CULLEN/FROST BANKERS, INC.

Previous wording

The following discussion should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2025, and the other information included in the 2025 Form 10-K. Operating results for the three and six months ended June 30, 2026 are not necessarily indicative of the results for the year ending December 31, 2026 or any future period.

Current wording

The following discussion should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2025, and the other information included in the 2025 Form 10-K. Operating results for the three and nine months ended September 30, 2026 are not necessarily indicative of the results for the year ending December 31, 2026 or any future period.

Previous wording

Furthermore, financial markets, international relations, and global supply chains continue to be affected by evolving U.S. trade policies and practices. While the U.S. Supreme Court's February 20, 2026 ruling that the International Emergency Economic Powers Act ("IEEPA") does not authorize presidential tariff authority invalidated certain tariffs previously imposed under IEEPA, uncertainty remains regarding tariff refunds, related legal and administrative proceedings, and the scope, duration, and economic impact of replacement or additional trade measures adopted under other U.S. trade laws. Ongoing changes in U.S. trade policy, including the imposition, modification, suspension, or expansion of tariffs and other trade restrictions, may affect customer cash flows, business confidence, capital investment decisions, supply chain strategies, commodity prices, inflation expectations, and market volatility. These developments may increase our exposure to operational, credit, market, liquidity, and compliance risks. Customers with significant exposure to international trade, manufacturing, transportation, agriculture, retail, or other sectors sensitive to global trade and supply chain conditions may experience financial stress, reduced profitability, or weakened operating performance. Trade policy developments may also contribute to volatility in interest rates, foreign exchange markets, and asset valuations. If these developments adversely affect borrower financial condition, market stability, economic growth, or broader business activity, they could have a material adverse effect on our business, financial condition, results of operations, and prospects. We will continue to monitor trade policy developments and adjust our risk management, liquidity management, and capital planning strategies as appropriate.

Current wording

Furthermore, financial markets, international relations, and global supply chains continue to be affected by evolving trade policies and related legal, regulatory, and administrative developments. In February 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act does not authorize the President to impose tariffs, invalidating tariffs previously imposed under that authority. The U.S. government subsequently implemented additional tariff measures under other statutory authorities, certain of which remain subject to legal challenges. Uncertainty regarding U.S. trade policy and the economic effects of tariffs and other trade restrictions could affect business confidence, capital investment, customer cash flows, supply chains, commodity prices, inflation, and market volatility. These developments could adversely affect the financial condition and operating performance of customers, particularly those in trade-sensitive industries, and increase our exposure to credit, market, liquidity, operational, compliance, and reputational risks. If these developments adversely affect borrower credit quality, market stability, or broader economic conditions, they could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Accounting policies related to the allowance for credit losses on financial instruments including loans and off-balance-sheet credit exposures are considered to be critical as these policies involve considerable subjective judgment and estimation by management. In the case of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. The amount of each allowance account represents management’s best estimate of lifetime expected credit losses on these financial instruments carried at amortized cost, based on available information from internal and external sources that is relevant to assessing exposure to credit loss over the expected lives of the instruments. Relevant information includes historical credit loss experience, current conditions, and reasonable and supportable forecasts. While historical credit loss experience provides a starting point for estimating credit losses, adjustments may be made to reflect differences in current portfolio‑specific risk characteristics, economic and environmental conditions, or other relevant factors. Although management utilizes its best judgment and the information available, the ultimate adequacy of our allowance accounts depends on a variety of factors beyond our control, including portfolio performance, macroeconomic conditions, changes in interest rates, the accuracy of forecasted assumptions, and regulatory interpretations and supervisory assessments related to credit quality and asset classification. Refer to our 2025 Form 10-K for additional information regarding critical accounting policies.

Current wording

The amount of each allowance represents management’s best estimate of expected credit losses over the expected lives of the applicable financial instruments based on available information from internal and external sources that is relevant to assessing exposure to credit loss. Relevant information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides a starting point for estimating expected credit losses, adjustments may be made to reflect differences in current portfolio-specific risk characteristics, economic and environmental conditions or other relevant factors. Although management utilizes its best judgment and the information available, the ultimate adequacy of our allowances depends on a variety of factors, including portfolio performance, macroeconomic conditions, changes in interest rates, the accuracy of forecast assumptions and regulatory interpretations and supervisory assessments related to credit quality and asset classification.

Previous wording

Net income available to common shareholders totaled $170.4 million, or $2.70 per diluted common share, and $339.7 million, or $5.35 per diluted common share, for the three and six months ended June 30, 2026, respectively, compared to $155.3 million, or $2.39 per diluted common share, and $304.6 million, or $4.69 per diluted common share for the three and six months ended June 30, 2025, respectively.

Current wording

Net income available to common shareholders totaled $178.5 million, or $2.84 per diluted common share, and $518.2 million, or $8.19 per diluted common share, for the three and nine months ended September 30, 2026, respectively, compared to $172.7 million, or $2.67 per diluted common share, and $477.3 million, or $7.36 per diluted common share for the three and nine months ended September 30, 2025, respectively.

Previous wording

Net income available to common shareholders increased $15.1 million, or 9.7%, for the three months ended June 30, 2026 and increased $35.1 million, or 11.5%, for the six months ended June 30, 2026, compared to the same periods in 2025. The increase during the three months ended June 30, 2026 was primarily the result of an $18.1 million increase in net interest income, an $11.0 million increase in non-interest income, and a $3.4 million decrease in credit loss expense partly offset by a $14.6 million increase in non-interest expense and a $2.9 million increase in income tax expense. The increase during the six months ended June 30, 2026 was primarily the result of a $40.4 million increase in net interest income, a $23.3 million increase in non-interest income, and a $9.7 million decrease in credit loss expense partly offset by a $32.2 million increase in non-interest expense and a $6.1 million increase in income tax expense.

Current wording

Net income available to common shareholders increased $5.8 million, or 3.4%, and $41.0 million, or 8.6%, for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. The increase for the three months ended September 30, 2026 was primarily attributable to a $26.2 million increase in net interest income and a $10.3 million increase in non-interest income, partially offset by increases of $24.7 million in non-interest expense, $5.3 million in credit loss expense, and $702 thousand in income tax expense. The increase for the nine months ended September 30, 2026 was primarily attributable to a $66.7 million increase in net interest income, a $33.6 million increase in non-interest income, and a $4.4 million decrease in credit loss expense, partially offset by increases of $56.9 million in non-interest expense and $6.8 million in income tax expense.

Previous wording

Details of the changes in the various components of net income are further discussed below.

Current wording

Additional information regarding the components of net income follows.

Previous wording

Net interest income is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is our largest source of revenue, representing 77.0% of total revenue during the first six months of 2026. 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 affect net interest income and net interest margin.

Current wording

Net interest income is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is our largest source of revenue, representing 77.2% of total revenue during the first nine months of 2026. 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 affect net interest income and net interest margin.

Previous wording

The Federal Reserve influences market interest rates, including the deposit and loan rates offered by many financial institutions. As of June 30, 2026, approximately 40.4% of our loans had a fixed interest rate, while the remaining loans had floating interest rates that were primarily tied to a benchmark developed by the American Financial Exchange, the Secured Overnight Financing Rate (“SOFR”) (approximately 39.6%); the prime interest rate (approximately 18.6%); or the American Interbank Offered Rate (“AMERIBOR”) (approximately 1.4%). Certain other loans are tied to other indices; however, such loans represent an immaterial portion of our loan portfolio as of June 30, 2026.

Current wording

The Federal Reserve influences general market interest rates, including deposit and loan rates offered by many financial institutions. As of September 30, 2026, approximately 40.4% of our loans had a fixed interest rate, while the remaining loans had floating interest rates that were primarily tied to the Secured Overnight Financing Rate (“SOFR”) (approximately 40.5%); the prime interest rate (approximately 18.0%); or the American Interbank Offered Rate (“AMERIBOR”) (approximately 1.1%). Certain other loans were tied to other indices; however, such loans did not represent a material portion of our loan portfolio as of September 30, 2026.

Previous wording

As of June 30, 2026, the target range for the federal funds rate was 3.50% to 3.75%. In June 2026, the Federal Reserve released projections whereby the midpoint of the projected appropriate target range for the federal funds rate would rise to 3.8% by the end of 2026 and subsequently decrease to 3.6% by the end of 2027. While there can be no assurance that any increases or decreases in the federal funds rate will occur, these projections imply up to a 25 basis point increase in the federal funds rate during the remainder of 2026, followed by a 25 basis point decrease in 2027.

Current wording

As of September 30, 2026, the target range for the federal funds rate was 3.75% to 4.00%. In September 2026, the Federal Reserve released projections whereby the midpoint of the projected appropriate target range for the federal funds rate would rise to 4.1% by the end of 2026 and remain at that level through the end of 2027. While there can be no assurance that any increases or decreases in the federal funds rate will occur, these projections imply up to a 25 basis point increase in the federal funds rate during the remainder of 2026, with no net change in the federal funds rate in 2027.

Previous wording

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

Current wording

We are primarily funded by core deposits, with non-interest-bearing demand deposits historically representing a significant source of funds. This lower-cost funding base generally benefits net interest income and net interest margin, particularly in rising or high interest rate environments. However, periods of higher interest rates may increase competition for deposits, including from new financial technology competitors, and provide customers with alternative investment options, which could adversely affect our access to and pricing of deposits. See Item 3. Quantitative and Qualitative Disclosures About Market Risk elsewhere in this report for information about our sensitivity to changes in interest rates. Additional analysis of the components of our net interest margin is presented below.

Previous wording

The following table presents the changes in taxable-equivalent net interest income and identifies the changes due to differences in the average volume of earning assets and interest-bearing liabilities and the changes due to changes in the average interest rate on those assets and liabilities. The changes in net interest income due to changes in both average volume and average interest rate have been allocated to the average volume change or the average interest rate change in proportion to the absolute amounts of the change attributable to each factor.

Current wording

The following table presents changes in taxable-equivalent net interest income attributable to changes in the average volumes and rates of earning assets and interest-bearing liabilities. Changes attributable to the combined effects of volume and rate have been allocated between the volume and rate components in proportion to the absolute amounts of the changes attributable to each component.

Previous wording

The increases in taxable-equivalent net interest income during the three and six months ended June 30, 2026 were primarily attributable to lower average costs of interest-bearing deposit accounts and repurchase agreements, as well as increases in the average volumes of loans and tax-exempt securities and higher average tax-equivalent yields on taxable and tax-exempt securities. These favorable variances were partially offset by lower average yields on loans, lower average yields on and volumes of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve), lower average volumes of taxable securities, and higher average volumes of interest-bearing deposit accounts, among other things.

Current wording

The increase in taxable-equivalent net interest income for the nine months ended September 30, 2026 was primarily attributable to lower average costs of interest-bearing deposit accounts and repurchase agreements, higher average volumes of loans and tax-exempt securities, and higher average taxable-equivalent yields on taxable and tax-exempt securities. These favorable variances were partially offset by lower average yields on loans, lower average yields on and lower average volumes of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve), and higher average volumes of interest-bearing deposit accounts and repurchase agreements, among other things.

Previous wording

The increase in the average volume of interest-earning assets during the six months ended June 30, 2026 was primarily related to a $1.4 billion increase in average loans and a $515.3 million increase in average tax-exempt securities partly offset by a $423.1 million decrease in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) and a $158.0 million decrease in average taxable securities, among other things. The average taxable-equivalent yield on interest-earning assets decreased 13 basis points from 5.03% during the six months ended June 30, 2025 to 4.90% during the six months ended June 30, 2026. The average taxable-equivalent yields on interest-earning assets during comparable periods were impacted by changes in market interest rates (as noted in the table above) and changes in the volumes and relative mixes of interest-earning assets.

Current wording

For the nine months ended September 30, 2026, the increase in average interest-earning assets was primarily attributable to increases of $1.6 billion in average loans, $426.1 million in average tax-exempt securities, and $157.3 million in average taxable securities, partially offset by a $612.5 million decrease in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve), among other things. The average taxable-equivalent yield on interest-earning assets decreased 12 basis points to 4.94%, compared to 5.06% for the same period in 2025. Average taxable-equivalent yields on interest-earning assets were impacted by changes in market interest rates (as noted in the table above) and the volumes and relative mix of interest-earning assets.

Previous wording

The average taxable-equivalent yield on loans decreased 43 basis points from 6.60% during the three months ended June 30, 2025 to 6.17% during the three months ended June 30, 2026 while the average taxable-equivalent yield on loans decreased 38 basis points from 6.58% during the six months ended June 30, 2025 to 6.20% during the six months ended June 30, 2026. The average taxable-equivalent yield on loans during the three and six months ended June 30, 2026 were impacted by decreases in market interest rates (as noted in the table above). The average volume of loans for the three months ended June 30, 2026 increased $1.6 billion, or 7.4%, while the average volume of loans for the six months ended June 30, 2026 increased $1.4 billion, or 6.6%, compared to the same periods in 2025. Loans made up approximately 46.1% and 45.7% of average interest-earning assets during the three and six months ended June 30, 2026, compared to 44.2% and 44.0% during the same respective periods in 2025. The increases were primarily related to the use of available funds to originate loans.

Current wording

The average taxable-equivalent yield on loans decreased 34 basis points to 6.27% and 36 basis points to 6.23% for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. The decreases in average loan yields were impacted by lower market interest rates. Average loans increased $1.9 billion, or 9.0%, and $1.6 billion, or 7.4%, for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. Loans represented approximately 46.3% and 45.9% of average interest-earning assets for the three and nine months ended September 30, 2026, respectively, compared to 44.2% and 44.1% for the same respective periods in 2025. The increases in average loans were primarily related to the use of available funds to originate loans.

Previous wording

Average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) for the three months ended June 30, 2026 decreased $360.8 million, or 5.8%, compared to the same period in 2025 while average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) for the six months ended June 30, 2026 decreased $423.1 million, or 6.3%, compared to the same period in 2025. Interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) made up approximately 11.8% and 12.8% of average interest-earning assets during the three and six months ended June 30, 2026, compared to 12.9% and 14.1% during the same respective periods in 2025. The decreases during the three and six months ended June 30, 2026 were primarily related to the reinvestment of amounts held in an interest-bearing account at the Federal Reserve into loans and securities. The average yields on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) were 3.65% during both the three and six months ended June 30, 2026, compared to 4.41% and 4.40% during the same respective periods in 2025. The average yields on interest-bearing deposits during the three and six months ended June 30, 2026 were impacted by lower average interest rates paid on reserves held at the Federal Reserve, compared to the same periods in 2025.

Current wording

Average interest-bearing deposits, primarily amounts held in an interest-bearing account at the Federal Reserve, decreased $985.4 million, or 14.5%, and $612.5 million, or 9.1%, for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. Interest-bearing deposits represented approximately 11.6% and 12.4% of average interest-earning assets for the three and nine months ended September 30, 2026, respectively, compared to 14.1% for both periods in 2025. The decreases in average interest-bearing deposits were primarily related to the reinvestment of amounts held in an interest-bearing account at the Federal Reserve into loans and securities. Average yields on interest-bearing deposits were 3.68% and 3.66% for the three and nine months ended September 30, 2026, respectively, compared to 4.36% and 4.39% for the same respective periods in 2025. The lower average yields were impacted by lower average interest rates paid on reserves held at the Federal Reserve.

Previous wording

Our net interest spreads, which represent the difference between the average yields earned on earning assets and the average rates paid on interest-bearing liabilities, were 3.15% during both the three and six months ended June 30, 2026, compared to 2.95% and 2.91% during the same respective periods in 2025. The net interest spread, as well as the net interest margin, will be impacted by future changes in short-term and long-term interest rate levels, as well as the impact from the competitive environment, including from new financial technology competitors, and the availability of alternative investment options. A discussion of the effects of changing interest rates on net interest income is set forth in Item 3. Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.

Current wording

Net interest spread, which represents the difference between the average yield on earning assets and the average rate paid on interest-bearing liabilities, was 3.14% for both the three and nine months ended September 30, 2026, compared to 2.98% and 2.93%, respectively, for the same periods in 2025. Net interest spread and net interest margin will be impacted by future changes in short- and long-term interest rates; the competitive environment, including competition from new financial technology competitors; and the availability of alternative investment options. A discussion of the effects of changing interest rates on net interest income is set forth in Item 3. Quantitative and Qualitative Disclosures About Market Risk elsewhere in this report.

Previous wording

Our hedging policies permit the use of various derivative financial instruments, including interest rate swaps, swaptions, caps and floors, to manage exposure to changes in interest rates. Details of our derivatives and hedging activities are set forth in Note 7 - Derivative Financial Instruments in the accompanying notes to consolidated financial statements included elsewhere in this report. Information regarding the impact of fluctuations in interest rates on our derivative financial instruments is set forth in Item 3. Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.

Current wording

Our hedging policies permit the use of various derivative financial instruments, including interest rate swaps, swaptions, caps, and floors, to manage exposure to changes in interest rates. Details of our derivatives and hedging activities are set forth in Note 7 - Derivative Financial Instruments in the accompanying notes to consolidated financial statements. Information regarding the impact of fluctuations in interest rates on our derivative financial instruments is set forth in Item 3. Quantitative and Qualitative Disclosures About Market Risk elsewhere in this report.

Previous wording

Credit loss expense represents the amount added to the allowance for credit losses for various types of financial instruments, including loans, securities, and off‑balance‑sheet credit exposures, after net charge‑offs, to bring the allowances to a level that, in management’s best estimate, is sufficient to absorb current expected credit losses over the expected lives of the respective financial instruments measured at amortized cost, in accordance with ASC 326. The components of credit loss expense were as follows:

Current wording

Credit loss expense represents the amounts recognized to adjust the allowances for credit losses on various types of financial instruments, including loans, securities, and off-balance-sheet credit exposures, to levels that, in management’s best estimate, are appropriate to reflect lifetime expected credit losses on the respective financial instruments in accordance with ASC 326.

Previous wording

See the section captioned “Allowance for Credit Losses” elsewhere in this discussion for further analysis of credit loss expense related to loans and off-balance-sheet credit exposures.

Current wording

See the section captioned “Allowance for Credit Losses” elsewhere in this discussion for further analysis of credit loss expense for loans and off-balance-sheet credit exposures.

Previous wording

Total non-interest income for the three and six months ended June 30, 2026 increased $11.0 million, or 9.4%, and $23.3 million, or 9.7%, respectively, compared to the same periods in 2025. Changes in the various components of non-interest income are discussed in more detail below.

Current wording

Total non-interest income for the three and nine months ended September 30, 2026 increased $10.3 million, or 8.2%, and $33.6 million, or 9.2%, respectively, compared to the same periods in 2025. Changes in the components of non-interest income are discussed below.

Previous wording

Trust and Investment Management Fees. Trust and investment management fees increased $4.0 million, or 9.1%, for the three months ended June 30, 2026 and $9.0 million, or 10.4%, for the six months ended June 30, 2026, compared to the same respective periods in 2025. Investment management fees, the most significant component of trust and investment management fees, represented approximately 82.2% and 80.9% of total trust and investment management fees during the first six months of 2026 and 2025, respectively. The increases in trust and investment management fees during the three and six months ended June 30, 2026 were primarily related to increases in investment management fees (up $4.2 million and $8.5 million, respectively). Trust and investment management fees during the six months ended June 30, 2026 were also impacted by a one-time, $1.3 million administrative fee associated with a large trust account. Investment management fees are generally based on the market value of assets within an account and are therefore sensitive to volatility in the equity and bond markets. The increases in investment management fees during the three and six months ended June 30, 2026 were partly related to higher average equity valuations on managed accounts during 2026 relative to 2025 as well as growth in the number of accounts. Investment management fees during the six months ended June 30, 2026 were also positively impacted by variation in the timing of certain court-approved fees associated with a large guardianship trust.

Current wording

Trust and Investment Management Fees. Trust and investment management fees increased $4.6 million, or 10.3%, for the three months ended September 30, 2026 and $13.6 million, or 10.4%, for the nine months ended September 30, 2026, compared to the same periods in 2025. Investment management fees, the most significant component of trust and investment management fees, represented approximately 82.1% and 81.4% of total trust and investment management fees during the first nine months of 2026 and 2025, respectively. The increases for the three and nine months ended September 30, 2026 were primarily attributable to increases in investment management fees (up $3.6 million and $12.1 million, respectively), reflecting higher average equity valuations on managed accounts and growth in the number of accounts, and oil and gas fees (up $1.6 million for each period). Investment management fees are generally based on the market value of assets within an account and are therefore sensitive to volatility in the equity and bond markets. The increase for the nine months ended September 30, 2026 also reflected the timing of certain court-approved fees associated with a large guardianship trust and a one-time $1.3 million administrative fee associated with a large trust account. The increases in oil and gas fees for the three and nine months ended September 30, 2026 were primarily attributable to higher oil prices and increases in one-time fees related to new lease bonuses.

Previous wording

At June 30, 2026, trust assets, including both managed assets and custody assets, were primarily composed of equity securities (50.1% of assets), fixed income securities (29.4% of assets), alternative investments (8.6% of assets) and cash equivalents (6.6% of assets). The estimated fair value of these assets was $52.9 billion (including managed assets of $27.8 billion and custody assets of $25.2 billion) at June 30, 2026, compared to $51.0 billion (including managed assets of $26.7 billion and custody assets of $24.3 billion) at December 31, 2025 and $50.9 billion (including managed assets of $25.8 billion and custody assets of $25.1 billion) at June 30, 2025.

Current wording

At September 30, 2026, trust assets were primarily composed of equity securities (50.8% of assets), fixed income securities (28.2% of assets), alternative investments (8.6% of assets) and cash equivalents (6.8% of assets). The estimated fair value of these assets was $52.7 billion at September 30, 2026, including $27.9 billion and $24.8 billion of managed and custody assets, respectively, compared to $51.0 billion at December 31, 2025, including $26.7 billion and $24.3 billion of managed and custody assets, respectively, and $51.4 billion at September 30, 2025, including $26.5 billion and $24.8 billion of managed and custody assets, respectively.

Previous wording

Contingent income totaled $687 thousand and $5.2 million during the three and six months ended June 30, 2026, respectively, compared to $585 thousand and $4.6 million during the same respective periods in 2025. Contingent income primarily consists of amounts received from various property and casualty insurance carriers related to portfolio growth and the loss performance of insurance policies previously placed. These performance-related contingent payments are seasonal in nature and are mostly received during the first quarter of each year. Performance-related contingent income totaled $4.0 million during the six months ended June 30, 2026 and $3.6 million during the six months ended June 30, 2025. 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 $465 thousand and $1.1 million during the three and six months ended June 30, 2026, respectively, compared to $512 thousand and $1.0 million during the same respective periods in 2025.

Current wording

Contingent income totaled $241 thousand and $5.4 million for the three and nine months ended September 30, 2026, respectively, compared to $161 thousand and $4.8 million for the same respective periods in 2025. Contingent income primarily consists of amounts received from property and casualty insurance carriers related to portfolio growth and the loss performance of previously placed insurance policies. These performance-related payments are seasonal and are primarily received during the first quarter of each year. Performance-related contingent income totaled $4.1 million and $3.6 million for the nine months ended September 30, 2026 and 2025, respectively. Contingent income also includes amounts received from benefit plan insurance companies related to business volumes and the subsequent retention of such business. Benefit plan-related contingent income totaled $151 thousand and $1.3 million for the three and nine months ended September 30, 2026, respectively, compared to $103 thousand and $1.1 million for the same respective periods in 2025.

Previous wording

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

Current wording

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

Previous wording

Net interchange and card transaction fees for the three and six months ended June 30, 2026 increased $927 thousand, or 16.5%, and increased $2.1 million, or 18.7%, respectively, compared to the same periods in 2025. These increases were primarily due to increased card transaction volumes. A comparison of gross and net interchange and card transaction fees for the reported periods is presented in the table below.

Current wording

Net interchange and card transaction fees increased $1.3 million, or 23.4%, and $3.4 million, or 20.2%, for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. The increases were primarily attributable to higher card transaction volumes. A comparison of gross and net interchange and card transaction fees is presented in the table below.

Previous wording

Federal Reserve rules applicable to financial institutions that have assets of $10 billion or more provide that the maximum permissible interchange fee for an electronic debit transaction is the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction. An upward adjustment of up to 1 cent per transaction is permitted if the card issuer develops and implements policies and procedures reasonably designed to meet specified fraud-prevention standards. Federal Reserve rules governing routing and network exclusivity also require issuers to enable at least two unaffiliated networks for routing transactions on each debit or prepaid card product. In August 2025, the U.S. District Court for the District of North Dakota vacated the Federal Reserve's current interchange fee rule but stayed the effect of its ruling pending appeal. As a result, the current interchange fee framework remains in effect while the litigation proceeds. The outcome of this litigation could result in changes to the regulation of debit card interchange fees which could have a significant and adverse effect on the fees banks can charge on debit card transactions.

Current wording

Federal Reserve rules applicable to financial institutions with assets of $10 billion or more generally limit debit card interchange fees to 21 cents per transaction plus 5 basis points of the transaction value, with an additional adjustment of up to 1 cent per transaction for issuers meeting certain fraud-prevention standards. The rules also require issuers to enable at least two unaffiliated networks for routing transactions on each debit or prepaid card product. In August 2025, the U.S. District Court for the District of North Dakota vacated the Federal Reserve's interchange fee rule but stayed its ruling pending appeal. The Federal Reserve appealed the decision, and the U.S. Court of Appeals for the Eighth Circuit heard oral arguments in May 2026. The existing interchange fee framework remains in effect while the appeal is pending. The ultimate resolution of this litigation could result in changes to the regulation of debit card interchange fees and could have a significant adverse effect on the fees banks may charge on debit card transactions.

Previous wording

In October 2023, the Federal Reserve issued a proposal that would reduce the maximum permissible interchange fee for an electronic debit transaction to the sum of 14.4 cents per transaction and 4 basis points multiplied by the value of the transaction, while increasing the maximum fraud-prevention adjustment from 1.0 cent to 1.3 cents. The proposal would also establish a framework for updating the interchange fee cap every two years based on issuer cost data collected by the Federal Reserve from large debit card issuers. Had the proposed interchange fee cap been in effect during the reported periods, interchange and debit card transaction fees would have been approximately 30% lower. The comment period for the proposal ended in May 2024. As of June 30, 2026, the Federal Reserve had not adopted a final rule implementing the proposal. Accordingly, the extent to which any future changes to the interchange fee cap may affect the Company's revenues cannot be determined at this time.

Current wording

In October 2023, the Federal Reserve issued a proposal that would reduce the maximum permissible interchange fee for an electronic debit transaction to 14.4 cents per transaction plus 4 basis points of the transaction value and increase the maximum fraud-prevention adjustment from 1.0 cent to 1.3 cents. The proposal would also provide for updates to the interchange fee cap every two years based on issuer cost data collected by the Federal Reserve. Had the proposed interchange fee cap been in effect during the reported periods, interchange and debit card transaction fees would have been approximately 30% lower. The comment period for this proposal ended in May 2024. As of September 30, 2026, the Federal Reserve had not adopted a final rule implementing the proposal. Accordingly, the extent to which any future changes to the interchange fee cap may affect our revenues cannot be determined at this time.

Previous wording

Net Gain/Loss on Securities Transactions. There were no sales of securities during the six months ended June 30, 2026. During the six months ended June 30, 2025, we sold certain available-for-sale securities with amortized costs totaling $40.1 million and realized a net loss of $14 thousand. These sales were primarily made in connection with a municipal tender offer during the first quarter.

Current wording

Net Gain/Loss on Securities Transactions. During the nine months ended September 30, 2026, we sold certain available-for-sale securities with amortized costs totaling $35.4 million and recognized a net loss of $7.5 million. These sales were primarily made to reinvest the proceeds at higher yields and shorten the duration of the securities portfolio. Approximately $18.6 million of the securities sold were related to a municipal tender offer. During the nine months ended September 30, 2025, we sold certain available-for-sale securities with amortized costs totaling $41.2 million and recognized a net loss of $14 thousand. These sales were primarily made in connection with a municipal tender offer.

Previous wording

Other Non-Interest Income. Other non-interest income for the three and six months ended June 30, 2026 increased $974 thousand, or 8.9%, and $2.8 million, or 12.1%, respectively, compared to the same periods in 2025. The increase during the three months ended June 30, 2026 was primarily related to an increase in sundry and other miscellaneous income (up $1.5 million), partly offset by a decrease in public finance underwriting fees (down $425 thousand). The increase during the six months ended June 30, 2026 was primarily related to increases in sundry and other miscellaneous income (up $4.0 million); benefits received on life insurance policies (up $585 thousand); and income from customer derivatives trading activities (up $551 thousand); among other things. The increase from these items was partly offset by a decrease in gains on the sale of foreclosed and other assets (down $2.1 million), among other things. Sundry and other miscellaneous income during the six months ended June 30, 2026 included, during the first quarter, a $2.7 million one-time fee associated with the termination of a customer lease recognized and, during the second quarter, $2.2 million related to the refund of certain tax credits associated with payroll taxes paid during the COVID-19 pandemic. The increase in income from customer derivatives trading activities during the six months ended June 30, 2026 and the decrease in public finance underwriting fees during the three months ended June 30, 2026 were primarily attributable to fluctuations in transaction volumes. Gains on the sale of foreclosed and other assets during the six months ended June 30, 2025 included a $2.5 million gain on the sale of a foreclosed real estate property.

Current wording

The increase for the nine months ended September 30, 2026 was primarily attributable to a $6.0 million increase in gains on the sale of foreclosed and other assets and a $3.8 million increase in sundry and other miscellaneous income. The increase in gains on the sale of foreclosed and other assets primarily reflected the aforementioned gains on the sale of excess bank properties and loans held for sale, partially offset by a $2.5 million gain on the sale of a foreclosed real estate property during the same period in 2025. The increase in sundry and other miscellaneous income included a $2.7 million one-time fee associated with the termination of a customer lease recognized during the first quarter and a $2.2 million refund of certain tax credits associated with payroll taxes paid during the COVID-19 pandemic recognized during the second quarter, among other things. Income from customer derivatives trading activities also increased $1.3 million. These increases were partly offset by decreases in income from customer securities trading activities (down $1.0 million), income from customer foreign exchange trading activities (down $317 thousand), and public finance underwriting fees (down $302 thousand). Changes in customer trading-related income and public finance underwriting fees were primarily attributable to fluctuations in transaction volumes.

Previous wording

Total non-interest expense for the three and six months ended June 30, 2026 increased $14.6 million, or 4.2%, and $32.2 million, or 4.6%, respectively, compared to the same periods in 2025. Changes in the various components of non-interest expense are discussed below.

Current wording

Total non-interest expense for the three and nine months ended September 30, 2026 increased $24.7 million, or 7.0%, and $56.9 million, or 5.4%, respectively, compared to the same periods in 2025. Changes in the components of non-interest expense are discussed below.

Previous wording

Salaries and Wages. Salaries and wages for the three and six months ended June 30, 2026 increased $10.8 million, or 6.7%, and $16.1 million, or 5.0%, respectively, compared to the same periods in 2025. The increases were primarily related to annual merit and market-based salary increases, as well as growth in the number of employees. The increase in staffing levels was driven in part by investments in organic expansion across various markets. Salaries and wages for the three and six months ended June 30, 2026 also reflected, to a lesser extent, increases in incentive compensation and stock-based compensation.

Current wording

Salaries and Wages. Salaries and wages for the three and nine months ended September 30, 2026 increased $13.0 million, or 7.7%, and $29.2 million, or 5.9%, respectively, compared to the same periods in 2025. The increases were primarily attributable to annual merit and market-based salary increases and growth in the number of employees, driven in part by investments in organic expansion across various markets. Salaries and wages also increased, to a lesser extent, due to higher incentive compensation and stock-based compensation.

Previous wording

Employee Benefits. Employee benefits expense for the three and six months ended June 30, 2026 increased $2.3 million, or 7.1%, and increased $4.8 million, or 6.4%, respectively, compared to the same periods in 2025. The increases were primarily related to increases in medical and dental benefits expense (up $1.6 million and $3.3 million, respectively), primarily due to higher claims and related costs; payroll taxes (up $530 thousand and $1.3 million, respectively); and 401(k) plan expense (up $333 thousand and $607 thousand, respectively). These increases were partly offset by increases in the net periodic pension benefit related to our defined benefit retirement and restoration plans (up $432 thousand and $864 thousand, respectively).

Current wording

Employee Benefits. Employee benefits expense for the three and nine months ended September 30, 2026 decreased $816 thousand, or 2.4%, and increased $4.0 million, or 3.7%, respectively, compared to the same periods in 2025. The decrease for the three months ended September 30, 2026 was primarily attributable to a decrease in medical and dental benefits expense (down $737 thousand) and an increase in the net periodic pension benefit related to our defined benefit retirement and restoration plans (up $432 thousand). These items were partly offset by increases in payroll taxes (up $389 thousand) and 401(k) plan expense (up $324 thousand). The increase for the nine months ended September 30, 2026 was primarily attributable increases in medical and dental benefits expense (up $2.6 million), primarily due to higher claims and related costs; payroll taxes (up $1.7 million); and 401(k) plan expense (up $930 thousand). These increases were partly offset by an increase in the net periodic pension benefit related to our defined benefit retirement and restoration plans (up $1.3 million).

Previous wording

Net Occupancy. Net occupancy expense for the three and six months ended June 30, 2026 increased $583 thousand, or 1.7%, and increased $2.1 million, or 3.0%, respectively, compared to the same periods in 2025. The increase during the three months ended June 30, 2026 was primarily related to increases in depreciation on buildings and leasehold improvements (up $833 thousand); and repairs, maintenance and service contracts expense (up $267 thousand), among other things. These increases were partly offset by decreases in building insurance expense (down $350 thousand) and property tax expense (down $327 thousand), among other things. The increase during the six months ended June 30, 2026 was primarily related to increases in depreciation on buildings and leasehold improvements (up $1.7 million); a decrease in rental income from tenants (down $625 thousand); and an increase in lease expense (up $362 thousand), among other things. These increases were partly offset by a decrease in building insurance expense (down $693 thousand), among other things.

Current wording

Net Occupancy. Net occupancy expense for the three and nine months ended September 30, 2026 increased $1.2 million, or 3.4%, and increased $3.2 million, or 3.1%, respectively, compared to the same periods in 2025. The increase for the three months ended September 30, 2026 was primarily attributable to increases in depreciation on buildings and leasehold improvements (up $878 thousand); repairs, maintenance and service contracts expense (up $590 thousand); and lease expense (up $275 thousand). These increases were partly offset by decreases in building insurance expense (down $395 thousand) and property tax expense (down $327 thousand). The increase for the nine months ended September 30, 2026 was primarily attributable to increases in depreciation on buildings and leasehold improvements (up $2.6 million); repairs, maintenance, and service contracts expense (up $653 thousand); and lease expense (up $638 thousand), as well as a decrease in rental income from tenants (down $627 thousand). These items were partly offset by decreases in building insurance expense (down $1.1 million) and property tax expense (down $440 thousand).

Previous wording

Technology, Furniture, and Equipment. Technology, furniture, and equipment expense for the three and six months ended June 30, 2026 increased $2.0 million, or 4.9%, and $3.5 million, or 4.4%, compared to the same periods in 2025. The increases during the three and six months ended June 30, 2026 were primarily related to increases in cloud services expense (up $1.0 million and $2.8 million, respectively), service contracts expense (up $583 thousand and $623 thousand, respectively), and equipment rental expense (up $342 thousand and $531 thousand, respectively), among other things. These increases were partly offset by decreases in software amortization expense during the three and six months ended June 30, 2026 (down $394 thousand and $1.1 million, respectively).

Current wording

Technology, Furniture, and Equipment. Technology, furniture, and equipment expense for the three and nine months ended September 30, 2026 increased $2.7 million, or 6.1%, and $6.2 million, or 5.0%, respectively, compared to the same periods in 2025. The increases were primarily attributable to increases in cloud services expense (up $1.4 million and $4.2 million, respectively); equipment rental expense (up $450 thousand and $981 thousand, respectively); software maintenance expense (up $828 thousand and $925 thousand, respectively); service contracts expense (up $148 thousand and $771 thousand, respectively); and depreciation of furniture and fixtures (up $118 thousand and $421 thousand, respectively). These increases were partly offset by decreases in software amortization expense (down $399 thousand and $1.5 million, respectively).

Previous wording

Deposit Insurance. Deposit insurance expense totaled $6.3 million and $13.5 million for the three and six months ended June 30, 2026, respectively, and did not significantly fluctuate compared to the same periods in 2025.

Current wording

Deposit Insurance. Deposit insurance expense totaled $6.9 million and $20.4 million for the three and nine months ended September 30, 2026, respectively, compared to $6.3 million and $20.1 million for the same periods in 2025. The increases were primarily attributable to a higher assessment base, partly offset by lower assessment rates.

Previous wording

Other Non-Interest Expense. Other non-interest expense for the three and six months ended June 30, 2026 decreased $854 thousand, or 1.2%, and increased $5.9 million, or 4.4%, respectively, compared to the same periods in 2025. The decrease during the three months ended June 30, 2026 included decreases in sundry and other miscellaneous expense (down $1.6 million); advertising/promotions expense (down $853 thousand); business development expense (down $638 thousand); professional services expense (down $486 thousand); and amortization of deferred costs on loan commitments (down $470 thousand), among other things. These decreases were partly offset by an increase in fraud losses, primarily related to deposits (up $2.1 million), among other things. The increase during the six months ended June 30, 2026 included increases in fraud losses, primarily related to deposits (up $4.5 million); advertising/promotions expense (up $1.0 million); amortization of deferred costs on loan commitments (up $760 thousand); travel, meals and entertainment (up $759 thousand); and research and platform fees (up $439 thousand), among other things. The increases from these items were partly offset by decreases in sundry and other miscellaneous expenses (down $1.7 million); donations expense (down $914 thousand) and foreclosed assets expense (down $561 thousand), and business development expense (down $494 thousand), among other things.

Current wording

Other Non-Interest Expense. Other non-interest expense or the three and nine months ended September 30, 2026 increased $8.1 million, or 12.5%, and $13.9 million, or 7.0%, respectively, compared to the same periods in 2025. The increase for the three months ended September 30, 2026 was primarily attributable to increases in advertising and promotions expense (up $6.4 million); professional services expense (up $889 thousand); fraud losses, primarily related to deposits (up $857 thousand); and research and platform fees (up $696 thousand), among other things. These increases were partly offset by decreases in sundry and other miscellaneous expense (down $2.2 million) and donations expense (down $583 thousand), among other things. The increase for the nine months ended September 30, 2026 was primarily attributable to increases in advertising and promotions expense (up $7.4 million); fraud losses, primarily related to deposits (up $5.3 million); research and platform fees (up $1.1 million); travel, meals, and entertainment expense (up $990 thousand); professional services expense (up $935 thousand); and amortization of deferred costs on loan commitments (up $933 thousand), among other things. These increases were partly offset by decreases in sundry and other miscellaneous expense (down $3.9 million) and donations expense (down $1.5 million), among other things.

Previous wording

We are managed under a matrix organizational structure whereby our two primary operating segments, Banking and Frost Wealth Advisors, overlap a regional reporting structure. A third operating segment, Non-Banks, is for the most part the parent holding company, as well as certain other immaterial non-bank subsidiaries of the parent that, for the most part, have little or no activity. A description of each segment, the methodologies used to measure segment financial performance and summarized operating results by segment are described in Note 14 - Operating Segments in the accompanying notes to consolidated financial statements included elsewhere in this report. Segment operating results are discussed in more detail below.

Current wording

We are managed under a matrix organizational structure whereby our two primary operating segments, Banking and Wealth Management, overlap a regional reporting structure. A third operating segment, Non-Banks, consists primarily of the parent holding company and certain other immaterial non-bank subsidiaries of the parent that have little or no activity. See Note 14 - Operating Segments in the accompanying notes to consolidated financial statements for a description of each segment, the methodologies used to measure segment financial performance, and summarized operating results by segment. Segment operating results are discussed in more detail below.

Previous wording

Net interest income for the three and six months ended June 30, 2026 increased $18.2 million, or 4.2%, and increased $40.5 million, or 4.8%, respectively, compared to the same periods in 2025. The increases during the three and six months ended June 30, 2026 were primarily attributable to lower average costs of interest-bearing deposit accounts and repurchase agreements, as well as increases in the average volumes of loans and tax-exempt securities and higher average tax-equivalent yields on taxable and tax-exempt securities. These favorable variances were partially offset by lower average yields on loans, lower average yields on and volumes of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve), lower average volumes of taxable securities, and higher average volumes of interest-bearing deposit accounts, among other things. See the analysis of net interest income included in the section captioned “Net Interest Income” included elsewhere in this discussion.

Current wording

The increase during the nine months ended September 30, 2026 was primarily attributable to lower average costs of interest-bearing deposit accounts and repurchase agreements, higher average volumes of loans and tax-exempt securities, and higher average taxable-equivalent yields on taxable and tax-exempt securities. These favorable variances were partially offset by lower average yields on loans, lower average yields on and lower average volumes of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve), and higher average volumes of interest-bearing deposit accounts and repurchase agreements, among other things. See the analysis of net interest income included in the section captioned “Net Interest Income” elsewhere in this discussion.