Commitments and Contingencies

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

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

Financial Instruments with Off-Balance-Sheet Risk. In the normal course of business, we enter into various transactions, which, in accordance with generally accepted accounting principles are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. As more fully discussed in our 2019 Form 10-K, these transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. We minimize our exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.

Financial instruments with off-balance-sheet risk were as follows:

	September 30, 2020		December 31, 2019
Commitments to extend credit	$	9,586,212	$	9,306,043
Standby letters of credit	260,683		260,587
Deferred standby letter of credit fees	1,716		1,276

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

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Beginning balance	$	46,939	$	500	$	500	$	500
Impact of adopting ASC 326	—		—		39,377		—
Credit loss expense (benefit)	(3,276)		—		3,786		—
Ending balance	$	43,663	$	500	$	43,663	$	500

Lease Commitments. We lease certain office facilities and office equipment under operating leases. The components of total lease expense were as follows:

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

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

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

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