Cullen/Frost Bankers, Inc.: Form 10-Q for the period ended Sep 30, 2026

Financial Review

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.

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

Forward-Looking Statements and Factors that Could Affect Future Results

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

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

• The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board and the implementation of tariffs and other protectionist trade policies.
• 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, including advances in artificial intelligence and quantum computing.
• 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.
• 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.

In addition, ongoing geopolitical tensions, armed conflicts, regional instability, sanctions, cyber-related threats, and attacks affecting commercial shipping and critical infrastructure have increased geopolitical uncertainty and contributed to volatility in financial, energy, and commodity markets. Military conflict in the Middle East has disrupted energy markets and shipping routes, including through the Strait of Hormuz, while the ongoing Russia-Ukraine war and other geopolitical tensions continue to present risks to global economic and market conditions. Further escalation, including disruptions to shipping routes, energy supplies, critical infrastructure, or global supply chains, or expanded sanctions, trade restrictions, or cyber-related incidents, could adversely affect economic activity, inflation, market conditions, and borrower credit quality. These developments could also adversely affect our funding profile, liquidity, customer and counterparty credit quality, and the value of certain financial instruments and could have a material adverse effect on our business, financial condition, results of operations, and prospects. The timing, magnitude, duration, and geographic scope of these developments remain highly uncertain.

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.

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

Application of Critical Accounting Policies and Accounting Estimates

We follow accounting and reporting policies that conform, in all material respects, to accounting principles generally accepted in the United States (“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.

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.

Our accounting policies related to the allowance for credit losses on loans and off-balance-sheet credit exposures are considered critical because they involve considerable judgment and estimation by management. The allowances are calculated in accordance with Accounting Standards Codification (“ASC”) Topic 326, “Financial Instruments - Credit Losses” (“ASC 326”). The allowance for credit losses on loans is a contra-asset valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The allowance for credit losses on off-balance-sheet credit exposures is a liability account reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets.

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.

Refer to our 2025 Form 10-K for additional information regarding critical accounting policies.

Overview

A discussion of our results of operations is presented below. Certain reclassifications have been made to conform prior‑period presentations and provide comparability. Taxable‑equivalent adjustments represent income from tax‑free loans and investments grossed up by the amount of federal income taxes that would have been incurred had such income been fully taxable, calculated using a 21% federal tax rate, thus making tax‑exempt yields comparable to taxable asset yields.

Results of Operations

Net income available to common shareholders totaled $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.

Selected data for the comparable periods was as follows:

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.

Additional information regarding the components of net income follows.

Net Interest Income

Net interest income is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is our largest source of revenue, representing 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.

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.

Select average market rates for the periods indicated are presented in the table below.

(1) AMERIBOR Term-30 and AMERIBOR Term-90 are published by the American Financial Exchange.

(2) 1-Month Term SOFR and 3-Month Term SOFR market data are the property of Chicago Mercantile Exchange, Inc., or its licensors as applicable. All rights reserved, or otherwise licensed by Chicago Mercantile Exchange, Inc.

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.

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.

The following tables present 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 those balances, and the related average rates. The tables also present net interest margin calculated on average total interest‑earning assets for the same periods. For these calculations: (i) average balances are based on daily averages; (ii) amounts are stated on a taxable‑equivalent basis assuming a 21% tax rate; (iii) average loans include loans on non‑accrual status; and (iv) average securities include unrealized gains and losses on available‑for‑sale securities, while yields are calculated based on average amortized cost.

45

46

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.

Taxable-equivalent net interest income increased $27.1 million, or 5.8%, and $71.0 million, or 5.3%, for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025.

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

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.

As a result of these factors, taxable-equivalent net interest margin increased 9 basis points to 3.78% and 11 basis points to 3.76% for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025.

Average interest-earning assets increased $2.0 billion and $1.5 billion for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. For the three months ended September 30, 2026, the increase was primarily attributable to increases of $1.9 billion in average loans, $777.5 million in average taxable securities, and $250.7 million in average tax-exempt securities, partially offset by a $985.4 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 8 basis points to 5.03% for the three months ended September 30, 2026, compared to 5.11% for the same period in 2025.

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.

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.

The average taxable-equivalent yield on securities increased 24 basis points to 4.09% and 21 basis points to 3.97% for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. The average yield on taxable securities increased 20 basis points to 3.68% and 11 basis points to 3.53% for the three and nine months ended September 30, 2026, respectively. The average taxable-equivalent yield on tax-exempt securities increased 33 basis points to 4.93% and 36 basis points to 4.84% for the three and nine months ended September 30, 2026, respectively.

Tax-exempt securities represented approximately 33.7% and 34.5% of average securities for the three and nine months ended September 30, 2026, respectively, compared to 34.2% and 33.4% for the same respective periods in 2025. Average securities increased $1.0 billion, or 5.1%, and $583.4 million, or 2.9%, for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. Securities represented approximately 42.1% and 41.7% of average interest-earning assets for the three and nine months ended September 30, 2026, respectively, compared to 41.7% and 41.8% for the same respective periods in 2025.

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.

The average rate paid on interest-bearing liabilities decreased 24 basis points to 1.89% and 33 basis points to 1.80% for the three and nine months ended September 30, 2026, respectively, compared to 2.13% for the same periods in 2025. Average deposits increased $1.5 billion, or 3.6%, and $981.9 million, or 2.3%, for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. The increases included increases in average interest-bearing deposits of $986.6 million and $678.4 million and increases in average non-interest-bearing deposits of $521.4 million and $303.5 million for the three and nine months ended September 30, 2026, respectively.

The ratio of average interest-bearing deposits to total average deposits was 67.0% for both the three and nine months ended September 30, 2026, compared to 67.1% and 67.0%, respectively, for the same periods in 2025. The average cost of deposits is primarily impacted by changes in market interest rates and the volume and relative mix of interest-bearing deposits. The average costs of interest-bearing deposits and total deposits were 1.73% and 1.16%, respectively, for the three months ended September 30, 2026, compared to 1.94% and 1.30%, respectively, for the same period in 2025, and were 1.63% and 1.09%, respectively, for the nine months ended September 30, 2026, compared to 1.93% and 1.30%, respectively, for the same period in 2025. The lower average costs of deposits in 2026 were impacted by lower interest rates paid on our interest-bearing deposit products as a result of lower market interest rates.

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.

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.

Credit Loss Expense

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.

The components of credit loss expense were as follows:

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.

Non-Interest Income

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.

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.

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.

Service Charges on Deposit Accounts. Service charges on deposit accounts increased $4.9 million, or 15.5%, and $13.4 million, or 15.0%, 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 commercial service charges (up $2.3 million and $7.3 million, respectively) and overdraft charges on consumer accounts (up $1.8 million and $4.8 million, respectively) and commercial accounts (up $647 thousand and $1.1 million, respectively). Commercial service charges increased partly due to increased billable services on analyzed treasury management accounts and a lower average earnings credit rate on related deposits, which resulted in customers paying a greater portion of their services through fees rather than earnings credits. Higher service fees on non-analyzed accounts also contributed to the increases.

Overdraft charges totaled $18.2 million ($14.1 million consumer and $4.1 million commercial) and $50.5 million ($39.2 million consumer and $11.3 million commercial) for the three and nine months ended September 30, 2026, respectively, compared to $15.7 million ($12.3 million consumer and $3.4 million commercial) and $44.6 million ($34.4 million consumer and $10.2 million commercial) for the same periods in 2025, respectively. The increases were primarily attributable to higher volumes of fee-assessed overdrafts, partly due to growth in the number of accounts.

Insurance Commissions and Fees. Insurance commissions and fees increased $414 thousand, or 2.7%, and $1.8 million, or 3.5%, 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 higher property and casualty commissions (up $674 thousand) and contingent income (up $80 thousand), partly offset by lower life insurance commissions (down $208 thousand) and benefit plan commissions (down $132 thousand). The increase for the nine months ended September 30, 2026 was primarily attributable to higher benefit plan commissions (up $1.1 million), property and casualty commissions (up $764 thousand), and contingent income (up $633 thousand), partly offset by lower life insurance commissions (down $746 thousand). Higher property and casualty commissions primarily reflected increased commercial lines business volumes, partly offset by lower premiums and exposure rates within the existing customer base. Higher benefit plan commissions for the nine months ended September 30, 2026 primarily reflected increased business volumes and higher premiums and exposure rates within the existing customer base. Lower life insurance commissions primarily reflected decreased business volumes.

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.

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.

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.

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.

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.

Other Charges, Commissions, and Fees. Other charges, commissions, and fees decreased $819 thousand, or 5.6%, and $1.3 million, or 3.1%, for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. The decrease for the three months ended September 30, 2026 was primarily attributable to lower income from the placement of annuities and money market accounts (down $538 thousand and $154 thousand, respectively) and lower capital markets advisory fees (down $455 thousand), partly offset by higher income from the placement of mutual funds (up $412 thousand). The decrease for the nine months ended September 30, 2026 was primarily attributable to lower income from the placement of annuities and money market accounts (down $1.4 million and $377 thousand, respectively), capital markets advisory fees (down $599 thousand), and commitment fees on unused lines of credit (down $458 thousand), partly offset by higher income from the placement of mutual funds (up $1.1 million) and merchant service fees (up $599 thousand).

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.

Other Non-Interest Income. Other non-interest income for the three and nine months ended September 30, 2026 increased $7.4 million, or 54.5%, and $10.3 million, or 27.7%, respectively, compared to the same periods in 2025. The increase for the three months ended September 30, 2026 was primarily attributable to an $8.1 million increase in gains on the sale of foreclosed and other assets, including gains of $7.6 million on the sale of certain excess bank properties and $541 thousand on the sale of certain loans held for sale. Income from customer derivatives trading activities also increased $766 thousand. These increases were partly offset by decreases in income from customer securities trading activities (down $852 thousand), income from customer foreign exchange trading activities (down $290 thousand), and public finance underwriting fees (down $218 thousand).

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.

Non-Interest Expense

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.

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.

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).

Our defined benefit retirement and restoration plans have been frozen since 2001 which has reduced the volatility of retirement plan expense. However, we continue to have funding obligations associated with these plans, and future pension benefit or expense could fluctuate based on factors such as the performance of plan assets, changes in interest rates, and employee turnover. See Note 11 - Defined Benefit Plans for additional information related to our net periodic pension benefit/expense.

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).

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).

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.

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.

Results of Segment Operations

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.

Banking

Net income for the three and nine months ended September 30, 2026 increased $4.1 million, or 2.4%, and $37.0 million, or 7.9%, respectively, compared to the same periods in 2025. The increase during the three months ended September 30, 2026 was primarily the result of a $26.1 million increase in net interest income and a $6.6 million increase in non-interest income, partly offset by a $23.2 million increase in non-interest expense, a $5.3 million increase in credit loss expense, and a $128 thousand increase in income tax expense. The increase during the nine months ended September 30, 2026 was primarily the result of a $66.6 million increase in net interest income, a $21.5 million increase in non-interest income, and a $4.4 million decrease in credit loss expense, partly offset by a $49.8 million increase in non-interest expense and a $5.7 million increase in income tax expense.

Net interest income for the three and nine months ended September 30, 2026 increased $26.1 million, or 5.9%, and $66.6 million, or 5.2%, respectively, compared to the same periods in 2025.

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

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.

Credit loss expense for the three and nine months ended September 30, 2026 totaled $12.1 million and $28.6 million, respectively, compared to $6.8 million and $33.0 million, respectively, for the same periods in 2025. See the sections captioned “Credit Loss Expense” and “Allowance for Credit Losses” elsewhere in this discussion for further analysis of credit loss expense related to loans and off-balance-sheet commitments.

Non-interest income for the three and nine months ended September 30, 2026 increased $6.6 million, or 9.1%, and $21.5 million, or 10.1%, respectively, compared to the same periods in 2025. The increases were primarily attributable to higher service charges on deposit accounts; other non-interest income; interchange and card transaction fees; and insurance commissions and fees, partly offset by higher net losses on securities transactions. The increases in service charges on deposit accounts were primarily attributable to higher commercial service charges and overdraft charges on consumer and commercial accounts. The increases in other non-interest income were primarily attributable to higher gains on the sale of foreclosed and other assets, sundry and other miscellaneous income, and income from customer derivative trading activities, partially offset by lower income from customer securities trading activities, income from customer foreign exchange trading activities, and public finance underwriting fees. The increases in interchange and card transaction fees were primarily attributable to higher card transaction volumes. The increase in insurance commissions and fees for the three months ended September 30, 2026 was primarily attributable to higher property and casualty commissions, primarily reflecting increased commercial lines business volumes, and contingent income, partially offset by lower life insurance and benefit plan commissions. The increase for the nine months ended September 30, 2026 was primarily attributable to higher benefit plan commissions, property and casualty commissions, and contingent income, partially offset by lower life insurance commissions. See the analysis of these categories of non-interest income in the section captioned “Non-Interest Income” elsewhere in this discussion.

Non-interest expense for the three and nine months ended September 30, 2026 increased $23.2 million, or 7.5%, and $49.8 million, or 5.4%, respectively, compared to the same periods in 2025. The increases during the three and nine months ended September 30, 2026 were primarily attributable to higher salaries and wages; other non-interest expense; technology, furniture, and equipment expense; and net occupancy expense. Employee benefits expense decreased during the three-month period, partially offsetting the increase, but increased during the nine-month period. The increases in salaries and wages were primarily attributable to annual merit and market-based salary increases and growth in the number of employees. Salaries and wages also increased, to a lesser extent, due to higher incentive compensation and stock-based compensation. The increases in other non-interest expense were primarily attributable to higher advertising and promotions expense; fraud losses, primarily related to deposits; travel, meals, and entertainment expense; amortization of deferred costs on loan commitments; bank card expense; and professional services expense, among other things, partially offset by lower sundry and other miscellaneous expense and donations expense, among other things. The increases in technology, furniture, and equipment expense were primarily attributable to higher cloud services expense; equipment rental expense; software maintenance expense; service contracts expense; and depreciation of furniture and fixtures, among other things, partially offset by lower software amortization expense. The increases in net occupancy expense were primarily attributable to higher depreciation on buildings and leasehold improvements; repairs, maintenance, and service contracts expense; and lease expense, partially offset by lower building insurance expense and property tax expense. The nine-month period was also negatively impacted by lower rental income from tenants. The decrease in employee benefits expense during the three months ended September 30, 2026 was primarily attributable to lower medical and dental benefits expense and a higher net periodic pension benefit related to our defined benefit retirement and restoration plans, partially offset by higher payroll taxes. The increase in employee benefits expense during the nine months ended September 30, 2026 was primarily attributable to higher medical and dental benefits expense, payroll taxes, and 401(k) plan expense, among other things, partly offset by a higher net periodic pension benefit related to our defined benefit retirement and restoration plans. See the analysis of these categories of non-interest expense in the section captioned “Non-Interest Expense” elsewhere in this discussion.

Wealth Management

Net income for the three and nine months ended September 30, 2026 increased $1.9 million, or 20.2%, and $3.0 million, or 11.0%, respectively, compared to the same periods in 2025. The increase during the three months ended September 30, 2026 was primarily the result of a $3.6 million increase in non-interest income, partly offset by a $1.1 million increase in non-interest expense, among other things. The increase during the nine months ended September 30, 2026 was primarily the result of an $11.4 million increase in non-interest income, partly offset by a $7.1 million increase in non-interest expense, among other things.

Non-interest income for the three and nine months ended September 30, 2026 increased $3.6 million, or 6.7%, and $11.4 million, or 7.3%, respectively, compared to the same periods in 2025. The increases during the three and nine months ended September 30, 2026 were primarily attributable to higher trust and investment management fees, partly offset by lower other non-interest income and lower other charges, commissions, and fees. The increases in trust and investment management fees during the three and nine months ended September 30, 2026 were primarily attributable to higher investment management fees, reflecting higher average equity valuations on managed accounts and growth in the number of accounts, and higher oil and gas fees. 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 decreases in other non-interest income were primarily attributable to lower sundry and other miscellaneous income. The decreases in other charges, commissions, and fees were primarily attributable to lower income from the placement of annuities and money market accounts, partly offset by higher income from the placement of mutual funds. See the analysis of these categories of non-interest income in the section captioned “Non-Interest Income” elsewhere in this discussion.

Non-interest expense for the three and nine months ended September 30, 2026 increased $1.1 million, or 2.5%, and $7.1 million, or 5.6%, respectively, compared to the same periods in 2025. The increase during the three months ended September 30, 2026 was primarily related to an increase in other non-interest expense, partly offset by decreases in salaries and wages and technology, furniture, and equipment expense, among other things. The increase during the nine months ended September 30, 2026 was primarily related to increases in other non-interest expense; salaries and wages; and employee benefits expense, among other things. The increases in other non-interest expense during the three and nine months ended September 30, 2026 were primarily attributable to increases in research and platform fees; sundry and other miscellaneous expense; and professional services expense, among other things. The decrease in salaries and wages during the three months ended September 30, 2026 was due in part to a restructuring of compensation and incentive plans, among other things. The increase in salaries and wages during the nine months ended September 30, 2026 was primarily related to annual merit and market-based salary increases and higher incentive compensation and commissions expense. The increase in employee benefits expense during the nine months ended September 30, 2026 was primarily attributable to higher medical and dental benefits expense, payroll taxes, and 401(k) plan expense. The decrease in technology, furniture, and equipment expense during the three months ended September 30, 2026 was primarily attributable to lower cloud services expense, software maintenance expense, and software amortization expense. See the analysis of these categories of non-interest expense in the section captioned “Non-Interest Expense” elsewhere in this discussion.

Non-Banks

The Non-Banks operating segment had a net loss of $2.9 million and $9.8 million during the three and nine months ended September 30, 2026, respectively, compared to a net loss of $2.7 million and $10.7 million during the same periods in 2025. The increase in the net loss during the three months ended September 30, 2026 was primarily attributable to higher professional services expense, partly offset by lower net interest expense resulting from lower average rates paid on long-term borrowings, among other things. The decrease in the net loss during the nine months ended September 30, 2026 was primarily attributable to lower net interest expense resulting from lower average rates paid on long-term borrowings, among other things.

Income Taxes

Income tax expense was $34.3 million and $98.2 million for the three and nine months ended September 30, 2026, respectively, compared to $33.6 million and $91.4 million for the same periods in 2025. The effective income tax rates were 16.0% and 15.8% for the three and nine months ended September 30, 2026, respectively, compared to 16.2% and 15.9% for the same periods in 2025. The effective income tax rates differed from the U.S. statutory federal income tax rate of 21% primarily due to tax-exempt income from securities, loans, and life insurance policies and, for 2025, the income tax effects associated with stock-based compensation, among other things, and the relative proportion of these items to pre-tax net income. The increases in income tax expense for the three and nine months ended September 30, 2026 were primarily attributable to increases in projected pre-tax net income. The decreases in the effective income tax rates for the three and nine months ended September 30, 2026 were primarily attributable to increases in projected tax-exempt interest from securities combined with decreases in projected non-deductible deposit interest expense.

Average Balance Sheet

Average assets totaled $53.0 billion for the nine months ended September 30, 2026, an increase of $1.6 billion, or 3.2%, compared to the same period in 2025. Average earning assets increased $1.5 billion, or 3.2%, compared to the same period in 2025. The increase in average 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. Average deposits increased $981.9 million, or 2.3%, compared to the same period in 2025, including increases of $678.4 million in average interest-bearing deposits and $303.5 million in average non-interest-bearing deposits. Average non-interest-bearing deposits represented 33.0% of average total deposits for both the nine months ended September 30, 2026 and 2025.

Loans

Details of our loan portfolio are presented in Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report. Loans increased $1.8 billion, or 8.1%, from $21.9 billion at December 31, 2025 to $23.7 billion at September 30, 2026. The majority of our loan portfolio is comprised of commercial and industrial loans, energy loans, and real estate loans. Real estate loans include both commercial and consumer balances. Selected details related to our loan portfolio segments are presented below. Refer to our 2025 Form 10-K for a more detailed discussion of our loan origination and risk management processes.

Commercial and Industrial. Commercial and industrial loans increased $160.1 million, or 2.5%, to $6.5 billion at September 30, 2026, from $6.3 billion at December 31, 2025. 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 providing term financing for equipment. While some short-term loans may be made on an unsecured basis, most are secured by the assets being financed, with collateral margins consistent with our loan policy guidelines. The commercial and industrial loan portfolio also includes commercial leases and purchased shared national credits ("SNC"s).

Energy. Energy loans include loans to entities and individuals engaged in various energy-related activities, including (i) the development and production of oil or natural gas, (ii) providing oil and gas field services, (iii) providing energy-related transportation services, (iv) providing equipment to support oil and gas drilling, (v) refining petrochemicals, or (vi) trading oil, gas, and related commodities. Energy loans increased $55.4 million, or 5.1%, to $1.2 billion at September 30, 2026, from $1.1 billion at December 31, 2025. Energy loans are our largest industry concentration, totaling approximately 4.9% and 5.0% of total loans at September 30, 2026 and December 31, 2025, respectively. The average loan size, the significance of the portfolio, and the specialized nature of the energy industry require a highly prescriptive underwriting policy. Exceptions to this policy are rarely granted. Due to the large borrowing requirements of this customer base, the energy loan portfolio includes participations and SNCs.

Purchased Shared National Credits. SNCs are loan participations purchased from upstream financial institutions and are generally larger than loans in our originated portfolio. Our purchased SNC portfolio totaled $829.3 million at September 30, 2026, a decrease of $46.4 million, or 5.3%, from $875.7 million at December 31, 2025. At September 30, 2026, approximately 30.9% of outstanding purchased SNCs were related to the construction industry, 21.1% to the real estate management industry, 11.2% to the financial services industry, and 11.0% to the energy industry. The remaining purchased SNCs were diversified among various other industries, with no other single industry representing more than 10% of the total purchased SNC portfolio. Almost all of the outstanding purchased SNC balance was included in the energy and commercial and industrial loan portfolios, with the remainder included in the real estate loan categories.

SNC participations are purchased in the ordinary course of business to meet the needs of our customers. As a matter of policy, we generally participate in SNCs only for companies headquartered in or with significant operations in our market areas. In addition, we generally require direct access to the company’s management and either an existing banking relationship or the expectation of expanding the relationship through other banking products and services within the following 12 to 24 months. SNCs are reviewed at least quarterly for credit quality and the development of the broader banking relationship.

Commercial Real Estate. Commercial real estate loans increased $1.1 billion, or 10.3%, to $11.4 billion at September 30, 2026, from $10.3 billion at December 31, 2025. Commercial real estate loans represented 73.1% and 73.5% of total real estate loans at September 30, 2026 and December 31, 2025, respectively. The majority of our commercial real estate loan portfolio consists of commercial real estate mortgages, which include both permanent and intermediate-term loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Consequently, these loans must undergo the analysis and underwriting processes applicable to both commercial and industrial loans and real estate loans. At September 30, 2026, approximately half of the outstanding principal balance of our commercial real estate loans (excluding construction and land) was secured by owner-occupied properties.

Consumer Real Estate and Other Consumer Loans. The consumer real estate loan portfolio increased $474.7 million, or 12.8%, to $4.2 billion at September 30, 2026, from $3.7 billion at December 31, 2025. Combined, home equity loans and lines of credit made up 53.5% and 56.6% of the consumer real estate loan total at September 30, 2026 and December 31, 2025, respectively. We offer home equity loans up to 80% of the estimated value of the borrower’s personal residence, less the outstanding balance of existing mortgages and home improvement loans. We also originate 1-4 family mortgage loans for portfolio investment purposes. Such loans increased $370.9 million, or 62.3%, to $965.7 million at September 30, 2026, from $594.8 million at December 31, 2025. Consumer and other loans increased $8.0 million, or 1.7%, to $468.7 million at September 30, 2026, from $460.7 million at December 31, 2025. The consumer and other loan portfolio primarily consists of unsecured revolving credit products, secured personal loans, motor vehicle loans, overdrafts, and other similar types of credit facilities.

Accruing Past Due Loans. Accruing past due loans are presented in the following table. Additional information is provided in Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.

Accruing past-due loans at September 30, 2026 increased $6.6 million compared to December 31, 2025. The increase was primarily attributable to increases in past-due commercial and industrial loans (up $15.0 million), non-owner occupied commercial real estate loans (up $9.3 million), consumer and other loans (up $3.4 million), and consumer real estate loans (up $2.0 million), partially offset by decreases in past-due energy loans (down $14.4 million), construction and land loans (down $5.8 million), and owner occupied commercial real estate loans (down $2.9 million).

Non-Accrual Loans. Non-accrual loans are presented in the table below. Additional information is provided in Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.

57

Generally, loans are placed on non-accrual status when principal or interest becomes 90 days past due, when management determines that the collectibility of principal or interest is in doubt, or when otherwise required by regulatory guidelines. Upon placement on non-accrual status, accrued but uncollected interest is reversed and charged to current-period earnings. Subsequent cash receipts on non-accrual loans are generally applied to principal, and interest income is recognized only when the collection of principal is reasonably assured. Placement of a loan on non-accrual status does not necessarily preclude the ultimate collection of principal or interest.

Non-accrual loans decreased $6.8 million, from $70.5 million at December 31, 2025 to $63.7 million at September 30, 2026, primarily due to a decrease in non-accrual commercial and industrial loans, partially offset by increases in non-accrual commercial real estate loans across all classes. There were no non-accrual commercial and industrial loans in excess of $5.0 million at September 30, 2026. At December 31, 2025, non-accrual commercial and industrial loans included one credit relationship in excess of $5.0 million with an outstanding balance of $28.5 million. Principal payments during 2026 reduced the outstanding balance of this credit relationship to $2.8 million at September 30, 2026. There were no non-accrual energy loans in excess of $5.0 million at September 30, 2026 or December 31, 2025. At September 30, 2026, non-accrual commercial real estate - construction and land loans included one credit relationship in excess of $5.0 million with an outstanding balance of $12.4 million. There were no other non-accrual credit relationships in excess of $5.0 million within any commercial real estate loan class at September 30, 2026 or December 31, 2025.

Allowance for Credit Losses

In the case of loans and securities, allowances for credit losses are contra-asset valuation accounts, calculated in accordance with ASC 326, that are deducted from the amortized cost basis of these assets to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, and is reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. The amount of each allowance represents management's best estimate of lifetime expected credit losses on the applicable financial instruments 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 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 beyond our control, 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. Refer to our 2025 Form 10-K for additional information regarding our accounting policies related to credit losses.

Allowance for Credit Losses - Loans. The table below provides, as of the dates indicated, an allocation of the allowance for credit losses on loans by loan portfolio segment; however, the allocation of a portion of the allowance to one segment does not preclude its availability to absorb credit losses in other segments.

58

The allowance allocated to commercial and industrial loans totaled $89.3 million, or 1.38% of total commercial and industrial loans, at September 30, 2026, a decrease of $9.1 million, or 9.3%, from $98.4 million, or 1.56% of total commercial and industrial loans, at December 31, 2025. Q-Factor and other qualitative adjustments related to commercial and industrial loans increased $10.0 million, primarily due to an increase in the model overlay for the downside scenario, as further discussed below. Modeled expected credit losses decreased $8.2 million, partially due to improvements in certain macroeconomic variables that influence projected loss expectations. Specific allocations for commercial and industrial loans evaluated for expected credit losses on an individual basis decreased $10.9 million, from $16.6 million at December 31, 2025 to $5.7 million at September 30, 2026, primarily due to loan repayments and $2.3 million of charge-offs, partially offset by new specific allocations on newly assessed loans.

The allowance allocated to energy loans totaled $8.0 million, or 0.70% of total energy loans, at September 30, 2026, a decrease of $3.5 million, or 30.4%, from $11.6 million, or 1.06% of total energy loans, at December 31, 2025. The decrease was primarily due to lower modeled expected credit losses and a reduction in the credit concentrations overlay.

The allowance allocated to commercial real estate loans totaled $147.6 million, or 1.30% of total commercial real estate loans, at September 30, 2026, an increase of $12.5 million, or 9.3%, compared to $135.1 million, or 1.31% of total commercial real estate loans, at December 31, 2025. The increase was primarily related to a $10.1 million increase in Q-Factor and other qualitative adjustments, principally related to model overlays driven by growth in the portfolio, as well as increases of $1.6 million in modeled expected credit losses, and $800 thousand in specific allocations.

The following table presents additional information about the allowance allocated to commercial real estate loans at September 30, 2026 and December 31, 2025:

59

The allowance allocated to consumer real estate loans totaled $34.7 million, or 0.83% of total consumer real estate loans, at September 30, 2026, an increase of $9.1 million, or 35.5%, from $25.6 million, or 0.69% of total consumer real estate loans, at December 31, 2025. The increase was primarily related to a $9.0 million increase in modeled expected credit losses, primarily attributable to portfolio growth and a change in an input assumption related to the probability of attrition, which reflects the likelihood that a loan will be paid off prior to maturity.

The allowance allocated to consumer loans totaled $10.5 million, or 2.24% of total consumer loans, at September 30, 2026, a decrease of $224 thousand, or 2.1%, from $10.7 million, or 2.33% of total consumer loans, at December 31, 2025. The decrease was primarily related to a $792 thousand decrease in Q-Factor and other qualitative adjustments, principally related to the consumer overlay, partially offset by a $628 thousand increase in modeled expected credit losses.

As more fully described in our 2025 Form 10-K, we measure expected credit losses over the expected life of each loan using a combination of models that estimate probability of default and loss given default, among other factors. Expected credit losses are influenced by loan- and borrower-specific attributes and certain macroeconomic variables. The models are adjusted to reflect current macroeconomic conditions and expected changes over a reasonable and supportable forecast period.

In estimating expected credit losses as of September 30, 2026, we utilized the Moody’s Analytics September 2026 Baseline Scenario (the “September 2026 Baseline Scenario”) to forecast the macroeconomic variables used in our models. The September 2026 Baseline Scenario represented Moody’s most likely forecast of the U.S. economy based on prevailing economic conditions. The September 2026 Baseline Scenario projections included, among other things, (i) U.S. Real Gross Domestic Product average annualized quarterly growth rates of 1.56% during the remainder of 2026 and 2.05% through the end of the forecast period in the third quarter of 2028; (ii) average annualized U.S. unemployment rates of 4.32% during the remainder of 2026 and 4.64% through the end of the forecast period in the third quarter of 2028; (iii) average annualized Texas unemployment rate of 4.23% during the remainder of 2026 and 4.30% through the end of the forecast period in the third quarter of 2028; (iv) projected average 10 year Treasury rate of 4.51% during the remainder of 2026 and 4.40% through the end of the forecast period in the third quarter of 2028; and (v) average oil price of $78.71 per barrel during the remainder of 2026 and $72.02 per barrel through the end of the forecast period in the third quarter of 2028.

In estimating expected credit losses as of December 31, 2025, we utilized the Moody’s Analytics December 2025 Baseline Scenario (the “December 2025 Baseline Scenario”) to forecast the macroeconomic variables used in our models. The December 2025 Baseline Scenario was based on the most likely outcome based on prevailing economic conditions and Moody's forecast of the U.S. economy. The December 2025 Baseline Scenario projections included, among other things, (i) U.S. Real Gross Domestic Product average annualized quarterly growth rates of 2.16% in 2026 and 1.83% in 2027; (ii) average annualized U.S. unemployment rates of 4.67% during both 2026 and 2027; (iii) average annualized Texas unemployment rate of 4.36% during 2026 and 4.37% during 2027; (iv) projected average 10 year Treasury rate of 4.23% during 2026 and 4.31% during 2027; and (v) average oil price of $61.09 per barrel during 2026 and $62.90 per barrel during 2027.

The overall loan portfolio at September 30, 2026 increased $1.8 billion, or 8.1%, compared to December 31, 2025. The increase reflected growth across all portfolios, including increases of $1.1 billion, or 10.3%, in commercial real estate loans; $474.7 million, or 12.8%, in consumer real estate loans; $160.1 million, or 2.5%, in commercial and industrial loans; $55.4 million, or 5.1%, in energy loans; and $8.0 million, or 1.7%, in consumer and other loans.

The weighted average risk grade for commercial and industrial loans increased slightly to 6.45 at September 30, 2026, from 6.44 at December 31, 2025. The increase was primarily attributable to a higher weighted-average risk grade of pass-grade commercial and industrial loans, which increased to 6.18 at September 30, 2026 from 6.06 at December 31, 2025. This deterioration was partially offset by the effect of a $57.9 million decrease in classified commercial and industrial loans (risk grades of 11, 12 or 13). The weighted-average risk grade for energy loans decreased to 6.08 at September 30, 2026, compared to 6.16 at December 31, 2025. The improvement primarily reflected a decline in the weighted-average risk grade of pass-grade energy loans to 5.85 at September 30, 2026 from 5.86 at December 31, 2025, a $2.4 million reduction in classified energy loans, and a $13.7 million decrease in energy loans graded as “watch” (risk grade 9) and “special mention” (risk grade 10). The weighted average risk grade for commercial real estate loans remained unchanged at 7.29 at both September 30, 2026 and December 31, 2025. While the weighted-average risk grade of pass-grade commercial real estate loans increased slightly to 7.06 at September 30, 2026 from 7.05 at December 31, 2025, this was offset by the effect of a higher proportion of commercial real estate loans graded as “pass” relative to the proportion of commercial real estate loans in higher risk grades.

As discussed above, our credit loss models utilized the Moody's Analytics September 2026 Baseline Scenario to estimate expected credit losses as of September 30, 2026 and utilized the Moody’s Analytics December 2025 Baseline Scenario to estimate expected credit losses as of December 31, 2025. Model results were then qualitatively adjusted to reflect certain risk factors that are not captured within the modeling processes but are nonetheless relevant in assessing expected credit losses across our loan portfolios. These qualitative factor, or Q‑Factor, adjustments are discussed below.

Q‑Factor adjustments are based on management’s judgment and current assessment of risks related to, among other factors, changes in lending policies and procedures; economic and business conditions; loan portfolio composition and credit concentrations; and other external factors not already reflected in the modeling inputs, assumptions, or methodologies. Management evaluates the potential impact of these factors across a range of outcomes and applies an aggregate adjustment percentage to the modeled expected credit losses based on this assessment. As of September 30, 2026, modeled expected credit losses were increased by a weighted-average Q-Factor adjustment of approximately 3.7%, resulting in a $3.9 million total adjustment, compared to approximately 3.0% at December 31, 2025, which resulted in a $3.2 million total adjustment. In addition, as of September 30, 2026, management applied other qualitative adjustments, or management overlays, to address risks impacting certain categories of the loan portfolio that management believes are not fully reflected in the modeled results. Q‑Factor and other qualitative adjustments as of September 30, 2026 are presented in the table below.

Commercial real estate model overlays are qualitative adjustments designed to address risks not captured within our commercial real estate credit loss models. These adjustments are established based on minimum reserve ratios for our commercial real estate loan portfolios. For our commercial real estate - owner occupied loan portfolio, management determined that a minimum reserve ratio was appropriate to address the model’s oversensitivity to favorable changes in certain economic variables. Based on internal analysis and benchmarking against peer bank data, the modeled results are considered overly optimistic and do not appropriately capture downside risk. Accordingly, management determined that the forecasted loss rate for the owner occupied commercial real estate loan portfolio should more closely align with that of the commercial and industrial loan portfolio. For the commercial real estate - non‑owner occupied and construction and land loan portfolios, management determined that minimum reserve ratios were appropriate because the modeled results do not appropriately capture downside risk related to borrowers’ ability to access capital markets for the sale or refinancing of investor real estate and assets under construction. Management believes access to capital may remain impaired for an extended period, which could require borrowers to rely on secondary sources of liquidity and capital to support completed projects that could take longer to stabilize than originally underwritten. In addition, most non-owner occupied commercial real estate and construction loans are originated with floating interest rates. These borrowers continue to be adversely affected by elevated short-term interest rates. Longer-term interest rates have also increased, reflecting, in part, higher term and risk premiums at the long end of the yield curve.

Office building overlays are additional qualitative adjustments to our commercial real estate models designed to address longer-term concerns regarding the utilization of commercial office space and the potential adverse impact on the long-term performance of certain office properties within our commercial real estate loan portfolio. These adjustments are established based on minimum reserve ratios applied to loans within our commercial real estate - non-owner occupied and construction and land loan portfolios that have risk grades of 8 or worse. Loans with these risk grades were targeted for the overlays because they represent elevated credit risk and are more susceptible to adverse changes in property performance, collateral values, and capital market conditions, and therefore warrant additional qualitative consideration beyond the modeled results.

The downside scenario overlay is a qualitative adjustment applied to the commercial and industrial loan portfolio to address the risk of an economic downturn resulting from factors such as inflation; elevated interest rates; unemployment; changes or volatility in energy prices or energy markets; changes in financial markets; disruptions in global supply chains; geopolitical conflicts; acts of terrorism; and changes in trade policies, including tariffs and other trade measures. These factors are outside of management’s control but may adversely affect our customers, including their income levels and borrowing, repayment, and investment practices. To determine this qualitative adjustment, management utilizes an alternative, more pessimistic economic scenario to forecast the macroeconomic variables used in the credit loss models. As of September 30, 2026, management used the Moody’s Analytics S3 Alternative Scenario Downside - 90th Percentile. In modeling expected credit losses under this scenario, management also assumes that each non-classified loan within the modeled loan pools is downgraded by one risk grade. The resulting qualitative adjustment is based on the amount by which expected credit losses under the alternative scenario exceed those estimated using the primary scenario, adjusted based on management’s assessment of the probability that the downside economic scenario will occur.

Credit concentration overlays are qualitative adjustments based on statistical analysis designed to address concentrations in large credit relationships within the loan portfolio. Changes in loan portfolio concentrations over time can cause expected credit losses within the current portfolio to differ from historical loss experience. Because the allowance for credit losses reflects expected credit losses within the loan portfolio and such losses are uncertain as to their nature, timing, and amount, management believes that portfolio segments with higher concentration risk are more susceptible to significant credit losses. Accordingly, given the concentration of a significant portion of the loan portfolio in large credit relationships and our past experience with losses associated with large credit relationships, management applied the qualitative adjustments presented in the table above to address the increased risk that the deterioration of a large credit relationship could result in a significant credit loss.

The consumer overlay is a qualitative adjustment applied to the consumer and other loan portfolio to address risks associated with the concentration of unsecured loans and other risk factors within the portfolio. Unsecured consumer loans present an elevated risk of loss during periods of economic stress, as these loans lack a secondary source of repayment in the form of hard collateral. Management determines the overlay based on an analysis of historical charge-off trends within the consumer loan portfolio and the broader banking industry. Based on this analysis, management determined that it was appropriate to apply an additional qualitative adjustment to the modeled expected credit losses for the unsecured consumer loan portfolio.

As of December 31, 2025, we provided qualitative adjustments, as detailed in the table below. Further information regarding these qualitative adjustments is provided in our 2025 Form 10-K.

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

62

We recorded a net credit loss expense related to loans of $32.4 million for the nine months ended September 30, 2026, compared to $37.5 million during the same period in 2025. Net credit loss expense or benefit for each portfolio segment represents the amount required to adjust the allowance for credit losses allocated to that segment to the level of expected credit losses determined under our allowance methodology, after giving effect to net charge-offs. Net credit loss expense for the first nine months of 2026 primarily reflected (i) growth in commercial real estate loans and related increases in model overlays; (ii) higher expected credit losses associated with consumer real estate loans; (iii) an increase in the downside scenario overlay reflecting increased risk of an economic downturn; and (iv) net charge-offs related to consumer and other loans (primarily overdrafts), commercial and industrial loans, consumer real estate loans, and commercial real estate owner-occupied loans.

The ratio of the allowance for credit losses on loans to total loans was 1.23% at September 30, 2026 compared to 1.29% at December 31, 2025. Management believes the allowance for credit losses on loans is appropriate based on its best estimate of expected credit losses in the existing loan portfolio. Changes in the factors considered in estimating expected credit losses could result in changes to the allowance for credit losses and future credit loss expense.

Allowance for Credit Losses - Off-Balance-Sheet Credit Exposures. The allowance for credit losses on off-balance-sheet credit exposures totaled $47.5 million at September 30, 2026, compared to $51.3 million at December 31, 2025. The level of the allowance for credit losses on off-balance-sheet credit exposures is influenced by the volume of outstanding commitments, underlying risk grades, expected utilization of available commitments, and forecasted economic conditions impacting the loan portfolio. We recognized a net credit loss benefit related to off-balance-sheet credit exposures of $3.8 million during the nine months ended September 30, 2026, compared to a net credit loss benefit of $4.7 million during the same period in 2025. Our policies and methodology used for estimating the allowance for credit losses on off-balance-sheet credit exposures are further described in our 2025 Form 10-K.

Capital and Liquidity

Capital. Shareholders’ equity totaled $4.0 billion at September 30, 2026 and $4.6 billion at December 31, 2025. Sources of capital during the nine months ended September 30, 2026 included net income of $523.3 million and $16.2 million related to stock-based compensation. Uses of capital during the nine months ended September 30, 2026 included other comprehensive loss, net of tax, of $761.2 million, $198.7 million of dividends paid on preferred and common stock, and $178.3 million of treasury stock purchases.

The accumulated other comprehensive income (loss) component of shareholders’ equity totaled a net, after-tax, unrealized loss of $1.6 billion at September 30, 2026, compared to a net, after-tax, unrealized loss of $843.0 million at December 31, 2025. The increase in the net, after-tax, unrealized loss was primarily due to a $761.7 million net, after-tax, decrease in the fair value of securities available for sale.

Under the Basel III Capital Rules, we have elected to opt out of the requirement to include most components of accumulated other comprehensive income (loss) in regulatory capital. Accordingly, amounts reported in accumulated other comprehensive income (loss) generally do not increase or reduce regulatory capital and are excluded from the calculation of our regulatory capital ratios. Banking regulators utilize capital guidelines designed to measure capital and take into consideration the risks associated with both on-balance-sheet and off-balance-sheet exposures. See Note 6 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report for additional information regarding our regulatory capital requirements and ratios.

Details of dividends declared and paid are presented in the table below. Our ability to declare or pay dividends on, or purchase, redeem or otherwise acquire, shares of our capital stock is subject to certain legal and regulatory limitations. See Note 6 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report for additional information.

In March 2026, the federal bank regulatory agencies proposed revisions to the standardized approach for calculating risk-weighted assets that would apply to Cullen/Frost and Frost Bank. The proposal would, among other things, revise the risk-based capital treatment of certain corporate, retail and residential mortgage exposures and mortgage servicing assets and make other changes to the calculation of risk-weighted assets. The comment period for the proposal ended in June 2026. Based on our preliminary assessment, the proposed changes would be expected to modestly reduce our total risk-weighted assets. Because the proposal has not been finalized and remains subject to change, its ultimate impact on our regulatory capital requirements cannot yet be determined.

Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans that provide us with flexibility to manage our capital levels, repurchase shares of our common stock when management determines such repurchases are appropriate and acquire shares to satisfy obligations related to stock compensation awards. See Note 6 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report and Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds for additional information.

Liquidity. As more fully discussed in our 2025 Form 10-K, we continuously monitor our liquidity position and adjust the balance between sources and uses of funds as appropriate. Liquidity risk management is an important component of our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows and funding needs that could result from economic disruptions, financial market volatility, unexpected credit events or other significant occurrences. These scenarios are incorporated into our contingency funding plan and assist us in identifying and planning for potential liquidity needs. Our principal source of funding has been customer deposits, supplemented by short-term and long-term borrowings, maturities of securities and cash flows from our loan and securities portfolios.

As of September 30, 2026, we had approximately $6.3 billion held in an interest-bearing account at the Federal Reserve. We also have the ability to borrow funds as a member of the FHLB. As of September 30, 2026, based upon available, pledgeable collateral, our total borrowing capacity with the FHLB was approximately $7.6 billion. In addition, as of September 30, 2026, we had approximately $11.5 billion of unencumbered securities that could be pledged to support additional borrowings through repurchase agreements or the Federal Reserve discount window, as needed. As of September 30, 2026, we are not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. Management also is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us.

Since Cullen/Frost is a bank holding company and does not conduct banking operations, its primary sources of liquidity are dividends received from Frost Bank and borrowings from external sources. Banking laws and regulations may limit the amount of dividends that Frost Bank may pay to Cullen/Frost. See Note 6 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report for additional information regarding such dividends. As of September 30, 2026, Cullen/Frost had liquid assets totaling $260.4 million, primarily consisting of cash on deposit at Frost Bank.

Accounting Standards Updates

See Note 16 - Accounting Standards Updates in the accompanying notes to consolidated financial statements included elsewhere in this report for information regarding recently issued accounting pronouncements and their expected impact on our financial statements.

The disclosures set forth in this Item are qualified by, and should be read in conjunction with, the section captioned “Forward-Looking Statements and Factors That Could Affect Future Results” included in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as other cautionary statements included elsewhere in this report.

Refer to the discussion of market risks included in Item 7A. Quantitative and Qualitative Disclosures About Market Risk in the 2025 Form 10-K. There has been no material change in the types of market risks to which we are exposed since December 31, 2025.

We use an earnings simulation model as our primary quantitative tool for measuring interest rate risk associated with changes in market interest rates. The model quantifies the effects of various interest rate scenarios on projected net interest income and net income over the next 12 months. The model measures the effect on net interest income relative to a flat-rate base-case scenario under hypothetical changes in interest rates over the same period. These simulations incorporate assumptions regarding balance sheet growth and mix, pricing and the repricing and maturity characteristics of our existing and projected balance sheet. The effects of interest rate derivatives, including interest rate swaps, caps and floors, also are incorporated into the model. Other interest rate-related risks, including prepayment, basis and option risk, also are considered.

Our model simulations as of September 30, 2026 indicate that our projected balance sheet is less asset-sensitive than our projected balance sheet as of December 31, 2025. For modeling purposes, as of September 30, 2026, the model simulations projected that ratable increases in interest rates of 100 and 200 basis points would result in positive variances in net interest income of 0.8% and 1.5%, respectively, relative to the flat-rate base case over the next 12 months. Ratable decreases in interest rates of 100 and 200 basis points were projected to result in negative variances in net interest income of 0.9% and 2.7%, respectively, relative to the flat-rate base case over the same period. For modeling purposes, as of December 31, 2025, the model simulations projected that ratable increases in interest rates of 100 and 200 basis points would result in positive variances in net interest income of 1.5% and 3.0%, respectively, relative to the flat-rate base case over the next 12 months. Ratable decreases in interest rates of 100 and 200 basis points were projected to result in negative variances in net interest income of 1.3% and 3.4%, respectively, relative to the flat-rate base case over the same period.

We do not currently pay interest on a significant portion of our commercial demand deposits. Whether we pay interest on these deposits in the future would depend on a variety of factors, some of which are beyond our control. Our September 30, 2026 and December 31, 2025 model simulations did not assume the payment of interest on commercial demand deposits that were not already receiving an earnings credit. Based on our experience during prior interest rate cycles, management believes it is unlikely that we would pay interest on these deposits as interest rates increase.

As of September 30, 2026, 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 material variance in our net interest income.

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

Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this Quarterly Report on Form 10-Q, management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the quarter ended September 30, 2026 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.