 million, or 5.0%, respectively, compared to the same periods in 2020. The increase during the three months ended September 30, 2021 was primarily related to increases in repairs and maintenance/service contracts expense (up $920 thousand) and depreciation on leasehold improvements (up $420 thousand), among other things. The increase during the nine months ended September 30, 2021 was primarily related to increases in repairs and maintenance/service contracts expense (up $1.9 million) and depreciation on leasehold improvements (up $1.6 million), among other things, partly offset by a decrease in lease expense (down $467 thousand), among other things. The increases in the aforementioned components of net occupancy expense during the comparable periods were impacted, in part, by our expansion within the Houston market area.
Technology, Furniture and Equipment. Technology, furniture and equipment expense for the three and nine months ended September 30, 2021 increased $2.0 million, or 7.6%, and $6.7 million, or 8.7%, respectively, compared to the same periods in 2020. The increase during the three months ended September 30, 2021 was primarily related to increases in cloud services expense (up $1.4 million) and depreciation of furniture and equipment (up $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 $4.6 million) and depreciation of furniture and equipment (up $1.9 million).

48
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. The increases were primarily related to increases in total assets partly offset by a decrease in the assessment rate.
Other Non-Interest Expense. Other non-interest expense for the three and nine months ended September 30, 2021 decreased $204 thousand, or 0.5%, and $4.5 million, or 3.7%, respectively, compared to the same periods in 2020. The decrease during the three months ended September 30, 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 (up $538 thousand); and advertising/promotions expense (up $332 thousand); among other things.
The decrease in other non-interest expense during the nine months ended September 30, 2021 included decreases in outside computer service expense (down $3.8 million); travel, meals and entertainment expense (down $2.9 million); professional services expense (down $2.6 million); advertising/promotions expense (down $898 thousand); amortization of deferred costs associated with loan commitments (down $805 thousand); business development expense (down $799 thousand); and losses on the sale/write-down of foreclosed and other assets (down $627 thousand); among other things. The impact of these items was partly offset by increases in sundry and other miscellaneous expenses (up $3.1 million); donations expense (up $2.6 million); and fraud losses (up $1.9 million), among other things. Donations expense during the first nine months of 2021 was impacted by $3.3 million in contributions to the Frost Charitable Foundation.
Results of Segment Operations
We are managed under a matrix organizational structure whereby our two primary operating segments, Banking and Frost Wealth Advisors, overlap a regional reporting structure. A third operating segment, Non-Banks, is for the most part the parent holding company, as well as certain other insignificant non-bank subsidiaries of the parent that, for the most part, have little or no activity. A description of each segment, the methodologies used to measure segment financial performance and summarized operating results by segment are described in Note 15 - Operating Segments in the accompanying notes to consolidated financial statements included elsewhere in this report. Segment operating results are discussed in more detail below.
Banking
Net income for the three and nine months ended September 30, 2021 increased $7.2 million, or 7.7%, and $83.0 million, or 34.9%, respectively, compared to the same periods in 2020. The increase during the three months ended September 30, 2021 was primarily the result of a $20.3 million decrease in credit loss expense, a $2.7 million increase in net interest income and a $2.1 million increase in non-interest income partly offset by a $15.6 million increase in non-interest expense and a $2.3 million increase in income tax expense. The increase during the nine months ended September 30, 2021 was primarily the result of a $227.4 million decrease in credit loss expense and a $10.1 million increase in net interest income partly offset by a $111.5 million decrease in non-interest income, a $22.3 million increase in non-interest expense, and a $20.7 million increase in income tax expense.
Net interest income for the three and nine months ended September 30, 2021 increased $2.7 million, or 1.1%, and $10.1 million, or 1.4%, respectively, compared to the same periods in 2020. The 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 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 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. 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.
49
The Banking segment recorded a credit loss benefit totaling $6 thousand for the three months ended September 30, 2021 compared to a credit loss expense totaling $20.3 million for the same period in 2020. Credit loss expense totaled $57 thousand during the nine months ended September 30, 2021 compared to $227.5 million for the same period in 2020. See the sections captioned “Credit Loss Expense” and “Allowance for Credit Losses” elsewhere in this discussion for further analysis of credit loss expense related to loans and off-balance-sheet commitments.
Non-interest income for the three months ended September 30, 2021 increased $2.1 million, or 4.3%, compared to the same period in 2020. The increase was primarily due to increases in service charges on deposit accounts and interchange and debit card transactions fees partly offset by a decrease in other non-interest income. The increase 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 included a $109.0 million net gain on securities transactions recognized during the first quarter of 2020. Excluding the net gain on securities transactions, total non-interest income for the Banking segment decreased $2.5 million, or 1.6%, during the first nine months of 2021 compared to the same period in 2020. This decrease was primarily due to a decrease in other non-interest income partly offset by increases in interchange and card transaction fees, insurance commissions and fees and in service charges on deposit accounts. Other non-interest income during the nine months ended September 30, 2020 included approximately $6.0 million in gains realized on the sale of certain non-hedge related, short-term put options on U.S. Treasury securities with an aggregate notional amount of $500 million during the first quarter. The put options were not exercised and expired in March 2020. The decrease in other non-interest income during the nine months ended September 30, 2021 was also partly related to decreases in sundry and other miscellaneous income, public finance underwriting fees and earnings on the cash surrender value of life insurance. The decrease from these items was partly offset by an increase in gains on the sales of assets and increases in income from customer derivative and foreign exchange transactions. The increase in interchange and debit card transactions fees was due to increased transaction volumes as well as the impact of new card products partly offset by increases in network costs. The increase in insurance commissions and fees was the result of an 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 deposit accounts was primarily related to an increase in commercial service charges partly offset by a decrease in overdraft charges on consumer accounts. See the analysis of these categories of non-interest income included in the section captioned “Non-Interest Income” included elsewhere in this discussion.
Non-interest expense increased $15.6 million, or 9.2%, for three months ended September 30, 2021 and $22.3 million, or 4.2%, for the nine months ended September 30, 2021, compared to the same periods in 2020. The increase during the three months ended September 30, 2021 was primarily due to increases in employee benefit expense; salaries and wages; net occupancy expense; and technology, furniture and equipment expense. The increase during the nine months ended September 30, 2021 was primarily due to increases in salaries and wages; technology, furniture and equipment expense; employee benefit expense; and net occupancy expense. The increases in employee benefits expense during the three and nine months ended September 30, 2021 were primarily related to increases in certain discretionary benefit plan expenses and, to a lesser extent, increases in medical 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 months ended September 30, 2021 was primarily related to increases in cloud services expense and depreciation of furniture and equipment partly offset by a decrease in software maintenance. The increase during the nine months ended September 30, 2021 was primarily related to increases in cloud services expense and depreciation of furniture and equipment. See the analysis of these categories of non-interest expense included in the section captioned “Non-Interest Expense” included elsewhere in this discussion.
50
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. The increase in commission income during the three months ended September 30, 2021 was primarily related to an increase in commercial lines property and casualty commissions partly offset by a decrease in benefit plan commissions. The increase in commission income during the nine months ended September 30, 2021 was primarily related to increases in life insurance commissions and commercial lines property and casualty commissions mostly offset by a decrease in benefit plan commissions. The increases in commercial lines property and casualty commissions were related to increased market rates while the increase in life insurance commissions during the nine months ended September 30, 2021 and decreases in benefit plan commissions during the three and nine months ended September 30, 2021 were related to fluctuations in business volumes. 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, 2021 increased $5.2 million, or 126.0%, and $14.0 million, or 102.7%, respectively, compared to the same periods in 2020. The increase during the three months ended September 30, 2021 was primarily the result of a $7.7 million increase in non-interest income partly offset by a $1.4 million increase in income tax expense and a $1.0 million increase in non-interest expense. The increase during the nine months ended September 30, 2021 was primarily the result of a $15.2 million increase in non-interest income and 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 net interest income.
Net interest income for the three and nine months ended September 30, 2021 decreased $66 thousand, or 11.0%, and $633 thousand, or 29.3%, respectively, compared to the same periods in 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 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, 2021 increased $7.7 million, or 22.2%, and $15.2 million, or 13.9%, respectively, compared to the same periods in 2020. The increases were primarily due to increases in trust and investment management fees 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 82.4% of total trust and investment management fees for the first nine months of 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, 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 oil and gas prices. The increases in other charges, commissions and fees during the three and nine months September 30, 2021 were primarily related to increases in income from the sale of mutual funds and income from the sale of annuities. The increase in other charges, commissions and fees during the nine months ended September 30, 2021 was partly offset by a decrease in income from the placement of money market accounts, which was impacted by lower average market rates. See the analysis of trust and investment management fees and other charges, commissions and fees included in the section captioned “Non-Interest Income” included elsewhere in this discussion.
Non-interest expense for the three months ended September 30, 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, 2021 decreased $3.2 million, or 3.4%, compared to the same period in 2020. The increase during the three months ended September 30, 2021 was primarily due to increases in technology, furniture and equipment expense and salaries and wages partly offset by a decrease in employee benefits expense. The decrease during the nine months ended September 30, 2021 was primarily due to decreases in other non-interest expense and employee benefit expense partly offset by an increase in technology, furniture and equipment expense.
The increases in technology, furniture and equipment expense during the three and nine months ended September 30, 2021 were primarily related to increases in cloud service expenses partly offset by decreases in service contract expense. The increase in salaries and wages during the three months ended September 30, 2021 was primarily due to an increase in incentive compensation and commissions partly offset by a decrease in salaries due to a decrease in the number of employees. The decreases in employee benefit expense during the three and nine months ended September 30, 2021 were primarily due to decreases in certain discretionary benefit plan expenses, among other things. The decrease in other non-interest expense during the nine months ended September 30, 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 subscriptions expense.
51
Non-Banks
The Non-Banks operating segment had net losses of $2.1 million and $6.6 million during the three and nine months ended September 30, 2021, respectively, compared to net losses of $2.6 million and $8.8 million during the same periods in 2020. The decreases in the net losses for the three and nine months ended September 30, 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.
Income Taxes
During the three months ended September 30, 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%, for the same period in 2020. During the nine months ended September 30, 2021, we recognized income tax expense of $36.3 million, for an effective tax rate of 9.6%, compared to income tax expense of $11.5 million, for an effective tax rate of 4.5%, for the same period in 2020.
The effective income tax rates differed from the U.S. statutory federal income tax rate of 21% during 2021 and 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 increases in the effective tax rates during 2021 were primarily related to increases in pre-tax net income, partly off-set by the impact of higher discrete tax benefits associated with stock-based compensation. The effective tax rate during the nine months ended September 30, 2020 was also impacted by a one-time, discrete tax benefit associated with an asset contribution to a charitable trust during the second quarter.
Average Balance Sheet
Average assets totaled $45.0 billion for the nine months ended September 30, 2021 representing an increase of $8.0 billion, or 21.8%, compared to average assets for the same period in 2020. Earning assets increased $8.0 billion, or 23.4%, during the first nine months of 2021 compared to the same period in 2020. The increase in earning assets was primarily related to a $8.4 billion increase in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and a $131.9 million increase in average loans partly offset by a $231.0 million decrease in average tax-exempt securities, a $134.7 million decrease in average taxable securities, a $95.1 million decrease in average federal funds sold and a $16.8 million decrease in average resell agreements. Average deposits increased $7.1 billion, or 23.2%, during the first nine months of 2021 compared to the same period in 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 $3.2 billion increase in non-interest bearing deposits and a $3.9 billion increase in interest-bearing deposit accounts. Average non-interest bearing deposits made up 43.2% and 42.7% of average total deposits during the first nine months of 2021 and 2020, respectively.
Loans
Details of our loan portfolio are presented in Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report. Loans decreased $1.6 billion, or 9.4%, from $17.5 billion at December 31, 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 decreased $42.6 million, or 0.3%, from $15.0 billion at December 31, 2020 to $15.0 billion at September 30, 2021, and decreased $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 2020 Form 10-K for a more detailed discussion of our loan origination and risk management processes.
Commercial and Industrial. Commercial and industrial loans decreased $25.7 million, or 0.5%, 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).

52
Energy. Energy loans include loans to entities and individuals that are engaged in various energy-related activities including (i) the development and production of oil or natural gas, (ii) providing oil and gas field servicing, (iii) providing energy-related transportation services, (iv) providing equipment to support oil and gas drilling, (v) refining petrochemicals, or (vi) trading oil, gas and related commodities. Energy loans decreased $257.0 million, or 20.8%, from $1.2 billion at December 31, 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 $648.7 million at September 30, 2021, decreasing $139.3 million, or 17.7%, from $788.1 million at December 31, 2020. At September 30, 2021, 28.5% of outstanding purchased SNCs were related to the energy industry while 23.0% were related to the construction industry, 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 increased $230.6 million, or 3.3%, from $7.0 billion at December 31, 2020 to $7.3 billion at September 30, 2021. Commercial real estate loans represented 84.2% of total real estate loans at September 30, 2021 compared to 84.1% at December 31, 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.
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, 2021 and December 31, 2020. Consumer real estate loans increased $32.3 million, or 2.4%, from December 31, 2020. Combined, home equity loans and lines of credit made up 58.7% and 58.8% of the consumer real estate loan total at September 30, 2021 and December 31, 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. We have not generally originated 1-4 family mortgage loans since 2000; however, from time to time, we invested in such loans to meet the needs of our customers or for other regulatory compliance purposes. Nonetheless, we expect to begin regular production of 1-4 family mortgage loans for portfolio investment purposes in the second half of 2022. Consumer and other loans decreased $22.8 million, or 4.5%, from December 31, 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. We have originated loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act. Loans covered by the PPP may be eligible for loan forgiveness for certain costs incurred related to payroll, group health care benefit costs and qualifying mortgage, rent and utility payments. The remaining loan balance after forgiveness of any amounts is still fully guaranteed by the SBA. Refer to the 2020 Form 10-K for additional details.
During the three and nine months ended September 30, 2021, we recognized approximately $26.5 million and $88.9 million, respectively, in PPP loan related deferred processing fees (net of amortization of related deferred origination costs) as yield adjustments and these amounts are included in interest income on loans during 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 yields on PPP loans 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. For PPP loans funded through September 30, 2021, we expect to recognize additional PPP loan related deferred processing fees
53
(net of deferred origination costs) totaling approximately $11.5 million as a yield adjustment over the remaining expected lives of these loans. Of this amount, we expect to recognize approximately 75% in 2021 and the remainder in 2022.
Accruing Past Due Loans. Accruing past due loans are presented in the following table. Also see Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.
Accruing Loans
30-89 Days Past Due 		Accruing Loans
90 or More Days Past Due 		Total Accruing
Past Due Loans
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 
Accruing past due loans at September 30, 2021 decreased $7.6 million compared to December 31, 2020. The decrease was primarily related to decreases in 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 (down $1.3 million) and past due construction loans (down $856 thousand) partly offset by an increase in past due non-construction related commercial real estate loans (up $12.9 million).
54
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 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 $7.3 million at September 30, 2021. This credit relationship was previously reported as non-accrual with an aggregate balance of $9.0 million at December 31, 2020. We recognized a charge-off totaling $861 thousand related to this relationship during the third quarter of 2021 while the remainder of the decrease was related to principal payments made by the borrower. Non-accrual energy loans included one credit relationship in excess of $5 million totaling $11.4 million at September 30, 2021. This credit relationship was previously reported as non-accrual with an aggregate balance of $20.1 million at December 31, 2020. The decrease in the aggregate balance of this credit relationship was related to principal payments made by the borrower. Non-accrual real estate loans primarily consist of land development, 1-4 family residential construction credit relationships and loans secured by office buildings and religious facilities. There were no non-accrual commercial real estate loans in excess of $5.0 million at September 30, 2021 or December 31, 2020.
Allowance for Credit Losses
In the case of loans and securities, allowances for credit losses are contra-asset valuation accounts, calculated in accordance with Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses, that are deducted from the amortized cost basis of these assets to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. The amount of each allowance account represents management's best estimate of current expected credit losses (“CECL”) on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and the view of the regulatory
55
authorities toward classification of assets. See our 2020 Form 10-K for additional information regarding our accounting policies related to 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.
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 $63.8 million, or 1.29% of total commercial and industrial loans, at September 30, 2021 decreasing $10.1 million, or 13.6%, compared to $73.8 million, or 1.49% of total commercial and industrial loans on December 31, 2020. Modeled expected credit losses decreased $20.3 million while Q-Factor and other qualitative adjustments related to commercial and industrial loans 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 $5.3 million at December 31, 2020 to $4.3 million at September 30, 2021. The allowance allocated to energy loans totaled $20.4 million, or 2.09% of total energy loans, at September 30, 2021 decreasing $19.1 million, or 48.3%, compared to $39.6 million, or 3.20% of total energy loans on December 31, 2020. Modeled expected credit losses related to energy loans decreased $1.9 million while Q-Factor and other qualitative adjustments related to energy loans decreased $21.1 million. Specific allocations for energy loans that were evaluated for expected credit losses on an individual basis totaled $13.4 million 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 $152.1 million, or 2.10% of total commercial real estate loans, at September 30, 2021 increasing $17.2 million, or 12.7%, compared to $134.9 million, or 1.92% of total commercial real estate loans on December 31, 2020. Modeled expected credit losses related to commercial real estate loans decreased $108.1 million while Q-Factor and other qualitative adjustments related to commercial real estate loans increased $124.8 million. Specific allocations for commercial real estate loans that were evaluated for expected credit losses on an individual basis increased from $513 thousand on December 31, 2020 to $950 thousand at September 30, 2021. The allowance allocated to consumer real estate loans totaled $6.0 million, or 0.44% of total consumer real estate loans, at September 30, 2021 decreasing $1.9 million, or 23.9%, compared to $7.9 million, or 0.60% of total consumer real estate loans on December 31, 2020. Modeled expected credit losses related to consumer real estate loans decreased $2.0 million while Q-Factor and other qualitative adjustments related to consumer real estate loans increased $59 thousand. The allowance allocated to consumer loans totaled $7.9 million, or 1.63% of total consumer loans, at September 30, 2021 increasing $889 thousand, or 12.8%, compared to $7.0 million, or 1.38% of total consumer loans, on December 31, 2020. Modeled expected credit losses related to consumer loans decreased $533 thousand while Q-Factor and other qualitative adjustments related to consumer loans increased $1.4 million.
56
As more fully described in 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, 2021, we utilized the Moody’s Analytics September 2021 Consensus Scenario (the “September 2021 Consensus Scenario”) to forecast the macroeconomic variables used in our models. The September 2021 Consensus Scenario was based on the review of a variety of surveys of baseline forecasts of the U.S. economy. The September 2021 Consensus Scenario projections included, among other things, (i) U.S. Gross Domestic Product (“GDP”) annualized quarterly growth rate of 8.7% in the fourth quarter of 2021, followed by annualized quarterly growth rates in the range of 4.0% to 6.9% during 2022 and an average annualized growth rate of 4.9% through the end of the forecast period in the third quarter of 2023; (ii) U.S. unemployment rate of 4.7% in the fourth quarter of 2021 improving to 4.0% by the end of the forecast period in the third quarter of 2023 with Texas unemployment rates slightly higher at those dates; and (iii) projected average 10 year Treasury rate of 1.42% in the fourth quarter of 2021, increasing to average projected rates of 1.66% during 2022 and 2.15% by the end of the forecast period in the third quarter of 2023. Furthermore, the September 2021 Consensus Scenario projects an average oil price in the range of approximately $62 to $66 per barrel through the end of the forecast period in the third quarter of 2023.
In estimating expected credit losses as of December 31, 2020, we utilized the Moody’s Analytics December 2020 Baseline Scenario (the “December 2020 Baseline Scenario”) to forecast the macroeconomic variables used in our models. The December 2020 Baseline Scenario was based on the review of a variety of surveys of baseline forecasts of the U.S. economy. The December Baseline Scenario projections included, among other things, (i) U.S. GDP annualized quarterly growth rate of 4.6% for the fourth quarter of 2020 followed by projected annualized quarterly growth rates in the range of approximately 3.0% to 8.0% during 2021 and 6.0% to 7.5% through the end of the forecast period in the fourth quarter of 2022; (ii) a U.S. unemployment rate of 6.7% in the fourth quarter of 2020 and an average projected rate of 7.0% in 2021 and 6.0% in 2022, with the fourth quarter of 2022 projected to be 5.4% (Texas unemployment rates are projected to be slightly less for those periods); and (iii) an average 10 year Treasury rate of 0.79% in the fourth quarter of 2020, increasing to an average projected rate of 1.05% in 2021 and 2.04% in 2022. The December 2020 Baseline Scenario also projected average oil prices of $40 per barrel in the fourth quarter of 2020, $45 per barrel on average for the year in 2021 and $55 per barrel on average for the year in 2022, with the fourth quarter of 2022 projected to be $59 per barrel.
The overall loan portfolio, excluding PPP loans which are fully guaranteed by the SBA, as of September 30, 2021 decreased $42.6 million, or 0.3%, compared to December 31, 2020. This decrease included a $25.7 million, or 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 $32.3 million, or 2.4%, increase in consumer real estate loans. The weighted average risk grade for commercial and industrial loans decreased to 6.29 at September 30, 2021 compared to 6.45 at December 31, 2020. Commercial and industrial loans graded “watch” and “special mention” (risk grades 9 and 10) decreased $116.6 million during the first nine months of 2021 while classified commercial and industrial loans decreased $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 decreased to 6.55 at September 30, 2021 from 6.85 at December 31, 2020. The decrease in the weighted average risk grade was primarily related to a $128.5 million decrease in energy loans graded “watch” and “special 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 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 decreased to 7.25 at September 30, 2021 from 7.32 at December 31, 2020. Pass grade commercial real estate loans increased $245.6 million while commercial real estate loans graded as “watch” and “special mention” increased $14.1 million and classified commercial real estate loans decreased $29.2 million.
As noted above our credit loss models utilized the economic forecasts in the Moody’s Consensus Scenario for September 2021 for our estimated expected credit losses as of September 30, 2021 and the Moody’s Baseline Scenario for December 2020 for our estimate of expected credit losses as of December 31, 2020. We qualitatively adjusted the model results based on these scenarios for various risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor (“Q-Factor”) adjustments are discussed below.
Q-Factor adjustments are based upon management judgment and current assessment as to the impact of risks related to changes in lending policies and procedures; economic and business conditions; loan portfolio attributes and credit concentrations; and external factors, among other things, that are not already captured within the modeling inputs, assumptions and other processes. Management assesses the potential impact of such items within a range of severely negative impact to positive impact and adjusts the modeled expected credit loss by an aggregate adjustment percentage based upon the assessment.
57
As a result of this assessment as of September 30, 2021, modeled expected credit losses were adjusted upwards by a weighted-average Q-Factor adjustment of approximately 1.9%, up from approximately 1.2% at December 31, 2020. The weighted-average Q-Factor adjustment at September 30, 2021 was based on a limited negative impact related to changes in lending policies, procedures and underwriting standards; no impact to changes in loan portfolio attributes and concentrations, changes in risk grades, changes in the volumes and severity of loan delinquencies and adverse classifications and potential deterioration of collateral values; 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 the first quarter of 2020, unprecedented economic conditions due to the COVID-19 pandemic and oil and gas price volatility resulted in significant spikes in the unemployment rate and the level of unemployment claims as well as severe declines in the level of the U.S. and Texas GDPs, among other things. In some cases, our expected credit loss models consider these economic variables on a three- to four-quarter lag basis. As of September 30, 2021, the significant spikes in several of these variables are no longer impacting our model results; however, as the economy has entered recovery, the models are now being impacted by exceptionally positive changes in certain variables which has resulted in lower estimates of expected credit losses. Notwithstanding the foregoing, management believes there are still significant 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 2020 Form 10-K, this adjustment was estimated based on borrowing base determinations for our energy production loans using current engineering valuations. We also performed an analysis of our customers' secondary sources of capital. As a result of the estimated borrowing base deficiencies for the identified credits, we provided an additional qualitative adjustment of approximately $21.1 million for energy production loans at December 31, 2020. Using a similar methodology as of September 30, 2021, we determined that no additional qualitative adjustment was necessary as there were no longer any significant borrowing base deficiencies within the energy production portfolio a result of higher market prices for oil and gas and lower line balances on production loans.
Our Commercial Real Estate Oversight Council, in its oversight and assessment of the credit quality of our commercial real estate loan portfolios, believes these portfolios continue to have an elevated level of risk notwithstanding recent economic stimulus efforts by federal and state governments. As of September 30, 2021, we provided additional qualitative adjustments totaling $133.5 million for various categories of our commercial real estate loan portfolio. This amount includes $58.5 million for owner-occupied commercial real estate loans, $58.3 million for non-owner-occupied commercial real estate loans and $16.7 million for commercial real estate construction loans. These additional qualitative adjustments are largely related to the on-going effects of the COVID-19 pandemic, as further discussed below, and to compensate for the effect of 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 recovery of the 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 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. Nonetheless, by late 2020, the markets in which we operate had substantially reopened. We lend to customers operating in certain industries (detailed in the table below) that have been, and are expected to continue to be, more significantly impacted by the effects of the COVID-19 pandemic. We are continuing to monitor customers in these industries closely. In assessing these portfolios for an additional qualitative adjustment, 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 associated with these industries. As a result, we provided an additional qualitative adjustment related to the effects of the COVID-19 pandemic totaling $58.8 million as of September 30, 2021, of which $52.9 million was allocated to commercial real estate loans and $5.9 million was allocated to commercial and industrial loans. These amounts are included in the totals detailed above. As of December 31, 2020, we provided a similar additional qualitative adjustment totaling $47.1 million, the details of which are described in our 2020 Form 10-K.
58
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.

59

Additional information related to credit loss expense and net (charge-offs) recoveries is presented in the table below. Also see Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.
Credit Loss Expense (Benefit) Net
(Charge-Offs)
Recoveries 		Average
Loans 		Ratio of Annualized Net (Charge-Offs)
Recoveries to Average Loans
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)
We recorded a net credit loss benefit related to loans totaling $3.0 million and $7.4 million for the three and nine months ended September 30, 2021, respectively, compared to a net credit loss expense related to loans totaling $23.6 million and $223.7 million for the same respective periods in 2020. The net credit loss benefit related to loans during the first nine months of 2021 primarily reflects improvements in forecasted economic conditions and oil price trends relative to the prevailing conditions in 2020. Credit loss expense related to loans during the first nine months of 2020 reflected the uncertain future impacts associated with the COVID-19 pandemic and the significant volatility in oil prices. Credit loss expense during the first nine months of 2020 also reflected the level of net charge-offs, the expected deterioration in credit quality and other changes within the loan portfolio. The ratio of the allowance for credit losses on loans to total loans was 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
60
the recorded amount of the allowance for credit losses on loans is appropriate based upon management’s best estimate of current expected credit losses within the existing portfolio of loans. Should any of the factors considered by management in making this estimate change, our estimate of current expect credit losses could also change, which could affect the level of future credit loss expense related to loans.
Allowance for Credit Losses - Off-Balance-Sheet Credit Exposures. The allowance for credit losses on off-balance-sheet credit exposures totaled approximately $51.6 million and $44.2 million at September 30, 2021 and December 31, 2020, respectively. The level of the allowance for credit losses on off-balance-sheet credit exposures depends upon the volume of outstanding commitments, underlying risk grades, the expected utilization of available funds and forecasted economic conditions impacting our loan portfolio. Our policies and methodology used to estimate the allowance for credit losses on off-balance-sheet credit exposures are further described in our 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 2020.
Capital and Liquidity
Capital. Shareholders’ equity totaled $4.4 billion and $4.3 billion at September 30, 2021 and December 31, 2020, respectively. In addition to net income of $342.1 million, other sources of capital during the nine months ended September 30, 2021 included $37.8 million in proceeds from stock option exercises and $7.8 million related to stock-based compensation. Additionally, we issued $1.7 million of common stock held in treasury to our 401(k) plan in connection with matching contributions. Uses of capital during the nine months ended September 30, 2021 included other comprehensive loss, net of tax, of $162.7 million; $146.0 million of dividends paid on preferred and common stock; and $1.3 million of treasury stock purchases.
The accumulated other comprehensive income/loss component of shareholders’ equity totaled a net, after-tax, unrealized gain of $350.3 million at September 30, 2021 compared to $513.0 million at December 31, 2020. The change was primarily due to a $165.7 million net, after-tax, decrease in the net unrealized gain on securities available for sale.
Under the Basel III Capital Rules, we have elected to opt-out of the requirement to include most components of accumulated other comprehensive income in regulatory capital. Accordingly, amounts reported as accumulated other comprehensive income/loss do not increase or reduce regulatory capital and are not included in the calculation of our regulatory capital ratios. In connection with the adoption of ASC 326 on January 1, 2020, we also elected to exclude, for a transitional period, the effects of credit loss accounting under CECL in the calculation of our regulatory capital and regulatory capital ratios. Regulatory agencies for banks and bank holding companies utilize capital guidelines designed to measure capital and take into consideration the risk inherent in both on-balance-sheet and off-balance-sheet items. See Note 7 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report.
We paid a quarterly dividend of $0.75 per common share during the 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. These dividend amounts equate to a common stock dividend payout ratio of 41.7% and 57.3% during the first nine months of 2021 and 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.
Preferred Stock. On March 16, 2020, we redeemed all 6,000,000 shares of our 5.375% Non-Cumulative Perpetual Preferred Stock, Series A, (“Series A Preferred Stock”) at a redemption price of $25 per share, or an aggregate redemption of $150.0 million. When issued, the net proceeds of the Series A Preferred Stock totaled $144.5 million after deducting $5.5 million of issuance costs including the underwriting discount and professional service fees, among other things. Upon redemption, these issuance costs were reclassified to retained earnings and reported as a reduction of net income available to common shareholders.
On November 19, 2020 we issued 150,000 shares, or $150.0 million in aggregate liquidation preference, of our 4.450% Non-Cumulative Perpetual Preferred Stock, Series B, par value $0.01 and liquidation preference $1,000 per share (“Series B Preferred Stock”). Each share of Series B Preferred Stock issued and outstanding is represented by 40 depositary shares, each representing a 1/40th ownership interest in a share of the Series B Preferred Stock (equivalent to a liquidation preference of $25 per share). Dividends on the Series B Preferred Stock, if declared, accrue and are payable quarterly, in arrears, at a rate of 4.450% per annum. The net proceeds from the issuance and sale of the depositary shares representing the Series B Preferred Stock, after deducting underwriting discount and commissions, and the payment of expenses, were approximately $145.5 million. Under the terms of the Series B Preferred Stock, in the event that we do not declare and pay dividends on the Series B Preferred Stock for the most recent dividend period, we may not, with certain exceptions, declare or pay dividends on, or
61
purchase, redeem or otherwise acquire, shares of our common stock or any of our securities that rank junior to the Series B Preferred Stock. See Note 7 – Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report.
Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. On January 27, 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. No 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 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 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, 2021, we had approximately $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, 2021, based upon available, pledgeable collateral, our total borrowing capacity with the FHLB was approximately $3.1 billion. Furthermore, at September 30, 2021, we had approximately $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, 2021, Cullen/Frost had liquid assets, including cash and resell agreements, totaling $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.

62
Consolidated Average Balance Sheets and Interest Income Analysis - Quarter To Date
(Dollars in thousands - taxable-equivalent basis)
September 30, 2021 September 30, 2020
Average
Balance 		Interest
Income/
Expense 		Yield/
Cost 		Average
Balance 		Interest
Income/
Expense 		Yield/
Cost
Assets:
Interest-bearing deposits $ 15,278,296  $ 5,830  0.15  % $ 5,887,903  $ 1,512  0.10  %
Federal funds sold 1,676  2  0.48  11,153  5  0.18 
Resell agreements 7,907  6  0.29  20,012  14  0.27 
Securities:
Taxable 4,147,511  20,736  2.03  4,201,559  22,560  2.21 
Tax-exempt 8,355,422  78,968  4.04  8,478,804  80,566  4.08 
Total securities 12,502,933  99,704  3.35  12,680,363  103,126  3.44 
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 43,980,146  275,434  2.53  36,748,618  274,784  3.04 
Cash and due from banks 569,715  512,557 
Allowance for credit losses on loans and securities (255,214) (259,973)
Premises and equipment, net 1,029,242  1,053,725 
Accrued interest and other assets 1,450,373  1,380,138 
Total Assets $ 46,774,262  $ 39,435,065 
Liabilities:
Non-interest-bearing demand deposits:
Commercial and individual $ 15,829,582  $ 13,782,790 
Correspondent banks 234,720  243,946 
Public funds 934,428  558,703 
Total non-interest-bearing demand deposits 16,998,730  14,585,439 
Interest-bearing deposits:
Private accounts
Savings and interest checking 10,317,162  308  0.01  8,076,797  313  0.02 
Money market deposit accounts 10,024,138  2,655  0.11  8,555,381  1,940  0.09 
Time accounts 1,101,498  684  0.25  1,120,021  3,116  1.11 
Public funds 674,274  30  0.02  536,917  28  0.02 
Total interest-bearing deposits 22,117,072  3,677  0.07  18,289,116  5,397  0.12 
Total deposits 39,115,802    32,874,555   
Federal funds purchased 27,002  9  0.13  33,917  7  0.08 
Repurchase agreements 2,188,171  632  0.11  1,544,205  475  0.12 
Junior subordinated deferrable interest debentures 136,395  631  1.85  136,337  700  2.05 
Subordinated notes 99,125  1,164  4.70  98,968  1,164  4.70 
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 790,289  682,525 
Total Liabilities 42,356,784  35,370,507 
Shareholders’ Equity 4,417,478  4,064,558 
Total Liabilities and Shareholders’ Equity
$ 46,774,262  $ 39,435,065 
Net interest income $ 269,321  $ 267,041 
Net interest spread 2.43  % 2.89  %
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.


63
Consolidated Average Balance Sheets and Interest Income Analysis - Year To Date
(Dollars in thousands - taxable-equivalent basis)
September 30, 2021 September 30, 2020
Average
Balance 		Interest
Income/
Expense 		Yield/
Cost 		Average
Balance 		Interest
Income/
Expense 		Yield/
Cost
Assets:
Interest-bearing deposits $ 12,849,827  $ 11,877  0.12  % $ 4,491,737  $ 10,894  0.32  %
Federal funds sold 9,331  13  0.18  104,425  721  0.91 
Resell agreements 6,169  11  0.24  22,984  163  0.93 
Securities:
Taxable 4,111,574  61,366  2.03  4,246,298  71,950  2.32 
Tax-exempt 8,237,397  235,344  4.07  8,468,372  243,961  4.07 
Total securities 12,348,971  296,710  3.37  12,714,670  315,911  3.48 
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
42,248,703  830,987  2.67  34,236,349  843,601  3.35 
Cash and due from banks 543,514  525,627 
Allowance for credit losses on loans and securities (261,568) (219,312)
Premises and equipment, net 1,038,467  1,040,451 
Accrued interest and other assets 1,434,859  1,371,366 
Total Assets $ 45,003,975  $ 36,954,481 
Liabilities:
Non-interest-bearing demand deposits:
Commercial and individual $ 15,129,135  $ 12,330,235 
Correspondent banks 245,630  239,911 
Public funds 887,234  471,321 
Total non-interest-bearing demand deposits 16,261,999  13,041,467 
Interest-bearing deposits:
Private accounts
Savings and interest checking 9,903,558  1,015  0.01  7,575,992  1,012  0.02 
Money market deposit accounts 9,652,001  6,519  0.09  8,221,183  13,532  0.22 
Time accounts 1,122,169  3,078  0.37  1,115,666  11,629  1.39 
Public funds 672,424  81  0.02  580,437  1,504  0.35 
Total interest-bearing deposits 21,350,152  10,693  0.07  17,493,278  27,677  0.21 
Total deposits 37,612,151  30,534,745 
Federal funds purchased 33,937  24  0.09  31,547  92  0.38 
Repurchase agreements 2,030,266  1,597  0.10  1,346,802  3,913  0.38 
Junior subordinated deferrable interest debentures 136,380  1,915  1.87  136,323  2,893  2.83 
Subordinated notes 99,085  3,492  4.70  98,929  3,492  4.71 
Federal Home Loan Bank advances —  —  —  145,985  318  0.29 
Total Interest-Bearing Funds and Average Rate Paid
23,649,820  17,721  0.10  19,252,864  38,385  0.27 
Accrued interest and other liabilities 747,473  669,297 
Total Liabilities 40,659,292  32,963,628 
Shareholders’ Equity 4,344,683  3,990,853 
Total Liabilities and Shareholders’ Equity
$ 45,003,975  $ 36,954,481 
Net interest income $ 813,266  $ 805,216 
Net interest spread 2.57  % 3.08  %
Net interest income to total average earning assets
2.61  % 3.20  %
For these computations: (i) average balances are presented on a daily average basis, (ii) information is shown on a taxable-equivalent basis assuming a 21% tax rate, (iii) average loans include loans on non-accrual status, and (iv) average securities include unrealized gains and losses on securities available for sale while yields are based on average amortized cost.
64
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 2020 Form 10-K. There has been no significant change in the types of market risks we face since December 31, 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, 2021, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of 3.6% and 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 3.0% relative to the flat-rate case over the next 12 months. For modeling purposes, as of December 31, 2020, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of 2.3% and 6.2%, respectively, relative to the flat-rate case over the next 12 months, while a 25 basis point ratable decrease in interest rates would result in a negative variance in net interest income of 1.8% relative to the flat-rate case over the next 12 months. Both the September 30, 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 and first quarters of 2021, respectively, 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, 2021 indicate that our projected balance sheet is more asset sensitive in comparison to our balance sheet as of December 31, 2020. The increased asset 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.
We do not currently pay interest on a significant portion of our commercial demand deposits. Any interest rate that would ultimately be paid on these commercial demand deposits would likely depend upon a variety of factors, some of which are beyond our control. Our modeling simulations as of September 30, 2021 and December 31, 2020 assume a slightly aggressive pricing structure with regards to interest payments on commercial demand deposits (those not already receiving an earnings credit) with interest payments assumed to begin in the fourth and first quarters of 2021 and 2020, respectively. This pricing structure on commercial demand deposits assumes a deposit pricing beta of 25%. The pricing beta is a measure of how much deposit rates reprice, up or down, given a defined change in market rates.
As of September 30, 2021, 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.
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.
65
Part II. Other Information
Item 1. Legal Proceedings
We are subject to various claims and legal actions that have arisen in the course of conducting business. Management does not expect the ultimate disposition of these matters to have a material adverse impact on our financial statements.
Item 1A. Risk Factors
There has been no material change in the risk factors disclosed under Item 1A. of our 2020 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information with respect to purchases we made or were made on our behalf or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the three months ended September 30, 2021. 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, 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.
66
Item 6. Exhibits
(a) Exhibits
Exhibit
Number 		Description
10.1(1)
31.1
31.2
32.1(2)
32.2(2)
101.INS(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(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.
(3)The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
(4)Formatted as Inline XBRL and contained within the Inline XBRL Instance Document in Exhibit 101.


67
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 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)
68
Exhibit 10.1
Cullen/Frost Bankers, Inc.
Executive Change-in-Control Severance Plan
ARTICLE I.Establishment, Term, and Purpose
1.1Establishment of the Plan. Cullen/Frost Bankers, Inc. (the “Company”) hereby establishes a severance plan for its Key Eligible Employees (as defined below), to be known as the Cullen/Frost Bankers, Inc. Executive Change-in-Control Severance Plan (the “Plan”).

1.2Background. The Company and certain of its employees have entered into individual severance agreements (“CIC Agreements”), which provide these employees certain payments and benefits in connection with a qualifying termination of employment following a change in control, as defined thereunder. The Company wishes to consolidate these CIC Agreements under a single plan document. Accordingly, as of the Effective Date (as defined below), the CIC Agreements shall be terminated and each of the employees covered under those agreements shall become a Key Eligible Employee. As provided under the Plan, the Committee (as defined below) may designate other employees of the Company as Key Eligible Employees.

1.3Purpose of Plan. The purpose of this Plan is to provide certain Severance Benefits (as defined below) to Participants (as defined below) who incur a Qualifying Termination (as defined below). The provision of such Severance Benefits is to assure the Company that it will have the continued dedication of, and the availability of objective advice and counsel from, key executives of the Company notwithstanding the possibility, threat, or occurrence of a change in control of the Company. In the event the Company receives any proposal from a third person concerning a possible business combination with the Company, or acquisition of the Company’s equity securities, or otherwise considers or pursues a transaction that could lead to a change in control, the Board of Directors of the Company believes it imperative that the Company and the Board be able to rely upon key executives to continue in their positions and be available for advice, if requested, without concern that those individuals might be distracted by the personal uncertainties and risks created by such a possibility. Should the Company receive or consider any such proposal or transaction, in addition to their regular duties, such key executives may be called upon to assist in the assessment of the proposal or transaction, to advise management and the Board as to whether the proposal or transaction would be in the best interest of the Company and its shareholders, and to take such other actions as the Board might determine to be appropriate.

1.4Effective Date. The effective date of this Plan is April 28, 2021.

ARTICLE II.Definitions
Whenever used in this Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized.
2.1“Accrued Obligation” means an amount equal to the Participant’s accrued and unpaid Base Salary, accrued vacation pay, and earned but not taken vacation pay through the Participant’s Effective Date of Termination.

2.2“Annualized Base Salary” means the highest rate of a Participant’s annualized Base Salary in effect immediately preceding the Change in Control.

2.3“Base Salary” means the salary of record paid to a Participant as annual salary, excluding amounts received under incentive or other bonus plans, whether or not deferred.



2.4“Beneficial Owner” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.

2.5“Beneficiary” means the persons or entities designated by the Participant pursuant to Section 9.3.

2.6“Board” means the Board of Directors of the Company.

2.7“Cause” means:

(A)The Participant’s willful and continued failure to substantially perform his/her duties with the Company (other than any such failure resulting from Disability or occurring after issuance by the Participant of a Notice of Termination for Good Reason) and, after a written demand for substantial performance is delivered to the Participant that specifically identifies the manner in which the Company believes that the Participant has willfully failed to substantially perform his/her duties, the Participant has failed to resume substantial performance of his/her duties on a continuous basis within thirty (30) calendar days of receiving such written demand;

(B)The Participant’s willfully engaging in conduct (other than conduct covered under (A) above) which is demonstrably and materially injurious to the Company, monetarily or otherwise; or

(C)The Participant’s having been convicted of a felony.

For purposes of this definition, no act, or failure to act, on the Participant’s part shall be deemed “willful” unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that the action or omission was in the best interests of the Company. The termination of employment of the Participant shall not be deemed to be for Cause unless and until there shall have been delivered to the Participant a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board (excluding the Participant, if applicable) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Participant and the Participant is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Participant is guilty of the conduct described above, and specifying the particulars thereof in detail.
2.8“Change in Control” means any of the following events:

(A)any Person is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board (the “Company Voting Securities”); provided, however, that the event described in this paragraph (A) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (i) by the Company or any subsidiary of the Company, (ii) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company, (iii) by any underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a transaction (other than one described in paragraph (B) below) in which Company Voting Securities are acquired from the Company if a majority of the incumbent members of the Board approve a resolution providing expressly, pursuant to this clause (iv), that the acquisition does not constitute a Change in Control under this paragraph (A);

2


(B)the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its subsidiaries that requires the approval of the Company’s shareholders, whether for such transaction or the issuance of securities in the transaction (a “Business Combination”), unless immediately following such Business Combination: (i) more than 60% of the total voting power of (1) the corporation resulting from such Business Combination (the “Surviving Corporation”), or (2) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among (and only among) the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (ii) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation) is or becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (iii) at least 50% of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were incumbent members of the Board at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination; or

(C)during any period of two consecutive years, individuals who at the beginning of such period constituted the Board and any new directors (other than any director designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (A) or (B) of this Section 2.8) whose election by the Board or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; or

(D)the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or a sale of all or substantially all of the Company’s assets.

Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur. Further, in no event shall a Change in Control be deemed to have occurred with respect to a Participant if such Participant is part of a purchasing group which consummates the Change in Control transaction. The Participant shall be deemed “part of a purchasing group” for purposes of the preceding sentence if the Participant is an equity participant in the purchasing company or group (except for: (i) passive ownership of less than three percent (3%) of the stock of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise not significant, as determined prior to the Change in Control by a majority of the nonemployee continuing directors).
3



2.9“Code” means the United States Internal Revenue Code of 1986, as amended, and any successors thereto.

2.10“CoC Severance Formula” means the formula for determining cash severance that is assigned to each Key Eligible Employee and disclosed on Exhibit A.

2.11“Committee” means the Compensation and Benefits Committee of the Board or any other committee appointed by the Board to perform the functions of the Compensation and Benefits Committee.

2.12“Company” means Cullen/Frost Bankers, Inc., a Texas corporation, or any successor thereto as provided in Article 7 herein.

2.13“Continuation of Benefits Period” means the period of months during which a Key Eligible Employee’s Welfare Benefits will continue following a Qualifying Termination and disclosed on Exhibit A.

2.14“Disability” means complete and permanent inability, by reason of illness or accident, to perform the duties of the occupation at which the Participant was employed when such disability commenced.

2.15“Effective Date” means the effective date of this Plan as set forth in Section 1.4.

2.16“Effective Date of Termination” means the effective date of a Participant’s termination of employment with the Company, regardless of reason.

2.17“Exchange Act” means the United States Securities Exchange Act of 1934, as amended.

2.18“Good Reason” means without a Participant’s express written consent, the occurrence of any one or more of the following:

(A)The assignment of the Participant to duties materially inconsistent with the Participant’s authorities, duties, responsibilities, and status (including offices and reporting requirements) as an employee of the Company in effect immediately preceding the Change in Control, or a reduction or alteration in the nature or status of the Participant’s authorities, duties, or responsibilities from those in effect immediately preceding the Change in Control;

(B)The Company’s requiring the Participant to be based at a different location if the distance between such different location and the Participant’s current primary residence is at least fifty (50) miles greater than the distance between the location at which the Participant was based immediately preceding the Change in Control and the Participant’s current primary residence (for the avoidance of doubt, required travel on the Company’s business to the extent substantially consistent with the Participant’s business obligations as of the Effective Date shall not constitute the Company’s requiring the Participant to be based at a different location);

(C)A material reduction in the Participant’s Base Salary or Target Bonus as in effect on the Effective Date or as the same may be increased from time to time;

(D)A material reduction in the Participant’s level of participation in any of the Company’s short- and/or long-term incentive compensation plans, or employee benefit or retirement plans, policies, practices, or arrangements, in which the Participant participates immediately preceding the Change in Control; provided, however, that reductions in the levels of participation in any such plans shall
4


not be deemed to be “Good Reason” if the Participant’s reduced level of participation in each such program remains substantially consistent with the average level of participation of other Participants who have positions commensurate with the Participant’s position (for purposes of this Plan, long-term incentive compensation plans shall mean the “Cullen/Frost Bankers, Inc. 2015 Omnibus Incentive Plan” as such may be amended from time to time, and any successor plans or other similar plans instituted by the Company);

(E)The failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform this Plan, as contemplated in Article 7 herein;

(F)Any breach of any of the terms of the Plan by the Company or any successor entity; or

(G)Any termination of Participant’s employment by the Company that is not effected pursuant to a Notice of Termination.
The existence of Good Reason shall not be affected by a Participant’s temporary incapacity due to physical or mental illness not constituting a Disability. A Participant’s termination shall constitute a waiver of such Participant’s rights with respect to any circumstance constituting Good Reason. A Participant’s continued employment shall not constitute a waiver of such Participant’s rights with respect to any circumstance constituting Good Reason.
2.19“Key Eligible Employee” means an employee of the Company who is from time to time designated by the Committee as eligible to participate in the Plan. The list of Key Eligible Employees is set forth in Exhibit A attached hereto. The Committee may update Exhibit A at any time to reflect the then current Key Eligible Employees, without formally amending the Plan.

2.20“Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Plan relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the applicable Participant’s employment under the provision so indicated.

2.21“Participant” means a Key Eligible Employee who is a party to a Participation Agreement which has not been terminated in accordance with the terms of this Plan.

2.22“Participation Agreement” means an agreement to participate in the Plan in substantially the form shown as Exhibit B hereto.

2.23“Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof, including a “group” as provided in Section 13(d).

2.24“Qualifying Termination” means the occurrence of any one of the following events:

(A)An involuntary termination of the Participant’s employment by the Company for reasons other than Cause within twenty-four (24) calendar months following a Change in Control of the Company pursuant to a Notice of Termination delivered to the Participant by the Company; or

(B)A voluntary termination by the Participant for Good Reason within twenty-four (24) calendar months following a Change in Control of the Company pursuant to a Notice of Termination delivered to the Company by the Participant; provided, however, a voluntary termination will be treated as a termination for Good Reason only if (i) the Participant’s Notice of Termination sets forth the conditions that the Participant claims constitute Good Reason, (ii) the Participant
5


provides Notice of Termination to the Company within sixty (60) days after the occurrence of the conditions giving rise to Good Reason, (iii) the Company fails to correct the conditions giving rise to Good Reason within thirty (30) days after it receives such Notice of Termination from the Participant (“Cure Period”), and (iv) the Participant actually terminates his or her employment no later than thirty (30) days after the end of the Cure Period.

2.25“Severance Benefits” means the severance benefits and compensation payable to a Participant under Sections 3.3(A), (B) and (C).

2.26“Target Bonus” shall mean the target bonus amount established under the Company’s annual incentive plan.

ARTICLE III.Participation and Severance Benefits
3.1Participation. Upon designation of an employee of the Company as a Key Eligible Employee, such Key Eligible Employee shall be offered a Participation Agreement and upon execution and delivery thereof by the Key Eligible Employee, such Key Eligible Employee shall become a Participant in the Plan.

3.2Termination of Participation. A Participant shall cease to be a Participant in the Plan and therefore shall cease to be eligible to receive Severance Benefits under the Plan upon the occurrence of any one of the following circumstances, subject as applicable to Article VIII:

(A)The Participant’s employment with the Company ends due to death or Disability;

(B)The Participant voluntarily terminates employment with the Company without Good Reason;

(C)The Company terminates the Participant’s employment for Cause;

(D)The Committee determines that the Participant is no longer a Key Eligible Employee;

(E)The Company or the Participant terminates the Participant’s Participation Agreement; or

(F)The Company terminates the Plan.

3.3Severance Benefits Payable upon a Qualifying Termination. If a Participant has incurred a Qualifying Termination, the Company shall pay to the Participant: (i) a cash lump sum equal to the Participant’s Accrued Obligation within sixty (60) days of such Qualifying Termination and (ii) the following Severance Benefits, with the payment or provision of such Severance Benefits conditioned upon the Participant’s compliance with Section 3.7:

(A)Cash Severance. A cash lump sum equal to the amount determined under the Participant’s CoC Severance Formula.

(B)Pro Rata Target Annual Bonus. A cash lump sum equal to the Participant’s Target Bonus, adjusted on a pro rata basis based on the number of days the Participant was actually employed during the applicable performance period in which the Participant incurred a Qualifying Termination.

(C)Medical and Life Insurance Benefits. A continuation of health care, life and accidental death and dismemberment, and disability insurance and any supplemental benefits related thereto (“Welfare Benefits”) during the Participant’s Continuation of Benefits Period. These Welfare Benefits shall
6


be provided to the Participant at the same premium cost, and at the same coverage level, as in effect as of the Participant’s Qualifying Termination. However, in the event the premium cost and/or level of coverage shall change for all employees of the Company, or for all management employees of the Company in the case of Welfare Benefits specific to management employees, the cost and/or coverage level, likewise, shall change for the Participant in a corresponding manner. The continuation of Welfare Benefits shall be discontinued prior to the end of the Continuation of Benefits Period in the event the Participant has available substantially similar benefits at a comparable cost from a subsequent employer, as determined by the Committee.

3.4Termination for Disability. Following a Change in Control of the Company, if a Participant’s employment is terminated due to Disability, the Company shall pay the Participant his/her (i) Accrued Obligations and (ii) any other payments or benefits the Participant may be entitled to under the Company’s disability, retirement, insurance, and other applicable plans and programs then in effect and in accordance with their terms. In the event the Participant’s employment is terminated due to Disability, the Participant shall not be entitled to the Severance Benefits described in Section 3.3 and the Company shall have no further obligations to the Participant under this Plan.

3.5Termination for Death. Following a Change in Control of the Company, if a Participant’s employment is terminated by reason of his/her death, the Company shall pay to the Participant, pursuant to Section 7.2, his/her (i) Accrued Obligations and (ii) any other payments or benefits the Participant may be entitled to under the Company’s disability, retirement, insurance, and other applicable plans and programs then in effect and in accordance with their terms. In the event the Participant’s employment is terminated by reason of his/her death, the Participant shall not be entitled to Severance Benefits described in Section 3.3 and the Company shall have no further obligations to the Participant under this Plan.

3.6Termination for Cause, or Voluntary Termination Other Than for Good Reason. Following a Change in Control of the Company, if the Participant’s employment is terminated by the Company for Cause or by the Participant other than for Good Reason, the Company shall pay the Participant his/her (i) Accrued Obligations and (ii) any other payments or benefits the Participant may be entitled to under the Company’s disability, retirement, insurance, and other applicable plans and programs then in effect and in accordance with their terms. In the event the Participant’s employment is terminated by the Company for Cause or by the Participant other than for Good Reason, the Participant shall not be entitled to Severance Benefits described in Section 3.3 and the Company shall have no further obligations to the Participant under this Plan.

3.7Release and Waiver of Claims. A Participant shall only be entitled to receive the Severance Benefits pursuant to Section 3.3 if the Participant has executed (and not revoked) a release of claims in favor of the Company (and its current and former directors, officers, employees, agents, shareholders, etc.) substantially in a form acceptable to the Company (the “Release”), and the Release becomes effective and irrevocable prior to the sixtieth (60th) day following the Participant’s Effective Date of Termination. If the Release does not become effective and irrevocable prior to the sixtieth (60th) day following the Participant’s Effective Date of Termination or if the Participant otherwise fails to comply with this Section 3.7, if the Participant revokes all or any portion of the Release within any applicable revocation period or if the Participant otherwise fails to comply with the requirements of this Section 3.7, the Company shall have no obligation to pay or provide any Severance Benefits to the Participant under Section 3.3.

ARTICLE IV.Form and Timing of Severance Benefits
4.1Form and Timing of Severance Benefits. Subject to a Participant’s compliance with Section 3.7, the Severance Benefits described in Sections 3.3(A) and (B) shall be paid in cash to the Participant in a single
7


lump sum within sixty (60) days after the Participant’s Effective Date of Termination (with the actual payment date during such sixty (60)-day period to be determined by the Company in its discretion).

4.2Withholding of Taxes. The Company shall be entitled to withhold from any amounts payable under this Plan all taxes as legally shall be required (including, without limitation, any United States federal taxes and any other state, city, or local taxes).

ARTICLE V.Excise Tax Equalization Payment
5.1280G Net-Better Cut Back. Anything in this Plan to the contrary notwithstanding, in the event it shall be determined that (i) any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or any entity which effectuates a Change in Control (or any of its affiliated entities) to or for the benefit of a Participant (whether pursuant to the terms of this Plan or otherwise) (the “Payments”) would be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), and (ii) the reduction of the amounts payable to such Participant under this Plan to the maximum amount that could be paid to such Participant without giving rise to the Excise Tax (the “Safe Harbor Cap”) would provide such Participant with a greater after tax amount than if such amounts were not reduced, then the amounts payable to such Participant under this Plan shall be reduced (but not below zero) to the Safe Harbor Cap. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing first the payments under Section 3.3(A), then the payments under Section 3.3(B) and then the benefits under Section 3.3(C), unless an alternative method of reduction is elected by such Participant. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under this Plan (and no other Payments) shall be reduced. If the reduction of the amounts payable hereunder would not result in a greater after tax result to such Participant, no amounts payable under this Plan shall be reduced pursuant to this provision.

5.2Determination by Accounting Firm. All determinations required to be made under this Article 5 shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Participant within fifteen (15) business days of the receipt of notice from the Company or the Participant that there has been a Payment, or such earlier time as is requested by the Company. Notwithstanding the foregoing, in the event (i) the Board shall determine prior to the Change in Control that the Accounting Firm is precluded from performing such services under applicable auditor independence rules or (ii) the Audit Committee of the Board determines that it does not want the Accounting Firm to perform such services because of auditor independence concerns or (iii) the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Board shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). If payments are reduced to the Safe Harbor Cap, the Accounting Firm shall provide a reasonable opinion to the Participant that he/she is not required to report any Excise Tax on his/her federal income tax return. All fees, costs and expenses (including, but not limited to, the costs of retaining experts) of the Accounting Firm shall be borne by the Company. If the Accounting Firm determines that no Excise Tax is payable by the Participant, it shall furnish the Participant with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on the Participant’s applicable federal income tax return will not result in the imposition of a negligence or similar penalty. In the event the Accounting Firm determines that the Payments shall be reduced to the Safe Harbor Cap, it shall furnish the Participant with a written opinion to such effect. The determination by the Accounting Firm shall be binding upon the Company and the Participant (except as provided in Section 5.3).

8


5.3Subsequent Recalculation. In the event the Internal Revenue Service adjusts the computation of the Company under Section 5.2 so that the Participant did not receive the greatest net benefit, the Company shall reimburse the Participant for the full amount necessary to make the Participant whole, plus a market rate of interest, as determined by the Committee, within 30 days after such adjustment.

ARTICLE VI.Legal Remedies
6.1Payment of Legal Fees. To the extent permitted by law, the Company shall pay all reasonable legal fees, costs of litigation, prejudgment interest, and other expenses incurred in good faith by the Participant as a result of the Company’s refusal to provide the Severance Benefits to which the Participant becomes entitled under this Plan, or as a result of the Company’s contesting the validity, enforceability, or interpretation of this Plan, or as a result of any conflict (including conflicts related to the calculation of parachute payments) between the parties pertaining to this Plan. Such costs and fees shall be reimbursed as soon as practicable after the Participant makes a claim for reimbursement (but in no event later than the end of the year following the year in which the costs are incurred).

6.2Mandatory Arbitration. Any dispute or controversy arising under or in connection with this Plan shall be settled by arbitration, conducted before a panel of three (3) arbitrators in Austin, Texas, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel for the Participant, shall be borne by the Company.

ARTICLE VII.Successors and Assignment
7.1Successors of the Company. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) of all or substantially all of the business and/or assets of the Company or of any division or subsidiary thereof to expressly assume and agree to perform the Company’s obligations under this Plan in the same manner and to the same extent that the Company would be required to perform them if no such succession had taken place. The date on which any such succession becomes effective shall be deemed to be the date of the Change in Control.

7.2Assignees of the Participant. Subject to this Section 7.2 and Section 9.3, the rights of a Participant under this Plan, including with respect to payments and benefits, cannot be assigned. This Plan shall inure to the benefit of and be enforceable by the Participant’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Participant dies while any amount would still be payable to the Participant under the Plan had the Participant continued to live (or with respect to amounts payable to the Participant under Section 3.5), all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to the Participant’s Beneficiary. If the Participant has not named a Beneficiary pursuant to Section 9.3, then such amounts shall be paid to the Participant’s devisee, legatee, or other designee, or if there is no such designee, to the Participant’s estate.

ARTICLE VIII.Termination and Amendment
8.1Amendment and Termination of the Plan. Subject to Section 8.2, the Board of Directors may terminate or amend the Plan at any time.

8.2Participant Rights. Notwithstanding any provision of the Plan to the contrary, no termination or amendment of the Plan made (i) after a Participant incurs a Qualifying Termination may have the effect of reducing or otherwise impairing the rights and benefits of such Participant under the Plan without the Participant’s written consent or (ii) on or after the date of a Change in Control may be effective prior to the second anniversary of such Change in Control.

9


ARTICLE IX.Miscellaneous
9.1No Mitigation. The Participant shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Plan, and the obtaining of any such other employment shall in no event effect any reduction of the Company’s obligations to make the payments and arrangements required to be made under this Plan, except to the extent provided in Section 3.3(C).

9.2Employment Status. Except as may be provided under any other agreement between the Participant and the Company, the employment of the Participant by the Company is “at will,” and may be terminated by either the Participant or the Company at any time, subject to applicable law.

9.3Beneficiaries. The Participant may designate one or more persons or entities as the primary and/or contingent Beneficiaries of any Severance Benefits owing to the Participant under this Plan. Such designation must be in the form of a signed writing acceptable to the Committee. The Participant may make or change such designations at any time.

9.4Severability. In the event any provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. Further, the captions of this Plan are not part of the provisions hereof and shall have no force and effect.

9.5Applicable Law; Waiver of Jury Trial. To the extent not preempted by the laws of the United States, the laws of the state of Texas, without regard to its conflicts of law provisions, shall be the controlling law in all matters relating to this Plan. TO THE EXTENT PERMITTED BY LAW, THE COMPANY AND EACH PARTICIPANT IRREVOCABLY WAIVES SUCH PARTY’S RIGHT TO A JURY TRIAL WITH RESPECT TO ANY CONTROVERSY OR CLAIM BETWEEN THE PARTICIPANT AND THE COMPANY ARISING OUT OF OR RELATING TO OR CONCERNING THIS PLAN.

9.6Code Section 409A. The Severance Benefits and other benefits under this Plan are intended to comply with Section 409A of the Code or to otherwise be exempt therefrom.

(A)Notwithstanding anything herein to the contrary, if (a) the Participant is a “specified employee” as determined pursuant to Section 409A of the Code as of the date of the Participant’s “separation from service” (within the meaning of Treas. Reg. 1.409A-1(h)) and if any Severance Benefits or other payment or benefit provided for in this Plan or otherwise both (i) constitutes a “deferral of compensation” within the meaning of Section 409A of the Code and (ii) cannot be paid or provided in the manner otherwise provided without subjecting the Participant to “additional tax”, interest or penalties under Section 409A of the Code, then any such Severance Benefit or other payment or benefit that is payable during the first six months following the Participant’s “separation from service” shall be paid or provided to the Participant in a cash lump-sum on the first business day of the seventh calendar month following the month in which the Participant’s “separation from service” occurs. Any payment or benefit due upon a termination of the Participant’s employment that represents a “deferral of compensation” within the meaning of Section 409A shall only be paid or provided to the Participant upon a “separation from service”.

(B)Notwithstanding anything to the contrary in Section 3.3 of this Plan or elsewhere, any payment or benefit under Section 3.3 or otherwise that is exempt from Section 409A pursuant to Treas. Reg. 1.409A-1 (b)(9)(v)(A) or (C) shall be paid or provided to the Participant only to the extent that the expenses are not incurred, or the benefits are not provided, beyond the last day of the second
10


taxable year of the Participant following the taxable year of the Participant in which the “separation from service” occurs; and provided further that such expenses are reimbursed no later than the last day of the third taxable year following the taxable year of the Participant in which the “separation from service” occurs.

(C)To the extent any expense reimbursement or the provision of any in-kind benefit under this Plan is determined to be subject to Section 409A of the Code, the amount of any such expenses eligible for reimbursement, or the provision of any in-kind benefit, in one calendar year shall not affect the expenses eligible for reimbursement in any other taxable year (except for any life-time or other aggregate limitation applicable to medical expenses), in no event shall any expenses be reimbursed after the last day of the calendar year following the calendar year in which the Participant incurred such expenses, and in no event shall any right to reimbursement or the provision of any in-kind benefit be subject to liquidation or exchange for another benefit. For the purposes of this Plan, each payment made pursuant to Section 3.3 shall be deemed to be separate payments and amounts payable under Section 3.3 of this Plan shall be deemed not to be a “deferral of compensation” subject to Section 409A of the Code to the extent provided in the exceptions in Treas. Reg. Sections 1.409A-1(b)(4) (“short-term deferrals”) and (b)(9) (“separation pay plans,” including the exception under subparagraph (iii)) and other applicable provisions of Treas. Reg. Section 1.409A-1 through A-6.

(D)In no event may a Participant, directly or indirectly, designate the calendar year of any payment under this Plan, and to the extent required by Section 409A of the Code, any payment that may be paid in more than one taxable year (depending on the time that Participant executes the Release Agreement) shall be paid in the later taxable year.

9.7Golden Parachute Payment. If the payment or provision of any amounts or any benefits, including Severance Benefits, hereunder would be a Golden Parachute Payment that is prohibited by applicable law, then such payment, provision or benefit will be reduced to the Golden Parachute Limit. For purposes of this Section 9.7, “Golden Parachute Payment” means a golden parachute payment within the meaning of Section 18(k) of the Federal Deposit Insurance Act and “Golden Parachute Limit” means the greatest amount of payment, provision or benefit under this Plan that could be made to the Participant without having any portion of such payment, provision or benefit be a Golden Parachute Payment.

11


EXHIBIT A
CULLEN/FROST BANKERS, INC.
EXECUTIVE CHANGE-IN-CONTROL SEVERANCE PLAN

Key Eligible Employee CoC Severance Formula Continuation of Benefits Period
(# of months)
Phil Green Three (3) times the sum of
(i) Annualized Base Salary and (ii) Target Bonus 		36 months
Pat Frost Three (3) times the sum of
(i) Annualized Base Salary and (ii) Target Bonus 		36 months
Paul Bracher Two (2) times the sum of
(i) Annualized Base Salary and (ii) Target Bonus 		24 months
Jerry Salinas Two (2) times the sum of
(i) Annualized Base Salary and (ii) Target Bonus 		24 months
Bill Perotti Two (2) times the sum of
(i) Annualized Base Salary and (ii) Target Bonus 		24 months
Coolidge E. Rhodes, Jr.
Two (2) times the sum of
(i) Annualized Base Salary and (ii) Target Bonus 		24 months
Carol Severyn Two (2) times the sum of
(i) Annualized Base Salary and (ii) Target Bonus 		24 months
Jimmy Stead Two (2) times the sum of
(i) Annualized Base Salary and (ii) Target Bonus 		24 months
Candace Wolfshohl Two (2) times the sum of
(i) Annualized Base Salary and (ii) Target Bonus 		24 months
Bobby Berman Two (2) times the sum of
(i) Annualized Base Salary and (ii) Target Bonus 		24 months
Annette Alonzo Two (2) times the sum of
(i) Annualized Base Salary and (ii) Target Bonus 		24 months

12


EXHIBIT B

CULLEN/FROST BANKERS, INC.
EXECUTIVE CHANGE-IN-CONTROL SEVERANCE PLAN
FORM OF PARTICIPATION AGREEMENT

Reference is made to the Cullen/Frost Bankers, Inc. (“Company”) Executive Change-in-Control Severance Plan, a copy of which is attached hereto as Annex A (as the same may be amended or modified from time to time, the “Plan”). The Plan is incorporated in this Participation Agreement (this “Participation Agreement”) and is deemed to be a part hereof for all purposes. Unless otherwise defined herein, capitalized terms used in this Participation Agreement shall have the meanings set forth in the Plan.

We are pleased to inform you that you have been designated as a Key Eligible Employee eligible to participate in the Plan. Upon your execution and delivery to the Company of this Participation Agreement, you will become a Participant in the Plan. Your participation in the Plan is subject to the terms and conditions of the Plan. Pursuant to your participation in the Plan, you are eligible to receive Severance Benefits in accordance with the terms of the Plan.

In signing below, you expressly agree to be bound by, and you promise to abide by, the terms of the Plan. You agree that the terms of the Plan are reasonable in all respects. You further acknowledge that receipt of Severance Benefits under the Plan is contingent upon your execution, delivery and non-revocation of a general release of claims as provided in the Plan.

You acknowledge and agree that the Plan and this Participation Agreement supersede all prior change‑in‑control and/or severance benefit policies, plans and arrangements of the Company, if any (and supersede all prior oral or written communications by the Company with respect to change‑in‑control benefits or severance benefits, if any), and any such prior policies, plans, arrangements and communications are hereby null and void and of no further force and effect with respect to your participation therein.

You further acknowledge and agree that before signing this Participation Agreement (a) you have fully read and you understand the Plan, (b) you have fully read, and you understand and voluntarily enter into, this Participation Agreement, and (c) you have had sufficient opportunity to consult with your personal tax, financial planning advisor and attorney about the tax, financial and legal consequences of your participation in the Plan.

This Participation Agreement may be executed in separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. This Participation Agreement shall be valid, binding, and enforceable against a party when executed by means of (a) an electronic signature; (b) an original manual signature; or (c) a faxed, scanned or photocopied manual signature. Each electronic signature or faxed, scanned, or photocopied manual signature shall have for all purposes the same validity, legal effect and admissibility in evidence as an original manual signature

IN WITNESS WHEREOF, each of the parties has executed this Participation Agreement (in the case of the Company, by its duly authorized officer), as set forth below.

CULLEN/FROST BANKERS, INC. PARTICIPANT:
By: By:
Name: Name:
Title: Title:
Date: Date:

13


Exhibit 31.1
Rule 13a-14(a) Certification
of the Corporation’s Chief Executive Officer
I, Phillip D. Green, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Cullen/Frost Bankers, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
October 28, 2021
/s/ Phillip D. Green
Phillip D. Green
Chief Executive Officer



Exhibit 31.2
Rule 13a-14(a) Certification
of the Corporation’s Chief Financial Officer
I, Jerry Salinas, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Cullen/Frost Bankers, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
October 28, 2021
/s/ Jerry Salinas
Jerry Salinas
Group Executive Vice President and Chief Financial Officer



Exhibit 32.1
Section 1350 Certification of the
Corporation’s Chief Executive Officer
Pursuant to Subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code in accordance with Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Phillip D. Green, Chief Executive Officer, of Cullen/Frost Bankers, Inc. (the “Corporation”), hereby certifies, to his knowledge, that the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
 
/s/ Phillip D. Green   October 28, 2021
Phillip D. Green  
The forgoing certification is being furnished solely pursuant to Subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 and 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.


Exhibit 32.2
Section 1350 Certification of the
Corporation’s Chief Financial Officer
Pursuant to Subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code in accordance with Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Jerry Salinas, Chief Financial Officer, of Cullen/Frost Bankers, Inc. (the “Corporation”), hereby certifies, to his knowledge, that the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
 
/s/ Jerry Salinas   October 28, 2021
Jerry Salinas  
The forgoing certification is being furnished solely pursuant to Subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 and 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.