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What changed in CULLEN/FROST BANKERS, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CULLEN/FROST BANKERS, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+465 added−446 removedSource: 10-K (2024-02-06) vs 10-K (2023-02-03)

Top changes in CULLEN/FROST BANKERS, INC.'s 2023 10-K

465 paragraphs added · 446 removed · 360 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

56 edited+31 added−10 removed158 unchanged
Biggest changeInformation About Our Executive Officers The names, ages as of December 31, 2022, recent business experience and positions or offices held by each of the executive officers of Cullen/Frost are as follows: Name and Position Held Age Recent Business Experience Phillip D. Green Chairman of the Board, Chief Executive Officer and Director 68 Officer of Frost Bank since 1980.
Biggest changeAs we move forward, we will continue to embrace diversity and approach it in a manner consistent with our philosophy, by focusing on our employees, our customers, and our community. 19 Table of Contents Information About Our Executive Officers The names, ages, recent business experience and positions or offices held by each of the executive officers of Cullen/Frost are as follows: Name and Position Held Age Recent Business Experience Phillip D.
The federal banking regulators regularly issue new guidance and standards, and update existing guidance and standards, regarding cybersecurity intended to enhance cyber risk management among financial institutions. Financial institutions are expected to comply with such guidance and standards and to accordingly develop appropriate security controls and risk management processes.
Cybersecurity The federal banking regulators regularly issue new guidance and standards, and update existing guidance and standards, regarding cybersecurity intended to enhance cyber risk management among financial institutions. Financial institutions are expected to comply with such guidance and standards and to accordingly develop appropriate security controls and risk management processes.
Under a final rule adopted by federal banking agencies in November 2021, banking organizations are required to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver banking products and services to a material portion of its customer base, its businesses and operations that would result in material loss, or its operations that would impact the stability of the United States.
Under a final rule adopted by federal banking agencies in 2021, banking organizations are required to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver banking products and services to a material portion of its customer base, its businesses and operations that would result in material loss, or its operations that would impact the stability of the United States.
Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 9 - Capital and Regulatory Matters in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, elsewhere in this report. The prompt corrective action regulations do not apply to bank holding companies.
Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 8 - Capital and Regulatory Matters in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, elsewhere in this report. The prompt corrective action regulations do not apply to bank holding companies.
Houston Street, San Antonio, Texas 78205, and its telephone number is (210) 220-4011. 4 Table of Contents Subsidiaries of Cullen/Frost Frost Bank Frost Bank, the principal operating subsidiary and sole banking subsidiary of Cullen/Frost, is a Texas-chartered bank primarily engaged in the business of commercial and consumer banking through approximately 170 financial centers across Texas in the Austin, Corpus Christi, Dallas, Fort Worth, Houston, Permian Basin, Rio Grande Valley and San Antonio regions.
Houston Street, San Antonio, Texas 78205, and its telephone number is (210) 220-4011. 4 Table of Contents Subsidiaries of Cullen/Frost Frost Bank Frost Bank, the principal operating subsidiary and sole banking subsidiary of Cullen/Frost, is a Texas-chartered bank primarily engaged in the business of commercial and consumer banking through approximately 180 financial centers across Texas in the Austin, Corpus Christi, Dallas, Fort Worth, Houston, Permian Basin, Rio Grande Valley and San Antonio regions.
Frost Bank also operates approximately 1,729 automated-teller machines (“ATMs”) throughout the State of Texas, the majority of which are operated in connection with branding and licensing agreements with various retailers throughout the State of Texas. Frost Bank was originally chartered as a national banking association in 1899, but its origin can be traced to a mercantile partnership organized in 1868.
Frost Bank also operates approximately 1,733 automated-teller machines (“ATMs”) throughout the State of Texas, the majority of which are operated in connection with branding and licensing agreements with various retailers throughout the State of Texas. Frost Bank was originally chartered as a national banking association in 1899, but its origin can be traced to a mercantile partnership organized in 1868.
There are no arrangements or understandings between any executive officer of Cullen/Frost and any other person pursuant to which such executive officer was or is to be selected as an officer. 18 Table of Contents Available Information Under the Securities Exchange Act of 1934, we are required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”).
There are no arrangements or understandings between any executive officer of Cullen/Frost and any other person pursuant to which such executive officer was or is to be selected as an officer. 20 Table of Contents Available Information Under the Securities Exchange Act of 1934, we are required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”).
See the sections captioned “Results of Segment Operations” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 18 - Operating Segments in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this report. Competition There is significant competition among commercial banks in our market areas.
See the sections captioned “Results of Segment Operations” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 17 - Operating Segments in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this report. Competition There is significant competition among commercial banks in our market areas.
Frost Bank acts as correspondent for approximately 168 financial institutions, which are primarily banks in Texas. These banks maintain deposits with Frost Bank, which offers them a full range of services including check clearing, transfer of funds, fixed income security services, and securities custody and clearance services. • Trust Services.
Frost Bank acts as correspondent for approximately 165 financial institutions, which are primarily banks in Texas. These banks maintain deposits with Frost Bank, which offers them a full range of services including check clearing, transfer of funds, fixed income security services, and securities custody and clearance services. • Trust Services.
Cullen/Frost believes that, as of December 31, 2022, its bank subsidiary, Frost Bank, was “well capitalized” based on the aforementioned ratios. For further information regarding the capital ratios and leverage ratio of Cullen/Frost and Frost Bank see the discussion under the section captioned “Capital and Liquidity” included in Item 7.
Cullen/Frost believes that, as of December 31, 2023, its bank subsidiary, Frost Bank, was “well capitalized” based on the aforementioned ratios. For further information regarding the capital ratios and leverage ratio of Cullen/Frost and Frost Bank see the discussion under the section captioned “Capital and Liquidity” included in Item 7.
If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of the FDIA.
If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of the 12 Table of Contents FDIA.
These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. Anti-Money Laundering and the USA Patriot Act A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing.
These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. 15 Table of Contents Anti-Money Laundering and the USA Patriot Act A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing.
In addition, the FDIC is authorized to conduct examinations of and require reporting by FDIC-insured institutions. In October 2022, the FDIC adopted a final rule to increase the initial base deposit insurance assessment rate schedules uniformly by 2 basis points beginning with the first quarterly assessment period of 2023.
In addition, the FDIC is authorized to conduct examinations of and require reporting by FDIC-insured institutions. In October 2022, the FDIC adopted a final rule that increased the initial base deposit insurance assessment rate schedules uniformly by 2 basis points beginning with the first quarterly assessment period of 2023.
The increased assessment is expected to improve the likelihood that the DIF reserve ratio would reach the statutory minimum of 1.35% by the statutory deadline prescribed under the FDIC's amended restoration plan.
The increased assessment was expected to improve the likelihood that the DIF reserve ratio would reach the statutory minimum of 1.35% by the statutory deadline prescribed under the FDIC's amended restoration plan.
The total amount of stock dividends that Frost Bank received from the Federal Reserve totaled $1.2 million in 2022, $532 thousand in 2021 and $313 thousand in 2020. Most of our non-bank subsidiaries also are subject to regulation by the Federal Reserve Board and other federal and state agencies.
The total amount of stock dividends that Frost Bank received from the Federal Reserve totaled $1.4 million in 2023, $1.2 million in 2022 and $532 thousand in 2021. Most of our non-bank subsidiaries also are subject to regulation by the Federal Reserve Board and other federal and state agencies.
We expect this trend of state-level activity 16 Table of Contents in those areas to continue, and are continually monitoring developments in the states in which our customers are located.
We expect this trend of state-level activity in those areas to continue and are continually monitoring developments in the states in which our customers are located.
At December 31, 2022, Cullen/Frost had consolidated total assets of $52.9 billion and was one of the largest independent bank holding companies headquartered in the State of Texas. Our philosophy is to grow and prosper, building long-term relationships based on top quality service, high ethical standards, and safe, sound assets.
At December 31, 2023, Cullen/Frost had consolidated total assets of $50.8 billion and was one of the largest independent bank holding companies headquartered in the State of Texas. Our philosophy is to grow and prosper, building long-term relationships based on top quality service, high ethical standards, and safe, sound assets.
Among other things, these standards revise the Basel Committee's standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provides a new standardized approach for operational risk capital.
Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including the recalibration of risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provide a new standardized approach for operational risk capital.
At December 31, 2022, Frost Bank had consolidated total assets of $53.0 billion and total deposits of $44.4 billion and was one of the largest commercial banks headquartered in the State of Texas. Significant services offered by Frost Bank include: • Commercial Banking. Frost Bank provides commercial banking services to corporations and other business clients.
At December 31, 2023, Frost Bank had consolidated total assets of $51.0 billion and total deposits of $42.4 billion and was one of the largest commercial banks headquartered in the State of Texas. Significant services offered by Frost Bank include: • Commercial Banking. Frost Bank provides commercial banking services to corporations and other business clients.
Human Capital Resources At December 31, 2022, we employed 4,985 full-time equivalent employees. At that date, the average tenure of all of our full-time employees was approximately 9.9 years while the average tenure of our executive officers was approximately 31.3 years. None of our employees are represented by collective bargaining agreements. We believe our employee relations to be good.
Human Capital Resources At December 31, 2023, we employed 5,495 full-time equivalent employees. At that date, the average tenure of all of our full-time employees was approximately 9.3 years while the average tenure of our executive officers was approximately 29.3 years. None of our employees are represented by collective bargaining agreements. We believe our employee relations to be good.
Despite this local market, community-based focus, we offer many of the products available at much larger money-center financial institutions. We serve a wide variety of industries including, among others, energy, manufacturing, services, construction, retail, telecommunications, healthcare, military and transportation. Our customer base is similarly diverse.
Despite this local market, community-based focus, we offer many of the products available at much larger money-center financial institutions. We serve a wide variety of industries including, among others, energy, manufacturing, services, construction, retail, telecommunications, healthcare, military and transportation. Our customer base is similarly diverse. We are not dependent upon any single industry or customer.
Group Executive Vice President, Chief Credit Officer since January 2023. Senior Executive Vice President, Director of Complex Risk from October 2017 to December 2022. Coolidge E. Rhodes, Jr. Group Executive Vice President, General Counsel and Secretary 47 Officer of Frost Bank since September 2021. Group Executive Vice President, General Counsel since September 2021 and Secretary since October 2021.
Kasanoff Group Executive Vice President, Chief Credit Officer 54 Officer of Frost Bank since June 1994. Group Executive Vice President, Chief Credit Officer since January 2023. Senior Executive Vice President, Director of Complex Risk from October 2017 to December 2022. Coolidge E. Rhodes, Jr. Group Executive Vice President, General Counsel and Secretary 48 Officer of Frost Bank since September 2021.
Under the foregoing dividend restrictions, and while maintaining its “well capitalized” status, Frost Bank could pay aggregate dividends of approximately $813.6 million to Cullen/Frost, without obtaining affirmative governmental approvals, at December 31, 2022.
Under the foregoing dividend restrictions, and while maintaining its “well capitalized” status, Frost Bank could pay aggregate dividends of approximately $1.1 billion to Cullen/Frost, without obtaining affirmative governmental approvals, at December 31, 2023.
Group Executive Vice President, Chief Human Resources Officer since April 2016. Robert A. Berman Group Executive Vice President, Research and Strategy 60 Officer of Frost Bank since 1989. Group Executive Vice President, Research and Strategy of Frost Bank since May 2001. Paul H.
Annette Alonzo Group Executive Vice President, Chief Human Resources Officer 55 Officer of Frost Bank since 1993. Group Executive Vice President, Chief Human Resources Officer since April 2016. Robert A. Berman Group Executive Vice President, Research and Strategy 61 Officer of Frost Bank since 1989. Group Executive Vice President, Research and Strategy of Frost Bank since May 2001. Paul H.
Prior to joining Frost, Mr. Rhodes was most recently managing director and chief compliance officer at New Fortress Energy Inc. Mr. Rhodes also previously worked as a lawyer in private practice and as associate general counsel for a publicly traded oilfield services company. Carol Severyn Group Executive Vice President, Chief Risk Officer 58 Officer of Frost Bank since 1993.
Group Executive Vice President, General Counsel since September 2021 and Secretary since October 2021. Prior to joining Frost, Mr. Rhodes was most recently managing director and chief compliance officer at New Fortress Energy Inc. Mr. Rhodes also previously worked as a lawyer in private practice and as associate general counsel for a publicly traded oilfield services company.
Accordingly, CECL transitional amounts have been added back to CET1 totaling $46.2 million and $61.6 million at December 31, 2022 and 2021, respectively.
Accordingly, CECL transitional amounts have been added back to CET1 totaling $30.8 million and $46.2 million at December 31, 2023 and 2022, respectively.
Executive Vice President and Auditor from January 2004 to January 2019. Group Executive Vice President, Chief Risk Officer since January 2019. Jimmy Stead Group Executive Vice President, Chief Consumer Banking Officer 47 Officer of Frost Bank since 2001. Group Executive Vice President, Chief Consumer Banking Officer since January 2017.
Carol Severyn Group Executive Vice President, Chief Risk Officer 59 Officer of Frost Bank since 1993. Executive Vice President and Auditor from January 2004 to January 2019. Group Executive Vice President, Chief Risk Officer since January 2019. Jimmy Stead Group Executive Vice President, Chief Consumer Banking Officer 48 Officer of Frost Bank since 2001.
In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”).
In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms.
Risk Factors for a further discussion of risks related to cybersecurity. Future Legislation and Regulation Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states.
Future Legislation and Regulation Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states.
Cullen/Frost has established and currently maintains a risk committee. The Volcker Rule The so-called Volcker Rule under the Dodd-Frank Act restricts banks and their affiliates from engaging in proprietary trading and investing in and sponsoring hedge funds and private equity funds.
The Volcker Rule The so-called Volcker Rule under the Dodd-Frank Act restricts banks and their affiliates from engaging in proprietary trading and investing in and sponsoring hedge funds and private equity funds.
At December 31, 2022, the estimated fair value of trust assets was $43.6 billion, including managed assets of $21.4 billion and custody assets of $22.2 billion. • Capital Markets - Fixed-Income Services . Frost Bank’s Capital Markets Division supports the transaction needs of fixed-income institutional investors.
At December 31, 2023, the estimated fair value of trust assets was $47.2 billion, including managed assets of $23.8 billion and custody assets of $23.5 billion. • Capital Markets - Fixed-Income Services . Frost Bank’s Capital Markets Division supports the transaction needs of fixed-income institutional investors.
Bracher President of Cullen/Frost and Group Executive Vice President, Chief Banking Officer of Frost Bank 66 Officer of Frost Bank since 1982. Group Executive Vice President, Chief Banking Officer since January 2015. President of Cullen/Frost since April 2016. Howard L. Kasanoff Group Executive Vice President, Chief Credit Officer 53 Officer of Frost Bank since June 1994.
Bracher President of Cullen/Frost and Frost Bank and Group Executive Vice President, Chief Banking Officer of Frost Bank 67 Officer of Frost Bank since 1982. Group Executive Vice President, Chief Banking Officer since January 2015. President of Cullen/Frost since April 2016. President of Frost Bank since January 2024. Howard L.
Interchange Fees Under the Durbin Amendment to the Dodd-Frank Act, the Federal Reserve adopted rules establishing standards for assessing whether the interchange fees that may be charged with respect to certain electronic debit transactions are “reasonable and proportional” to the costs incurred by issuers for processing such transactions. 13 Table of Contents Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions.
Interchange Fees Under the Durbin Amendment to the Dodd-Frank Act, the Federal Reserve adopted rules establishing standards for assessing whether the interchange fees that may be charged with respect to certain electronic debit transactions are “reasonable and proportional” to the costs incurred by issuers for processing such transactions.
We also seek to design careers that are fulfilling ones, with competitive compensation and benefits alongside a positive work-life balance. We also dedicate resources to fostering professional and personal growth with continuing education, on-the-job training and development programs. This devotion to our people has earned us a spot on Forbes magazine's Best Employers list in 2022.
We also seek to design careers that are fulfilling ones, with competitive compensation and benefits alongside a positive work-life balance. We also dedicate resources to fostering professional and personal growth with continuing education, on-the-job training and development programs.
Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations. 15 Table of Contents Incentive Compensation The Federal Reserve Board reviews, as part of its regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as Cullen/Frost, that are not “large, complex banking organizations.” These reviews are tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements.
Incentive Compensation The Federal Reserve Board reviews, as part of its regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as Cullen/Frost, that are not “large, complex banking organizations.” These reviews are tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements.
Failure to comply with consumer protection requirements may also result in our failure to obtain any required bank regulatory approval for merger or acquisition transactions we may wish to pursue or our prohibition from engaging in such transactions even if approval is not required.
Failure to comply with consumer protection requirements may also result in our failure to obtain any required bank regulatory approval for merger or acquisition transactions we may wish to pursue or our prohibition from engaging in such transactions even if approval is not required. 14 Table of Contents The Consumer Financial Protection Bureau (“CFPB”) is a federal agency responsible for implementing, examining and enforcing compliance with federal consumer protection laws.
Understanding and supporting our community has always been a priority to us. We have 17 Table of Contents established a voluntary, employee-led and staffed team that is committed to touching and improving the lives of people that live and work in our community.
Understanding and supporting our community has always been a priority to us. We have established a voluntary, employee-led and staffed team that is committed to touching and improving the lives of people that live and work in our community. Additionally, we provide employees the opportunity to use paid time off to perform community service activities in their choice of ways.
The impact of Basel IV on us will depend on the manner in which it is implemented by the federal bank regulators. Liquidity Requirements The Basel III liquidity framework and regulations of the Federal Reserve require that certain banks and bank holding companies measure their liquidity against specific liquidity tests.
Liquidity Requirements The Basel III liquidity framework and regulations of the Federal Reserve require that certain banks and bank holding companies measure their liquidity against specific liquidity tests.
The Federal Reserve Board also has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product. Consumer Financial Protection We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our customers.
The Federal Reserve Board also has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product.
The agencies may not accept such a plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository 11 Table of Contents institution’s capital.
The agencies may not accept such a plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. In addition, for a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan.
Furthermore, banking regulators take into account CRA ratings when considering a request for an approval of a proposed transaction. Frost Bank received a rating of “satisfactory” in its most recent CRA examination.
Furthermore, banking regulators take into account CRA ratings when considering a request for an approval of a proposed transaction. Frost Bank received a rating of “satisfactory” in its most recent CRA examination. In October 2023, the OCC, together with the Federal Reserve and FDIC, issued a joint final rule to modernize the CRA regulatory framework.
We also believe that our diverse workforce is representative of our customers in the community and enables us to better serve our customers, enhancing our success as an organization. As we move forward, we will continue to embrace diversity and approach it in a manner consistent with our philosophy, by focusing on our employees, our customers, and our community.
We believe embracing and understanding diversity has and will continue to make us a stronger company. We also believe that our diverse workforce is representative of our customers in the community and enables us to better serve our customers, enhancing our success as an organization.
Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies. 16 Table of Contents In June 2010, the Federal Reserve Board, OCC and FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking.
The FDIA prohibits an insured depository institution from accepting brokered deposits or offering interest rates on any deposits significantly higher than the prevailing rate in the bank’s normal market area or nationally (depending upon where the deposits are solicited), unless it is well capitalized or is adequately capitalized and receives a waiver from the FDIC.
The FDIA prohibits an insured depository institution from accepting brokered deposits or offering interest rates on any deposits significantly higher than the prevailing rate in the bank’s normal market area or nationally (depending upon where the deposits are solicited), unless it is well capitalized or is adequately capitalized and receives a waiver from the FDIC. 11 Table of Contents Additionally, the FDIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the depository institution would thereafter be “undercapitalized.” “Undercapitalized” institutions are subject to growth limitations and are required to submit a capital restoration plan.
Financial Privacy The federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party.
These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party.
Risks and exposures related to cybersecurity attacks, including litigation and enforcement risks, are expected to be elevated for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers. See Item 1A.
Risks and exposures related to cybersecurity attacks, including litigation and enforcement risks, are expected to be elevated for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers. 17 Table of Contents In March 2023, the SEC proposed to amend Regulation S-P to require broker-dealers, investment companies and investment advisers registered with the SEC to adopt written policies and procedures for incident response programs to address unauthorized access to or use of customer information.
Our employees are key to our success as an organization. We are committed to attracting, retaining and promoting top quality talent regardless of sex, sexual orientation, gender identity, race, color, national origin, age, religion and physical ability. We strive to identify and select the best candidates for all open positions based on qualifying factors for each job.
This commitment to our people has earned us a spot on Forbes magazine's Best Employers list in 2023. 18 Table of Contents Our employees are key to our success as an organization. We are committed to attracting, retaining and promoting top quality talent regardless of sex, sexual orientation, gender identity, race, color, national origin, age, religion and physical ability.
Our efforts are designed to enrich the lives of not only those that are in need but also the lives of our employees who participate in these meaningful and rewarding opportunities. We believe embracing and understanding diversity has and will continue to make us a stronger company.
In 2023, this amounted to over 18,500 hours of community service performed by our employees. Our efforts are designed to enrich the lives of not only those that are in need but also the lives of our employees who participate in these meaningful and rewarding opportunities.
In calculating these scores, the FDIC uses a bank’s capital level and supervisory ratings and certain financial measures to assess an institution’s ability to withstand asset-related stress and funding-related stress. The FDIC has the ability to make discretionary adjustments to the total score based upon significant risk factors that are not adequately captured in the calculations.
For larger institutions, such as Frost Bank, the FDIC uses a performance score and a loss-severity score that are used to calculate an initial assessment rate. In calculating these scores, the FDIC uses a bank’s capital level and supervisory ratings and certain financial measures to assess an institution’s ability to withstand asset-related stress and funding-related stress.
Under the Basel framework, these standards will generally be effective on January 1, 2023, with an aggregate output floor phasing in through January 1, 2028. Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to Cullen/Frost or Frost Bank.
Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches banking organizations, and therefore not to Cullen/Frost or Frost Bank.
Candace Wolfshohl Group Executive Vice President, Culture and People Development 62 Officer of Frost Bank since 1989. Group Executive Vice President, Culture and People Development since July 2015.
Prior to that, Mr. Wilson was Market President and Market Executive for Private Banking for Bank of America in both the San Antonio and Austin markets. Candace Wolfshohl Group Executive Vice President, Culture and People Development 63 Officer of Frost Bank since 1989. Group Executive Vice President, Culture and People Development since July 2015.
Chairman of the Board and Chief Executive Officer since April 2016. Patrick B. Frost Director of Cullen/Frost; Group Executive Vice President, Frost Wealth Advisors; President of Frost Bank and President of Frost Insurance 62 Officer of Frost Bank since 1985. Director of Cullen/Frost since May 1997. Group Executive Vice President, Frost Wealth Advisors since April 2016.
Green Chairman of the Board, Chief Executive Officer and Director 69 Officer of Frost Bank since 1980. Chairman of the Board and Chief Executive Officer since April 2016. Jerry Salinas Group Executive Vice President, Chief Financial Officer 65 Officer of Frost Bank since 1986. Group Executive Vice President, Chief Financial Officer since January 2015.
If we fail to observe such regulatory guidance or standards, we could be subject to various regulatory sanctions, including financial penalties.
If we fail to observe such regulatory guidance or standards, we could be subject to various regulatory sanctions, including financial penalties. In 2023, the SEC issued a final rule that requires disclosure of material cybersecurity incidents, as well as cybersecurity risk management, strategy and governance.
If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties. 12 Table of Contents Deposit Insurance Deposits at Frost Bank are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC and Frost Bank is subject to deposit insurance assessments to maintain the DIF.
Deposit Insurance Deposits at Frost Bank are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC and Frost Bank is subject to deposit insurance assessments to maintain the DIF. Deposit insurance assessments are based on average total assets minus average tangible equity.
While our loan portfolio has a concentration of energy-related loans totaling approximately 5.4% of total loans at December 31, 2022, we are not dependent upon any single industry or customer. Our operating objectives include expansion, diversification within our markets, growth of our fee-based income, and growth internally and through acquisitions of financial institutions, branches and financial services businesses.
Our operating objectives include expansion, diversification within our markets, growth of our fee-based income, and growth internally and, to a lesser extent, through acquisitions of financial institutions, branches and financial services businesses.
In addition, for a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The bank holding company must also provide appropriate assurances of performance.
The bank holding company must also provide appropriate assurances of performance.
Removed
Additionally, the FDIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the depository institution would thereafter be “undercapitalized.” “Undercapitalized” institutions are subject to growth limitations and are required to submit a capital restoration plan.
Added
In July 2023, the federal banking regulators proposed revisions to the Basel III Capital Rules to implement the Basel Committee’s 2017 standards and make other changes to the Basel III Capital Rules. The proposal introduces revised credit risk, equity risk, operational risk, credit valuation adjustment risk and market risk requirements, among other changes.
Removed
Deposit insurance assessments are based on average total assets minus average tangible equity. For larger institutions, such as Frost Bank, the FDIC uses a performance score and a loss-severity score that are used to calculate an initial assessment rate.
Added
However, the revised capital requirements of the proposed rule would not apply to Cullen/Frost or Frost Bank because they have less than $100 billion in total consolidated assets and trading assets and liabilities below the threshold for market risk requirements.
Removed
The Consumer Financial Protection Bureau (“CFPB”) is a federal agency responsible for implementing, examining and enforcing compliance with federal consumer protection laws.
Added
See “Prompt Corrective Action” above. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties.
Removed
In May 2022, the Federal Reserve Board, the FDIC and the Office of the Comptroller of the Currency (“OCC”) issued a joint proposal that would, among other things (i) expand access to credit, investment and basic banking services in low- and moderate-income communities, (ii) adapt to changes in the banking industry, including internet 14 Table of Contents and mobile banking, (iii) provide greater clarity, consistency and transparency in the application of the regulations and (iv) tailor performance standards to account for differences in bank size, business model, and local conditions.
Added
The FDIC has the ability to make discretionary adjustments to the total score based upon significant risk factors that are not adequately captured in the calculations.
Removed
We will continue to evaluate the impact of any changes to the regulations implementing the CRA and their impact to our financial condition, results of operations, and/or liquidity, which cannot be predicted at this time.
Added
In November 2023, the FDIC issued a final rule to implement a special assessment to recover losses to the Deposit Insurance Fund ("DIF") incurred as a result of recent bank failures and the FDIC's use of the systemic risk exception to cover certain deposits that were otherwise uninsured.
Removed
In June 2010, the Federal Reserve Board, OCC and FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking.
Added
The special assessment was based on estimated uninsured deposits as of December 31, 2022 (excluding the first $5.0 billion) and will be assessed at a quarterly rate of 3.36 basis points, over eight quarterly assessment periods, beginning in the first quarter of 2024.
Removed
The final rule requires us to adopt a clawback policy within 60 days after such listing standard becomes effective. Cybersecurity In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents.
Added
As a result of this final rule, we accrued $51.5 million ($40.7 million after tax) related to this assessment in the fourth quarter of 2023. This amount represents our current expectation of the full amount of the assessment based on our total uninsured deposits as of December 31, 2022.
Removed
These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations. In addition, in March 2022, the SEC proposed rules that would require disclosure of material cybersecurity incidents, as well as cybersecurity risk management, strategy and governance.
Added
Under the final rule, the estimated loss pursuant to the systemic risk determination will be periodically adjusted, and the FDIC has retained the ability to cease collection early, extend the special assessment collection period and impose a final shortfall special assessment on a one-time basis.
Removed
Additionally, we provide employees the opportunity to use paid time off to perform community service activities in their choice of ways. In 2022, this amounted to approximately 14 thousand hours of community service performed by our employees.
Added
The extent to which any such additional future assessments will impact our future deposit insurance expense is currently uncertain.
Removed
President of Frost Bank since August 1993. President of Frost Insurance since October 2014. Jerry Salinas Group Executive Vice President, Chief Financial Officer 64 Officer of Frost Bank since 1986. Group Executive Vice President, Chief Financial Officer since January 2015. Annette Alonzo Group Executive Vice President, Chief Human Resources Officer 54 Officer of Frost Bank since 1993.
Added
Cullen/Frost has established and currently maintains a risk committee. Resolution Planning The FDIC has required insured depository institutions (“IDIs”) with more than $50 billion in total consolidated assets to submit to the FDIC periodic plans for resolution in the event of the institution’s failure.
Added
In 2018, the FDIC issued a moratorium on resolution plans for IDIs with more than $50 billion in assets. The moratorium is still in effect for IDIs with more than $50 billion but less than $100 billion in assets.
Added
In August 2023, the FDIC proposed 13 Table of Contents amendments to the resolution planning requirements for IDIs with $50 billion or more in total assets. The amendments would require IDIs with between $50 billion and $100 billion in assets to submit informational filings on a two-year cycle, with an interim supplement updating key information submitted in the off years.
Added
Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions.
Added
In October 2023, the Federal Reserve issued a proposal under which the maximum permissible interchange fee for an electronic debit transaction would be the sum of 14.4 cents per transaction and 4 basis points multiplied by the value of the transaction. Furthermore, the fraud-prevention adjustment would increase from a maximum of 1 cent to 1.3 cents.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRegardless of the scope or validity of such patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, we may have to engage in protracted litigation. Such litigation is often expensive, time-consuming, disruptive to our operations and distracting to management.
Biggest changeThe plaintiffs in these actions frequently seek injunctions and substantial damages and may also seek to enter into licensing agreements with us to obtain ongoing fees. 27 Table of Contents Regardless of the scope or validity of such patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, we may have to engage in protracted litigation.
Also, Cullen/Frost is a bank holding company, and its ability to declare and pay dividends is dependent on certain federal regulatory considerations, including the guidelines of the Federal Reserve Board regarding capital adequacy and dividends. As more fully discussed in Note 9 - Capital and Regulatory Matters in the notes to consolidated financial statements included in Item 8.
Also, Cullen/Frost is a bank holding company, and its ability to declare and pay dividends is dependent on certain federal regulatory considerations, including the guidelines of the Federal Reserve Board regarding capital adequacy and dividends. As more fully discussed in Note 8 - Capital and Regulatory Matters in the notes to consolidated financial statements included in Item 8.
In certain cases, we have and in the future may consider entering into licensing agreements for disputed intellectual property, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur. These licenses may also significantly increase our operating expenses.
In certain cases, we have entered, and in the future may consider entering, into licensing agreements for disputed intellectual property, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur. These licenses may also significantly increase our operating expenses.
Our Reputation and Our Business Are Subject to Negative Publicity Risk Reputation risk, or the risk to our earnings and capital from negative public opinion, is inherent in our business. Negative public opinion could adversely affect our ability to keep and attract customers and expose us to adverse legal and regulatory consequences.
Our Reputation and Our Business Are Subject to Negative Publicity Risk Reputation risk, or the risk to our earnings, liquidity, and capital from negative public opinion, is inherent in our business. Negative public opinion could adversely affect our ability to keep and attract customers and expose us to adverse legal and regulatory consequences.
Negative public opinion could result from our actual or alleged conduct in any number of activities, including (i) lending practices, (ii) branching strategy, (iii) product and service offerings, 23 Table of Contents (iv) corporate governance, (v) regulatory compliance, (vi) mergers and acquisitions, (vii) disclosure, (viii) sharing or inadequate protection of customer information, (ix) successful or attempted cyber attacks against us, our customers or our third-party partners or vendors and (x) failure to discharge any publicly announced commitments to employees or environmental, social and governance initiatives or to respond adequately to social and sustainability concerns from the viewpoint of our stakeholders from actions taken by government regulators and community organizations in response to our conduct.
Negative public opinion could result from our actual or alleged conduct in any number of activities, including (i) lending practices, (ii) branching strategy, (iii) product and service offerings, (iv) corporate governance, (v) regulatory compliance, (vi) mergers and acquisitions, (vii) disclosure, (viii) sharing or inadequate protection of customer information, (ix) successful or attempted cyber-attacks against us, our customers or our third-party partners or vendors and (x) failure to discharge any publicly announced commitments to employees or environmental, social and governance initiatives or to respond adequately to social and sustainability concerns from the viewpoint of our stakeholders from actions taken by government regulators and community organizations in response to our conduct.
See the section captioned “Supervision and Regulation” in Item 1. Business and Note 9 - Capital and Regulatory Matters in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this report.
See the section captioned “Supervision and Regulation” in Item 1. Business and Note 8 - Capital and Regulatory Matters in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this report.
As a result, if you acquire our common stock or preferred stock, you could lose some or all of your investment. 29 Table of Contents Certain Banking Laws May Have An Anti-Takeover Effect Provisions of federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our shareholders.
As a result, if you acquire our common stock or preferred stock, you could lose some or all of your investment. 31 Table of Contents Certain Banking Laws May Have An Anti-Takeover Effect Provisions of federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our shareholders.
In addition, the scope and content of U.S. banking regulators' policies on incentive compensation, as well as changes to these policies, could adversely affect our ability to hire, retain and motivate our key employees. 31 Table of Contents Severe Weather, Natural Disasters, Acts Of War Or Terrorism and Other Adverse External Events Could Significantly Impact Our Business and Our Customers Severe weather, natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business.
In addition, the scope and content of U.S. banking regulators' policies on incentive compensation, as well as changes to these policies, could adversely affect our ability to hire, retain and motivate our key employees. 33 Table of Contents Severe Weather, Natural Disasters, Acts Of War Or Terrorism and Other Adverse External Events Could Significantly Impact Our Business and Our Customers Severe weather, natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business.
Economic conditions and the loss of confidence in financial institutions may increase our cost of funding and limit access to certain customary 30 Table of Contents sources of capital, including inter-bank borrowings, repurchase agreements and borrowings from the discount window of the Federal Reserve. We cannot assure that such capital will be available on acceptable terms or at all.
Economic conditions and the loss of confidence in financial institutions may increase our cost of funding and limit access to certain customary 32 Table of Contents sources of capital, including inter-bank borrowings, repurchase agreements and borrowings from the discount window of the Federal Reserve. We cannot assure that such capital will be available on acceptable terms or at all.
Increased competition from fintechs/wealthechs and the growth of digital banking may also lead to pricing pressures as competitors offer more low-fee and no-fee products. Additionally, consumers can maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds.
Increased competition from fintechs/wealthtechs and the growth of digital banking may also lead to pricing pressures as competitors offer more low-fee and no-fee products. Additionally, consumers can maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds.
In some cases, we could be required to apply a new or revised standard retroactively, resulting in changes to previously reported financial results or a cumulative charge to retained earnings. See Note 20 - Accounting Standards Updates in the notes to consolidated financial statements included in Item 8.
In some cases, we could be required to apply a new or revised standard retroactively, resulting in changes to previously reported financial results or a cumulative charge to retained earnings. See Note 19 - Accounting Standards Updates in the notes to consolidated financial statements included in Item 8.
Continued oil price volatility could have further negative impacts on the U.S. economy, in particular, the economies of energy-dominant states such as Texas, and our borrowers and customers. We Are Subject To Environmental Liability Risk Associated With Lending Activities A significant portion of our loan portfolio is secured by real property.
Future oil price volatility could have negative impacts on the U.S. economy, in particular, the economies of energy-dominant states such as Texas, and our borrowers and customers. We Are Subject To Environmental Liability Risk Associated With Lending Activities A significant portion of our loan portfolio is secured by real property.
Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs. 32 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS None
Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs. ITEM 1B. UNRESOLVED STAFF COMMENTS None 34 Table of Contents
During the ordinary course of business, we foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage.
During the ordinary course of business, we foreclose on and take title to properties securing certain loans. There is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage.
Any financial liability or 25 Table of Contents reputational damage could have a material adverse effect on our business, financial condition and results of operations. We Are Subject To Litigation Risk Pertaining To Intellectual Property Banking and other financial services companies, including us, rely on technology companies to provide information technology products and services necessary to support day-to-day operations.
Any financial liability or reputational damage could have a material adverse effect on our business, financial condition and results of operations. We Are Subject To Litigation Risk Pertaining To Intellectual Property Banking and other financial services companies, including us, rely on technology companies to provide information technology products and services necessary to support day-to-day operations.
Any failure or circumvention of our controls and procedures; failure to comply with regulations related to controls and procedures; or failure to comply with our corporate governance procedures could have a material adverse effect on our reputation, business, financial condition and results of operations, including subjecting us to litigation, regulatory fines, penalties or other sanctions.
Any failure or circumvention of our controls and procedures; failure to comply with regulations related to controls and procedures; or failure to comply with our corporate governance procedures could have a material adverse effect on our reputation, business, financial 24 Table of Contents condition and results of operations, including subjecting us to litigation, regulatory fines, penalties or other sanctions.
Even well protected information, networks, systems and facilities remain potentially vulnerable to attempted security breaches or disruptions because the techniques used in such attempts are constantly evolving and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected.
Even well protected information, networks, systems and facilities remain potentially vulnerable to attempted security breaches or disruptions because the techniques used in such attempts are constantly 26 Table of Contents evolving and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected.
In March of 2020, disagreements between members of OPEC signaled that 21 Table of Contents production levels would rise and, when coupled with the uncertainties of the COVID-19 pandemic, led to a significant decline in market oil prices.
In March of 2020, disagreements between members of OPEC signaled that production levels would rise and, when coupled with the uncertainties of the COVID-19 pandemic, led to a significant decline in market oil prices.
In addition, financial markets and global supply chains may be adversely affected by the current or anticipated impact of military conflict, including the current Russian invasion of Ukraine, terrorism or other geopolitical events. Current economic conditions are being heavily impacted by elevated levels of inflation and rising interest rates.
In addition, financial markets and global supply chains may be adversely affected by the current or anticipated impact of military conflict, including the current wars in Ukraine and Israel, terrorism or other geopolitical events. Current economic conditions are being heavily impacted by elevated levels of inflation and rising interest rates.
In particular, a substantial majority of our liabilities are demand, savings, interest checking and money market deposits, which are payable on demand or upon several days’ notice, while by comparison, a substantial portion of our assets are loans, which cannot be called or sold in the same time frame.
A substantial 23 Table of Contents majority of our liabilities are demand, savings, interest checking and money market deposits, which are payable on demand or upon several days’ notice, while by comparison, a substantial portion of our assets are loans, which cannot be called or sold in the same time frame.
Changes 27 Table of Contents to statutes, regulations or regulatory policies or supervisory guidance, including changes in interpretation or implementation of statutes, regulations, policies or supervisory guidance, could affect us in substantial and unpredictable ways.
Changes to statutes, regulations or regulatory policies or supervisory guidance, including changes in interpretation or implementation of statutes, regulations, policies or supervisory guidance, could affect us in substantial and unpredictable ways.
An Investment In Our Common Stock or Preferred Stock Is Not An Insured Deposit Our common stock and preferred stock are not bank deposits and, therefore, are not insured against loss by the Federal Deposit Insurance Corporation (“FDIC”), any other deposit insurance fund or by any other public or private entity.
An Investment In Our Common Stock or Preferred Stock Is Not An Insured Deposit Our common stock and preferred stock are not bank deposits and, therefore, are not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity.
Increases in interest rates and/or weakening economic conditions could adversely impact the ability of borrowers to repay outstanding loans or the value of the collateral securing these loans. As of December 31, 2022, approximately 86.2% of our loan portfolio consisted of commercial and industrial, energy, construction and commercial real estate mortgage loans.
Increases in interest rates and/or weakening economic conditions could adversely impact the ability of borrowers to repay outstanding loans or the value of the collateral securing these loans. As of December 31, 2023, approximately 84.4% of our loan portfolio consisted of commercial and industrial, energy, construction and commercial real estate mortgage loans.
We Are Subject To Volatility Risk In Crude Oil Prices As of December 31, 2022, we had $925.7 million of energy loans which comprised approximately 5.4% of our loan portfolio at that date. Furthermore, energy production and related industries represent a large part of the economies in some of our primary markets.
We Are Subject To Volatility Risk In Crude Oil Prices As of December 31, 2023, we had $935.3 million of energy loans which comprised approximately 5.0% of our loan portfolio at that date. Furthermore, energy production and related industries represent a large part of the economies in some of our primary markets.
As a result, some financial institutions offer interest on demand deposits to compete for customers. Our interest expense will increase and our net interest margin will decrease if we begin offering interest on demand deposits to attract additional customers or maintain current customers, which could have a material adverse effect on our business, financial condition and results of operations.
Our interest expense will increase and our net interest margin will decrease if we begin offering interest on demand deposits to attract additional customers or maintain current customers, which could have a material adverse effect on our business, financial condition and results of operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations elsewhere in this report for further discussion related to commercial and industrial, energy, construction and commercial real estate loans. 20 Table of Contents Our Allowance For Credit Losses May Be Insufficient We maintain allowances for credit losses on loans, securities and off-balance sheet credit exposures.
See the section captioned “Loans” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations elsewhere in this report for further discussion related to commercial and industrial, energy, construction and commercial real estate loans. Our Allowance For Credit Losses May Be Insufficient We maintain allowances for credit losses on loans, securities and off-balance sheet credit exposures.
As the global economy emerged from pandemic lockdowns in 2021, the demand for oil naturally increased and supply could not keep up with the sudden surge in demand. Consequently, oil prices began to rise. The current Russian invasion of Ukraine has also impacted global oil supplies and caused further increases in oil prices.
As the global economy emerged from pandemic lockdowns in 2021, the demand for oil naturally increased and supply could not keep up with the sudden surge in demand. Consequently, oil prices began to rise. The current wars in Ukraine and Israel have also impacted global oil supplies and caused further volatility in oil prices.
The Repeal Of Federal Prohibitions On Payment Of Interest On Demand Deposits Could Increase Our Interest Expense All federal prohibitions on the ability of financial institutions to pay interest on demand deposit accounts were repealed as part of the Dodd-Frank Act beginning on July 21, 2011.
The Repeal Of Federal Prohibitions On Payment Of Interest On Demand Deposits Could Increase Our Interest Expense All federal prohibitions on the ability of financial institutions to pay interest on demand deposit accounts were repealed as part of the Dodd-Frank Act beginning in 2011. As a result, some financial institutions offer interest on demand deposits to compete for customers.
Our Business, Financial Condition and Results Of Operations Are Subject To Risk From Changes in Customer Behavior Individual, economic, political, industry-specific conditions and other factors outside of our control, such as fuel prices, energy costs, real estate values, inflation, taxes or other factors that affect customer income levels, could alter anticipated customer behavior, including borrowing, repayment, investment and deposit practices.
Because we conduct most of our business under the “Frost” brand, negative public opinion about one business could affect our other businesses. 25 Table of Contents Our Business, Financial Condition and Results Of Operations Are Subject To Risk From Changes in Customer Behavior Individual, economic, political, industry-specific conditions and other factors outside of our control, such as fuel prices, energy costs, real estate values, inflation, taxes or other factors that affect customer income levels, could alter anticipated customer behavior, including borrowing, repayment, investment and deposit practices.
The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. 24 Table of Contents Our customers, employees and third parties that we do business with have been, and will continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate passwords, bank account information or other personal information or to introduce viruses or other malware programs to our information systems, the information systems of our merchants or third-party service providers and/or our customers' personal devices, which are beyond our security control systems.
Our customers, employees and third parties that we do business with have been, and will continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate passwords, bank account information or other personal information or to introduce viruses or other malware programs to our information systems, the information systems of our merchants or third-party service providers and/or our customers' personal devices, which are beyond our security control systems.
If we are found to infringe upon one or more patents or other intellectual property rights, we may be required to pay substantial damages or royalties to a third-party.
Such litigation is often expensive, time-consuming, disruptive to our operations and distracting to management. If we are found to infringe upon one or more patents or other intellectual property rights, we may be required to pay substantial damages or royalties to a third-party.
Recent regulation has reduced the regulatory burden of large bank holding companies, and raised the asset thresholds at which more onerous requirements apply, which could cause certain large bank holding companies with less than $250 billion in total consolidated assets, which were previously subject to more stringent enhanced prudential standards, to become more competitive or to pursue expansion more aggressively.
Recent regulation has reduced the regulatory burden of large bank holding companies, and raised the asset thresholds at which more onerous requirements apply, which could cause certain large bank holding companies with less than $250 billion in total consolidated assets, which were previously subject to more stringent enhanced prudential standards, to become more competitive or to pursue expansion more aggressively. 28 Table of Contents We also face competition from many other types of financial institutions, including, without limitation, savings and loans, credit unions, finance companies, brokerage firms, insurance companies and other financial intermediaries.
In addition, our credit risk may be exacerbated when the collateral held by us cannot be 26 Table of Contents realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to us.
In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to us. Increased interconnectivity amongst financial institutions also increases the risk of cyber-attacks and information system failures for financial institutions.
We Operate In A Highly Competitive Industry and Market Area We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and may have more financial resources than us. Such competitors primarily include national, regional, and community banks within the various markets where we operate.
Any such losses could have a material adverse effect on our business, financial condition and results of operations. We Operate In A Highly Competitive Industry and Market Area We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and may have more financial resources than us.
Furthermore, failure to realize the expected revenue 28 Table of Contents increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on our business, financial condition and results of operations.
Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on our business, financial condition and results of operations. 30 Table of Contents Acquisitions May Be Delayed, Impeded, Or Prohibited Due To Regulatory Issues Acquisitions by financial institutions, including us, are subject to approval by a variety of federal and state regulatory agencies (collectively, “regulatory approvals”).
The price per barrel of crude oil was approximately $80 at December 31, 2022 up from $75 at December 31, 2021. We have experienced increased losses within our energy portfolio in recent years which were impacted by oil price volatility, relative to our historical experience.
The price per barrel of crude oil was approximately $72 on December 31, 2023, down from $80 on December 31, 2022. While losses in our energy portfolio have not been significant in recent years, we have experienced increased losses within our energy portfolio in years that were impacted by significant oil price volatility, particularly in 2020.
A failure to maintain adequate liquidity could have a material adverse effect on our business, financial condition and results of operations.
Any such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations.
Some fintechs/wealthtechs are not subject to the same regulation as we are, which may allow them to be more competitive.
In particular, the activity of fintechs/wealthtechs has grown significantly over recent years and is expected to continue to grow. Some fintechs/wealthtechs are not subject to the same regulation as we are, which may allow them to be more competitive.
Management’s Discussion and Analysis of Financial Condition and Results of Operations under the section captioned “Net Interest Income” and Item 7A. Quantitative and Qualitative Disclosures About Market Risk elsewhere in this report for further discussion related to interest rate sensitivity and our management of interest rate risk.
Management’s Discussion and Analysis of Financial Condition and Results of Operations under the section captioned “Net Interest Income” and Item 7A.
Management’s Discussion and Analysis of Financial Condition and Results of Operations elsewhere in this report for further discussion related to our process for determining the appropriate level of the allowance for credit losses.
Management’s Discussion and Analysis of Financial Condition and Results of Operations elsewhere in this report for further discussion related to our process for determining the appropriate level of the allowance for credit losses. 22 Table of Contents We Are Subject to Risk Arising From Conditions In The Commercial Real Estate Market As of December 31, 2023, commercial real estate mortgage loans comprised approximately 35.8% of our loan portfolio.
Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations. See the sections captioned “Supervision and Regulation” included in Item 1. Business and Note 9 - Capital and Regulatory Matters in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this report.
Business and Note 8 - Capital and Regulatory Matters in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this report.
Such claims may increase in the future as the financial services sector becomes more reliant on information technology vendors. The plaintiffs in these actions frequently seek injunctions and substantial damages and may also seek to enter into licensing agreements with us to obtain ongoing fees.
Such claims may increase in the future as the financial services sector becomes more reliant on information technology vendors.
Also, technology and other changes have lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks. In particular, the activity of fintechs/wealthtechs has grown significantly over recent years and is expected to continue to grow.
The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Also, technology and other changes have lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks.
Credit and Lending Risks We Are Subject To Lending Risk and Lending Concentration Risk There are inherent risks associated with our lending activities.
Quantitative and Qualitative Disclosures About Market Risk elsewhere in this report for further discussion related to interest rate sensitivity and our management of interest rate risk. 21 Table of Contents Credit and Lending Risks We Are Subject To Lending Risk and Lending Concentration Risk There are inherent risks associated with our lending activities.
Removed
We May Be Adversely Impacted By The Transition From LIBOR As A Reference Rate The United Kingdom’s Financial Conduct Authority and the administrator of LIBOR have announced that the publication of the most commonly used U.S. dollar London Interbank Offered Rate (“LIBOR”) settings will cease to be published or cease to be representative after June 30, 2023.
Added
Additionally, negative news about us or the banking industry in general could negatively impact market and/or customer perceptions of our company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits.
Removed
The publication of all other LIBOR settings ceased to be published as of December 31, 2021.
Added
Furthermore, as we and other regional banking organizations experienced in 2023, the failure of other financial institutions may cause deposit outflows as customers spread deposits among several different banks so as to maximize their amount of FDIC insurance, move deposits to banks deemed "too big to fail" or remove deposits from the banking system entirely.
Removed
Given consumer protection, litigation, and reputation risks, the bank 19 Table of Contents regulatory agencies indicated that entering into new contracts that use LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks and that they would examine bank practices accordingly.
Added
As of December 31, 2023, approximately 53% of our deposits were uninsured and we rely on these deposits for liquidity. A failure to maintain adequate liquidity could have a material adverse effect on our business, financial condition and results of operations. Unrealized Losses in Our Securities Portfolio Could Affect Liquidity.
Removed
The Adjustable Interest Rate (LIBOR) Act, enacted in March 2022, provides a statutory framework to replace U.S. dollar LIBOR with a benchmark rate based on the Secured Overnight Financing Rate (“SOFR”) for contracts governed by U.S. law that have no or ineffective fallbacks, and in December 2022, the Federal Reserve Board adopted related implementing rules.
Added
As market interest rates have increased, we have experienced significant unrealized losses on our available for sale securities portfolio. Unrealized losses related to available for sale securities are reflected in accumulated other comprehensive income in our consolidated balance sheets and reduce the level of our book capital and tangible common equity.
Removed
Although governmental authorities have endeavored to facilitate an orderly discontinuation of LIBOR, no assurance can be provided that this aim will be achieved or that the use, level, and volatility of LIBOR or other interest rates or the value of LIBOR-based securities will not be adversely affected.
Added
However, such unrealized losses do not affect our regulatory capital ratios. We actively monitor our available for securities portfolio and we do not currently anticipate the need to realize material losses from the sale of securities for liquidity purposes.
Removed
As a result, and despite the enactment of the LIBOR Act, for the most commonly used LIBOR settings, the use or selection of a successor rate could expose us to risks associated with disputes and litigation with our customers and counterparties and other market participants in connection with implementing LIBOR fallback provisions.
Added
Furthermore, we believe it is unlikely that we would be required to sell any such securities before recovery of their amortized cost bases, which may be at maturity.
Removed
We discontinued originating LIBOR-based loans effective December 31, 2021 and are now negotiating loans using our preferred replacement index, AMERIBOR, a benchmark developed by the American Financial Exchange, as well as SOFR and BSBY, a benchmark developed by Bloomberg Index Services.
Added
Nonetheless, our access to liquidity sources could be affected by unrealized losses if securities must be sold at a loss; tangible capital ratios continue to decline from an increase in unrealized losses or realized credit losses; the FHLB or other funding sources reduce capacity; or bank regulators impose restrictions on us that impact the level of interest rates we may pay on deposits or our ability to access brokered deposits.
Removed
As of December 31, 2022, approximately $1.4 billion of our outstanding loans, and, in addition, certain derivative contracts, borrowings and other financial instruments have attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR has resulted in and could continue to result in added costs and employee efforts and could present additional risk.
Added
Additionally, significant unrealized losses could negatively impact market and/or customer perceptions of our company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits.
Removed
We are subject to litigation and reputational risks if we are unable to renegotiate and amend existing contracts with counterparties that are dependent on LIBOR, including contracts that do not have fallback language. The timing and manner in which each customer’s contract transitions to AMERIBOR, SOFR or BSBY will vary on a case-by-case basis.
Added
The risk of a security breach or disruption, particularly through cyber-attack or cyber-intrusion, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
Removed
There continues to be substantial uncertainty as to the ultimate effects of the LIBOR transition. Since AMERIBOR, SOFR and BSBY rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR, which may lead to increased volatility as compared to LIBOR.
Added
Such competitors primarily include national, regional, and community banks within the various markets where we operate.
Removed
The transition has impacted our market risk profiles and required changes to our risk and pricing models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation.
Added
Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations. 29 Table of Contents In addition, we anticipate increased regulatory scrutiny, in the course of routine examinations and otherwise, and new regulations in response to recent negative developments in the banking industry, which may increase our cost of doing business and reduce our profitability.
Removed
Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.
Added
Among other things, there may be increased focus by both regulators and investors on deposit composition, the level of uninsured deposits, brokered deposits, unrealized losses in securities portfolios, liquidity, commercial real estate loan composition and concentrations, and capital as well as general oversight and control of the foregoing.
Removed
See the section captioned “Loans” in Item 7.
Added
We could face increased scrutiny or be viewed as higher risk by regulators and/or the investor community, which could have a material adverse effect on our business, financial condition and results of operations. See the sections captioned “Supervision and Regulation” included in Item 1.
Removed
We Are Subject to Risk Arising From Conditions In The Commercial Real Estate Market As of December 31, 2022, commercial real estate mortgage loans comprised approximately 36.0% of our loan portfolio.
Removed
Any such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations. 22 Table of Contents The Value Of Our Goodwill and Other Intangible Assets May Decline In The Future As of December 31, 2022, we had $655.3 million of goodwill and other intangible assets.
Removed
A significant decline in our expected future cash flows, a significant adverse change in the business climate, slower growth rates or a significant and sustained decline in the price of Cullen/Frost’s common stock may necessitate taking charges in the future related to the impairment of our goodwill and other intangible assets which could have a material adverse effect on our business, financial condition and results of operations.
Removed
Because we conduct most of our business under the “Frost” brand, negative public opinion about one business could affect our other businesses.
Removed
Increased interconnectivity amongst financial institutions also increases the risk of cyber attacks and information system failures for financial institutions. Any such losses could have a material adverse effect on our business, financial condition and results of operations.
Removed
We also face competition from many other types of financial institutions, including, without limitation, savings and loans, credit unions, finance companies, brokerage firms, insurance companies and other financial intermediaries. The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation.
Removed
Acquisitions May Be Delayed, Impeded, Or Prohibited Due To Regulatory Issues Acquisitions by financial institutions, including us, are subject to approval by a variety of federal and state regulatory agencies (collectively, “regulatory approvals”).

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed0 unchanged
Biggest changeITEM 3. 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 effect on our business, financial condition and results of operations. ITEM 4. MINE SAFETY DISCLOSURES None 33 Table of Contents PART II
Biggest changeITEM 3. 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 effect on our business, financial condition and results of operations. ITEM 4. MINE SAFETY DISCLOSURES None 36 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

13 edited+8 added−0 removed0 unchanged
Biggest changePeriod Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans at the End of the Period October 1, 2022 to October 31, 2022 23,892 (1) $ 142.08 — $ 100,000 November 1, 2022 to November 30, 2022 — — — 100,000 December 1, 2022 to December 31, 2022 — — — 100,000 Total 23,892 — (1) Repurchases made in connection with the vesting of certain share awards. 34 Table of Contents Performance Graph The performance graph below compares the cumulative total shareholder return on Cullen/Frost Common Stock with the cumulative total return on the equity securities of companies included in the Standard & Poor’s 500 Stock Index and the Standard and Poor’s 500 Bank Index, measured at the last trading day of each year shown.
Biggest changePeriod Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans at the End of the Period October 1, 2023 to October 31, 2023 26,318 (1) $ 89.67 — $ 60,992 November 1, 2023 to November 30, 2023 159 (1) 96.60 — 60,992 December 1, 2023 to December 31, 2023 — — — 60,992 Total 26,477 — (1) Repurchases made in connection with the vesting of certain share awards.
The following table provides information with respect to purchases made by or on behalf of us 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 fourth quarter of 2022.
The following table provides information with respect to purchases made by or on behalf of us 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 fourth quarter of 2023.
Stock-Based Compensation Plans Information regarding stock-based compensation awards outstanding and available for future grants as of December 31, 2022, segregated between stock-based compensation plans approved by shareholders and stock-based compensation plans not approved by shareholders, is presented in the table below.
Stock-Based Compensation Plans Information regarding stock-based compensation awards outstanding and available for future grants as of December 31, 2023, segregated between stock-based compensation plans approved by shareholders and stock-based compensation plans not approved by shareholders, is presented in the table below.
Additional information regarding stock-based compensation plans is presented in Note 11 - Employee Benefit Plans in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this report.
Additional information regarding stock-based compensation plans is presented in Note 10 - Employee Benefit Plans in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this report.
The graph assumes an investment of $100 on December 31, 2017 and reinvestment of dividends on the date of payment without commissions.
The graph assumes an investment of $100 on December 31, 2018 and reinvestment of dividends on the date of payment without commissions.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for Our Common Stock Our common stock is traded on the NYSE under the symbol “CFR”. As of December 31, 2022, there were 64,354,695 shares of our common stock outstanding held by 1,020 holders of record.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for Our Common Stock Our common stock is traded on the NYSE under the symbol “CFR”. As of December 31, 2023, there were 64,185,287 shares of our common stock outstanding held by 1,050 holders of record.
The closing price per share of common stock on December 30, 2022, the last trading day of our fiscal year, was $133.70.
The closing price per share of common stock on December 29, 2023, the last trading day of our fiscal year, was $108.49.
Plan Category Number of Shares to be Issued Upon Exercise of Outstanding Awards Weighted-Average Exercise Price of Outstanding Awards Number of Shares Available for Future Grants Plans approved by shareholders 1,340,956 (1) $ 71.27 (2) 505,456 Plans not approved by shareholders — — — Total 1,340,956 71.27 505,456 (1) Includes 616,227 shares related to stock options, 465,319 shares related to non-vested stock units, 45,661 shares related to director deferred stock units and 213,749 shares related to performance stock units (assuming attainment of the maximum payout rate as set forth by the performance criteria).
Plan Category Number of Shares to be Issued Upon Exercise of Outstanding Awards Weighted-Average Exercise Price of Outstanding Awards Number of Shares Available for Future Grants Plans approved by shareholders 1,373,965 (1) $ 71.25 (2) 205,090 Plans not approved by shareholders — — — Total 1,373,965 71.25 205,090 (1) Includes 485,941 shares related to stock options, 566,806 shares related to non-vested stock units, 54,164 shares related to director deferred stock units and 267,054 shares related to performance stock units (assuming attainment of the maximum payout rate as set forth by the performance criteria).
(2) Excludes outstanding stock units which are exercised for no consideration. 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.
(2) Excludes outstanding stock units which are exercised for no consideration. Purchases of Equity Securities by the Issuer and Affiliated Purchasers From time to time, our board of directors has authorized stock repurchase plans.
On January 25, 2023, our board of directors authorized a $100.0 million stock repurchase plan, 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.
On January 25, 2023, our board of directors authorized a $100.0 million stock repurchase plan (the “2023 Repurchase Plan”), allowing us to repurchase shares of our common stock over a one-year period expiring on January 25, 2024. The 2023 Repurchase Plan was publicly announced in our 2022 Form 10-K filed with the SEC on February 3, 2023.
The performance graph represents past performance and should not be considered to be an indication of future performance. 2017 2018 2019 2020 2021 2022 Cullen/Frost $ 100.00 $ 95.16 $ 109.05 $ 100.84 $ 149.44 $ 162.32 S&P 500 100.00 95.62 125.72 148.85 191.58 156.88 S&P 500 Banks 100.00 83.56 117.52 101.35 137.28 110.91 ITEM 6. [RESERVED] 35 Table of Contents
The performance graph represents past performance and should not be considered to be an indication of future performance. 2018 2019 2020 2021 2022 2023 Cullen/Frost $ 100.00 $ 114.60 $ 105.98 $ 157.05 $ 170.58 $ 143.19 S&P 500 100.00 131.49 155.68 200.37 164.08 207.21 S&P 500 Banks 100.00 140.63 121.29 164.28 132.72 147.28 ITEM 6. [RESERVED] 39 Table of Contents
Under a prior stock repurchase plan, we repurchased 177,834 shares at a total cost of $13.7 million during 2020. No shares were repurchased under a stock repurchase plan during 2022 or 2021.
During 2023, we also repurchased 35,897 shares at a total cost of $3.5 million in connection with the vesting of certain share awards. Repurchases made in connection with the vesting of share awards are not associated with any publicly announced stock repurchase plan. No shares were repurchased under a publicly announced stock repurchase plan during 2022 or 2021.
Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards.
Such plans also provide us with the ability to repurchase shares of common stock that can be used to satisfy obligations related to stock compensation awards in order to mitigate the dilutive effect of such awards. Under the 2023 Repurchase Plan, we repurchased 400,868 shares at a total cost of $39.0 million during 2023.
Added
Shares repurchased under stock repurchase plans may be repurchased from time to time through a variety of methods, which may include open market purchases, in privately negotiated transactions, block trades, accelerated share repurchase transactions, and/or through other legally permissible means.
Added
The timing and amount of any share repurchases is determined by management at its discretion and based on market conditions and other considerations. Share repurchase plans may be suspended or discontinued at any time at our discretion and we are not obligated to purchase any amount of common stock.
Added
Stock repurchase plans allow us to proactively manage our capital position and provide management the ability to repurchase shares of our common stock opportunistically in instances where management believes the market price undervalues our company.
Added
Shares repurchased in connection with the vesting of certain share awards totaled 31,351 at a total cost of $4.4 million in 2022 and 31,317 at a total cost of $3.9 million in 2021.
Added
On January 24, 2024, our board of directors authorized a $150.0 million stock repurchase plan (the “2024 Repurchase Plan”), allowing us to repurchase shares of our common stock over a one-year period expiring on 37 Table of Contents January 24, 2025.
Added
This repurchase plan was publicly announced in a current report on Form 8-K filed with the SEC on January 25, 2024.
Added
Insider Trading Policies and Procedures. Our board of directors has adopted insider trading policies and procedures governing the purchase, sale, and/or other dispositions of our securities by directors, officers and employees, or by Cullen/Frost itself.
Added
These policies have been reasonably designed to promote compliance with insider trading laws, rules and regulations, and applicable NYSE listing standards. 38 Table of Contents Performance Graph The performance graph below compares the cumulative total shareholder return on Cullen/Frost Common Stock with the cumulative total return on the equity securities of companies included in the Standard & Poor’s 500 Stock Index and the Standard and Poor’s 500 Bank Index, measured at the last trading day of each year shown.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

235 edited+53 added−54 removed92 unchanged
Biggest changeThe comparison between 2021 and 2020 includes an additional change factor that shows the effect of the difference in the number of days (due to leap year in 2020) in each period for assets and liabilities that accrue interest based upon the actual number of days in the period, as further discussed below. 2022 vs. 2021 2021 vs. 2020 Increase (Decrease) Due to Change in Increase (Decrease) Due to Change in Rate Volume Total Rate Volume Days Total Interest-bearing deposits $ 199,513 $ (1,024) $ 198,489 $ (7,856) $ 12,876 $ (35) $ 4,985 Federal funds sold 808 109 917 (336) (354) (2) (692) Resell agreements 516 60 576 (79) (77) — (156) Securities: Taxable 9,418 150,829 160,247 (13,040) 9,021 — (4,019) Tax-exempt 1,607 11,352 12,959 (1,618) (7,710) — (9,328) Loans, net of unearned discounts 98,271 (1,257) 97,014 11,000 (14,673) (1,871) (5,544) Total earning assets 310,133 160,069 470,202 (11,929) (917) (1,908) (14,754) Savings and interest checking 10,528 162 10,690 (1,767) 672 (7) (1,102) Money market deposit accounts 102,224 3,111 105,335 (8,389) 2,476 (42) (5,955) Time accounts 8,460 1,471 9,931 (10,344) (58) (39) (10,441) Federal funds purchased 655 3 658 (65) (3) — (68) Repurchase agreements 31,991 243 32,234 (3,646) 1,485 (12) (2,173) Junior subordinated deferrable interest debentures 1,901 (213) 1,688 (1,010) (66) — (1,076) Subordinated notes (8) 8 — (8) 9 — 1 Federal Home Loan Bank advances — — — — (318) — (318) Total interest-bearing liabilities 155,751 4,785 160,536 (25,229) 4,197 (100) (21,132) Net change $ 154,382 $ 155,284 $ 309,666 $ 13,300 $ (5,114) $ (1,808) $ 6,378 Taxable-equivalent net interest income for 2022 increased $309.7 million, or 28.7%, compared to 2021.
Biggest changeThe 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. 2023 vs. 2022 2022 vs. 2021 Increase (Decrease) Due to Change in Increase (Decrease) Due to Change in Rate Volume Total Rate Volume Total Interest-bearing deposits $ 284,300 $ (124,657) $ 159,643 $ 199,513 $ (1,024) $ 198,489 Federal funds sold 712 (372) 340 808 109 917 Resell agreements 478 3,551 4,029 516 60 576 Securities: Taxable 73,512 82,980 156,492 9,418 150,829 160,247 Tax-exempt 13,975 (16,891) (2,916) 1,607 11,352 12,959 Loans, net of unearned discounts 364,794 56,946 421,740 98,271 (1,257) 97,014 Total earning assets 737,771 1,557 739,328 310,133 160,069 470,202 Savings and interest checking 30,901 (1,673) 29,228 10,528 162 10,690 Money market deposit accounts 206,636 (11,574) 195,062 102,224 3,111 105,335 Time accounts 97,166 46,323 143,489 8,460 1,471 9,931 Federal funds purchased 942 (108) 834 655 3 658 Repurchase agreements 70,483 31,043 101,526 31,991 243 32,234 Junior subordinated deferrable interest debentures 4,473 2 4,475 1,901 (213) 1,688 Subordinated notes — — — (8) 8 — Total interest-bearing liabilities 410,601 64,013 474,614 155,751 4,785 160,536 Net change $ 327,170 $ (62,456) $ 264,714 $ 154,382 $ 155,284 $ 309,666 Taxable-equivalent net interest income for 2023 increased $264.7 million, or 19.1%, compared to 2022.
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.
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.
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 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.
Also see Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.
Also see Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.
Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: • The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board. • Inflation, interest rate, securities market and monetary fluctuations. • Local, regional, national and international economic conditions and the impact they may have on us and our customers and our assessment of that impact. • Changes in the financial performance and/or condition of our borrowers. • Changes in the mix of loan geographies, sectors and types or the level of non-performing assets and charge-offs. • Changes in estimates of future credit loss reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements. • Changes in our liquidity position. • Impairment of our goodwill or other intangible assets. • The timely development and acceptance of new products and services and perceived overall value of these products and services by users. • Changes in consumer spending, borrowing and saving habits. • Greater than expected costs or difficulties related to the integration of new products and lines of business. • Technological changes. • The cost and effects of cyber incidents or other failures, interruptions or security breaches of our systems or those of our customers or third-party providers. • Acquisitions and integration of acquired businesses. • Changes in the reliability of our vendors, internal control systems or information systems. • Our ability to increase market share and control expenses. • Our ability to attract and retain qualified employees. • Changes in our organization, compensation and benefit plans. • The soundness of other financial institutions. • Volatility and disruption in national and international financial and commodity markets. • Changes in the competitive environment in our markets and among banking organizations and other financial service providers. • Government intervention in the U.S. financial system. • Political instability. • Acts of God or of war or terrorism. • The potential impact of climate change. • The impact of pandemics, epidemics or any other health-related crisis. 36 Table of Contents • The costs and effects of legal and regulatory developments, the resolution of legal proceedings or regulatory or other governmental inquiries, the results of regulatory examinations or reviews and the ability to obtain required regulatory approvals. • The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) and their application with which we and our subsidiaries must comply. • The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters. • Our success at managing the risks involved in the foregoing items.
Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: • The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board. • Inflation, interest rate, securities market, and monetary fluctuations. • Local, regional, national, and international economic conditions and the impact they may have on us and our customers and our assessment of that impact. • Changes in the financial performance and/or condition of our borrowers. • Changes in the mix of loan geographies, sectors and types or the level of non-performing assets and charge-offs. • Changes in estimates of future credit loss reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements. • Changes in our liquidity position. • Impairment of our goodwill or other intangible assets. • The timely development and acceptance of new products and services and perceived overall value of these products and services by users. • Changes in consumer spending, borrowing, and saving habits. • Greater than expected costs or difficulties related to the integration of new products and lines of business. • Technological changes. • The cost and effects of cyber incidents or other failures, interruptions, or security breaches of our systems or those of our customers or third-party providers. • Acquisitions and integration of acquired businesses. • Changes in the reliability of our vendors, internal control systems or information systems. • Our ability to increase market share and control expenses. • Our ability to attract and retain qualified employees. • Changes in our organization, compensation, and benefit plans. • The soundness of other financial institutions. • Volatility and disruption in national and international financial and commodity markets. • Changes in the competitive environment in our markets and among banking organizations and other financial service providers. • Government intervention in the U.S. financial system. • Political or economic instability. • Acts of God or of war or terrorism. • The potential impact of climate change. • The impact of pandemics, epidemics, or any other health-related crisis. 40 Table of Contents • The costs and effects of legal and regulatory developments, the resolution of legal proceedings or regulatory or other governmental inquiries, the results of regulatory examinations or reviews and the ability to obtain required regulatory approvals. • The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) and their application with which we and our subsidiaries must comply. • The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters. • Our success at managing the risks involved in the foregoing items.
Further analysis of the components of our net interest margin is presented below. 39 Table of Contents The following table presents an analysis of net interest income and net interest spread for the periods indicated, including average outstanding balances for each major category of interest-earning assets and interest-bearing liabilities, the interest earned or paid on such amounts, and the average rate earned or paid on such assets or liabilities, respectively.
Further analysis of the components of our net interest margin is presented below. 43 Table of Contents The following table presents an analysis of net interest income and net interest spread for the periods indicated, including average outstanding balances for each major category of interest-earning assets and interest-bearing liabilities, the interest earned or paid on such amounts, and the average rate earned or paid on such assets or liabilities, respectively.
The effective income tax rates differed from the U.S. statutory federal income tax rate of 21% during 2022 and 2021 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 effective income tax rates differed from the U.S. statutory federal income tax rate of 21% during 2023 and 2022 primarily due to the effect of tax-exempt income from securities, loans 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.
While management utilizes its best judgment and information 57 Table of Contents 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.
While management utilizes its best judgment and information available, the ultimate adequacy of 61 Table of Contents 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.
In estimating expected credit losses as of December 31, 2021, we utilized the Moody’s Analytics December 2021 Consensus Scenario (the “December 2021 Consensus Scenario”) to forecast the macroeconomic variables used in our models. The December 2021 Consensus Scenario was based on the review of a variety of surveys of baseline forecasts of the U.S. economy.
In estimating expected credit losses as of December 31, 2023, we utilized the Moody’s Analytics December 2023 Consensus Scenario (the “December 2023 Consensus Scenario”) to forecast the macroeconomic variables used in our models. The December 2023 Consensus Scenario was based on the review of a variety of surveys of baseline forecasts of the U.S. economy.
Details of the changes in the various components of net income are further discussed below. 38 Table of Contents 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.
Details of the changes in the various components of net income are further discussed below. 42 Table of Contents 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.
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 $1.6 million in 2022 and $1.3 million in 2021. Interchange and Card Transaction Fees.
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 $1.3 million in 2023 and $1.6 million in 2022. Interchange and Card Transaction Fees.
We have also provided additional qualitative adjustments, or management overlays, as of December 31, 2022 as management believes there are still significant risks impacting certain categories of our loan portfolio. Q-Factor and other qualitative adjustments as of December 31, 2022 are detailed in the table below.
We have also provided additional qualitative adjustments, or management overlays, as of December 31, 2023 as management believes there are still significant risks impacting certain categories of our loan portfolio. Q-Factor and other qualitative adjustments as of December 31, 2023 are detailed in the table below.
Underwriting standards for home equity loans are heavily influenced by statutory requirements, which include, but are not limited to, loan-to-value limitations, collection remedies, the number of such loans a borrower can have at one time and documentation requirements. 51 Table of Contents We maintain an independent loan review department that reviews and validates the credit risk program on a periodic basis.
Underwriting standards for home equity loans are heavily influenced by statutory requirements, which include, but are not limited to, loan-to-value limitations, collection remedies, the number of such loans a borrower can have at one time and documentation requirements. We maintain an independent loan review department that reviews and validates the credit risk program on a periodic basis.
As of December 31, 2022, management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us.
As of December 31, 2023, management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us.
These renewals, extensions and refinancings are made in the ordinary course of business for customers that meet our normal level of credit standards. Such borrowers typically request renewals to support their on-going working capital needs to finance their operations. Such borrowers are not experiencing financial difficulties and generally 55 Table of Contents could obtain similar financing from another financial institution.
These renewals, extensions and refinancings are made in the ordinary course of business for customers that meet our normal level of credit standards. Such borrowers typically request renewals to support their on-going working capital needs to finance their operations. Such borrowers are not experiencing financial difficulties and generally could obtain similar financing from another financial institution.
Guidelines require that the companies have extensive experience through several industry cycles, and that they be supported by financially competent and committed guarantors who provide a significant secondary source of repayment. Borrowers in this sector are typically privately-owned, middle-market companies with annual 50 Table of Contents sales of less than $100 million.
Guidelines require that the companies have extensive experience through several industry cycles, and that they be supported by financially competent and committed guarantors who provide a significant secondary source of repayment. Borrowers in this sector are typically privately-owned, middle-market companies with annual sales of less than $100 million.
The average rate paid on interest-bearing deposits during 2022 was impacted by an increase in the interest rates we pay on most of our interest-bearing deposit products as a result of increases in market interest rates. Geographic Concentrations .
The average rate paid on interest-bearing deposits during 2023 was impacted by an increase in the interest rates we pay on most of our interest-bearing deposit products as a result of increases in market interest rates. Geographic Concentrations .
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 $1.9 million in 2022 and $3.2 million in 2021.
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 $3.3 million in 2023 and $1.9 million in 2022.
Energy loans include commercial and industrial loans, leases and real estate 49 Table of Contents loans to borrowers in the energy industry. Real estate loans include both commercial and consumer balances. Loan Origination/Risk Management. We have certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk.
Energy loans include commercial and industrial loans, leases and real estate loans to borrowers in the energy industry. Real estate loans include both commercial and consumer balances. Loan Origination/Risk Management. We have certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk.
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 9 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements elsewhere in this report.
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 8 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report.
Financial Statements and Supplementary Data elsewhere in this report for further details of the risk factors considered by management in estimating the necessary level of the allowance for credit losses. 37 Table of Contents Overview The following discussion and analysis presents the more significant factors that affected our financial condition as of December 31, 2022 and 2021 and results of operations for each of the years then ended.
Financial Statements and Supplementary Data elsewhere in this report for further details of the risk factors considered by management in estimating the necessary level of the allowance for credit losses. 41 Table of Contents Overview The following discussion and analysis presents the more significant factors that affected our financial condition as of December 31, 2023 and 2022 and results of operations for each of the years then ended.
In the ordinary course of business we have entered into contractual obligations and have made other commitments to make future payments. Refer to the accompanying notes to consolidated financial statements elsewhere in this report for the expected timing of such payments as of December 31, 2022.
In the ordinary course of business we have entered into contractual obligations and have made other commitments to make future payments. Refer to the accompanying notes to consolidated financial statements included elsewhere in this report for the expected timing of such payments as of December 31, 2023.
Quantitative and Qualitative Disclosures About Market Risk elsewhere in this report. 42 Table of Contents 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.
Quantitative and Qualitative Disclosures About Market Risk 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.
As a general policy, we do not lend to energy traders; however, we have made an exception to this policy for certain customers based upon their underlying business models which minimize risk as commodities are bought only to fill existing orders (back-to-back trading). As such, the commodity price risk and sale risk are eliminated.
As a general policy, we do not lend to energy traders; however, we have made an exception to this policy for certain 54 Table of Contents customers based upon their underlying business models which minimize risk as commodities are bought only to fill existing orders (back-to-back trading). As such, the commodity price risk and sale risk are eliminated.
We have begun to explore the credit and reputational risks associated with climate change and their potential impact on the foregoing and are also closely monitoring regulatory developments on climate risk. This includes, among other things, researching and developing a formalized approach to considering climate change related risks in our underwriting processes.
We have begun to explore the credit and reputational risks associated with climate change and their potential impact on the foregoing and are also closely monitoring regulatory developments 53 Table of Contents on climate risk. This includes, among other things, researching and developing a formalized approach to considering climate change related risks in our underwriting processes.
These adjustments are determined based upon minimum reserve ratios for loans within our commercial real estate - non-owner occupied and commercial real estate - construction loan portfolios that have risk grades of 8 or worse.
These adjustments are determined based upon minimum reserve ratios for 64 Table of Contents loans within our commercial real estate - non-owner occupied and commercial real estate - construction loan portfolios that have risk grades of 8 or worse.
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 the commercial lease and purchased shared national credits. Energy .
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 the commercial lease and purchased shared national credits. 55 Table of Contents Energy .
Management deemed it appropriate to consider an additional overlay to the modeled forecasted losses for the unsecured consumer portfolio. 61 Table of Contents As of December 31, 2021, we provided qualitative adjustments, as detailed in the table below. Further information regarding these qualitative adjustments is provided in our 2021 Form 10-K.
Management deemed it appropriate to consider an additional overlay to the modeled forecasted losses for the unsecured consumer portfolio. As of December 31, 2022, we provided qualitative adjustments, as detailed in the table below. Further information regarding these qualitative adjustments is provided in our 2022 Form 10-K.
Accounting Standards Updates See Note 20 - Accounting Standards Updates in the accompanying notes to consolidated financial statements elsewhere in this report for details of recently issued accounting pronouncements and their expected impact on our financial statements.
Accounting Standards Updates See Note 19 - 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.
The outstanding balance of these loans and the unfunded amounts available under these commitments were not significant at December 31, 2022 or 2021. Maturities and Sensitivities of Loans to Changes in Interest Rates. The following table presents the maturity distribution of our loan portfolio at December 31, 2022.
The outstanding balance of these loans and the unfunded amounts available under these commitments were not significant at December 31, 2023 or 2022. 58 Table of Contents Maturities and Sensitivities of Loans to Changes in Interest Rates. The following table presents the maturity distribution of our loan portfolio at December 31, 2023.
These include payments related to 66 Table of Contents (i) long-term borrowings (Note 7 - Borrowed Funds), (ii) operating leases (Note 4 - Premises and Equipment and Lease Commitments), (iii) time deposits with stated maturity dates (Note 6 - Deposits) and (iv) commitments to extend credit and standby letters of credit (Note 8 - Off-Balance-Sheet Arrangements, Commitments, Guarantees and Contingencies).
These include payments related to (i) long-term borrowings (Note 6 - Borrowed Funds), (ii) operating leases (Note 4 - Premises and Equipment and Lease Commitments), (iii) time deposits with stated maturity dates (Note 5 - Deposits) and (iv) commitments to extend credit and standby letters of credit (Note 7 - Off-Balance-Sheet Arrangements, Commitments, Guarantees and Contingencies).
The increase was primarily related to an increase in the average yield on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve); an increase in the average volume of, and to a lesser extent, an increase in the yield on taxable securities; an increase in the average yield on loans; and an increase in the average volume of, and to a lesser extent, an increase in the average taxable-equivalent yield on tax-exempt securities.
The increase was primarily related to an increase in the average yield on loans and, to a lesser extent, the average volume of loans; an increase in the average yields on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve); an increase in the average volume of and average yield on taxable securities; and an increase in the average taxable-equivalent yield on tax-exempt securities, among other things.
Dollar amounts in tables are stated in thousands, except for per share amounts. Results of Operations Net income available to common shareholders totaled $572.5 million, or $8.81 diluted per common share, in 2022 compared to $435.9 million, or $6.76 diluted per common share, in 2021 and $323.6 million, or $5.10 diluted per common share, in 2020.
Dollar amounts in tables are stated in thousands, except for per share amounts. Results of Operations Net income available to common shareholders totaled $591.3 million, or $9.10 diluted per common share, in 2023 compared to $572.5 million, or $8.81 diluted per common share, in 2022 and $435.9 million, or $6.76 diluted per common share, in 2021.
Our taxable-equivalent 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 2.56% in 2022 compared to 2.48% in 2021.
Our taxable-equivalent 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 2.63% in 2023 compared to 2.56% in 2022.
In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. At December 31, 2022, approximately 49.6% of the outstanding principal balance of our commercial real estate loans were secured by owner-occupied properties.
In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. At December 31, 2023, approximately 49.9% of the outstanding principal balance of our commercial real estate loans were secured by owner-occupied properties.
For additional information regarding our accounting policies related to credit losses, refer to Note 1 - Summary of Significant Accounting Policies and Note 3 - Loans in the accompanying notes to consolidated financial statements. Allowance for Credit Losses - Loans.
For additional information regarding our accounting policies related to credit losses, refer to Note 1 - Summary of Significant Accounting Policies and Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report. Allowance for Credit Losses - Loans.
At December 31, 2022, all of the securities in our municipal bond portfolio were issued by the State of Texas or political subdivisions or agencies within the State of Texas, of which approximately 75.6% are either guaranteed by the Texas Permanent School Fund, which has a “triple-A” insurer financial strength rating, or secured by U.S.
At December 31, 2023, all of the securities in our municipal bond portfolio were issued by the State of Texas or political subdivisions or agencies within the State of Texas, of which approximately 70.9% are either guaranteed by the Texas Permanent School Fund, which has a “triple-A” insurer financial strength rating, or secured by U.S.
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.
Should any of the factors considered by management in making this estimate change, our estimate of current expected credit losses could also change, which could affect the level of future credit loss expense related to loans. 66 Table of Contents Allowance for Credit Losses - Off-Balance-Sheet Credit Exposures.
Additional details about our preferred stock are included in Note 9 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements elsewhere in this report. Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans.
Additional details about our preferred stock are included in Note 8 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report. Purchases of Equity Securities. From time to time, our board of directors has authorized stock repurchase plans.
While there can be no such assurance that any increases or decreases in the federal funds rate will occur, these projections imply up to a 75 basis point increase in the federal funds rate during 2023, followed by a 100 basis point decrease in 2024.
While there can be no such assurance that any such decreases in the federal funds rate will occur, these projections imply up to a 75 basis point decrease in the federal funds rate during 2024, followed by a 100 basis point decrease in 2025.
Average assets totaled $51.5 billion in 2022 compared to $46.0 billion in 2021. 2022 2021 2020 Sources of Funds: Deposits: Non-interest-bearing 35.3 % 36.2 % 35.7 % Interest-bearing 51.2 47.4 47.1 Federal funds purchased 0.1 0.1 0.1 Repurchase agreements 4.5 4.6 3.8 Long-term debt and other borrowings 0.4 0.5 0.9 Other non-interest-bearing liabilities 1.6 1.7 1.8 Equity capital 6.9 9.5 10.6 Total 100.0 % 100.0 % 100.0 % Uses of Funds: Loans 32.5 % 36.5 % 45.2 % Securities 36.3 28.0 33.4 Interest-bearing deposits 24.8 29.4 14.0 Federal funds sold 0.1 — 0.2 Resell agreements — — 0.1 Other non-interest-earning assets 6.3 6.1 7.1 Total 100.0 % 100.0 % 100.0 % Deposits continue to be our primary source of funding.
Average assets totaled $49.6 billion in 2023 compared to $51.5 billion in 2022. 2023 2022 2021 Sources of Funds: Deposits: Non-interest-bearing 30.9 % 35.3 % 36.2 % Interest-bearing 52.6 51.2 47.4 Federal funds purchased 0.1 0.1 0.1 Repurchase agreements 7.7 4.5 4.6 Long-term debt and other borrowings 0.4 0.4 0.5 Other non-interest-bearing liabilities 1.6 1.6 1.7 Equity capital 6.7 6.9 9.5 Total 100.0 % 100.0 % 100.0 % Uses of Funds: Loans 36.1 % 32.5 % 36.5 % Securities 42.0 36.3 28.0 Interest-bearing deposits 14.8 24.8 29.4 Federal funds sold — 0.1 — Resell agreements 0.2 — — Other non-interest-earning assets 6.9 6.3 6.1 Total 100.0 % 100.0 % 100.0 % Deposits continue to be our primary source of funding.
Combined, home equity loans and lines of credit made up 61.9% and 59.8% of the consumer real estate loan total at December 31, 2022 and 2021, respectively. We offer home equity loans up to 80% of the estimated value of the personal residence of the borrower, less the value of existing mortgages and home improvement loans.
Combined, home equity loans and lines of credit made up 60.5% and 61.9% of the consumer real estate loan total at December 31, 2023 and 2022, respectively. We offer home equity loans up to 80% of the estimated value of the personal residence of the borrower, less the value of existing mortgages and home improvement loans.
The December 2021 Consensus Scenario projections included, among other things, (i) U.S.
The December 2023 Consensus Scenario projections included, among other things, (i) U.S.
From time to time, we have obtained interest-bearing deposits through brokered transactions including participation in the Certificate of Deposit Account Registry Service (“CDARS”). Brokered deposits were not significant during the reported periods. Capital and Liquidity Capital . Shareholders’ equity totaled $3.1 billion at December 31, 2022 and $4.4 billion at December 31, 2021.
From time to time, we have obtained interest-bearing deposits through brokered transactions including participation in the Certificate of Deposit Account Registry Service (“CDARS”). Brokered deposits were not significant during the reported periods. 68 Table of Contents Capital and Liquidity Capital . Shareholders’ equity totaled $3.7 billion at December 31, 2023 and $3.1 billion at December 31, 2022.
The increase in taxable-equivalent net interest income during 2022 was primarily related to an increase in the average yield on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve); an increase in the average volume of, and to a much lesser extent, an increase in the yield on taxable securities; an increase in the average yield on loans; and an increase in the average volume of, and to a lesser extent, an increase in the average taxable-equivalent yield on tax-exempt securities.
The increase in taxable-equivalent net interest income during 2023 was primarily related to an increase in the average yield on loans and, to a lesser extent, the average volume of loans; an increase in the average yield on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve); an increase in the average volume of and average yield on taxable securities; and an increase in the average taxable-equivalent yield on tax-exempt securities, among other things.
Furthermore, at December 31, 2022, we had approximately $12.7 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.
Furthermore, at December 31, 2023, we had approximately $13.1 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.
The allowance for credit losses on off-balance-sheet credit exposures totaled $58.6 million and $50.3 million at December 31, 2022 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.
The allowance for credit losses on off-balance-sheet credit exposures totaled $51.8 million at December 31, 2023 and $58.6 million at December 31, 2022. 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.
As a result of this assessment as of December 31, 2022, modeled expected credit losses were adjusted upwards by a weighted-average Q-Factor adjustment of approximately 2.2%, resulting in a $2.3 million total adjustment, up from approximately 2.3% at December 31, 2021, which resulted in a $1.8 million total adjustment.
As a result of this assessment as of December 31, 2023, modeled expected credit losses were adjusted upwards by a weighted-average Q-Factor adjustment of approximately 4.4%, resulting in a $3.9 million total adjustment, up from approximately 2.2% at December 31, 2022, which resulted in a $2.3 million total adjustment.
Mexico has historically been considered a part of the natural trade territory of our banking offices. Accordingly, U.S. dollar-denominated foreign deposits from sources within Mexico have traditionally been a significant source of funding. Average deposits from foreign sources, primarily Mexico, totaled $1.1 billion in 2022 and $933.3 million in 2021. Brokered Deposits.
Mexico has historically been considered a part of the natural trade territory of our banking offices. Accordingly, U.S. dollar-denominated foreign deposits from sources within Mexico have traditionally been a significant source of funding. Average deposits from foreign sources, primarily Mexico, totaled $1.1 billion in both 2023 and 2022 respectively. Brokered Deposits.
In addition, financial markets and global supply chains may continue to be adversely affected by the current or anticipated impact of military conflict, including the current Russian invasion of Ukraine, terrorism or other geopolitical events. Forward-looking statements speak only as of the date on which such statements are made.
In addition, financial markets and global supply chains may continue to be adversely affected by the current or anticipated impact of global wars/military conflicts, terrorism, or other geopolitical events. Forward-looking statements speak only as of the date on which such statements are made.
Specific allocations for commercial and industrial loans that were evaluated for expected credit losses on an individual basis decreased $4.5 million, or 42.3%, from $10.5 million at December 31, 2021 to $6.1 million at December 31, 2022. The decrease in specific allocations for commercial and industrial loans was primarily related to principal payments received and the recognition of charge-offs.
Specific allocations for commercial and industrial loans that were evaluated for expected credit losses on an individual basis decreased $3.6 million, or 60.0%, from $6.1 million at December 31, 2022 to $2.4 million at December 31, 2023. The decrease in specific allocations for commercial and industrial loans was primarily related to principal payments received and the recognition of charge-offs.
As of December 31, 2022, we used the Moody’s Analytics November 2022 S3 Alternative Scenario Downside - 90th Percentile (the “November 2022 S3 Scenario”). In modeling expected credit losses using this scenario, we also assume each loan within our modeled loan pools is downgraded by one risk grade level.
As of December 31, 2023, we used the Moody’s Analytics December 2023 S3 Alternative Scenario Downside - 90th Percentile. In modeling expected credit losses using this scenario, we also assume each non-classified loan within our modeled loan pools is downgraded by one risk grade level.
Investment management fees are the most significant component of trust and investment management fees, making up approximately 77.1% and 82.3% of total trust and investment management fees in 2022 and 2021, respectively.
Investment management fees are the most significant component of trust and investment management fees, making up approximately 79.3% and 77.1% of total trust and investment management fees in 2023 and 2022, respectively.
Investment management fees are the most significant component of trust and investment management fees, making up approximately 77.1% and 82.3% of total trust and investment management fees for 2022 and 2021, respectively.
Investment management fees are the most significant component of trust and investment management fees, making up approximately 79.3% and 77.1% of total trust and investment management fees for 2023 and 2022, respectively.
Modeled expected credit losses increased $15.0 million while qualitative factor (“Q-Factor”) and other qualitative adjustments related to commercial and industrial loans increased $21.6 million.
Modeled expected credit losses decreased $11.0 million while qualitative factor (“Q-Factor”) and other qualitative adjustments related to commercial and industrial loans decreased $15.6 million.
We paid quarterly dividends of $0.75, $0.75, $0.87 and $0.87 per common share during the first, second, third and fourth quarters of 2022, respectively, and quarterly dividends of $0.72, $0.72, $0.75 and $0.75 per common share during the first, second, third and fourth quarters of 2021, respectively.
We paid quarterly dividends of $0.87, $0.87, $0.92 and $0.92 per common share during the first, second, third and fourth quarters of 2023, respectively, and quarterly dividends of $0.75, $0.75, $0.87 and $0.87 per common share during the first, second, third and fourth quarters of 2022, respectively.
Net interest income is our largest source of revenue, representing 76.1% of total revenue during 2022. Net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period. The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and net interest margin.
Net interest income is our largest source of revenue, representing 78.4% of total revenue during 2023. Net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period. The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and net interest margin.
Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with the SEC on February 4, 2021 (the “ 2021 Form 10-K ” ) for a discussion and analysis of the more significant factors that affected periods prior to 2021.
Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with the SEC on February 3, 2023 (the “ 202 2 Form 10-K ”) for a discussion and analysis of the more significant factors that affected periods prior to 2022.
Commercial and industrial loans increased $309.8 million, or 5.8%, during 2022 compared to 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.
Commercial and industrial loans increased $284.3 million, or 5.0%, during 2023 compared to 2022. Our commercial and industrial loans are a diverse group of loans to small, medium and large businesses. The purpose of these loans varies from supporting seasonal working capital needs to term financing of equipment.
The overall loan portfolio, excluding PPP loans which are fully guaranteed by the SBA, as of December 31, 2022 increased $1.2 billion, or 7.6%, compared to December 31, 2021.
The overall loan portfolio, excluding PPP loans which are fully guaranteed by the SBA, as of December 31, 2023 increased $1.7 billion, or 9.9%, compared to December 31, 2022.
Treasury securities via defeasance of the debt by the issuers. The average taxable-equivalent yield on the securities portfolio based on a 21% tax rate was 2.95% in 2022 compared to 3.29% in 2021. Tax-exempt municipal securities totaled 42.7% of average securities in 2022 compared to 64.2% in 2021.
Treasury securities via defeasance of the debt by the issuers. The average taxable-equivalent yield on the securities portfolio based on a 21% tax rate was 3.24% in 2023 compared to 2.95% in 2022. Tax-exempt municipal securities totaled 35.5% of average securities in 2023 compared to 42.7% in 2022.
The decrease in performance related contingent income during 2022 was related to low growth within the portfolio and a deterioration in the loss performance of insurance policies previously placed. This deterioration was impacted by a severe weather event in Texas during the first quarter of 2021 that resulted in a significant increase in property and casualty claims and losses.
The increase in performance related contingent income was primarily related to growth within the portfolio and improvement in the loss performance of insurance policies previously placed. Performance related contingent income in 2022 was impacted by a severe weather event in Texas during 2021 that resulted in significant property and casualty claims and losses.
The down-side scenario overlay is a qualitative adjustment for our commercial and industrial loan portfolio to address the significant risk of economic recession as a result of inflation; rising interest rates; labor shortages; disruption in financial markets and global supply chains; further oil price volatility; and the current or anticipated impact of military conflict, including the current war between Russia and Ukraine, terrorism or other geopolitical events.
The down-side scenario overlay is a qualitative adjustment for our commercial and industrial loan portfolio to address the significant risk of economic recession as a result of inflation; interest rate volatility; labor shortages; disruption in financial markets and global supply chains; further oil price volatility; and the current or anticipated impact of global wars/military conflicts, terrorism, or other geopolitical events.
Modeled expected credit losses related to energy loans increased $2.2 million while Q-Factor and other qualitative adjustments related to energy loans decreased $226 thousand. Specific allocations for energy loans that were evaluated for expected credit losses on an individual basis totaled $4.4 million at December 31, 2022 decreasing $1.1 million, or 20.0%, compared to $5.5 million at December 31, 2021.
Modeled expected credit losses related to energy loans decreased $693 thousand while Q-Factor and other qualitative adjustments related to energy loans increased $2.1 million. Specific allocations for energy loans that were evaluated for expected credit losses on an individual basis totaled $2.7 million at December 31, 2023 decreasing $1.7 million, or 38.4%, compared to $4.4 million at December 31, 2022.
Classified loans consist of loans having a risk grade of 11, 12 or 13. The weighted-average risk grade for energy loans decreased to 5.67 at December 31, 2022 from 6.06 at December 31, 2021.
Classified loans consist of loans having a risk grade of 11, 12 or 13. The weighted-average risk grade for energy loans increased to 6.05 at December 31, 2023 from 5.67 at December 31, 2022.
The increase in employee benefit expense was primarily related to increases in payroll taxes, medical benefits expense, 401(k) plan expense and other employee benefits, among other things, partly offset by an increase in the net periodic benefits related to our defined benefit retirement plan.
The aforementioned increases were partly offset by a decrease in incentive compensation. The increase in employee benefits expense was primarily related to increases in medical benefits expense, 401(k) plan expense, and payroll taxes, and a decrease in the net periodic benefit related to our defined benefit retirement plan, among other things.
Details of our derivatives and hedging activities are set forth in Note 15 - Derivative Financial Instruments in the accompanying notes to consolidated financial statements elsewhere in this report. Information regarding the impact of fluctuations in interest rates on our derivative financial instruments is set forth in Item 7A. Quantitative and Qualitative Disclosures About Market Risk elsewhere in this report.
Details of our derivatives and hedging activities are set forth in Note 14 - Derivative Financial Instruments in the accompanying notes to consolidated financial statements elsewhere in this report. Information regarding the impact of fluctuations in interest rates on our derivative financial instruments is set forth in Item 7A.
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 exposure after net charge-offs have been deducted to bring the allowance to a level which, in management’s best estimate, is necessary to absorb expected credit losses over the lives of the respective financial instruments.
Quantitative and Qualitative Disclosures About Market Risk elsewhere in this report. 46 Table of Contents 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 exposure after net charge-offs have been deducted to bring the allowance to a level which, in management’s best estimate, is necessary to absorb expected credit losses over the lives of the respective financial instruments.
As of December 31, 2022, we had approximately $11.1 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 December 31, 2022, based upon available, pledgeable collateral, our total borrowing capacity with the FHLB was approximately $3.4 billion.
As of December 31, 2023, we had approximately $8.0 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 December 31, 2023, based upon available, pledgeable collateral, our total borrowing capacity with the FHLB was approximately $5.6 billion.
A comparison of gross and net interchange and card transaction fees for the reported periods is presented in the table below. 2022 2021 2020 Income from debit card transactions $ 32,457 $ 29,122 $ 23,763 ATM service fees 3,313 3,298 3,342 Gross interchange and debit card transaction fees 35,770 32,420 27,105 Network costs 17,539 14,959 13,635 Net interchange and debit card transaction fees $ 18,231 $ 17,461 $ 13,470 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.
A comparison of gross and net interchange and card transaction fees for the reported periods is presented in the table below. 2023 2022 2021 Income from debit card transactions $ 36,622 $ 32,457 $ 29,122 ATM service fees 3,516 3,313 3,298 Gross interchange and debit card transaction fees 40,138 35,770 32,420 Network costs 20,719 17,539 14,959 Net interchange and debit card transaction fees $ 19,419 $ 18,231 $ 17,461 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.
This equates to a dividend payout ratio 65 Table of Contents of 36.6% in 2022 and 43.3% in 2021. The amount of dividend, if any, we may pay may be limited as more fully discussed in Note 9 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements elsewhere in this report. Preferred Stock .
This equates to a dividend payout ratio of 39.3% in 2023 and 36.6% in 2022. The amount of dividend, if any, we may pay may be limited as more fully discussed in Note 8 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report. Preferred Stock .
PPP loans are fully guaranteed by the SBA and we expect to collect all amounts due related to these loans. Excluding PPP loans, accruing past due loans decreased $14.3 million. 56 Table of Contents Non-Accrual Loans. Non-accrual loans are presented in the tables below.
PPP loans are fully guaranteed by the SBA and we expect to collect all amounts due related to these loans. Excluding PPP loans, accruing past due loans increased $5.6 million. 60 Table of Contents Non-Accrual Loans. Non-accrual loans are presented in the tables below.
Non-Interest Income Total non-interest income for 2022 increased $18.1 million, or 4.7%, compared to 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 fee income for 2022 increased $5.7 million, or 3.8%, compared to 2021.
Non-Interest Income Total non-interest income for 2023 increased $23.7 million, or 5.9%, compared to 2022. Changes in the various components of non-interest income are discussed in more detail below. Trust and Investment Management Fees. Trust and investment management fee income for 2023 decreased $1.4 million, or 0.9%, compared to 2022.
The increase in overdraft charges during 2022 was impacted by increases in the volume 46 Table of Contents of fee assessed overdrafts relative to 2021, in part due to growth in the number of accounts. The increase in consumer service charges during 2022 was partly related to increases in overall deposit accounts and volumes.
The increase in overdraft charges was impacted by an increase in the volume of fee assessed overdrafts in part due to growth in the number of accounts. The increase in consumer service charges was partly related to increases in overall deposit accounts and volumes.
The following table summarizes the industry concentrations of our loan portfolio, as segregated by SIC code, stated as a percentage of year-end total loans as of December 31, 2022 and 2021. 2022 2021 Industry Concentrations Energy 5.4 % 6.6 % Automobile dealers 5.4 4.1 Public finance 4.6 4.9 Medical services 3.9 3.7 Building materials and contractors 3.8 3.7 General and specific trade contractors 3.6 3.2 Manufacturing, other 3.4 2.8 Investor 2.8 2.7 Services 2.3 2.4 Religion 1.8 2.0 Paycheck Protection Program 0.2 2.6 All other 62.8 61.3 Total loans 100.0 % 100.0 % 52 Table of Contents Large Credit Relationships.
The following table summarizes the industry concentrations of our loan portfolio, as segregated by SIC code, stated as a percentage of year-end total loans as of December 31, 2023 and 2022. 2023 2022 Industry Concentrations Automobile dealers 5.9 % 5.4 % Energy 5.0 5.4 Investor 5.0 2.8 Public finance 4.3 4.6 Medical services 4.0 3.9 Building materials and contractors 3.5 3.8 Manufacturing, other 3.4 3.4 General and specific trade contractors 3.3 3.6 Services 2.9 2.3 Wholesale - heavy equipment 2.1 1.6 All other 60.6 63.2 Total loans 100.0 % 100.0 % Large Credit Relationships.
Energy loans decreased $152.1 million, or 14.1%, during 2022 compared to 2021. The average loan size, the significance of the portfolio and the specialized nature of the energy industry requires a highly prescriptive underwriting policy. Exceptions to this policy are rarely granted.
Energy loans increased $9.5 million, or 1.0%, during 2023 compared to 2022. The average loan size, the significance of the portfolio and the specialized nature of the energy industry requires a highly prescriptive underwriting policy. Exceptions to this policy are rarely granted.
Overdraft charges totaled $38.3 million ($29.2 million consumer and $9.1 million commercial) during 2022 compared to $30.7 million ($23.9 million consumer and $6.8 million commercial) during 2021. The increase in overdraft charges during 2022 was impacted by increases in the volume of fee assessed overdrafts relative to 2021, in part due to growth in the number of accounts.
Overdraft charges totaled $44.4 million ($33.6 million consumer and $10.8 million commercial) during 2023 compared to $38.3 million ($29.2 million consumer and $9.1 million commercial) during 2022. The increase in overdraft charges during 2023 was impacted by an increase in the volume of fee assessed overdrafts relative to 2022, in part due to growth in the number of accounts.
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.
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. These policies are in accordance with Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses.
Certain reclassifications have been made to make prior periods comparable. This discussion and analysis should be read in conjunction with our consolidated financial statements, notes thereto and other financial information appearing elsewhere in this report. From time to time, we have acquired various small businesses through our insurance subsidiary.
Certain reclassifications have been made to make prior periods comparable. This discussion and analysis should be read in conjunction with our consolidated financial statements, notes thereto and other financial information appearing elsewhere in this report.
The increases in the aforementioned components of net occupancy expense were driven, in part, by our expansion within the Houston and Dallas market areas. Technology, Furniture and Equipment. Technology, furniture and equipment expense for 2022 increased $8.0 million, or 7.1%, compared to 2021.
The increases in the aforementioned components of net occupancy expense were impacted, in part, by our expansion within the Houston and Dallas market areas. Technology, Furniture and Equipment. Technology, furniture and equipment expense for 2023 increased $14.5 million, or 12.0%, compared to 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThis pricing structure on commercial demand deposits assumed a deposit pricing beta of 25%. The pricing beta is a measure of how much deposit rates reprice, up or down, given a defined change in market rates.
Biggest changeThe deposit pricing beta is a measure of how much deposit rates will reprice, up or down, given a defined change in market rates. Management believes that the deposit pricing betas used as of December 31, 2023 are more reflective of current expectations.
For modeling purposes, as of December 31, 2022, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of 0.2% and 1.4%, respectively, relative to the flat-rate case over the next 12 months, while 100 and 200 basis point ratable decreases in interest rates would result in a negative variance in net interest income of 0.2% and 1.4%, respectively, relative to the flat-rate case over the next 12 months.
For modeling purposes, as of December 31, 2022, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of 0.2% and 1.4%, respectively, relative to the flat-rate case over the next 12 months, while 100 and 200 basis point ratable decreases in interest rates would result in a negative variances in net interest income of 0.2% and 1.4%, respectively, relative to the flat-rate case over the next 12 months.
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. 68 Table of Contents
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. 72 Table of Contents
As of December 31, 2022, the effects of a 200 basis point increase and a 200 basis point decrease in interest rates on our derivative holdings would not result in a significant variance in our net interest income.
As of December 31, 2023, the effects of a 200 basis point increase and a 200 basis point decrease in interest rates on our derivative holdings would not result in a significant variance in our net interest income.
The 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 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 71 Table of Contents repricing and maturity characteristics of the existing and projected balance sheet.
Accordingly, our interest rate sensitivity and liquidity are monitored on an ongoing basis by our Asset and Liability Committee (“ALCO”), which oversees market risk 67 Table of Contents management and establishes risk measures, limits and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital.
Accordingly, our interest rate sensitivity and liquidity are monitored on an ongoing basis by our Asset and Liability Committee (“ALCO”), which oversees market risk management and establishes risk measures, limits and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital.
The decreased asset sensitivity was partly due to a decrease in the relative proportion of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and federal funds sold to projected average interest-earning assets combined with an increase in the relative proportion of fixed-rate taxable securities to projected average interest-earning assets.
The increased asset sensitivity was also partly 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 combined with a decrease in the relative proportion of fixed-rate securities to projected average interest-earning assets.
For modeling purposes, as of December 31, 2021, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of 2.8% and 7.1%, respectively, relative to the flat-rate case over the next 12 months, while a 25 basis point ratable decrease in interest rates would result in a negative variance in net interest income of 3.0% relative to the flat-rate case over the next 12 months.
For modeling purposes, as of December 31, 2023, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of 1.7% and 3.5%, respectively, relative to the flat-rate case over the next 12 months, while 100 and 200 basis point ratable decreases in interest rates would result in a negative variances in net interest income of 1.3% and 3.0%, respectively, relative to the flat-rate case over the next 12 months.
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.
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.
As of December 31, 2022, management believes, based on our experience during the last interest rate cycle, that it is less likely we will pay interest on these deposits as rates increase.
Our December 31, 2023 and December 31, 2022 model simulations did not assume any payment of interest on commercial demand deposits (those not already receiving an earnings credit). Management believes, based on our experience during the last interest rate cycle, that it is less likely we will pay interest on these deposits as rates increase.
The model simulations as of December 31, 2022 indicate that our projected balance sheet is less asset sensitive in comparison to our balance sheet as of December 31, 2021.
The model simulations as of December 31, 2023 indicate that our projected balance sheet is more asset sensitive in comparison to our balance sheet as of December 31, 2022. The increased asset sensitivity was partly due to a decrease in the expected deposit pricing beta for rate increases on certain types of deposit accounts.
Removed
The likelihood of a decrease in interest rates beyond 25 basis points as of December 31, 2021 was considered to be remote given prevailing interest rate levels. We do not currently pay interest on a significant portion of our commercial demand deposits.
Removed
Our December 31, 2022 model simulations do not assume any payment of interest on commercial demand deposits (those not already receiving an earnings credit) while our modeling simulations as of December 31, 2021 assumed we would make interest payments on commercial demand deposits (those not already receiving an earnings credit) with such payments assumed to begin in the first quarter of 2022.

Other CFR 10-K year-over-year comparisons