[10-Q] CULLEN/FROST BANKERS, INC. Quarterly Earnings Report
Filing Impact
Filing Sentiment
Form Type
10-Q
Cullen/Frost Bankers (CFR) reported stronger Q3 2025 results. Net income rose to $174.4 million from $146.5 million a year ago, and diluted EPS increased to $2.67 from $2.24. Net interest income improved to $441.6 million from $404.3 million as total interest income reached $620.1 million and interest expense declined to $178.5 million. Credit loss expense eased to $6.8 million from $19.4 million, while non-interest income grew to $125.6 million and non-interest expense increased to $352.5 million.
On the balance sheet, net loans were $21.17 billion versus $20.48 billion at year-end, and total deposits were $42.52 billion versus $42.72 billion. Available-for-sale securities at fair value were $16.88 billion, contributing to other comprehensive income of $216.1 million in the quarter and lifting accumulated other comprehensive loss to $(924.4) million from $(1,252.0) million. Shareholders’ equity increased to $4.46 billion. Cash and cash equivalents were $7.94 billion. The company repurchased 549,526 shares for $69.8 million and paid a $1.00 common dividend per share; preferred dividends were $1.668 million. As of October 27, 2025, common shares outstanding were 63,941,101.
Positive
- None.
Negative
- None.
Insights
Quarter aided by lower funding costs and modest reserve build.
Cullen/Frost posted higher profitability as net interest income reached
Operating costs rose, with non-interest expense at
Valuation changes lifted AOCI, with quarterly OCI of
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
For the quarterly period ended: September 30, 2025
Or
For the transition period from ________________ to ________________
Commission file number: 001-13221
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (Address of principal executive offices) | (Zip code) | |||||||||||||
| (Registrant's telephone number, including area code) | |||||||||||
| N/A | |||||||||||||||||
| (Former name, former address and former fiscal year, if changed since last report | |||||||||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 27, 2025, there were 63,941,101 shares of the registrant’s Common Stock, $.01 par value, outstanding.
Cullen/Frost Bankers, Inc.
Quarterly Report on Form 10-Q
September 30, 2025
Table of Contents
| Page | ||||||||
Part I - Financial Information | ||||||||
| Item 1. | Financial Statements (Unaudited) | |||||||
Consolidated Balance Sheets | 3 | |||||||
Consolidated Statements of Income | 4 | |||||||
Consolidated Statements of Comprehensive Income (Loss) | 5 | |||||||
Consolidated Statements of Changes in Shareholders’ Equity | 6 | |||||||
Consolidated Statements of Cash Flows | 8 | |||||||
Notes to Consolidated Financial Statements | 9 | |||||||
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 40 | ||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 65 | ||||||
| Item 4. | Controls and Procedures | 65 | ||||||
Part II - Other Information | ||||||||
| Item 1. | Legal Proceedings | 66 | ||||||
| Item 1A. | Risk Factors | 66 | ||||||
| Item 2. | Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities | 66 | ||||||
| Item 3. | Defaults Upon Senior Securities | 66 | ||||||
| Item 4. | Mine Safety Disclosures | 66 | ||||||
| Item 5. | Other Information | 66 | ||||||
| Item 6. | Exhibits | 67 | ||||||
Signatures | 68 | |||||||
2
Table of Contents
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Cullen/Frost Bankers, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
| September 30, 2025 | December 31, 2024 | ||||||||||
| Assets: | |||||||||||
| Cash and due from banks | $ | $ | |||||||||
| Interest-bearing deposits | |||||||||||
| Federal funds sold | |||||||||||
| Resell agreements | |||||||||||
| Total cash and cash equivalents | |||||||||||
Securities held to maturity, net of allowance for credit losses of $ | |||||||||||
| Securities available for sale, at estimated fair value | |||||||||||
| Trading account securities | |||||||||||
| Loans, net of unearned discounts | |||||||||||
| Less: Allowance for credit losses on loans | ( | ( | |||||||||
| Net loans | |||||||||||
| Premises and equipment, net | |||||||||||
| Accrued interest receivable and other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities: | |||||||||||
| Deposits: | |||||||||||
| Non-interest-bearing demand deposits | $ | $ | |||||||||
| Interest-bearing deposits | |||||||||||
| Total deposits | |||||||||||
| Federal funds purchased | |||||||||||
| Repurchase agreements | |||||||||||
| Junior subordinated deferrable interest debentures, net of unamortized issuance costs | |||||||||||
| Subordinated notes, net of unamortized issuance costs | |||||||||||
| Accrued interest payable and other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Shareholders’ Equity: | |||||||||||
Preferred stock, par value $ | |||||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive income (loss), net of tax | ( | ( | |||||||||
Treasury stock, at cost; | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
See accompanying Notes to Consolidated Financial Statements.
3
Table of Contents
Cullen/Frost Bankers, Inc.
Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Interest income: | |||||||||||||||||||||||
| Loans, including fees | $ | $ | $ | $ | |||||||||||||||||||
| Securities: | |||||||||||||||||||||||
| Taxable | |||||||||||||||||||||||
| Tax-exempt | |||||||||||||||||||||||
| Interest-bearing deposits | |||||||||||||||||||||||
| Federal funds sold | |||||||||||||||||||||||
| Resell agreements | |||||||||||||||||||||||
| Total interest income | |||||||||||||||||||||||
| Interest expense: | |||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||
| Federal funds purchased | |||||||||||||||||||||||
| Repurchase agreements | |||||||||||||||||||||||
| Junior subordinated deferrable interest debentures | |||||||||||||||||||||||
| Subordinated notes | |||||||||||||||||||||||
| Total interest expense | |||||||||||||||||||||||
| Net interest income | |||||||||||||||||||||||
| Credit loss expense | |||||||||||||||||||||||
| Net interest income after credit loss expense | |||||||||||||||||||||||
| Non-interest income: | |||||||||||||||||||||||
| Trust and investment management fees | |||||||||||||||||||||||
| Service charges on deposit accounts | |||||||||||||||||||||||
| Insurance commissions and fees | |||||||||||||||||||||||
| Interchange and card transaction fees | |||||||||||||||||||||||
| Other charges, commissions, and fees | |||||||||||||||||||||||
| Net gain (loss) on securities transactions | ( | ||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total non-interest income | |||||||||||||||||||||||
| Non-interest expense: | |||||||||||||||||||||||
| Salaries and wages | |||||||||||||||||||||||
| Employee benefits | |||||||||||||||||||||||
| Net occupancy | |||||||||||||||||||||||
| Technology, furniture, and equipment | |||||||||||||||||||||||
| Deposit insurance | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total non-interest expense | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income taxes | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Preferred stock dividends | |||||||||||||||||||||||
| Net income available to common shareholders | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
4
Table of Contents
Cullen/Frost Bankers, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in thousands)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss), before tax: | |||||||||||||||||||||||
| Securities available for sale and transferred securities: | |||||||||||||||||||||||
| Change in net unrealized gain/loss during the period | |||||||||||||||||||||||
| Change in net unrealized gain on securities transferred to held to maturity | ( | ( | ( | ||||||||||||||||||||
| Reclassification adjustment for net (gains) losses included in net income | ( | ( | |||||||||||||||||||||
| Total securities available for sale and transferred securities | |||||||||||||||||||||||
| Defined-benefit post-retirement benefit plans: | |||||||||||||||||||||||
| Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit) | |||||||||||||||||||||||
| Total defined-benefit post-retirement benefit plans | |||||||||||||||||||||||
| Other comprehensive income (loss), before tax | |||||||||||||||||||||||
| Deferred tax expense (benefit) | |||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Comprehensive income (loss) | $ | $ | $ | $ | |||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
5
Table of Contents
Cullen/Frost Bankers, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
(Dollars in thousands, except per share amounts)
| Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss), Net of Tax | Treasury Stock | Total | |||||||||||||||||||||||||||||||||||
| Three months ended: | |||||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Stock option exercises/stock unit conversions ( | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense recognized in earnings | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Purchase of treasury stock ( | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
Cash dividends – Series B preferred stock (approximately $ | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
Cash dividends – common stock ($ | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| September 30, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Stock option exercises/stock unit conversions ( | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense recognized in earnings | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Purchase of treasury stock ( | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
Cash dividends – Series B preferred stock (approximately $ | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
Cash dividends – common stock ($ | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements
6
Table of Contents
Cullen/Frost Bankers, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
(Dollars in thousands, except per share amounts)
| Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss), Net of Tax | Treasury Stock | Total | |||||||||||||||||||||||||||||||||||
| Nine months ended: | |||||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Stock option exercises/stock unit conversions ( | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense recognized in earnings | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Purchase of treasury stock ( | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
Cash dividends – Series B preferred stock (approximately $ | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
Cash dividends – common stock ($ | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| September 30, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Stock option exercises/stock unit conversions ( | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense recognized in earnings | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Purchase of treasury stock ( | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
Cash dividends – Series B preferred stock (approximately $ | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
Cash dividends – common stock ($ | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements
7
Table of Contents
Cullen/Frost Bankers, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Operating Activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash from operating activities: | |||||||||||
| Credit loss expense | |||||||||||
| Deferred tax expense (benefit) | ( | ||||||||||
| Accretion of loan discounts | ( | ( | |||||||||
| Securities premium amortization (discount accretion), net | |||||||||||
| Net (gain) loss on securities transactions | ( | ||||||||||
| Depreciation and amortization | |||||||||||
| Net (gain) loss on sale/write-down of assets/foreclosed assets | ( | ( | |||||||||
| Stock-based compensation | |||||||||||
| Net tax benefit from stock-based compensation | |||||||||||
| Earnings on life insurance policies | ( | ( | |||||||||
| Net change in: | |||||||||||
| Trading account securities | ( | ( | |||||||||
| Lease right-of-use assets | |||||||||||
| Accrued interest receivable and other assets | |||||||||||
| Accrued interest payable and other liabilities | ( | ||||||||||
| Net cash from operating activities | |||||||||||
| Investing Activities: | |||||||||||
| Securities held to maturity: | |||||||||||
| Purchases | ( | ||||||||||
| Maturities, calls and principal repayments | |||||||||||
| Securities available for sale: | |||||||||||
| Purchases | ( | ( | |||||||||
| Sales | |||||||||||
| Maturities, calls and principal repayments | |||||||||||
| Proceeds from sale of loans | |||||||||||
| Net change in loans | ( | ( | |||||||||
| Net cash paid in insurance agency asset acquisition | ( | ||||||||||
| Benefits received on life insurance policies | |||||||||||
| Proceeds from sales of premises and equipment | |||||||||||
| Purchases of premises and equipment | ( | ( | |||||||||
| Proceeds from sales of foreclosed assets | |||||||||||
| Net cash from investing activities | ( | ||||||||||
| Financing Activities: | |||||||||||
| Net change in deposits | ( | ( | |||||||||
| Net change in short-term borrowings | ( | ||||||||||
| Proceeds from stock option exercises | |||||||||||
| Purchase of treasury stock | ( | ( | |||||||||
| Cash dividends paid on preferred stock | ( | ( | |||||||||
| Cash dividends paid on common stock | ( | ( | |||||||||
| Net cash from financing activities | ( | ( | |||||||||
| Net change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
See accompanying Notes to Consolidated Financial Statements.
8
Table of Contents
Notes to Consolidated Financial Statements
(Table amounts in thousands, except for share and per share amounts)
Note 1 - Significant Accounting Policies
Nature of Operations. Cullen/Frost Bankers, Inc. (“Cullen/Frost”) is a financial holding company and a bank holding company headquartered in San Antonio, Texas that provides, through its subsidiaries, a broad array of products and services throughout numerous Texas markets. The terms “Cullen/Frost,” “the Corporation,” “we,” “us,” and “our” mean Cullen/Frost Bankers, Inc., and its subsidiaries, when appropriate. In addition to general commercial and consumer banking, other products and services offered include trust and investment management, insurance, brokerage, mutual funds, leasing, treasury management, capital markets advisory and item processing.
Basis of Presentation. The consolidated financial statements in this Quarterly Report on Form 10-Q include the accounts of Cullen/Frost and all other entities in which Cullen/Frost has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and financial reporting policies we follow conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry.
The consolidated financial statements in this Quarterly Report on Form 10-Q have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of our financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2024, included in our Annual Report on Form 10-K filed with the SEC on February 6, 2025 (the “2024 Form 10-K”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The allowance for loan losses and the fair values of financial instruments and the status of contingencies are particularly subject to change.
Cash Flow Reporting. Additional cash flow information was as follows:
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for income taxes | |||||||||||
| Significant non-cash transactions: | |||||||||||
| Unsettled securities transactions | |||||||||||
| Loans foreclosed and transferred to other real estate owned and foreclosed assets | |||||||||||
| Right-of-use lease assets obtained in exchange for lessee operating lease liabilities | |||||||||||
Accounting Changes, Reclassifications and Restatements. Certain items in prior financial statements have been reclassified to conform to the current presentation. As noted in our 2024 Form 10-K, we adopted ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” for our annual financial statements in 2024. ASU 2023-07 became effective for interim periods in 2025. See Note 14 - Operating Segments.
9
Table of Contents
Note 2 - Securities
Securities - Held to Maturity. A summary of the amortized cost, fair value and allowance for credit losses related to securities held to maturity as of September 30, 2025 and December 31, 2024, is presented below.
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | Allowance for Credit Losses | Net Carrying Amount | ||||||||||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||||||||||||||
Residential mortgage-backed securities | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
States and political subdivisions | ( | ||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||
Residential mortgage-backed securities | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
States and political subdivisions | ( | ||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. The carrying value of held-to-maturity securities pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law totaled $1.3 billion at September 30, 2025 and $1.4 billion December 31, 2024. Accrued interest receivable on held-to-maturity securities totaled $19.6 million at September 30, 2025 and $37.8 million at December 31, 2024, and is included in accrued interest receivable and other assets in the accompanying consolidated balance sheets.
The following table summarizes Moody's and/or Standard & Poor's bond ratings for our portfolio of held-to-maturity securities issued by States and political subdivisions and other securities as of September 30, 2025 and December 31, 2024:
| States and Political Subdivisions | |||||||||||||||||||||||||||||||||||
| Not Guaranteed or Pre-Refunded | Guaranteed by the Texas PSF | Guaranteed by Third Party | Pre-Refunded | Total | Other Securities | ||||||||||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||||||||||||||
| Aaa/AAA | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Aa/AA | |||||||||||||||||||||||||||||||||||
| Not rated | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Aaa/AAA | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Aa/AA | |||||||||||||||||||||||||||||||||||
| Not rated | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
The following table details activity in the allowance for credit losses on held-to-maturity securities during the three and nine months ended September 30, 2025 and 2024.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | |||||||||||||||||||
| Credit loss expense (benefit) | |||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | |||||||||||||||||||
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Securities - Available for Sale. A summary of the amortized cost, fair value and allowance for credit losses related to securities available for sale as of September 30, 2025 and December 31, 2024, is presented below.
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Losses | Estimated Fair Value | |||||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||||||||
| U.S. Treasury | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Residential mortgage-backed securities | |||||||||||||||||||||||||||||
States and political subdivisions | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||
| U.S. Treasury | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Residential mortgage-backed securities | |||||||||||||||||||||||||||||
States and political subdivisions | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. At September 30, 2025, all of the securities in our available for sale municipal bond portfolio were issued by the State of Texas or political subdivisions or agencies within the State of Texas, of which approximately 72.6 % are either guaranteed by the Texas Permanent School Fund (“PSF”) or have been pre-refunded. Securities with limited marketability, such as stock in the Federal Reserve Bank and the Federal Home Loan Bank, are carried at cost and are reported as other available for sale securities in the table above. The carrying value of available-for-sale securities pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law totaled $6.2 84.1 million at September 30, 2025 and $104.9 million at December 31, 2024, respectively, and is included in accrued interest receivable and other assets in the accompanying consolidated balance sheets.
The table below summarizes, as of September 30, 2025, securities available for sale in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by type of security and length of time in a continuous unrealized loss position.
| Less than 12 Months | More than 12 Months | Total | |||||||||||||||||||||||||||||||||
| Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| U.S. Treasury | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||||||||||||||
| States and political subdivisions | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
As of September 30, 2025, no allowance for credit losses has been recognized on available for sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality. This is based upon our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our available for sale securities and in consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, management does not have the intent to sell any of the securities classified as available for sale in the table above and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline.
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Contractual Maturities. The following table summarizes the maturity distribution schedule of securities held to maturity and securities available for sale as of September 30, 2025. Mortgage-backed securities are included in maturity categories based on their stated maturity date. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Other securities classified as available for sale include stock in the Federal Reserve Bank and the Federal Home Loan Bank, which have no maturity date. These securities have been included in the total column only.
| Within 1 Year | 1 - 5 Years | 5 - 10 Years | After 10 Years | Total | |||||||||||||||||||||||||
| Held To Maturity | |||||||||||||||||||||||||||||
| Amortized Cost | |||||||||||||||||||||||||||||
| Residential mortgage-backed securities | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| States and political subdivisions | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Estimated Fair Value | |||||||||||||||||||||||||||||
| Residential mortgage-backed securities | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| States and political subdivisions | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Available For Sale | |||||||||||||||||||||||||||||
| Amortized Cost | |||||||||||||||||||||||||||||
| U. S. Treasury | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||||||||
| States and political subdivisions | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Estimated Fair Value | |||||||||||||||||||||||||||||
| U. S. Treasury | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||||||||
| States and political subdivisions | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Sales of Securities. Sales of available for sale securities were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Proceeds from sales | $ | $ | $ | $ | |||||||||||||||||||
| Gross realized gains | |||||||||||||||||||||||
| Gross realized losses | ( | ( | ( | ||||||||||||||||||||
| Tax (expense) benefit of securities gains/losses | ( | ( | |||||||||||||||||||||
Premiums and Discounts. Premium amortization and discount accretion included in interest income on securities was as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Premium amortization | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Discount accretion | |||||||||||||||||||||||
| Net (premium amortization) discount accretion | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
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Trading Account Securities. Trading account securities, at estimated fair value, were as follows:
| September 30, 2025 | December 31, 2024 | ||||||||||
| U.S. Treasury | $ | $ | |||||||||
| States and political subdivisions | |||||||||||
| Total | $ | $ | |||||||||
Net gains and losses on trading account securities included in other non-interest income were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Net gain on sales transactions | $ | $ | $ | $ | |||||||||||||||||||
| Net mark-to-market gains (losses) | ( | ||||||||||||||||||||||
| Net gain (loss) on trading account securities | $ | $ | $ | $ | |||||||||||||||||||
Note 3 - Loans
Loans were as follows:
| September 30, 2025 | December 31, 2024 | ||||||||||
| Commercial and industrial | $ | $ | |||||||||
| Energy: | |||||||||||
| Production | |||||||||||
| Service | |||||||||||
| Other | |||||||||||
| Total energy | |||||||||||
| Commercial real estate: | |||||||||||
| Commercial mortgages | |||||||||||
| Construction | |||||||||||
| Land | |||||||||||
| Total commercial real estate | |||||||||||
| Consumer real estate: | |||||||||||
| Home equity lines of credit | |||||||||||
| Home equity loans | |||||||||||
| Home improvement loans | |||||||||||
| 1-4 family mortgage loans | |||||||||||
| Other | |||||||||||
| Total consumer real estate | |||||||||||
| Total real estate | |||||||||||
| Consumer and other | |||||||||||
| Total loans | $ | $ | |||||||||
Concentrations of Credit. Most of our lending activity occurs within the State of Texas, including the four largest metropolitan areas of Austin, Dallas/Ft. Worth, Houston, and San Antonio, as well as other markets. The majority of our loan portfolio consists of commercial and industrial and commercial real estate loans. As of September 30, 2025, there were no concentrations of loans related to any single industry in excess of 10 % of total loans. At that date, the largest industry concentrations were related to the energy industry, which totaled 5.8 % of total loans, and the automobile dealerships industry, which totaled 5.3 % of total loans. Unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled $1.2 billion and $76.6 million, respectively, as of September 30, 2025, while unfunded commitments to extend credit and standby letters of credit issued to customers in the automobile dealership industry totaled $564.8 million and $20.0 million, respectively, as of September 30, 2025.
Foreign Loans. We have U.S. dollar denominated loans and commitments to borrowers in Mexico. The outstanding balance of these loans and the unfunded amounts available under these commitments were not
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Related Party Loans. In the ordinary course of business, we have granted loans to certain directors, executive officers, and their affiliates (collectively referred to as “related parties”). Such loans totaled $307.8 million at September 30, 2025 and $295.8 million at December 31, 2024.
Accrued Interest Receivable. Accrued interest receivable on loans totaled $91.8 million at September 30, 2025 and $86.8 million at December 31, 2024, and is included in accrued interest receivable and other assets in the accompanying consolidated balance sheets.
Federal Home Loan Bank Blanket Pledge. We have executed a blanket pledge and security agreement with the Federal Home Loan Bank (“FHLB”) under which certain qualifying loans are pledged as collateral for any outstanding borrowings under the agreement. Loans pledged under the blanket agreement totaled $19.3 billion at September 30, 2025 and $19.2 billion at December 31, 2024, though no
Non-Accrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions.
Non-accrual loans, segregated by class of loans, were as follows:
| September 30, 2025 | December 31, 2024 | ||||||||||||||||||||||
| Total Non-Accrual | Non-Accrual with No Credit Loss Allowance | Total Non-Accrual | Non-Accrual with No Credit Loss Allowance | ||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | |||||||||||||||||||
| Energy | |||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||
| Buildings, land, and other | |||||||||||||||||||||||
| Construction | |||||||||||||||||||||||
| Consumer real estate | |||||||||||||||||||||||
| Consumer and other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
The following table presents non-accrual loans as of September 30, 2025, by class and year of origination.
| 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Energy | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Buildings, land, and other | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer real estate | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
In the table above, loans reported as 2025 originations as of September 30, 2025 were, for the most part, first originated in years prior to 2025 but were renewed in the current year. Had non-accrual loans performed in accordance with their original contract terms, we would have recognized additional interest income, net of tax, of approximately $929 thousand and $3.6 million for the three and nine months ended September 30, 2025, respectively, and approximately $1.5 million and $4.0 million for the three and nine months ended September 30, 2024, respectively.
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An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of September 30, 2025, was as follows:
| Loans 30-89 Days Past Due | Loans 90 or More Days Past Due | Total Past Due Loans | Current Loans | Total Loans | Accruing Loans 90 or More Days Past Due | ||||||||||||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Energy | |||||||||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||||||
| Buildings, land, and other | |||||||||||||||||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||||||||
| Consumer real estate | |||||||||||||||||||||||||||||||||||
| Consumer and other | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Modifications to Borrowers Experiencing Financial Difficulty. From time to time, we may modify certain loans to borrowers who are experiencing financial difficulty. In some cases, these modifications may result in new loans. Loan modifications to borrowers experiencing financial difficulty may be in the form of a principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension or a combination thereof, among other things. The period-end balance of loan modifications, segregated by type of modification, to borrowers experiencing financial difficulty during the nine months ended September 30, 2025 and 2024 are set forth in the table below, regardless of whether such modifications resulted in a new loan. There were no commitments to lend additional funds to these borrowers at September 30, 2025.
| Payment Delay | Percent of Total Class of Loans | Combination: Payment Delay and Term Extension | Percent of Total Class of Loans | ||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||||||||||||||||||
| Buildings, land, and other | |||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||||||||||||||||||
| Buildings, land, and other | |||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
The financial effects of the loan modifications made to borrowers experiencing financial difficulty were not significant during the nine months ended September 30, 2025 and 2024. The loan modifications reported in the table above did not significantly impact our determination of the allowance for credit losses on loans during their respective reporting periods.
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Information as of September 30, 2025 and September 30, 2024, related to loans modified (by type of modification) in the preceding twelve months, respectively, whereby the borrower was experiencing financial difficulty at the time of modification is set forth in the following table.
| September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Payment Delay | Combination: Payment Delay and Term Extension | Payment Delay | Combination: Payment Delay and Term Extension | ||||||||||||||||||||||||||||||||||||||||||||
| Past due in excess of 90 days or on non-accrual status at period-end: | |||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||||||||||||||||||
| Buildings, land, and other | |||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs during the period: | |||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
Credit Quality Indicators. As part of the on-going monitoring of the credit quality of our loan portfolio, management tracks certain credit quality indicators including trends related to (i) the weighted-average risk grade of commercial loans, (ii) the level of classified commercial loans, (iii) the delinquency status of consumer loans, (iv) non-performing loans (see details above) and (v) the general economic conditions in the State of Texas.
We utilize a risk grading matrix to assign a risk grade to each of our commercial loans. Loans are graded on a scale of 1 to 14. A description of the general characteristics of the 14 risk grades is set forth in our 2024 Form 10-K. We monitor portfolio credit quality by the weighted-average risk grade of each class of commercial loan. Individual relationship managers, under the oversight of credit administration, review updated financial information for all pass grade loans to reassess the risk grade on at least an annual basis. When a loan has a risk grade of 9, it is still considered a pass grade loan; however, it is considered to be on management’s “watch list,” where a significant risk-modifying action is anticipated in the near term. When a loan has a risk grade of 10 or higher, a special assets officer monitors the loan on an on-going basis. The following table presents weighted-average risk grades for all commercial loans, by class and year of origination/renewal, as of September 30, 2025.
| 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total | W/A Risk Grade | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grades 1-8 | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 11 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 12 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 13 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| W/A risk grade | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Energy | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grades 1-8 | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 11 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 12 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 13 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| W/A risk grade | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total | W/A Risk Grade | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Buildings, land, other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grades 1-8 | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 11 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 12 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 13 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| W/A risk grade | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grades 1-8 | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 11 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 12 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 13 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| W/A risk grade | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial real estate | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| W/A risk grade | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In the table above, certain loans are reported as 2025 originations and have risk grades of 11 or higher. These loans were, for the most part, first originated in various years prior to 2025 but were renewed in the current year.
The following tables present weighted average risk grades for all commercial loans by class as of December 31, 2024. Refer to our 2024 Form 10-K for details of these loans by year of origination/renewal.
| Commercial and Industrial | Energy | Commercial Real Estate - Buildings, Land and Other | Commercial Real Estate - Construction | Total Commercial Real Estate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| W/A Risk Grade | Loans | W/A Risk Grade | Loans | W/A Risk Grade | Loans | W/A Risk Grade | Loans | W/A Risk Grade | Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grades 1-8 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 11 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 12 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk grade 13 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Information about the payment status of consumer loans, segregated by portfolio segment and year of origination, as of September 30, 2025, was as follows:
| 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Consumer real estate: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Past due 30-89 days | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Past due 90 or more days | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total past due | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Past due 30-89 days | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Past due 90 or more days | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total past due | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Period-end balances for revolving loans that converted to term during the three and nine months ended September 30, 2025 and 2024 were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | |||||||||||||||||||
| Energy | |||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||
| Buildings, land and other | |||||||||||||||||||||||
| Construction | |||||||||||||||||||||||
| Consumer real estate | |||||||||||||||||||||||
| Consumer and other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
In assessing the general economic conditions in the State of Texas, management monitors and tracks the Texas Leading Index (“TLI”), which is produced by the Federal Reserve Bank of Dallas. The TLI, the components of which are more fully described in our 2024 Form 10-K, totaled 125.9 at August 31, 2025 (most recent date available) and 125.3 at December 31, 2024. A higher TLI value implies more favorable economic conditions.
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The following table presents details of the allowance for credit losses on loans segregated by loan portfolio segment as of September 30, 2025 and December 31, 2024.
| September 30, 2025 | Commercial and Industrial | Energy | Commercial Real Estate | Consumer Real Estate | Consumer and Other | Total | |||||||||||||||||||||||||||||
| Modeled expected credit losses | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Q-Factor and other qualitative adjustments | |||||||||||||||||||||||||||||||||||
| Specific allocations | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Modeled expected credit losses | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Q-Factor and other qualitative adjustments | |||||||||||||||||||||||||||||||||||
Specific allocations | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
The following table details activity in the allowance for credit losses on loans by portfolio segment for the three and nine months ended September 30, 2025 and 2024. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
| Commercial and Industrial | Energy | Commercial Real Estate | Consumer Real Estate | Consumer and Other | Total | ||||||||||||||||||||||||||||||
| Three months ended: | |||||||||||||||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Credit loss expense (benefit) | ( | ||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Recoveries | |||||||||||||||||||||||||||||||||||
| Net (charge-offs) recoveries | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| September 30, 2024 | |||||||||||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Credit loss expense (benefit) | |||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Recoveries | |||||||||||||||||||||||||||||||||||
| Net (charge-offs) recoveries | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Nine months ended: | |||||||||||||||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Credit loss expense (benefit) | ( | ||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Recoveries | |||||||||||||||||||||||||||||||||||
| Net (charge-offs) recoveries | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| September 30, 2024 | |||||||||||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Credit loss expense (benefit) | ( | ||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Recoveries | |||||||||||||||||||||||||||||||||||
| Net (charge-offs) recoveries | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
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The following table presents year-to-date gross charge-offs by year of origination as of September 30, 2025.
| 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Energy | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Buildings, land and other | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer real estate | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
In the table above, $13.8 million of the consumer and other loan charge-offs reported as 2025 originations and $3.8 million of the total reported as 2024 originations were related to deposit overdrafts.
The following table presents loans that were evaluated for expected credit losses on an individual basis and the related specific allocations, by loan portfolio segment, as of September 30, 2025 and December 31, 2024.
| September 30, 2025 | December 31, 2024 | ||||||||||||||||||||||
| Loan Balance | Specific Allocations | Loan Balance | Specific Allocations | ||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | |||||||||||||||||||
| Energy | |||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||
| Buildings, land and other | |||||||||||||||||||||||
| Construction | |||||||||||||||||||||||
| Consumer real estate | |||||||||||||||||||||||
| Consumer and other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Note 4 - Deposits
Deposits were as follows:
| September 30, 2025 | December 31, 2024 | ||||||||||
| Non-interest-bearing demand deposits | $ | $ | |||||||||
| Interest-bearing deposits: | |||||||||||
| Savings and interest checking | |||||||||||
| Money market accounts | |||||||||||
| Time accounts | |||||||||||
| Total interest-bearing deposits | |||||||||||
| Total deposits | $ | $ | |||||||||
The table below presents additional information about our deposits. Public funds in excess of deposit insurance limits are included in the totals for deposits not covered by insurance; however, such deposits are generally fully collateralized by securities.
| September 30, 2025 | December 31, 2024 | ||||||||||
| Deposits from foreign sources (primarily Mexico) | $ | $ | |||||||||
| Non-interest-bearing public funds deposits | |||||||||||
| Interest-bearing public funds deposits | |||||||||||
| Total deposits not covered by deposit insurance | |||||||||||
| Time deposits not covered by deposit insurance | |||||||||||
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Note 5 - Off-Balance-Sheet Arrangements, Commitments, Guarantees and Contingencies
Financial Instruments with Off-Balance-Sheet Risk. In the normal course of business, we enter into various transactions, which, in accordance with generally accepted accounting principles are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. As more fully discussed in our 2024 Form 10-K, these transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. We minimize our exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.
Financial instruments with off-balance-sheet risk were as follows:
| September 30, 2025 | December 31, 2024 | ||||||||||
| Commitments to extend credit | $ | $ | |||||||||
| Standby letters of credit | |||||||||||
| Deferred standby letter of credit fees | |||||||||||
Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures. The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. Off-balance-sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit detailed in the table above. The amount of the allowance represents management's best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment. Our allowance methodology is more fully described in our 2024 Form 10-K.
The following table details activity in the allowance for credit losses on off-balance-sheet credit exposures.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | |||||||||||||||||||
| Credit loss expense (benefit) | ( | ( | |||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | |||||||||||||||||||
Lease Commitments. We lease certain office facilities and office equipment under operating leases. The components of total lease expense were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Amortization of lease right-of-use assets | $ | $ | $ | $ | |||||||||||||||||||
| Short-term lease expense | |||||||||||||||||||||||
| Non-lease components (including taxes, insurance, common maintenance, etc.) | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Right-of-use lease assets totaled $264.8 million at September 30, 2025 and $270.3 million at December 31, 2024, and are reported as a component of premises and equipment on our accompanying consolidated balance sheets. The related lease liabilities totaled $302.1 million at September 30, 2025 and $308.1 million at December 31, 2024, and are reported as a component of accrued interest payable and other liabilities in the accompanying consolidated balance sheets. Lease payments under operating leases that were applied to our operating lease liability totaled $9.4 million and $27.8 million during the three and nine months ended September 30, 2025, respectively, and $8.3 million and $25.3 million during the three and nine months ended September 30, 2024, respectively. There has been no significant change in our expected future minimum lease payments since December 31, 2024. See the 2024 Form 10-K for information regarding these commitments.
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Note 6 - Capital and Regulatory Matters
Banks and bank holding companies are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.
Cullen/Frost’s and Frost Bank’s Common Equity Tier 1 capital (“CET1”) includes common stock and related paid-in capital, net of treasury stock, and retained earnings. In connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include most components of accumulated other comprehensive income in CET1. We also elected to exclude the effects of credit loss accounting under CECL from CET1 for a five-year transitional period, as further discussed in our 2024 Form 10-K. This CECL transitional adjustment totaled $15.4 million at December 31, 2024, after which point the transitional period ended. CET1 is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities. Frost Bank's CET1 is also reduced by its equity investment in its financial subsidiary, Frost Insurance Agency (“FIA”).
Tier 1 capital includes CET1 and additional Tier 1 capital. For Cullen/Frost, additional Tier 1 capital included $145.5 4.450 no 20.0 20.0 million at September 30, 2025 and $40.0 million at December 31, 2024, and trust preferred securities totaling $120.0
The following table presents actual and required capital ratios as of September 30, 2025 and December 31, 2024, for Cullen/Frost and Frost Bank under the Basel III Capital Rules. Capital levels required to be considered well-capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. See the 2024 Form 10-K for a more detailed discussion of the Basel III Capital Rules.
| Actual | Minimum Capital Required Plus Capital Conservation Buffer | Required to be Considered Well- Capitalized (1) | |||||||||||||||||||||||||||||||||
| Capital Amount | Ratio | Capital Amount | Ratio | Capital Amount | Ratio | ||||||||||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||||||||||||||
| Common Equity Tier 1 to Risk-Weighted Assets | |||||||||||||||||||||||||||||||||||
| Cullen/Frost | $ | % | $ | % | N/A | N/A | |||||||||||||||||||||||||||||
| Frost Bank | $ | % | |||||||||||||||||||||||||||||||||
| Tier 1 Capital to Risk-Weighted Assets | |||||||||||||||||||||||||||||||||||
| Cullen/Frost | |||||||||||||||||||||||||||||||||||
| Frost Bank | |||||||||||||||||||||||||||||||||||
| Total Capital to Risk-Weighted Assets | |||||||||||||||||||||||||||||||||||
| Cullen/Frost | |||||||||||||||||||||||||||||||||||
| Frost Bank | |||||||||||||||||||||||||||||||||||
| Leverage Ratio | |||||||||||||||||||||||||||||||||||
| Cullen/Frost | N/A | N/A | |||||||||||||||||||||||||||||||||
| Frost Bank | |||||||||||||||||||||||||||||||||||
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| Actual | Minimum Capital Required Plus Capital Conservation Buffer | Required to be Considered Well- Capitalized (1) | |||||||||||||||||||||||||||||||||
| Capital Amount | Ratio | Capital Amount | Ratio | Capital Amount | Ratio | ||||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Common Equity Tier 1 to Risk-Weighted Assets | |||||||||||||||||||||||||||||||||||
| Cullen/Frost | $ | % | $ | % | N/A | N/A | |||||||||||||||||||||||||||||
| Frost Bank | $ | % | |||||||||||||||||||||||||||||||||
| Tier 1 Capital to Risk-Weighted Assets | |||||||||||||||||||||||||||||||||||
| Cullen/Frost | |||||||||||||||||||||||||||||||||||
| Frost Bank | |||||||||||||||||||||||||||||||||||
| Total Capital to Risk-Weighted Assets | |||||||||||||||||||||||||||||||||||
| Cullen/Frost | |||||||||||||||||||||||||||||||||||
| Frost Bank | |||||||||||||||||||||||||||||||||||
| Leverage Ratio | |||||||||||||||||||||||||||||||||||
| Cullen/Frost | N/A | N/A | |||||||||||||||||||||||||||||||||
| Frost Bank | |||||||||||||||||||||||||||||||||||
____________________
(1)“Well-capitalized” minimum Common Equity Tier 1 to Risk-Weighted Assets and Leverage Ratio are not formally defined under applicable banking regulations for bank holding companies.
As of September 30, 2025, capital levels at Cullen/Frost and Frost Bank exceed all capital adequacy requirements under the Basel III Capital Rules. Based on the ratios presented above, capital levels as of September 30, 2025, at Cullen/Frost and Frost Bank exceed the minimum levels necessary to be considered “well-capitalized.”
Cullen/Frost and Frost Bank are subject to the regulatory capital requirements administered by the Federal Reserve Board and, for Frost Bank, the Federal Deposit Insurance Corporation (“FDIC”). Regulatory authorities can initiate certain mandatory actions if Cullen/Frost or Frost Bank fail to meet the minimum capital requirements, which could have a direct material effect on our financial statements. Management believes, as of September 30, 2025, that Cullen/Frost and Frost Bank meet all capital adequacy requirements to which they are subject.
Series B Preferred Stock. Outstanding preferred stock includes 150,000 shares, or $150.0 million in aggregate liquidation preference, of our 4.450 0.01 and liquidation preference $1,000 per share (“Series B Preferred Stock”). Each share of Series B Preferred Stock issued and outstanding is represented by 40 depositary shares, each representing a 1/40th ownership interest in a share of the Series B Preferred Stock (equivalent to a liquidation preference of $25 per share). The Series B Preferred Stock qualifies as Tier 1 capital for the purposes of the regulatory capital calculations. The net proceeds from the issuance and sale of the Series B Preferred Stock, after deducting $4.5 million of issuance costs including the underwriting discount and professional service fees, among other things, were approximately $145.5 million. Refer to our 2024 Form 10-K for additional details related to our Series B Preferred Stock.
Purchases of Equity Securities. From time to time, our board of directors has authorized stock repurchase plans. The purpose of such plans and the manner in which shares are repurchased is discussed in more detail in our 2024 Form 10-K. Most recently, on January 29, 2025, our board of directors authorized a $150.0 million stock repurchase program (the “2025 Repurchase Plan”), allowing us to repurchase shares of our common stock over a one-year period expiring on January 28, 2026. The 2025 Repurchase Plan was publicly announced in a current report on Form 8-K filed with the SEC on January 30, 2025.
Under the 2025 Repurchase Plan, we repurchased 549,228 shares at a total cost of $69.3 million (excluding applicable excise taxes) during the nine months ended September 30, 2025. We also repurchased 19,331 shares at a total cost of $2.7 million in connection with the vesting of certain share awards during the nine months ended September 30, 2025. Repurchases made in connection with the vesting of share awards are not associated with any publicly announced stock repurchase plan. Under a prior repurchase plan, we repurchased 489,862 shares at a total cost of $50.0 million (excluding applicable excise taxes) during the nine months ended September 30, 2024. We also repurchased 18,314 shares at a total cost of $2.1 million in connection with the vesting of certain share awards during the nine months ended September 30, 2024. Under the Basel III Capital Rules, Cullen/Frost may not repurchase or redeem any of its preferred stock or subordinated notes and, in some cases, its common stock without the prior approval of the Federal Reserve Board.
Dividend Restrictions. In the ordinary course of business, Cullen/Frost is dependent upon dividends from Frost Bank to provide funds for the payment of dividends to shareholders and to provide for other cash requirements, including to repurchase its common stock. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of Frost Bank to fall below specified minimum
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levels. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years. Under the foregoing dividend restrictions and while maintaining its “well-capitalized” status, at September 30, 2025, Frost Bank could pay aggregate dividends of up to $923.3 million to Cullen/Frost without prior regulatory approval.
Under the terms of the junior subordinated deferrable interest debentures that Cullen/Frost has issued to Cullen/Frost Capital Trust II, Cullen/Frost has the right at any time during the term of the debentures to defer the payment of interest at any time or from time to time for an extension period not exceeding 20 consecutive quarterly periods with respect to each extension period. In the event that we have elected to defer interest on the debentures, we may not, with certain exceptions, declare or pay any dividends or distributions on our capital stock or purchase or acquire any of our capital stock.
Under the terms of the Series B Preferred Stock, in the event that we do not declare and pay dividends on the Series B Preferred Stock for the most recent dividend period, we may not, with certain exceptions, declare or pay dividends on, or purchase, redeem or otherwise acquire, shares of our common stock or any of our securities that rank junior to the Series B Preferred Stock.
Note 7 - Derivative Financial Instruments
The fair value of derivative positions outstanding is included in accrued interest receivable and other assets and accrued interest payable and other liabilities in the accompanying consolidated balance sheets and in the net change in each of these financial statement line items in the accompanying consolidated statements of cash flows.
Interest Rate Derivatives. We utilize interest rate swaps, caps and floors to mitigate exposure to interest rate risk and to facilitate the needs of our customers. Our objectives for utilizing our currently outstanding derivative positions are described below:
We have entered into certain interest rate derivative contracts that are not designated as hedging instruments to accommodate the business needs of our customers. These derivative contracts relate to transactions in which we enter into an interest rate swap, cap and/or floor with a customer while at the same time entering into an offsetting interest rate swap, cap and/or floor with a third-party financial institution. In connection with each swap transaction, we agree to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, we agree to pay a third-party financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows our customer to effectively convert a variable rate loan to a fixed rate. Because we act as an intermediary for our customers, changes in the fair value of the underlying derivative contracts largely offset each other and do not significantly impact our results of operations.
The notional amounts and estimated fair values of interest rate derivative contracts outstanding are presented in the following table. The fair values of these contracts are estimated utilizing internal valuation methods with observable market data inputs, or as determined by the Chicago Mercantile Exchange (“CME”) for centrally cleared derivative contracts. CME rules legally characterize variation margin payments for centrally cleared derivatives as settlements of the derivatives' exposure rather than collateral. As a result, the variation margin payment and the related derivative instruments are considered a single unit of account for accounting and financial reporting purposes. Variation margin, as determined by the CME, is settled daily. As a result, derivative contracts that clear through the CME have an estimated fair value of zero
| September 30, 2025 | December 31, 2024 | ||||||||||||||||||||||
| Notional Amount | Estimated Fair Value | Notional Amount | Estimated Fair Value | ||||||||||||||||||||
| Non-hedging interest rate derivatives: | |||||||||||||||||||||||
| Financial institution counterparties: | |||||||||||||||||||||||
| Loan/lease interest rate swaps – assets | $ | $ | |||||||||||||||||||||
| Loan/lease interest rate swaps – liabilities | ( | ( | |||||||||||||||||||||
| Loan/lease interest rate caps – assets | |||||||||||||||||||||||
| Customer counterparties: | |||||||||||||||||||||||
| Loan/lease interest rate swaps – assets | |||||||||||||||||||||||
| Loan/lease interest rate swaps – liabilities | ( | ( | |||||||||||||||||||||
| Loan/lease interest rate caps – liabilities | ( | ( | |||||||||||||||||||||
24
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The weighted-average rates paid and received for interest rate swaps outstanding at September 30, 2025, were as follows:
| Weighted-Average | |||||||||||
| Interest Rate Paid | Interest Rate Received | ||||||||||
| Interest rate swaps: | |||||||||||
| Non-hedging interest rate swaps – financial institution counterparties | % | % | |||||||||
| Non-hedging interest rate swaps – customer counterparties | |||||||||||
The weighted-average strike rate for outstanding interest rate caps was 3.80 % at September 30, 2025.
Commodity Derivatives. We enter into certain commodity derivative contracts that are not designated as hedging instruments to accommodate the business needs of our customers. Upon the origination of a commodity derivative contract with a customer, we simultaneously enter into an offsetting contract with a third-party financial institution to mitigate our exposure to fluctuations in commodity prices. Because we act as an intermediary for our customers, changes in the fair value of the underlying derivative contracts largely offset each other and do not significantly impact our results of operations.
The notional amounts and estimated fair values of non-hedging commodity derivative contracts outstanding are presented in the following table. The fair values of these contracts are estimated utilizing internal valuation methods with observable market data inputs.
| September 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||
| Notional Units | Notional Amount | Estimated Fair Value | Notional Amount | Estimated Fair Value | |||||||||||||||||||||||||
| Financial institution counterparties: | |||||||||||||||||||||||||||||
| Oil – assets | Barrels | $ | $ | ||||||||||||||||||||||||||
| Oil – liabilities | Barrels | ( | ( | ||||||||||||||||||||||||||
| Natural gas – assets | MMBTUs | ||||||||||||||||||||||||||||
| Natural gas – liabilities | MMBTUs | ( | ( | ||||||||||||||||||||||||||
| Customer counterparties: | |||||||||||||||||||||||||||||
| Oil – assets | Barrels | $ | |||||||||||||||||||||||||||
| Oil – liabilities | Barrels | ( | ( | ||||||||||||||||||||||||||
| Natural gas – assets | MMBTUs | ||||||||||||||||||||||||||||
| Natural gas – liabilities | MMBTUs | ( | ( | ||||||||||||||||||||||||||
Foreign Currency Derivatives. We enter into foreign currency derivative contracts that are not designated as hedging instruments to accommodate the business needs of our customers and to mitigate our exposure to foreign currency. Upon the origination of a foreign currency derivative contract with a customer, we simultaneously enter into an offsetting contract with a third-party financial institution to mitigate our exposure to fluctuations in foreign currency exchange rates. Because we act as an intermediary for our customers, changes in the fair value of the underlying derivative contracts largely offset each other and do not significantly impact our results of operations. We also utilize foreign currency derivative contracts that are not designated as hedging instruments to mitigate the economic effect of fluctuations in foreign currency exchange rates on foreign currency holdings and certain short-term, non-U.S. dollar denominated loans. The notional amounts and fair values of non-hedging foreign currency derivative contracts are presented in the following table. The fair values of these contracts are estimated utilizing internal valuation methods with observable market data inputs.
| September 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||
| Notional Currency | Notional Amount | Estimated Fair Value | Notional Amount | Estimated Fair Value | |||||||||||||||||||||||||
| Financial institution counterparties: | |||||||||||||||||||||||||||||
| Forward and option contracts – assets | EUR | $ | $ | ||||||||||||||||||||||||||
| Forward and option contracts – liabilities | EUR | ( | |||||||||||||||||||||||||||
| Customer counterparties: | |||||||||||||||||||||||||||||
| Forward and option contracts – assets | EUR | ||||||||||||||||||||||||||||
| Forward and option contracts – liabilities | EUR | ( | |||||||||||||||||||||||||||
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Gains, Losses and Derivative Cash Flows. For non-hedging derivative instruments, gains and losses due to changes in fair value and all cash flows are included in other non-interest income and other non-interest expense as presented in the table below.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Non-hedging interest rate derivatives: | |||||||||||||||||||||||
| Other non-interest income | $ | $ | $ | $ | |||||||||||||||||||
| Other non-interest expense | ( | ( | ( | ||||||||||||||||||||
| Non-hedging commodity derivatives: | |||||||||||||||||||||||
| Other non-interest income | |||||||||||||||||||||||
| Non-hedging foreign currency derivatives: | |||||||||||||||||||||||
| Other non-interest income | |||||||||||||||||||||||
Note 8 - Balance Sheet Offsetting and Repurchase Agreements
Balance Sheet Offsetting. Certain financial instruments, including resell and repurchase agreements and derivatives, may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements or similar agreements. Our derivative transactions with upstream financial institution counterparties are generally executed under International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Nonetheless, we do not generally offset such financial instruments for financial reporting purposes.
Information about financial instruments that are eligible for offset in the consolidated balance sheet as of September 30, 2025, is presented in the following tables.
| Gross Amount Recognized | Gross Amount Offset | Net Amount Recognized | |||||||||||||||
| September 30, 2025 | |||||||||||||||||
| Financial assets: | |||||||||||||||||
| Derivatives: | |||||||||||||||||
| Interest rate contracts | $ | $ | $ | ||||||||||||||
| Commodity contracts | |||||||||||||||||
| Foreign currency contracts | |||||||||||||||||
| Total derivatives | |||||||||||||||||
| Resell agreements | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
| Financial liabilities: | |||||||||||||||||
| Derivatives: | |||||||||||||||||
| Interest rate contracts | $ | $ | $ | ||||||||||||||
| Commodity contracts | |||||||||||||||||
| Foreign currency contracts | |||||||||||||||||
| Total derivatives | |||||||||||||||||
| Repurchase agreements | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
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| Gross Amounts Not Offset | |||||||||||||||||||||||
| Net Amount Recognized | Financial Instruments | Collateral | Net Amount | ||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||
| Derivatives: | |||||||||||||||||||||||
| Counterparty H | $ | $ | ( | $ | ( | $ | |||||||||||||||||
| Counterparty F | ( | ( | |||||||||||||||||||||
| Counterparty B | ( | ( | |||||||||||||||||||||
| Counterparty E | ( | ( | |||||||||||||||||||||
| Other counterparties | ( | ( | |||||||||||||||||||||
| Total derivatives | ( | ( | |||||||||||||||||||||
| Resell agreements | ( | ||||||||||||||||||||||
| Total | $ | $ | ( | $ | ( | $ | |||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||
| Derivatives: | |||||||||||||||||||||||
| Counterparty H | $ | $ | ( | $ | $ | ||||||||||||||||||
| Counterparty F | ( | ||||||||||||||||||||||
| Counterparty B | ( | ||||||||||||||||||||||
| Counterparty E | ( | ||||||||||||||||||||||
| Other counterparties | ( | ( | |||||||||||||||||||||
| Total derivatives | ( | ( | |||||||||||||||||||||
| Repurchase agreements | ( | ||||||||||||||||||||||
| Total | $ | $ | ( | $ | ( | $ | |||||||||||||||||
Information about financial instruments that are eligible for offset in the consolidated balance sheet as of December 31, 2024, is presented in the following tables.
| Gross Amount Recognized | Gross Amount Offset | Net Amount Recognized | |||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||
| Derivatives: | |||||||||||||||||||||||
| Interest rate contracts | $ | $ | $ | ||||||||||||||||||||
| Commodity contracts | |||||||||||||||||||||||
| Total derivatives | |||||||||||||||||||||||
| Resell agreements | |||||||||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||
| Derivatives: | |||||||||||||||||||||||
| Interest rate contracts | $ | $ | $ | ||||||||||||||||||||
| Commodity contracts | |||||||||||||||||||||||
| Total derivatives | |||||||||||||||||||||||
| Repurchase agreements | |||||||||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||||||||
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| Gross Amounts Not Offset | |||||||||||||||||||||||
| Net Amount Recognized | Financial Instruments | Collateral | Net Amount | ||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||
| Derivatives: | |||||||||||||||||||||||
| Counterparty H | $ | $ | ( | $ | ( | $ | |||||||||||||||||
| Counterparty F | ( | ( | |||||||||||||||||||||
| Counterparty B | ( | ( | |||||||||||||||||||||
| Counterparty E | ( | ( | |||||||||||||||||||||
| Other counterparties | ( | ( | |||||||||||||||||||||
| Total derivatives | ( | ( | |||||||||||||||||||||
| Resell agreements | ( | ||||||||||||||||||||||
| Total | $ | $ | ( | $ | ( | $ | |||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||
| Derivatives: | |||||||||||||||||||||||
| Counterparty H | $ | $ | ( | $ | $ | ||||||||||||||||||
| Counterparty F | ( | ||||||||||||||||||||||
| Counterparty B | ( | ||||||||||||||||||||||
| Counterparty E | ( | ||||||||||||||||||||||
| Other counterparties | ( | ( | |||||||||||||||||||||
| Total derivatives | ( | ( | |||||||||||||||||||||
| Repurchase agreements | ( | ||||||||||||||||||||||
| Total | $ | $ | ( | $ | ( | $ | |||||||||||||||||
Repurchase Agreements. We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. We monitor collateral levels on a continuous basis. We may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.
The remaining contractual maturity of repurchase agreements in the consolidated balance sheets as of September 30, 2025 and December 31, 2024, is presented in the following tables.
| Remaining Contractual Maturity of the Agreements | |||||||||||||||||||||||||||||
| Overnight and Continuous | Up to 30 Days | 30-90 Days | Greater than 90 Days | Total | |||||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||||||||
| Repurchase agreements: | |||||||||||||||||||||||||||||
| U.S. Treasury | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||||||||
| Total borrowings | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Gross amount of recognized liabilities for repurchase agreements | $ | ||||||||||||||||||||||||||||
| Amounts related to agreements not included in offsetting disclosures above | $ | ||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||
| Repurchase agreements: | |||||||||||||||||||||||||||||
| U.S. Treasury | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||||||||
| Total borrowings | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Gross amount of recognized liabilities for repurchase agreements | $ | ||||||||||||||||||||||||||||
| Amounts related to agreements not included in offsetting disclosures above | $ | ||||||||||||||||||||||||||||
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Note 9 - Stock-Based Compensation
A combined summary of activity in our active stock plans is presented in the table below. Performance stock units outstanding are presented assuming attainment of the maximum payout rate as set forth by the performance criteria. As of September 30, 2025, there were 2,353,029 shares remaining available for grant for future stock-based compensation awards.
| Deferred Stock Units Outstanding | Non-Vested Restricted Stock Units Outstanding | Performance Stock Units Outstanding | Stock Options Outstanding | |||||||||||||||||||||||||||||||||||||||||||||||
| Number of Units | Weighted- Average Fair Value at Grant | Number of Units | Weighted- Average Fair Value at Grant | Number of Units | Weighted- Average Fair Value at Grant | Number of Shares | Weighted- Average Exercise Price | |||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2025 | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Granted | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Exercised/vested | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Forfeited/expired | — | — | ( | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued in connection with stock compensation awards are issued from available treasury shares. If no treasury shares are available, new shares are issued from available authorized shares. Shares issued in connection with stock compensation awards along with other related information were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| New shares issued from available authorized shares | |||||||||||||||||||||||
| Shares issued from available treasury stock | |||||||||||||||||||||||
| Proceeds from stock option exercises | $ | $ | $ | $ | |||||||||||||||||||
Stock-based compensation expense is recognized ratably over the requisite service period for all awards. All stock option awards currently outstanding are fully vested and the service period for such awards generally matched the vesting period in most cases. The service period for non-vested stock units does not extend past the date the participant reaches 65 years of age. Deferred stock units granted to non-employee directors generally have immediate vesting and the related expense is fully recognized on the date of grant. For performance stock units, the service period generally matches the three-year performance period specified by the award, however, the service period does not extend past the date the participant reaches 65 years of age. Expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued.
Stock-based compensation expense or benefit and the related income tax benefit is presented in the following table. The service period for performance stock units granted each year begins on January 1 of the following year.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Non-vested stock units | $ | $ | $ | $ | |||||||||||||||||||
| Deferred stock units | |||||||||||||||||||||||
| Performance stock units | ( | ( | |||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Income tax benefit | $ | $ | $ | $ | |||||||||||||||||||
Unrecognized stock-based compensation expense at September 30, 2025 is presented in the table below. Unrecognized stock-based compensation expense related to performance stock units is presented assuming attainment of the maximum payout rate as set forth by the performance criteria.
| Non-vested stock units | $ | ||||
| Performance stock units | |||||
| Total | $ | ||||
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Note 10 - Earnings Per Common Share
Earnings per common share is computed using the two-class method as more fully described in our 2024 Form 10-K. The following table presents a reconciliation of net income available to common shareholders, net earnings allocated to common stock and the number of shares used in the calculation of basic and diluted earnings per common share.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Less: Preferred stock dividends | |||||||||||||||||||||||
| Net income available to common shareholders | |||||||||||||||||||||||
| Less: Earnings allocated to participating securities | |||||||||||||||||||||||
| Net earnings allocated to common stock | $ | $ | $ | $ | |||||||||||||||||||
| Distributed earnings allocated to common stock | $ | $ | $ | $ | |||||||||||||||||||
| Undistributed earnings allocated to common stock | |||||||||||||||||||||||
| Net earnings allocated to common stock | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average shares outstanding for basic earnings per common share | |||||||||||||||||||||||
| Dilutive effect of stock compensation | |||||||||||||||||||||||
| Weighted-average shares outstanding for diluted earnings per common share | |||||||||||||||||||||||
Note 11 - Defined Benefit Plans
The components of the combined net periodic expense (benefit) for our defined benefit pension plans are presented in the table below.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Expected return on plan assets, net of expenses | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Interest cost on projected benefit obligation | |||||||||||||||||||||||
| Net amortization and deferral | |||||||||||||||||||||||
| Net periodic expense (benefit) | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Our non-qualified defined benefit pension plan is not funded. No contributions to the qualified defined benefit pension plan were made during the nine months ended September 30, 2025. We do no t expect to make any contributions to the qualified defined benefit plan during the remainder of 2025.
Note 12 - Income Taxes
Income tax expense was as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Current income tax expense | $ | $ | $ | $ | |||||||||||||||||||
| Deferred income tax expense (benefit) | ( | ( | |||||||||||||||||||||
| Income tax expense, as reported | $ | $ | $ | $ | |||||||||||||||||||
| Effective tax rate | % | % | % | % | |||||||||||||||||||
We had a net deferred tax asset totaling $285.1 million at September 30, 2025 and $375.2 million at December 31, 2024. No
30
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The effective income tax rates differed from the U.S. statutory federal income tax rates of 21 no
We file income tax returns in the U.S. federal jurisdiction. We are no longer subject to U.S. federal income tax examinations by tax authorities for years before 2021.
Note 13 - Other Comprehensive Income (Loss)
The before and after-tax amounts allocated to each component of other comprehensive income (loss) are presented in the following table. Reclassification adjustments related to securities available for sale are included in net gain (loss) on securities transactions in the accompanying consolidated statements of income. Reclassification adjustments related to defined-benefit post-retirement benefit plans are included in the computation of net periodic pension expense (see Note 11 – Defined Benefit Plans).
| Three Months Ended September 30, 2025 | Three Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||
| Before Tax Amount | Tax Expense, (Benefit) | Net of Tax Amount | Before Tax Amount | Tax Expense, (Benefit) | Net of Tax Amount | ||||||||||||||||||||||||||||||
| Securities available for sale and transferred securities: | |||||||||||||||||||||||||||||||||||
| Change in net unrealized gain/loss during the period | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Change in net unrealized gain on securities transferred to held to maturity | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Reclassification adjustment for net (gains) losses included in net income | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Total securities available for sale and transferred securities | |||||||||||||||||||||||||||||||||||
| Defined-benefit post-retirement benefit plans: | |||||||||||||||||||||||||||||||||||
| Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit) | |||||||||||||||||||||||||||||||||||
| Total defined-benefit post-retirement benefit plans | |||||||||||||||||||||||||||||||||||
| Total other comprehensive income (loss) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2025 | Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||
| Before Tax Amount | Tax Expense, (Benefit) | Net of Tax Amount | Before Tax Amount | Tax Expense, (Benefit) | Net of Tax Amount | ||||||||||||||||||||||||||||||
| Securities available for sale and transferred securities: | |||||||||||||||||||||||||||||||||||
| Change in net unrealized gain/loss during the period | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Change in net unrealized gain on securities transferred to held to maturity | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Reclassification adjustment for net (gains) losses included in net income | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Total securities available for sale and transferred securities | |||||||||||||||||||||||||||||||||||
| Defined-benefit post-retirement benefit plans: | |||||||||||||||||||||||||||||||||||
| Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit) | |||||||||||||||||||||||||||||||||||
| Total defined-benefit post-retirement benefit plans | |||||||||||||||||||||||||||||||||||
| Total other comprehensive income (loss) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
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Activity in accumulated other comprehensive income (loss), net of tax, was as follows:
| Securities Available For Sale | Defined Benefit Plans | Accumulated Other Comprehensive Income | |||||||||||||||
| Balance at January 1, 2025 | $ | ( | $ | ( | $ | ( | |||||||||||
Other comprehensive income (loss) before reclassifications | |||||||||||||||||
Reclassification of amounts included in net income | |||||||||||||||||
| Net other comprehensive income (loss) during period | |||||||||||||||||
| Balance at September 30, 2025 | $ | ( | $ | ( | $ | ( | |||||||||||
| Balance at January 1, 2024 | $ | ( | $ | ( | $ | ( | |||||||||||
Other comprehensive income (loss) before reclassifications | |||||||||||||||||
Reclassification of amounts included in net income | ( | ||||||||||||||||
| Net other comprehensive income (loss) during period | |||||||||||||||||
| Balance at September 30, 2024 | $ | ( | $ | ( | $ | ( | |||||||||||
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Note 14 – Operating Segments
We are managed under a matrix organizational structure whereby our two
Our chief executive officer is our chief operating decision maker. We use a match-funded transfer pricing process to allocate costs, capital and resources to each operating segment. The process helps us to (i) identify the cost or opportunity value of funds within each business segment, (ii) measure the profitability of a particular business segment by relating appropriate costs to revenues, (iii) evaluate each business segment in a manner consistent with its economic impact on consolidated earnings, and (iv) enhance asset and liability pricing decisions. Our chief executive officer reviews actual net income versus budgeted net income to assess segment performance on a monthly basis and to make decisions about allocating capital and personnel to the segments. Financial results by operating segment, including significant expense categories provided to the chief operating decision maker, are detailed below.
| Banking | Frost Wealth Advisors | Non-Banks | Consolidated | ||||||||||||||||||||
| Three months ended: | |||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||
| Interest income | $ | $ | $ | $ | |||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Net interest income (expense) | ( | ||||||||||||||||||||||
| Credit loss expense | |||||||||||||||||||||||
| Net interest income after credit loss expense | ( | ||||||||||||||||||||||
| Non-interest income: | |||||||||||||||||||||||
| Trust and investment management fees | ( | ||||||||||||||||||||||
| Service charges on deposit accounts | |||||||||||||||||||||||
| Insurance commissions and fees | |||||||||||||||||||||||
| Interchange and card transaction fees | |||||||||||||||||||||||
| Other charges, commissions and fees | |||||||||||||||||||||||
| Net gain (loss) on securities transactions | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total non-interest income | ( | ||||||||||||||||||||||
| Non-interest expense: | |||||||||||||||||||||||
| Salaries and wages | |||||||||||||||||||||||
| Employee benefits | |||||||||||||||||||||||
| Net occupancy | |||||||||||||||||||||||
| Technology, furniture and equipment | |||||||||||||||||||||||
| Deposit insurance | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total non-interest expense | |||||||||||||||||||||||
| Income (loss) before income taxes | ( | ||||||||||||||||||||||
| Income tax expense (benefit) | ( | ||||||||||||||||||||||
| Net income (loss) | ( | ||||||||||||||||||||||
| Preferred stock dividends | |||||||||||||||||||||||
| Net income (loss) available to common shareholders | $ | $ | $ | ( | $ | ||||||||||||||||||
| Revenues from (expenses to) external customers | $ | $ | $ | ( | $ | ||||||||||||||||||
| Average assets (in millions) | $ | $ | $ | $ | |||||||||||||||||||
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| Banking | Frost Wealth Advisors | Non-Banks | Consolidated | ||||||||||||||||||||
| Three months ended: | |||||||||||||||||||||||
| September 30, 2024 | |||||||||||||||||||||||
| Interest income | $ | $ | $ | $ | |||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Net interest income (expense) | ( | ||||||||||||||||||||||
| Credit loss expense | |||||||||||||||||||||||
| Net interest income after credit loss expense | ( | ||||||||||||||||||||||
| Non-interest income: | |||||||||||||||||||||||
| Trust and investment management fees | ( | ||||||||||||||||||||||
| Service charges on deposit accounts | |||||||||||||||||||||||
| Insurance commissions and fees | |||||||||||||||||||||||
| Interchange and card transaction fees | |||||||||||||||||||||||
| Other charges, commissions and fees | |||||||||||||||||||||||
| Net gain (loss) on securities transactions | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total non-interest income | ( | ||||||||||||||||||||||
| Non-interest expense: | |||||||||||||||||||||||
| Salaries and wages | |||||||||||||||||||||||
| Employee benefits | |||||||||||||||||||||||
| Net occupancy | |||||||||||||||||||||||
| Technology, furniture and equipment | |||||||||||||||||||||||
| Deposit insurance | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total non-interest expense | |||||||||||||||||||||||
| Income (loss) before income taxes | ( | ||||||||||||||||||||||
| Income tax expense (benefit) | ( | ||||||||||||||||||||||
| Net income (loss) | ( | ||||||||||||||||||||||
| Preferred stock dividends | |||||||||||||||||||||||
| Net income (loss) available to common shareholders | $ | $ | $ | ( | $ | ||||||||||||||||||
| Revenues from (expenses to) external customers | $ | $ | $ | ( | $ | ||||||||||||||||||
| Average assets (in millions) | $ | $ | $ | $ | |||||||||||||||||||
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| Banking | Frost Wealth Advisors | Non-Banks | Consolidated | ||||||||||||||||||||
| Nine months ended: | |||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||
| Interest income | $ | $ | $ | $ | |||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Net interest income (expense) | ( | ||||||||||||||||||||||
| Credit loss expense | |||||||||||||||||||||||
| Net interest income after credit loss expense | ( | ||||||||||||||||||||||
| Non-interest income: | |||||||||||||||||||||||
| Trust and investment management fees | ( | ||||||||||||||||||||||
| Service charges on deposit accounts | |||||||||||||||||||||||
| Insurance commissions and fees | |||||||||||||||||||||||
| Interchange and card transaction fees | |||||||||||||||||||||||
| Other charges, commissions and fees | |||||||||||||||||||||||
| Net gain (loss) on securities transactions | ( | ( | |||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total non-interest income | ( | ||||||||||||||||||||||
| Non-interest expense: | |||||||||||||||||||||||
| Salaries and wages | |||||||||||||||||||||||
| Employee benefits | |||||||||||||||||||||||
| Net occupancy | |||||||||||||||||||||||
| Technology, furniture and equipment | |||||||||||||||||||||||
| Deposit insurance | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total non-interest expense | |||||||||||||||||||||||
| Income (loss) before income taxes | ( | ||||||||||||||||||||||
| Income tax expense (benefit) | ( | ||||||||||||||||||||||
| Net income (loss) | ( | ||||||||||||||||||||||
| Preferred stock dividends | |||||||||||||||||||||||
| Net income (loss) available to common shareholders | $ | $ | $ | ( | $ | ||||||||||||||||||
| Revenues from (expenses to) external customers | $ | $ | $ | ( | $ | ||||||||||||||||||
| Average assets (in millions) | $ | $ | $ | $ | |||||||||||||||||||
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| Banking | Frost Wealth Advisors | Non-Banks | Consolidated | ||||||||||||||||||||
| Nine months ended: | |||||||||||||||||||||||
| September 30, 2024 | |||||||||||||||||||||||
| Interest income | $ | $ | $ | $ | |||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Net interest income (expense) | ( | ||||||||||||||||||||||
| Credit loss expense | |||||||||||||||||||||||
| Net interest income after credit loss expense | ( | ||||||||||||||||||||||
| Non-interest income: | |||||||||||||||||||||||
| Trust and investment management fees | ( | ||||||||||||||||||||||
| Service charges on deposit accounts | |||||||||||||||||||||||
| Insurance commissions and fees | |||||||||||||||||||||||
| Interchange and card transaction fees | |||||||||||||||||||||||
| Other charges, commissions and fees | |||||||||||||||||||||||
| Net gain (loss) on securities transactions | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total non-interest income | ( | ||||||||||||||||||||||
| Non-interest expense: | |||||||||||||||||||||||
| Salaries and wages | |||||||||||||||||||||||
| Employee benefits | |||||||||||||||||||||||
| Net occupancy | |||||||||||||||||||||||
| Technology, furniture and equipment | |||||||||||||||||||||||
| Deposit insurance | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total non-interest expense | |||||||||||||||||||||||
| Income (loss) before income taxes | ( | ||||||||||||||||||||||
| Income tax expense (benefit) | ( | ||||||||||||||||||||||
| Net income (loss) | ( | ||||||||||||||||||||||
| Preferred stock dividends | |||||||||||||||||||||||
| Net income (loss) available to common shareholders | $ | $ | $ | ( | $ | ||||||||||||||||||
| Revenues from (expenses to) external customers | $ | $ | $ | ( | $ | ||||||||||||||||||
| Average assets (in millions) | $ | $ | $ | $ | |||||||||||||||||||
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Note 15 – Fair Value Measurements
The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, we utilize valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC Topic 820 establishes a three-level fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. See our 2024 Form 10-K for additional information regarding the fair value hierarchy and a description of our valuation techniques.
Financial Assets and Financial Liabilities. The tables below summarize financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2025 and December 31, 2024, segregated by the level of the valuation inputs within the fair value hierarchy of ASC Topic 820 utilized to measure fair value.
| Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Total Fair Value | ||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||
| Securities available for sale: | |||||||||||||||||||||||
| U.S. Treasury | $ | $ | — | $ | — | $ | |||||||||||||||||
| Residential mortgage-backed securities | — | — | |||||||||||||||||||||
| States and political subdivisions | — | — | |||||||||||||||||||||
| Other | — | — | |||||||||||||||||||||
| Trading account securities: | |||||||||||||||||||||||
| U.S. Treasury | — | — | |||||||||||||||||||||
| States and political subdivisions | — | — | |||||||||||||||||||||
| Derivative assets: | |||||||||||||||||||||||
| Interest rate swaps, caps, and floors | — | — | |||||||||||||||||||||
| Commodity swaps and options | — | — | |||||||||||||||||||||
| Foreign currency forward contracts | — | — | |||||||||||||||||||||
| Derivative liabilities: | |||||||||||||||||||||||
| Interest rate swaps, caps, and floors | — | — | |||||||||||||||||||||
| Commodity swaps and options | — | — | |||||||||||||||||||||
| Foreign currency forward contracts | — | — | |||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Securities available for sale: | |||||||||||||||||||||||
| U.S. Treasury | $ | $ | — | $ | — | $ | |||||||||||||||||
| Residential mortgage-backed securities | — | — | |||||||||||||||||||||
| States and political subdivisions | — | — | |||||||||||||||||||||
| Other | — | — | |||||||||||||||||||||
| Trading account securities: | |||||||||||||||||||||||
| U.S. Treasury | — | — | |||||||||||||||||||||
| States and political subdivisions | — | — | |||||||||||||||||||||
| Derivative assets: | |||||||||||||||||||||||
| Interest rate swaps, caps, and floors | — | — | |||||||||||||||||||||
| Commodity swaps and options | — | — | |||||||||||||||||||||
| Derivative liabilities: | |||||||||||||||||||||||
| Interest rate swaps, caps, and floors | — | — | |||||||||||||||||||||
| Commodity swaps and options | — | — | |||||||||||||||||||||
Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Financial assets measured at fair value on a non-recurring basis during the reported periods include certain collateral dependent loans reported at the fair value of the underlying collateral if repayment is expected solely from the collateral.
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The following table presents collateral dependent loans that were remeasured and reported at fair value through a specific allocation of the allowance for credit losses on loans based upon the fair value of the underlying collateral during the reported periods.
| Nine Months Ended September 30, 2025 | Nine Months Ended September 30, 2024 | ||||||||||||||||||||||
| Level 2 | Level 3 | Level 2 | Level 3 | ||||||||||||||||||||
| Carrying value before allocations | $ | $ | $ | $ | |||||||||||||||||||
| Specific (allocations) reversals of prior allocations | ( | ( | ( | ( | |||||||||||||||||||
| Fair value | $ | $ | $ | $ | |||||||||||||||||||
Non-Financial Assets and Non-Financial Liabilities. We do not
The following table presents foreclosed assets that were remeasured and reported at fair value during the reported periods:
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Foreclosed assets remeasured at initial recognition: | |||||||||||
| Carrying value of foreclosed assets prior to remeasurement | $ | $ | |||||||||
| Charge-offs recognized in the allowance for loan losses | |||||||||||
| Fair value | $ | $ | |||||||||
Financial Instruments Reported at Amortized Cost. The estimated fair values of financial instruments that are reported at amortized cost in our consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, were as follows:
| September 30, 2025 | December 31, 2024 | ||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||
| Level 2 inputs: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
| Securities held to maturity | |||||||||||||||||||||||
| Accrued interest receivable | |||||||||||||||||||||||
| Level 3 inputs: | |||||||||||||||||||||||
| Loans, net | |||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||
| Level 2 inputs: | |||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||
| Federal funds purchased | |||||||||||||||||||||||
| Repurchase agreements | |||||||||||||||||||||||
| Junior subordinated deferrable interest debentures | |||||||||||||||||||||||
| Subordinated notes | |||||||||||||||||||||||
| Accrued interest payable | |||||||||||||||||||||||
Under ASC Topic 825, entities may choose to measure eligible financial instruments at fair value at specified election dates. The fair value measurement option (i) may be applied instrument by instrument, with certain exceptions, (ii) is generally irrevocable and (iii) is applied only to entire instruments and not to portions of instruments. Unrealized gains and losses on items for which the fair value measurement option has been elected must be reported in earnings at each subsequent reporting date. During the reported periods, we had no
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Note 16 - Accounting Standards Updates
Information about certain recently issued accounting standards updates is presented below. Also refer to Note 19 - Accounting Standards Updates in our 2024 Form 10-K for additional information related to previously issued accounting standards updates.
ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” ASU 2023-07 expands segment disclosure requirements for public entities to require disclosure of significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. As noted in our 2024 Form 10-K, we adopted ASU 2023-07 for our annual financial statements in 2024. ASU 2023-07 became effective for interim periods in 2025. See Note 14 - Operating Segments.
ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU 2023-09 requires public business entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold. ASU 2023-09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things. ASU 2023-09 will be effective for our annual financial statements for the year ended December 31, 2025.
ASU No. 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires disaggregated disclosure of income statement expenses for public business entities. ASU 2024-03 requires new financial statement disclosures in tabular format, disaggregating information about prescribed categories underlying any relevant income statement expense caption. The prescribed categories include, among other things, employee compensation, depreciation, and intangible asset amortization. Additionally, entities must disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. ASU 2024-03 is effective for us, on a prospective basis, for annual periods beginning in 2027, and interim periods within fiscal years beginning in 2028, though early adoption and retrospective application is permitted. ASU 2024-03 is not expected to have a significant impact on our financial statements.
ASU No. 2025-05,“Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets.” ASU 2025-05 provides all entities, when developing reasonable and supportable forecasts as part of estimating expected credit losses on current accounts receivable and/or current contract assets arising from transactions under ASC Topic 606 - Revenue from Contracts with Customers, a practical expedient whereby entities can assume that current conditions as of the balance sheet date do not change for the remaining life of the asset. ASU 2025-05 will be effective in 2026 and is not expected to have a significant impact on our financial statements.
ASU No. 2025-06,“Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software.” ASU 2025-06 simplifies and modernizes the accounting for internal-use software by removing prescriptive project stage guidance and introducing a new capitalization threshold. Under the revised standard, software development costs are capitalized when management authorizes and commits funding for the project and it is probable the software will be completed and used as intended. ASU 2025-06 will be effective in 2028 and is not expected to have a significant impact on our financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Review
Cullen/Frost Bankers, Inc.
The following discussion should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2024, and the other information included in the 2024 Form 10-K. Operating results for the three and nine months ended September 30, 2025 are not necessarily indicative of the results for the year ending December 31, 2025 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.
•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.
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•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, financial markets, international relations, and global supply chains have been significantly impacted by recent U.S. trade policies and practices. Due to the rapidly evolving and changing state of U.S. trade policies, the amount and duration of any tariffs and their ultimate impact on us, our customers, financial markets, and the overall U.S. and global economies is currently uncertain. Nonetheless, prolonged uncertainty, elevated tariff levels or their wide-spread use in U.S. trade policy could weaken economic conditions and adversely impact the ability of borrowers to repay outstanding loans or the value of collateral securing these loans or adversely affect financial markets. To the extent that these risks may have a negative impact on the financial condition of borrowers or financial markets, it could also have a material adverse effect on our business, financial condition and results of operations.
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 and to general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While we base estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.
We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements.
Accounting policies related to the allowance for credit losses on financial instruments including loans and off-balance-sheet credit exposures are considered to be critical as these policies involve considerable subjective judgment and estimation by management. In the case of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. The amount of each allowance account represents management's best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions, and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions, or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. Refer to the 2024 Form 10-K for additional information regarding critical accounting policies.
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Overview
A discussion of our results of operations is presented below. Certain reclassifications have been made to make prior periods comparable. Taxable-equivalent adjustments are the result of increasing income from tax-free loans and investments by an amount equal to the taxes that would be paid if the income were fully taxable based on a 21% federal tax rate, thus making tax-exempt yields comparable to taxable asset yields.
Results of Operations
Net income available to common shareholders totaled $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, compared to $144.8 million, or $2.24 per diluted common share, and $422.7 million, or $6.51 per diluted common share for the three and nine months ended September 30, 2024.
Selected data for the comparable periods was as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Taxable-equivalent net interest income | $ | 463,667 | $ | 425,160 | $ | 1,350,630 | $ | 1,254,148 | |||||||||||||||
| Taxable-equivalent adjustment | 22,049 | 20,829 | 63,188 | 63,054 | |||||||||||||||||||
| Net interest income | 441,618 | 404,331 | 1,287,442 | 1,191,094 | |||||||||||||||||||
| Credit loss expense | 6,779 | 19,386 | 32,978 | 48,823 | |||||||||||||||||||
| Net interest income after credit loss expense | 434,839 | 384,945 | 1,254,464 | 1,142,271 | |||||||||||||||||||
| Non-interest income | 125,647 | 113,707 | 366,931 | 336,274 | |||||||||||||||||||
| Non-interest expense | 352,478 | 323,410 | 1,047,672 | 966,591 | |||||||||||||||||||
| Income before income taxes | 208,008 | 175,242 | 573,723 | 511,954 | |||||||||||||||||||
| Income taxes | 33,628 | 28,741 | 91,418 | 84,264 | |||||||||||||||||||
| Net income | 174,380 | 146,501 | 482,305 | 427,690 | |||||||||||||||||||
| Preferred stock dividends | 1,668 | 1,668 | 5,006 | 5,006 | |||||||||||||||||||
| Net income available to common shareholders | $ | 172,712 | $ | 144,833 | $ | 477,299 | $ | 422,684 | |||||||||||||||
| Earnings per common share – basic | $ | 2.67 | $ | 2.24 | $ | 7.36 | $ | 6.52 | |||||||||||||||
| Earnings per common share – diluted | 2.67 | 2.24 | 7.36 | 6.51 | |||||||||||||||||||
| Dividends per common share | 1.00 | 0.95 | 2.95 | 2.79 | |||||||||||||||||||
| Return on average assets | 1.32 | % | 1.16 | % | 1.24 | % | 1.15 | % | |||||||||||||||
| Return on average common equity | 16.72 | 15.48 | 15.98 | 15.90 | |||||||||||||||||||
| Average shareholders’ equity to average assets | 8.17 | 7.82 | 8.06 | 7.51 | |||||||||||||||||||
Net income available to common shareholders increased $27.9 million, or 19.2%, for the three months ended September 30, 2025 and increased $54.6 million, or 12.9%, for the nine months ended September 30, 2025, compared to the same periods in 2024. The increase during the three months ended September 30, 2025 was primarily the result of a $37.3 million increase in net interest income, a $12.6 million decrease in credit loss expense, and a $11.9 million increase in non-interest income partly offset by a $29.1 million increase in non-interest expense and a $4.9 million increase in income tax expense. The increase during the nine months ended September 30, 2025 was primarily the result of a $96.3 million increase in net interest income, a $30.7 million increase in non-interest income, and a $15.8 million decrease in credit loss expense partly offset by an $81.1 million increase in non-interest expense and a $7.2 million increase in income tax expense.
Details of the changes in the various components of net income are further discussed below.
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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 77.8% of total revenue during the first nine months of 2025. Net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period. The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and net interest margin.
The Federal Reserve influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. As of September 30, 2025, approximately 40.5% of our loans had a fixed interest rate, while the remaining loans had floating interest rates that were primarily tied to a benchmark developed by the American Financial Exchange, the Secured Overnight Financing Rate (“SOFR”) (approximately 36.2%); the prime interest rate (approximately 20.6%); or the American Interbank Offered Rate (“AMERIBOR”) (approximately 2.7%). Certain other loans are tied to other indices; however, such loans do not make up a significant portion of our loan portfolio as of September 30, 2025.
Select average market rates for the periods indicated are presented in the table below.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Federal funds target rate upper bound | 4.46 | % | 5.43 | % | 4.49 | % | 5.48 | % | |||||||||||||||
| Effective federal funds rate | 4.30 | 5.26 | 4.32 | 5.31 | |||||||||||||||||||
| Interest on reserve balances at the Federal Reserve | 4.36 | 5.33 | 4.39 | 5.38 | |||||||||||||||||||
| Prime | 7.47 | 8.46 | 7.49 | 8.48 | |||||||||||||||||||
AMERIBOR Term-30(1) | 4.36 | 5.30 | 4.38 | 5.34 | |||||||||||||||||||
AMERIBOR Term-90(1) | 4.35 | 5.26 | 4.41 | 5.38 | |||||||||||||||||||
1-Month Term SOFR(2) | 4.29 | 5.22 | 4.31 | 5.29 | |||||||||||||||||||
3-Month Term SOFR(2) | 4.20 | 5.07 | 4.26 | 5.24 | |||||||||||||||||||
____________________
(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, 2025, the target range for the federal funds rate was 4.00% to 4.25%. In September 2025, the Federal Reserve released projections whereby the midpoint of the projected appropriate target range for the federal funds rate would fall to 3.6% by the end of 2025 and subsequently decrease to 3.4% by the end of 2026. While there can be no such assurance that any such decreases in the federal funds rate will occur, these projections imply up to a 50 basis point decrease in the federal funds rate during the remainder of 2025, followed by a 25 basis point decrease in 2026.
We are primarily funded by core deposits, with non-interest-bearing demand deposits historically being a significant source of funds. This lower-cost funding base is expected to have a positive impact on our net interest income and net interest margin, particularly in rising or high interest rate environments. Nonetheless, our access to and pricing of deposits may be negatively impacted by, among other factors, periods of higher interest rates which could promote increased competition for deposits, including from new financial technology competitors, or provide customers with alternative investment options. See Item 3. Quantitative and Qualitative Disclosures About Market Risk elsewhere in this report for information about our sensitivity to increases and decreases in interest rates. Further analysis of the components of our net interest margin is presented below.
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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 such amounts, and the average rate earned or paid on such assets or liabilities, respectively. The tables also set forth the net interest margin on average total interest-earning assets for the same periods. For these computations: (i) average balances are presented on a daily average basis, (ii) information is shown on a taxable-equivalent basis assuming a 21% tax rate, (iii) average loans include loans on non-accrual status, and (iv) average securities include unrealized gains and losses on securities available for sale, while yields are based on average amortized cost.
| Quarter To Date | Quarter To Date | ||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||||||||||||||
| Average Balance | Interest Income/ Expense | Yield/ Cost | Average Balance | Interest Income/ Expense | Yield/ Cost | ||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 6,815,763 | $ | 75,914 | 4.36 | % | $ | 7,072,979 | $ | 96,215 | 5.32 | % | |||||||||||||||||||||||
| Federal funds sold | 2,723 | 33 | 4.74 | 4,370 | 63 | 5.65 | |||||||||||||||||||||||||||||
| Resell agreements | 9,650 | 113 | 4.58 | 41,447 | 580 | 5.48 | |||||||||||||||||||||||||||||
| Securities: | |||||||||||||||||||||||||||||||||||
| Taxable | 13,305,618 | 125,977 | 3.48 | 12,281,222 | 99,561 | 2.94 | |||||||||||||||||||||||||||||
| Tax-exempt | 6,906,894 | 82,476 | 4.60 | 6,616,468 | 73,193 | 4.32 | |||||||||||||||||||||||||||||
| Total securities | 20,212,512 | 208,453 | 3.85 | 18,897,690 | 172,754 | 3.40 | |||||||||||||||||||||||||||||
| Loans, net of unearned discounts | 21,451,733 | 357,641 | 6.61 | 20,083,921 | 359,376 | 7.12 | |||||||||||||||||||||||||||||
| Total Earning Assets and Average Rate Earned | 48,492,381 | 642,154 | 5.11 | 46,100,407 | 628,988 | 5.26 | |||||||||||||||||||||||||||||
| Cash and due from banks | 553,819 | 541,341 | |||||||||||||||||||||||||||||||||
| Allowance for credit losses on loans and securities | (281,009) | (258,263) | |||||||||||||||||||||||||||||||||
| Premises and equipment, net | 1,289,816 | 1,223,981 | |||||||||||||||||||||||||||||||||
| Accrued interest and other assets | 1,855,641 | 1,859,928 | |||||||||||||||||||||||||||||||||
| Total Assets | $ | 51,910,648 | $ | 49,467,394 | |||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||
| Non-interest-bearing demand deposits | 13,839,072 | 13,658,513 | |||||||||||||||||||||||||||||||||
| Interest-bearing deposits: | |||||||||||||||||||||||||||||||||||
| Savings and interest checking | 9,689,097 | 5,781 | 0.24 | 9,470,163 | 9,079 | 0.38 | |||||||||||||||||||||||||||||
| Money market deposit accounts | 11,817,140 | 67,833 | 2.28 | 11,122,329 | 78,213 | 2.80 | |||||||||||||||||||||||||||||
| Time accounts | 6,725,842 | 64,254 | 3.79 | 6,482,065 | 77,036 | 4.73 | |||||||||||||||||||||||||||||
| Total interest-bearing deposits | 28,232,079 | 137,868 | 1.94 | 27,074,557 | 164,328 | 2.41 | |||||||||||||||||||||||||||||
| Total deposits | 42,071,151 | 1.30 | 40,733,070 | 1.60 | |||||||||||||||||||||||||||||||
| Federal funds purchased | 29,233 | 324 | 4.34 | 19,899 | 271 | 5.33 | |||||||||||||||||||||||||||||
| Repurchase agreements | 4,592,950 | 37,191 | 3.17 | 3,777,217 | 35,868 | 3.72 | |||||||||||||||||||||||||||||
| Junior subordinated deferrable interest debentures | 123,222 | 1,940 | 6.30 | 123,164 | 2,197 | 7.14 | |||||||||||||||||||||||||||||
| Subordinated notes | 99,751 | 1,164 | 4.69 | 99,594 | 1,164 | 4.69 | |||||||||||||||||||||||||||||
| Total Interest-Bearing Funds and Average Rate Paid | 33,077,235 | 178,487 | 2.13 | 31,094,431 | 203,828 | 2.60 | |||||||||||||||||||||||||||||
| Accrued interest and other liabilities | 751,158 | 846,065 | |||||||||||||||||||||||||||||||||
| Total Liabilities | 47,667,465 | 45,599,009 | |||||||||||||||||||||||||||||||||
| Shareholders’ Equity | 4,243,183 | 3,868,385 | |||||||||||||||||||||||||||||||||
| Total Liabilities and Shareholders’ Equity | $ | 51,910,648 | $ | 49,467,394 | |||||||||||||||||||||||||||||||
| Net interest income | $ | 463,667 | $ | 425,160 | |||||||||||||||||||||||||||||||
| Net interest spread | 2.98 | % | 2.66 | % | |||||||||||||||||||||||||||||||
| Net interest income to total average earning assets | 3.69 | % | 3.56 | % | |||||||||||||||||||||||||||||||
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| Year To Date | Year To Date | ||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||||||||||||||
| Average Balance | Interest Income/ Expense | Yield/ Cost | Average Balance | Interest Income/ Expense | Yield/ Cost | ||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 6,739,488 | $ | 224,149 | 4.39 | % | $ | 7,194,438 | $ | 294,215 | 5.37 | % | |||||||||||||||||||||||
| Federal funds sold | 4,736 | 170 | 4.73 | 5,107 | 223 | 5.74 | |||||||||||||||||||||||||||||
| Resell agreements | 14,012 | 488 | 4.60 | 70,151 | 2,977 | 5.58 | |||||||||||||||||||||||||||||
| Securities: | |||||||||||||||||||||||||||||||||||
| Taxable | 13,320,003 | 372,360 | 3.42 | 12,272,444 | 296,635 | 2.90 | |||||||||||||||||||||||||||||
| Tax-exempt | 6,682,301 | 232,253 | 4.48 | 6,677,684 | 220,774 | 4.30 | |||||||||||||||||||||||||||||
| Total securities | 20,002,304 | 604,613 | 3.76 | 18,950,128 | 517,409 | 3.36 | |||||||||||||||||||||||||||||
| Loans, net of unearned discounts | 21,103,347 | 1,040,948 | 6.59 | 19,617,869 | 1,038,174 | 7.07 | |||||||||||||||||||||||||||||
| Total Earning Assets and Average Rate Earned | 47,863,887 | 1,870,368 | 5.06 | 45,837,693 | 1,852,998 | 5.21 | |||||||||||||||||||||||||||||
| Cash and due from banks | 578,135 | 567,721 | |||||||||||||||||||||||||||||||||
| Allowance for credit losses on loans and securities | (276,488) | (253,740) | |||||||||||||||||||||||||||||||||
| Premises and equipment, net | 1,275,317 | 1,216,177 | |||||||||||||||||||||||||||||||||
| Accrued interest and other assets | 1,903,294 | 1,872,405 | |||||||||||||||||||||||||||||||||
| Total Assets | $ | 51,344,145 | $ | 49,240,256 | |||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||
| Non-interest-bearing demand deposits | 13,808,687 | 13,770,732 | |||||||||||||||||||||||||||||||||
| Interest-bearing deposits: | |||||||||||||||||||||||||||||||||||
| Savings and interest checking | 9,858,510 | 17,743 | 0.24 | 9,700,395 | 28,891 | 0.40 | |||||||||||||||||||||||||||||
| Money market deposit accounts | 11,590,603 | 197,133 | 2.27 | 11,063,066 | 233,029 | 2.81 | |||||||||||||||||||||||||||||
| Time accounts | 6,573,477 | 190,453 | 3.87 | 6,121,852 | 217,302 | 4.74 | |||||||||||||||||||||||||||||
| Total interest-bearing deposits | 28,022,590 | 405,329 | 1.93 | 26,885,313 | 479,222 | 2.38 | |||||||||||||||||||||||||||||
| Total deposits | 41,831,277 | 1.30 | 40,656,045 | 1.57 | |||||||||||||||||||||||||||||||
| Federal funds purchased | 24,346 | 806 | 4.37 | 30,863 | 1,262 | 5.37 | |||||||||||||||||||||||||||||
| Repurchase agreements | 4,331,773 | 104,287 | 3.17 | 3,797,064 | 108,118 | 3.74 | |||||||||||||||||||||||||||||
| Junior subordinated deferrable interest debentures | 123,208 | 5,824 | 6.23 | 123,150 | 6,756 | 7.21 | |||||||||||||||||||||||||||||
| Subordinated notes | 99,712 | 3,492 | 4.69 | 99,555 | 3,492 | 4.69 | |||||||||||||||||||||||||||||
Total Interest-Bearing Funds and Average Rate Paid | 32,601,629 | 519,738 | 2.13 | 30,935,945 | 598,850 | 2.58 | |||||||||||||||||||||||||||||
| Accrued interest and other liabilities | 795,315 | 836,852 | |||||||||||||||||||||||||||||||||
| Total Liabilities | 47,205,631 | 45,543,529 | |||||||||||||||||||||||||||||||||
| Shareholders’ Equity | 4,138,514 | 3,696,727 | |||||||||||||||||||||||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 51,344,145 | $ | 49,240,256 | |||||||||||||||||||||||||||||||
| Net interest income | $ | 1,350,630 | $ | 1,254,148 | |||||||||||||||||||||||||||||||
| Net interest spread | 2.93 | % | 2.63 | % | |||||||||||||||||||||||||||||||
Net interest income to total average earning assets | 3.65 | % | 3.52 | % | |||||||||||||||||||||||||||||||
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The following table presents the changes in taxable-equivalent net interest income and identifies the changes due to differences in the average volume of earning assets and interest-bearing liabilities and the changes due to changes in the average interest rate on those assets and liabilities. The changes in net interest income due to changes in both average volume and average interest rate have been allocated to the average volume change or the average interest rate change in proportion to the absolute amounts of the change in each. The comparison between the quarters includes an additional change factor that shows the effect of the difference in the number of days in each period for assets and liabilities that accrue interest based upon the actual number of days in the period, as further discussed below.
| Three Months Ended | |||||||||||||||||||||||
| September 30, 2025 vs. September 30, 2024 | |||||||||||||||||||||||
| Increase (Decrease) Due to Change in | |||||||||||||||||||||||
| Rate | Volume | Number of days | Total | ||||||||||||||||||||
| Interest-bearing deposits | $ | (16,896) | $ | (3,405) | $ | — | $ | (20,301) | |||||||||||||||
| Federal funds sold | (9) | (21) | — | (30) | |||||||||||||||||||
| Resell agreements | (82) | (385) | — | (467) | |||||||||||||||||||
| Securities: | |||||||||||||||||||||||
| Taxable | 19,395 | 7,021 | — | 26,416 | |||||||||||||||||||
| Tax-exempt | 4,876 | 4,407 | — | 9,283 | |||||||||||||||||||
| Loans, net of unearned discounts | (25,850) | 24,115 | — | (1,735) | |||||||||||||||||||
| Total earning assets | (18,566) | 31,732 | — | 13,166 | |||||||||||||||||||
| Savings and interest checking | (3,495) | 197 | — | (3,298) | |||||||||||||||||||
| Money market deposit accounts | (15,046) | 4,666 | — | (10,380) | |||||||||||||||||||
| Time accounts | (15,596) | 2,814 | — | (12,782) | |||||||||||||||||||
| Federal funds purchased | (55) | 108 | — | 53 | |||||||||||||||||||
| Repurchase agreements | (5,628) | 6,951 | — | 1,323 | |||||||||||||||||||
| Junior subordinated deferrable interest debentures | (258) | 1 | — | (257) | |||||||||||||||||||
| Subordinated notes | — | — | — | — | |||||||||||||||||||
| Total interest-bearing liabilities | (40,078) | 14,737 | — | (25,341) | |||||||||||||||||||
| Net change | $ | 21,512 | $ | 16,995 | $ | — | $ | 38,507 | |||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||
| September 30, 2025 vs. September 30, 2024 | |||||||||||||||||||||||
| Increase (Decrease) Due to Change in | |||||||||||||||||||||||
| Rate | Volume | Number of days | Total | ||||||||||||||||||||
| Interest-bearing deposits | $ | (51,237) | $ | (17,755) | $ | (1,074) | $ | (70,066) | |||||||||||||||
| Federal funds sold | (37) | (15) | (1) | (53) | |||||||||||||||||||
| Resell agreements | (446) | (2,032) | (11) | (2,489) | |||||||||||||||||||
| Securities: | |||||||||||||||||||||||
| Taxable | 55,907 | 20,070 | (252) | 75,725 | |||||||||||||||||||
| Tax-exempt | 9,669 | 1,810 | — | 11,479 | |||||||||||||||||||
| Loans, net of unearned discounts | (71,303) | 77,866 | (3,789) | 2,774 | |||||||||||||||||||
| Total earning assets | (57,447) | 79,944 | (5,127) | 17,370 | |||||||||||||||||||
| Savings and interest checking | (11,522) | 479 | (105) | (11,148) | |||||||||||||||||||
| Money market deposit accounts | (45,884) | 10,838 | (850) | (35,896) | |||||||||||||||||||
| Time accounts | (41,474) | 15,418 | (793) | (26,849) | |||||||||||||||||||
| Federal funds purchased | (212) | (239) | (5) | (456) | |||||||||||||||||||
| Repurchase agreements | (17,360) | 13,924 | (395) | (3,831) | |||||||||||||||||||
| Junior subordinated deferrable interest debentures | (935) | 3 | — | (932) | |||||||||||||||||||
| Subordinated notes | — | — | — | — | |||||||||||||||||||
| Total interest-bearing liabilities | (117,387) | 40,423 | (2,148) | (79,112) | |||||||||||||||||||
| Net change | $ | 59,940 | $ | 39,521 | $ | (2,979) | $ | 96,482 | |||||||||||||||
Taxable-equivalent net interest income for the three months ended September 30, 2025 increased $38.5 million, or 9.1%, while taxable-equivalent net interest income for the nine months ended September 30, 2025, increased $96.5 million, or 7.7%, compared to the same periods in 2024. Taxable-equivalent net interest income for the nine months ended September 30, 2025,
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included 273 days compared to 274 for the same period in 2024 as a result of the leap year. The additional day added approximately $3.0 million to taxable-equivalent net interest income during the nine months ended September 30, 2024. Excluding the impact of the additional day in 2024 results in an effective increase in taxable-equivalent net interest income of approximately $99.5 million during the nine months ended September 30, 2025.
The increase in taxable-equivalent net interest income during the three months ended September 30, 2025 was primarily related to decreases in the average costs of interest-bearing deposit accounts and repurchase agreements combined with increases in the average yields on and volumes of taxable and, to a lesser extent, tax-exempt securities and an increase in the average volume of loans, among other things. The impact of these items was partly offset by a decrease in average yield on loans, decreases in the average yield on and volume of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve), and increases in the average volumes of interest-bearing deposit accounts and repurchase agreements, among other things.
The increase in taxable-equivalent net interest income during the nine months ended September 30, 2025 was primarily related to decreases in the average costs of interest-bearing deposit accounts and repurchase agreements combined with an increase in the average volume of loans, and increases in the average yield on and volume of taxable securities, and, to a lesser extent, tax-exempt securities, among other things. The impact of these items was partly offset by a decrease in average yield on loans, decreases in the average yield on and volume of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve), and a decrease in the average volume of resell agreements, among other things, combined with increases in the average volumes of interest-bearing deposit accounts and repurchase agreements, among other things.
As a result of the aforementioned fluctuations, the taxable-equivalent net interest margin increased 13 basis points from 3.56% during the three months ended September 30, 2024 to 3.69% during the three months ended September 30, 2025 while the taxable-equivalent net interest margin increased 13 basis points from 3.52% during the nine months ended September 30, 2024 to 3.65% during the nine months ended September 30, 2025.
The average volume of interest-earning assets for the three months ended September 30, 2025 increased $2.4 billion while the average volume of interest-earning assets for the nine months ended September 30, 2025 increased $2.0 billion compared to the same periods in 2024. The increase in the average volume of interest-earning assets during the three months ended September 30, 2025 was primarily related to a $1.4 billion increase in average loans, a $1.0 billion increase in average taxable securities, and a $290.4 million increase in average tax-exempt securities, partly offset by a $257.2 million decrease in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve), and a $31.8 million decrease in average resell agreements. The average taxable-equivalent yield on interest-earning assets decreased 15 basis points from 5.26% during the three months ended September 30, 2024 to 5.11% during the three months ended September 30, 2025.
The increase in the average volume of interest-earning assets during the nine months ended September 30, 2025 was primarily related to a $1.5 billion increase in average loans, a $1.0 billion increase in average taxable securities, and a $4.6 million increase in average tax-exempt securities partly offset by a $455.0 million decrease in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve), and a $56.1 million decrease in average resell agreements. The average taxable-equivalent yield on interest-earning assets decreased 15 basis points from 5.21% during the nine months ended September 30, 2024 to 5.06% during the nine months ended September 30, 2025. The average taxable-equivalent yields on interest-earning assets during comparable periods were impacted by changes in market interest rates (as noted in the table above) and changes in the volumes and relative mixes of interest-earning assets.
The average taxable-equivalent yield on loans decreased 51 basis points from 7.12% during the three months ended September 30, 2024 to 6.61% during the three months ended September 30, 2025 while the average taxable-equivalent yield on loans decreased 48 basis points from 7.07% during the nine months ended September 30, 2024 to 6.59% during the nine months ended September 30, 2025. The average taxable-equivalent yields on loans during the three and nine months ended September 30, 2025 were impacted by decreases in market interest rates (as noted in the table above). The average volume of loans for the three months ended September 30, 2025 increased $1.4 billion, or 6.8%, while the average volume of loans for the nine months ended September 30, 2025 increased $1.5 billion, or 7.6%, compared to the same periods in 2024. Loans made up approximately 44.2% and 44.1% of average interest-earning assets during the three and nine months ended September 30, 2025, compared to 43.6% and 42.8% during the same respective periods in 2024. The increases were primarily related to the use of available funds to originate loans.
The average taxable-equivalent yield on securities was 3.85% during the three months ended September 30, 2025, increasing 45 basis points from 3.40% during the three months ended September 30, 2024 while the average taxable-equivalent yield on securities was 3.76% during the nine months ended September 30, 2025, increasing 40 basis points from 3.36% during the nine months ended September 30, 2024. The average yield on taxable securities was 3.48% during the three months ended September 30, 2025, increasing 54 basis points from 2.94% during the same period in 2024 while the average yield on taxable
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securities was 3.42% during the nine months ended September 30, 2025, increasing 52 basis points from 2.90% during the same period in 2024. The average taxable-equivalent yield on tax-exempt securities was 4.60% during the three months ended September 30, 2025, increasing 28 basis points from 4.32% during the same period in 2024 while the average taxable-equivalent yield on tax-exempt securities was 4.48% during the nine months ended September 30, 2025, increasing 18 basis points from 4.30% during the same period in 2024.
Tax-exempt securities made up approximately 34.2% and 33.4% of total average securities during the three and nine months ended September 30, 2025, compared to 35.0% and 35.2% during the same respective periods in 2024. The average volume of total securities during the three months ended September 30, 2025 increased $1.3 billion, or 7.0%, compared to the same period in 2024 while the average volume of total securities during the nine months ended September 30, 2025 increased $1.1 billion, or 5.6%, compared to the same period in 2024. Securities made up approximately 41.7% and 41.8% of average interest-earning assets during the three and nine months ended September 30, 2025, compared to 41.0% and 41.3% during the same respective periods in 2024.
Average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) for the three months ended September 30, 2025 decreased $257.2 million, or 3.6%, compared to the same period in 2024 while average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) for the nine months ended September 30, 2025 decreased $455.0 million, or 6.3%, compared to the same period in 2024. Interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) made up approximately 14.1% of average interest-earning assets during both the three and nine months ended September 30, 2025, compared to 15.3% and 15.7% during the same respective periods in 2024. The decreases during the three and nine months ended September 30, 2025 were primarily related to the reinvestment of amounts held in an interest-bearing account at the Federal Reserve into securities and loans. The average yields on interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve) were 4.36% and 4.39% during the three and nine months ended September 30, 2025, compared to 5.32% and 5.37% during the same respective periods in 2024. The average yields on interest-bearing deposits during the three and nine months ended September 30, 2025 were impacted by lower average interest rates paid on reserves held at the Federal Reserve, compared to the same periods in 2024.
The average rate paid on interest-bearing liabilities was 2.13% during the three months ended September 30, 2025, decreasing 47 basis points from 2.60% during the same period in 2024 while the average rate paid on interest-bearing liabilities was 2.13% during the nine months ended September 30, 2025, decreasing 45 basis points from 2.58% during the same period in 2024. Average deposits increased $1.3 billion, or 3.3%, during the three months ended September 30, 2025, compared to the same period in 2024 and included a $1.2 billion increase in average interest-bearing deposits and a $180.6 million increase in average non-interest-bearing deposits. Average deposits increased $1.2 billion, or 2.9%, during the nine months ended September 30, 2025, compared to the same period in 2024 and included a $1.1 billion increase in average interest-bearing deposits and a $38.0 million increase in average non-interest-bearing deposits. The ratio of average interest-bearing deposits to total average deposits was 67.1% and 67.0% during the three and nine months ended September 30, 2025, compared to 66.5% and 66.1% during the same respective periods in 2024. The average cost of deposits is primarily impacted by changes in market interest rates as well as changes in the volume and relative mix of interest-bearing deposits. The average costs of interest-bearing deposits and total deposits were 1.93% and 1.30%, respectively, during the nine months ended September 30, 2025, compared to 2.38% and 1.57%, respectively, during the same period in 2024. The average costs of deposits were impacted by decreases in the interest rates we pay on our interest-bearing deposit products as a result of decreases in market interest rates.
Our net interest spreads, which represent the difference between the average rate earned on earning assets and the average rate paid on interest-bearing liabilities, were 2.98% and 2.93% during the three and nine months ended September 30, 2025, compared to 2.66% and 2.63% during the same respective periods in 2024. Our net interest spreads, as well as our net interest margins, will be impacted by future changes in short-term and long-term interest rate levels, as well as the impact from the competitive environment, including from new financial technology competitors, and the availability of alternative investment options. A discussion of the effects of changing interest rates on net interest income is set forth in Item 3. Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.
Our hedging policies permit the use of various derivative financial instruments, including interest rate swaps, swaptions, caps and floors, to manage exposure to changes in interest rates. Details of our derivatives and hedging activities are set forth in Note 7 - Derivative Financial Instruments in the accompanying notes to consolidated financial statements included elsewhere in this report. Information regarding the impact of fluctuations in interest rates on our derivative financial instruments is set forth in Item 3. Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.
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Credit Loss Expense
Credit loss expense is determined by management as the amount to be added to the allowance for credit loss accounts for various types of financial instruments including loans, securities and off-balance-sheet credit exposures after net charge-offs have been deducted to bring the allowances to a level which, in management’s best estimate, is necessary to absorb expected credit losses over the lives of the respective financial instruments. The components of credit loss expense were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Credit loss expense (benefit) related to: | |||||||||||||||||||||||
| Loans | $ | 9,007 | $ | 16,462 | $ | 37,501 | $ | 43,848 | |||||||||||||||
| Off-balance-sheet credit exposures | (2,418) | 2,924 | (4,713) | 4,975 | |||||||||||||||||||
| Securities held to maturity | 190 | — | 190 | — | |||||||||||||||||||
| Total | $ | 6,779 | $ | 19,386 | $ | 32,978 | $ | 48,823 | |||||||||||||||
See the section captioned “Allowance for Credit Losses” elsewhere in this discussion for further analysis of credit loss expense related to loans and off-balance-sheet credit exposures.
Non-Interest Income
Total non-interest income for the three and nine months ended September 30, 2025 increased $11.9 million, or 10.5%, and increased $30.7 million, or 9.1%, respectively, compared to the same respective periods in 2024. Changes in the various components of non-interest income are discussed in more detail below.
Trust and Investment Management Fees. Trust and investment management fees increased $3.8 million, or 9.3%, for the three months ended September 30, 2025 and increased $9.9 million, or 8.2%, for the nine months ended September 30, 2025, compared to the same respective periods in 2024. Investment management fees are the most significant component of trust and investment management fees, making up approximately 81.4% of total trust and investment management fees for the first nine months of both 2025 and 2024. The increases in trust and investment management fees during the three and nine months ended September 30, 2025 were primarily related to increases in investment management fees (up $2.9 million and $8.1 million, respectively) and, to a lesser extent, estate fees (up $634 thousand and $1.1 million, respectively), among other things. Investment management fees are generally based on the market value of assets within an account and are thus impacted by volatility in the equity and bond markets. The increases in investment management fees during the three and nine months ended September 30, 2025 were primarily related to increases in the average values of assets maintained in accounts. The increases in the average values of assets were partly related to higher average equity valuations during 2025 relative to 2024 and growth in the number of accounts. The increase in estate fees during the nine months ended September 30, 2025 was primarily related to an increase in transaction volumes relative to 2024.
At September 30, 2025, trust assets, including both managed assets and custody assets, were primarily composed of equity securities (46.7% of assets), fixed income securities (31.5% of assets), alternative investments (8.7% of assets) and cash equivalents (7.2% of assets). The estimated fair value of these assets was $51.4 billion (including managed assets of $26.5 billion and custody assets of $24.8 billion) at September 30, 2025, compared to $51.4 billion (including managed assets of $26.2 billion and custody assets of $25.2 billion) at December 31, 2024 and $50.4 billion (including managed assets of $25.6 billion and custody assets of $24.9 billion) at September 30, 2024.
Service Charges on Deposit Accounts. Service charges on deposit accounts increased $4.0 million, or 14.7%, for the three months ended September 30, 2025 and increased $10.9 million, or 13.9%, for the nine months ended September 30, 2025, compared to the same respective periods in 2024. The increase during the three months ended September 30, 2025 was primarily related to increases in commercial service charges (up $2.1 million) and overdraft charges on consumer accounts (up $1.9 million). The increase during the nine months ended September 30, 2025, was primarily related to increases in overdraft charges on consumer and, to a lesser extent, commercial accounts (up $6.0 million and $798 thousand, respectively), and commercial service charges (up $4.7 million), partly offset by a decrease in consumer service charges (down $671 thousand).
Overdraft charges totaled $15.7 million ($12.3 million consumer and $3.4 million commercial) during the three months ended September 30, 2025, compared to $13.8 million ($10.4 million consumer and $3.4 million commercial) during the same period in 2024. Overdraft charges totaled $44.6 million ($34.4 million consumer and $10.2 million commercial) during the nine months ended September 30, 2025, compared to $37.8 million ($28.4 million consumer and $9.4 million commercial) during the same period in 2024. The increases in overdraft charges during the three and nine months ended September 30, 2025 were impacted by increases in the volumes of fee assessed overdrafts relative to 2024, in part due to growth in the number of accounts.
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As more fully discussed in our 2024 Form 10-K, in December 2024, the Consumer Financial Protection Bureau (“CFPB”) issued a final rule, which would have been applicable to Frost Bank in October 2025, that modified or eliminated several long-standing exclusions from requirements generally applicable to consumer credit that previously exempted certain overdraft practices from such requirements and required banks to restructure many overdraft fees, overdraft lines of credit, and other overdraft practices as separate consumer credit accounts that have become subject to those requirements. In March and April 2025, the U.S. Senate and House of Representatives, respectively, each adopted a resolution that would nullify the CFPB's overdraft rule. The measure was signed by the President in May 2025.
The increases in commercial service charges during the three and nine months ended September 30, 2025 were partly related to increases in billable services related to analyzed treasury management accounts combined with the effect of a lower average earnings credit rate applied to deposits maintained by treasury management customers which resulted in customers paying for more of their services through fees rather than with earnings credits applied to their deposit balances. The increases in commercial service charges were also partly related to increases in service fees on non-analyzed accounts.
Insurance Commissions and Fees. Insurance commissions and fees increased $585 thousand, or 3.94%, for the three months ended September 30, 2025 and increased $3.3 million, or 6.9%, for the nine months ended September 30, 2025, compared to the same respective periods in 2024. The increase during the three months ended September 30, 2025 was primarily due to increases in benefit plan commissions (up $380 thousand) and life insurance commissions (up $332 thousand), among other things, partly offset by a decrease in contingent commissions (down $251 thousand). The increase during the nine months ended September 30, 2025 was primarily the result of increases in benefit plan commissions (up $1.8 million) and life insurance commissions (up $930 thousand), among other things. The increases in benefit plan commissions were primarily due to premium and exposure rate increases within the existing customer base and, during the nine months ended September 30, 2025, an increase in business volume. The increases in life insurance commissions were primarily related to increases in business volumes.
Contingent income totaled $4.8 million during the nine months ended September 30, 2025 compared to $4.5 million during the nine months ended September 30, 2024. Contingent income primarily consists of amounts received from various property and casualty insurance carriers related to portfolio growth and the loss performance of insurance policies previously placed. These performance related contingent payments are seasonal in nature and are mostly received during the first quarter of each year. This performance related contingent income totaled $3.6 million during the nine months ended September 30, 2025 and $3.2 million during the nine months ended September 30, 2024. Performance related contingent income related to commercial lines insurance policies increased due to improved loss performance of commercial lines insurance policies previously placed and growth within the commercial lines portfolio. Contingent income also includes amounts received from various benefit plan insurance companies related to the volume of business generated and/or the subsequent retention of such business. This benefit plan related contingent income totaled $1.1 million during the nine months ended September 30, 2025, compared to $1.4 million during the nine months ended September 30, 2024.
Interchange and Card Transaction Fees. Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions. Interchange and card transaction fees consist of income from debit and credit card usage, point of sale income from PIN-based card transactions and ATM service fees. Interchange and card transaction fees are reported net of related network costs.
Net interchange and card transaction fees increased $119 thousand, or 2.2%, for the three months ended September 30, 2025 and increased $1.3 million, or 8.6%, for the nine months ended September 30, 2025, compared to the same respective periods in 2024. The increases were primarily due to increases in income from card transactions partly offset by increases in network costs. A comparison of gross and net interchange and card transaction fees for the reported periods is presented in the table below.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Income from card transactions | $ | 10,876 | $ | 10,309 | $ | 32,037 | $ | 29,826 | |||||||||||||||
| ATM service fees | 887 | 898 | 2,620 | 2,627 | |||||||||||||||||||
| Gross interchange and card transaction fees | 11,763 | 11,207 | 34,657 | 32,453 | |||||||||||||||||||
| Network costs | 6,216 | 5,779 | 18,089 | 17,200 | |||||||||||||||||||
| Net interchange and card transaction fees | $ | 5,547 | $ | 5,428 | $ | 16,568 | $ | 15,253 | |||||||||||||||
Federal Reserve rules applicable to financial institutions that have assets of $10 billion or more provide that the maximum permissible interchange fee for an electronic debit transaction is the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction. An upward adjustment of no more than 1 cent to an issuer's debit card interchange fee
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is allowed if the card issuer develops and implements policies and procedures reasonably designed to achieve certain fraud-prevention standards. The Federal Reserve also has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product. In August 2025, the U.S. District Court for the District of North Dakota ruled to vacate the Federal Reserve’s current interchange rules but simultaneously stayed its own vacatur pending appeal to the circuit court. The outcome of this litigation could significantly and adversely affect the fees banks can charge on debit card transactions.
In October 2023, the Federal Reserve issued a proposal under which the maximum permissible interchange fee for an electronic debit transaction would be the sum of 14.4 cents per transaction and 4 basis points multiplied by the value of the transaction. Furthermore, the fraud-prevention adjustment would increase from a maximum of 1 cent to 1.3 cents. The proposal would adopt an approach for future adjustments to the interchange fee cap, which would occur every other year based on issuer cost data gathered by the Federal Reserve from large debit card issuers. Had the proposed maximum interchange fees 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. The extent to which any such proposed changes in permissible interchange fees will impact our future revenues is currently uncertain.
Other Charges, Commissions, and Fees. Other charges, commissions, and fees increased $1.7 million, or 12.8%, for the three months ended September 30, 2025 and increased $4.1 million, or 10.9%, for the nine months ended September 30, 2025, compared to the same respective periods in 2024. The increases during the three and nine months ended September 30, 2025 were primarily related to increases in income from the placement of annuities (up $470 thousand and $1.9 million, respectively), commitment fees on unused lines of credit (up $139 thousand and $820 thousand, respectively), merchant services rebates (up $166 thousand and $455 thousand, respectively), letter of credit fees (up $441 thousand and $409 thousand, respectively), and income from the placement of mutual funds (up $301 thousand and $309 thousand, respectively), among other things.
Net Gain/Loss on Securities Transactions. During the nine months ended September 30, 2025, we sold certain available-for-sale securities with amortized costs totaling $41.2 million and realized a net loss of $14 thousand. These sales were primarily related to a municipal tender offer during the first quarter. During the nine months ended September 30, 2024, we sold certain available-for-sale securities with amortized costs totaling $145.4 million and realized a net gain of $16 thousand.
Other Non-Interest Income. Other non-interest income increased $1.7 million, or 14.4%, for the three months ended September 30, 2025 and increased $1.1 million, or 3.1%, for the nine months ended September 30, 2025, compared to the same respective periods in 2024. The increase during the three months ended September 30, 2025 was primarily related to increases in sundry and other miscellaneous income (up $1.6 million) and public finance underwriting fees (up $998 thousand), among other things, partly offset by decreases in gains on the sale of foreclosed and other assets (down $473 thousand), income from customer derivatives trading activities (down $417 thousand), among other things. The increase during the nine months ended September 30, 2025 was primarily related to increases in gains on the sale of foreclosed and other assets (up $2.1 million) and income from customer securities trading and derivatives trading activities (up $564 thousand and $370 thousand, respectively), among other things, partly offset by decreases in public finance underwriting fees (down $2.0 million). The fluctuations in public finance underwriting fees and income from customer derivative and securities trading activities during the comparable periods were primarily related to variations in transaction volumes. Gains on the sale of foreclosed and other assets during the nine months ended September 30, 2025 included a $2.5 million gain related to the sale of a foreclosed real estate property during the first quarter. Sundry and other miscellaneous income during the three months ended September 30, 2025 included $1.2 million related to the recovery of prior write-offs, among other things.
Non-Interest Expense
Total non-interest expense for the three and nine months ended September 30, 2025 increased $29.1 million, or 9.0%, and increased $81.1 million, or 8.4%, respectively, compared to the same periods in 2024. Changes in the various components of non-interest expense are discussed below.
Salaries and Wages. Salaries and wages increased $12.5 million, or 8.0%, for the three months ended September 30, 2025 and increased $36.3 million, or 8.0%, for the nine months ended September 30, 2025, compared to the same respective periods in 2024. The increases in salaries and wages during the three and nine months ended September 30, 2025 were primarily related to increases in salaries due to annual merit and market increases and increases in the number of employees. The increases in the number of employees were partly related to our investment in organic expansion in various markets. Salaries and wages during the three and nine months ended September 30, 2025 were also impacted, to a lesser extent, by increases in incentive compensation and stock-based compensation.
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Employee Benefits. Employee benefits expense increased $5.4 million, or 18.6%, for the three months ended September 30, 2025 and increased $15.6 million, or 16.6%, for the nine months ended September 30, 2025, compared to the same respective periods in 2024. The increases during the three and nine months ended September 30, 2025 were primarily related to increases in medical/dental benefits expense (up $3.7 million and $6.5 million, respectively), primarily due to an increase in expected costs; 401(k) plan expense (up $1.4 million and $6.0 million, respectively); and payroll taxes (up $350 thousand and $2.8 million, respectively).
Our defined benefit retirement and restoration plans were frozen in 2001 which has helped to reduce the volatility in retirement plan expense. We nonetheless still have funding obligations related to these plans and could recognize expense related to these plans in future years, which would be dependent on the return earned on plan assets, the level of interest rates and employee turnover. See Note 11 - Defined Benefit Plans for additional information related to our net periodic pension benefit/cost.
Net Occupancy. Net occupancy expense increased $2.2 million, or 6.7%, for the three months ended September 30, 2025 and increased $6.0 million, or 6.2%, for the nine months ended September 30, 2025, compared to the same respective periods in 2024. The increases during the three and nine months ended September 30, 2025 were primarily related to increases in lease expense (up $1.2 million and $2.3 million, respectively); depreciation on buildings and leasehold improvements (together up $764 thousand and $2.2 million, respectively); and property taxes (up $654 thousand and $1.5 million, respectively), among other things. The increases in the aforementioned components of net occupancy expense were impacted, in part, by our expansion efforts.
Technology, Furniture, and Equipment. Technology, furniture, and equipment expense increased $5.7 million, or 15.1%, for the three months ended September 30, 2025 and increased $15.5 million, or 14.2%, for the nine months ended September 30, 2025, compared to the same respective periods in 2024. The increases during the three and nine months ended September 30, 2025 were primarily related to increases in cloud services expense (up $3.5 million and $8.6 million, respectively), software maintenance (up $1.9 million and $4.4 million, respectively), depreciation on furniture and equipment (up $840 thousand and $2.2 million, respectively), and, during the nine months ended September 30, 2025, service contracts expense (up $734 thousand), among other things.
Deposit Insurance. Deposit insurance expense totaled $6.3 million and $20.1 million for the three and nine months ended September 30, 2025, respectively, compared to $7.2 million and $30.3 million for the three and nine months ended September 30, 2024, respectively. Deposit insurance expense during the nine months ended September 30, 2024 included $9.0 million, related to additional accruals related to a special deposit insurance assessment. Refer to our 2024 Form 10-K for additional information related to the special deposit insurance assessment. During the nine months ended September 30, 2025, we reversed approximately $1.3 million of our special deposit insurance assessment accrual based upon a decrease in expected future payments related to the special deposit insurance assessment. Excluding these special assessments from 2024 and reversals in 2025, deposit insurance expense did not significantly fluctuate during the comparable periods.
Other Non-Interest Expense. Other non-interest expense increased $4.2 million, or 6.9%, for the three months ended September 30, 2025 and increased $18.0 million, or 9.9%, for the nine months ended September 30, 2025, compared to the same respective periods in 2024. The increase during the three months ended September 30, 2025 included increases in fraud losses (up $2.8 million); advertising/promotions expense (up $516 thousand); research and platform fees (up $511 thousand); outside computer service expense (up $381 thousand); donations expense (up $362 thousand); travel, meals and entertainment (up $337 thousand) and communications expense (up $331 thousand) among other things, partly offset by decreases in professional services expense (down $977 thousand) and check card expenses (down $404 thousand), among other things. The increase during the nine months ended September 30, 2025 included increases in fraud losses (up $4.1 million); advertising/promotions expense (up $3.8 million); sundry and other miscellaneous expense (up $2.6 million), of which $1.7 million related to increased operational losses and asset write-offs; research and platform fees (up $1.6 million); donations expense (up $1.5 million), primarily related to donations to the Frost Charitable Foundation; business development expense (up $1.1 million); travel, meals and entertainment (up $1.0 million); and communications expense (up $822 thousand); among other things, partly offset by a decrease in check card expenses (down $1.3 million), among other things.
Results of Segment Operations
We are managed under a matrix organizational structure whereby our two primary operating segments, Banking and Frost Wealth Advisors, overlap a regional reporting structure. A third operating segment, Non-Banks, is for the most part the parent holding company, as well as certain other insignificant non-bank subsidiaries of the parent that, for the most part, have little or no activity. A description of each segment, the methodologies used to measure segment financial performance and summarized operating results by segment are described in Note 14 - Operating Segments in the accompanying notes to consolidated financial statements included elsewhere in this report. Segment operating results are discussed in more detail below.
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Banking
Net income for the three and nine months ended September 30, 2025 increased $25.5 million, or 17.9%, and increased $51.8 million, or 12.5%, respectively, compared to the same periods in 2024. The increase during the three months ended September 30, 2025 was primarily the result of a $37.1 million increase in net interest income, a $12.6 million decrease in credit loss expense, and a $6.7 million increase in non-interest income partly offset by a $26.7 million increase in non-interest expense and a $4.2 million increase in income tax expense. The increase during the nine months ended September 30, 2025 was primarily the result of a $95.3 million increase in net interest income, a $17.6 million increase in non-interest income, and a $15.8 million decrease in credit loss expense partly offset by $70.8 million increase in non-interest expense and a $6.2 million increase in income tax expense.
Net interest income for the three and nine months ended September 30, 2025 increased $37.1 million, or 9.2%, and increased $95.3 million, or 8.0%, respectively, compared to the same periods in 2024. The increase during the three months ended September 30, 2025 was primarily related decreases in the average costs of interest-bearing deposit accounts and repurchase agreements combined with increases in the average yields on and volumes of taxable and, to a lesser extent, tax-exempt securities and an increase in the average volume of loans, among other things. The impact of these items was partly offset by a decrease in average yield on loans, decreases in the average yield on and volume of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve), and increases in the average volumes of interest-bearing deposit accounts and repurchase agreements, among other things. The increase during the nine months ended September 30, 2025 was primarily related to decreases in the average costs of interest-bearing deposit accounts and repurchase agreements combined with an increase in the average volume of loans, and increases in the average yield on and volume of taxable securities, and, to a lesser extent, tax-exempt securities, among other things. The impact of these items was partly offset by a decrease in average yield on loans, decreases in the average yield on and volume of interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve), and a decrease in the average volume of resell agreements, among other things, combined with increases in the average volumes of interest-bearing deposit accounts and repurchase agreements, among other things. Net interest income for the first nine months of 2024 included an additional day as a result of leap year. See the analysis of net interest income included in the section captioned “Net Interest Income” included elsewhere in this discussion.
Credit loss expense for the three and nine months ended September 30, 2025 totaled $6.8 million and $33.0 million compared to $19.4 million and $48.8 million during the same periods in 2024. See the sections captioned “Credit Loss Expense” and “Allowance for Credit Losses” elsewhere in this discussion for further analysis of credit loss expense related to loans and off-balance-sheet commitments.
Non-interest income for the three months ended September 30, 2025 increased $6.7 million, or 10.1%, compared to the same period in 2024 while non-interest income for the nine months ended September 30, 2025 increased $17.6 million, or 9.0%, compared to the same period in 2024. The increase during the three months ended September 30, 2025 was primarily related to an increase in service charges on deposit accounts, and to a lesser extent, increases in other non-interest income; insurance commissions and fees; and other charges, commissions, and fees. The increase during the nine months ended September 30, 2025 was primarily related to increases in service charges on deposit accounts; insurance commissions and fees; other charges, commissions, and fees; and interchange and card transaction fees. The increases in service charges on deposit accounts were primarily related to increases in overdraft charges on consumer and commercial accounts and commercial service charges. The increases in insurance commissions and fees were primarily the result of increases in benefit plan commissions and life insurance commissions. The increases in other charges, commissions, and fees were primarily related to increases in commitment fees on unused lines of credit, merchant services rebates, and letter of credit fees, among other things. The increase in other non-interest income during the three months ended September 30, 2025 was primarily related to increases in public finance underwriting fees, and sundry and other miscellaneous income, among other things, partly offset by decreases in gains on the sale of foreclosed and other assets, income from customer derivatives trading activities, among other things. The increase in interchange and card transaction fees during the nine months ended September 30, 2025 was primarily related to increases in income from card transactions partly offset by increases in network costs. See the analysis of these categories of non-interest income included in the section captioned “Non-Interest Income” included elsewhere in this discussion.
Non-interest expense for the three and nine months ended September 30, 2025 increased $26.7 million, or 9.5%, and increased $70.8 million, or 8.4%, respectively, compared to the same periods in 2024. The increases during the three and nine months ended September 30, 2025 were primarily due to increases in salaries and wages; technology, furniture, and equipment expense; other non-interest expense; employee benefits expense; and net occupancy expense. These increases were partly offset by decreases in deposit insurance expense. The increases in salaries and wages were primarily related to increases in salaries due to annual merit and market increases and increases in the number of employees. Salaries and wages were also impacted, to a lesser extent, by increases in incentive compensation and stock-based compensation. The increases in technology, furniture, and equipment expense were primarily related to increases in cloud services expense, software maintenance, depreciation on
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furniture and equipment, and, during the nine months ended September 30, 2025, an increase in service contracts expense, among other things. The increases in other non-interest expense included increases in sundry and other miscellaneous expense; fraud losses; advertising/promotions expense; donations expense (primarily related to donations to the Frost Charitable Foundation); travel, meals and entertainment; and professional services expense, among other things, partly offset by decreases in check card expenses, among other things. The increase in other non-interest expense during the nine months ended September 30, 2025 also included an increase in business development expense. The increases in employee benefits expense were primarily related increases in medical/dental benefits expense, 401(k) plan expense, and payroll taxes, among other things. The increases in net occupancy expense were primarily related to increases in depreciation on buildings and leasehold improvements; lease expense; and property taxes, among other things. The decreases in deposit insurance expense were primarily related to prior year accruals for a special deposit insurance assessment totaling $9.0 million during the nine months ended September 30, 2024 while we reversed approximately $1.3 million of this accrual during the same period in 2025 based upon a decrease in expected future payments related to the special deposit insurance assessment. See the analysis of these categories of non-interest expense included in the section captioned “Non-Interest Expense” included elsewhere in this discussion.
Frost Wealth Advisors
Net income for the three months ended September 30, 2025 increased $1.7 million, or 22.3%, compared to the same period in 2024, while net income for the nine months ended September 30, 2025 increased $1.7 million, or 6.6% compared to the same period in 2024. The increase during the three months ended September 30, 2025 was primarily the result of a $4.9 million increase in non-interest income, partly offset by a $2.7 million increase in non-interest expense, among other things. The increase in net income during the nine months ended September 30, 2025 was primarily the result of a $12.5 million increase in non-interest income, partly offset by a $10.4 million increase in non-interest expense, among other things.
Non-interest income for the three and nine months ended September 30, 2025 increased $4.9 million, or 10.2%, and increased $12.5 million, or 8.7%, respectively, compared to the same periods in 2024. The increases during the three and nine months ended September 30, 2025 were primarily due to increases in trust and investment management fees and other charges, commissions, and fees. The increases in trust and investment management fees were primarily related to increases in investment management fees and, to a lesser extent, estate fees, among other things. The increases in investment management fees were primarily related to increases in the average value of assets maintained in accounts. The increases in the average value of assets were partly related to higher average equity valuations during 2025 relative to 2024 and growth in the number of accounts. The increases in estate fees were primarily related to an increase in transaction volumes relative to 2024. The increases in other charges, commissions, and fees were primarily related to increases in income from the placement of annuities and income from the placement of mutual funds among other things. See the analysis of trust and investment management fees, other non-interest income and other charges, commissions, and fees included in the section captioned “Non-Interest Income” included elsewhere in this discussion.
Non-interest expense for the three and nine months ended September 30, 2025 increased $2.7 million, or 6.5%, and increased $10.4 million, or 8.9%, respectively, compared to the same periods in 2024. The increase during the three months ended September 30, 2025 was primarily related to an increase in salaries and wages, and to a lesser extent, increases in employee benefits expense; technology, furniture, and equipment expense; and net occupancy expense. The increase during the nine months ended September 30, 2025 was primarily related to increases in salaries and wages; other non-interest expense; and employee benefits expense. The increases in salaries and wages were primarily due to increases in salaries, due to annual merit and market increases, and increases in incentive compensation and commissions expense. The increases in employee benefits were primarily related to increases in 401(k) plan expense, medical/dental benefits expense, and payroll taxes, among other things. The increase in technology, furniture, and equipment expense during the three months ended September 30, 2025 was related to increases in cloud services expense and software maintenance. The increase in net occupancy expense during the three months ended September 30, 2025 was related to an increase in lease expense. The increase in other non-interest expense during the nine months ended September 30, 2025 was primarily related to increases in corporate overhead expense allocations and research and platform fees, among other things, partly offset by decreases in sundry and other miscellaneous expense and professional services expense, among other things. See the analysis of these categories of non-interest expense included in the section captioned “Non-Interest Expense” included elsewhere in this discussion.
Non-Banks
The Non-Banks operating segment had net losses of $2.7 million and $10.7 million during the three and nine months ended September 30, 2025, compared to net losses of $3.4 million and $11.8 million during the same periods in 2024. The decreases in the net losses during three and nine months ended September 30, 2025 were primarily due to decreases in net interest expense due to decreases in the average rates paid on our long-term borrowings, among other things.
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Income Taxes
During the three months ended September 30, 2025, we recognized income tax expense of $33.6 million, for an effective tax rate of 16.2%, compared to $28.7 million, for an effective tax rate of 16.4%, for the same period in 2024. During the nine months ended September 30, 2025, we recognized income tax expense of $91.4 million, for an effective tax rate of 15.9%, compared to $84.3 million, for an effective tax rate of 16.5%, for the same period in 2024. The effective income tax rates differed from the U.S. statutory federal income tax rate of 21% during 2025 and 2024 primarily due to the effect of tax-exempt income from securities, loans and life insurance policies and the income tax effects associated with stock-based compensation, among other things, and their relative proportion to total pre-tax net income. The increases in income tax expense during the three and nine months ended September 30, 2025 were primarily due to an increase in projected pre-tax net income. The decreases in the effective tax rate during the three and nine months ended September 30, 2025 were primarily related to increases in tax-exempt interest from securities and in tax benefits associated with stock compensation, among other things, combined with decreases in projected non-deductible deposit interest expense.
One Big Beautiful Bill Act. The One Big Beautiful Bill Act (“OBBBA”) was enacted on July 4, 2025. Among other things, the new law makes permanent certain expiring business tax provisions of the Tax Cuts and Jobs Act (“TCJA”). These include provisions which allow businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets and the cost of qualified domestic research and development. The OBBBA also imposes a floor on tax deductions taken on charitable contributions. We do not expect these items to have a significant impact on our financial statements, though we expect that some minor operational changes may be necessary to support new information reporting requirements. The OBBBA also significantly changes U.S. tax law related to foreign operations and certain tax credits; however, such changes do not currently impact us.
Average Balance Sheet
Average assets totaled $51.3 billion for the nine months ended September 30, 2025 representing an increase of $2.1 billion, or 4.3%, compared to average assets for the same period in 2024. Earning assets increased $2.0 billion, or 4.4%, during the nine months ended September 30, 2025, compared to the same period in 2024. The increase in earning assets was primarily related to a $1.5 billion increase in average loans and a $1.0 billion increase in average taxable securities, partly offset by a $455.0 million decrease in average interest-bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve), and a $56.1 million decrease in average resell agreements. Average deposits increased $1.2 billion, or 2.9%, during the nine months ended September 30, 2025, compared to the same period in 2024. The increase included a $1.1 billion increase in interest-bearing deposits and a $38.0 million increase in non-interest-bearing deposits. Average non-interest-bearing deposits made up 33.0% and 33.9% of average total deposits during the nine months ended September 30, 2025 and 2024, respectively.
Loans
Details of our loan portfolio are presented in Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report. Loans increased $690.8 million, or 3.3%, from $20.8 billion at December 31, 2024 to $21.4 billion at September 30, 2025. 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 2024 Form 10-K for a more detailed discussion of our loan origination and risk management processes.
Commercial and Industrial. Commercial and industrial loans increased $108.7 million, or 1.8%, from $6.1 billion at December 31, 2024 to $6.2 billion at September 30, 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 term financing of equipment. While some short-term loans may be made on an unsecured basis, most are secured by the assets being financed with collateral margins that are consistent with our loan policy guidelines. The commercial and industrial loan portfolio also includes commercial leases and purchased shared national credits ("SNC"s).
Energy. Energy loans include loans to entities and individuals that are engaged in various energy-related activities including (i) the development and production of oil or natural gas, (ii) providing oil and gas field servicing, (iii) providing energy-related transportation services, (iv) providing equipment to support oil and gas drilling, (v) refining petrochemicals, or (vi) trading oil, gas and related commodities. Energy loans increased $124.8 million, or 11.1%, from $1.1 billion at December 31, 2024 to $1.3 billion at September 30, 2025. Energy loans are one of our largest industry concentrations totaling 5.8% of total loans at September 30, 2025, up from 5.4% of total loans at December 31, 2024. The average loan size, the significance of the portfolio and the specialized nature of the energy industry requires a highly prescriptive underwriting policy. Exceptions to this policy are rarely granted. Due to the large borrowing requirements of this customer base, the energy loan portfolio includes participations and SNCs.
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Purchased Shared National Credits. SNCs are participations purchased from upstream financial organizations and tend to be larger in size than our originated portfolio. Our purchased SNC portfolio totaled $816.2 million at September 30, 2025, decreasing $188.7 million, or 18.8%, from $1.0 billion at December 31, 2024. At September 30, 2025, 32.7% of outstanding purchased SNCs were related to the construction industry while 16.7% were related to the real estate management industry and 12.0% were related to the retail industry. The remaining purchased SNCs were diversified throughout various other industries, with no other single industry exceeding 10% of the total purchased SNC portfolio. SNC participations are originated in the normal course of business to meet the needs of our customers. As a matter of policy, we generally only participate in SNCs for companies headquartered in or which have significant operations within our market areas. In addition, we must have direct access to the company’s management, an existing banking relationship or the expectation of broadening the relationship with other banking products and services within the following 12 to 24 months. SNCs are reviewed at least quarterly for credit quality and business development successes.
Commercial Real Estate. Commercial real estate loans totaled $10.0 billion at both September 30, 2025 and December 31, 2024. Commercial real estate loans represented 74.3% and 76.3% of total real estate loans at September 30, 2025 and December 31, 2024, respectively. The majority of our commercial real estate loan portfolio consists of commercial real estate mortgages, which includes both permanent and intermediate term loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Consequently, these loans must undergo the analysis and underwriting process of a commercial and industrial loan, as well as that of a real estate loan. At September 30, 2025, approximately half of the outstanding principal balance of our commercial real estate loans (excluding construction and land) were secured by owner-occupied properties.
Consumer Real Estate and Other Consumer Loans. The consumer real estate loan portfolio increased $366.1 million, or 11.8%, from $3.1 billion at December 31, 2024 to $3.5 billion at September 30, 2025. Combined, home equity loans and lines of credit made up 58.3% and 58.8% of the consumer real estate loan total at September 30, 2025 and December 31, 2024, respectively. We offer home equity loans up to 80% of the estimated value of the personal residence of the borrower, less the value of existing mortgages and home improvement loans. We also originate 1-4 family mortgage loans for portfolio investment purposes. Consumer and other loans increased $12.5 million, or 2.8%, from $444.5 million at December 31, 2024 to $457.0 million at September 30, 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 tables. Also see Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.
| Accruing Loans 30-89 Days Past Due | Accruing Loans 90 or More Days Past Due | Total Accruing Past Due Loans | |||||||||||||||||||||||||||||||||||||||
| Total Loans | Amount | Percent of Loans in Category | Amount | Percent of Loans in Category | Amount | Percent of Loans in Category | |||||||||||||||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | 6,218,271 | $ | 33,337 | 0.54 | % | $ | 3,576 | 0.06 | % | $ | 36,913 | 0.60 | % | |||||||||||||||||||||||||||
| Energy | 1,253,672 | 15,493 | 1.24 | — | — | 15,493 | 1.24 | ||||||||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||||||||||||
| Buildings, land, and other | 7,942,894 | 48,336 | 0.61 | 399 | 0.01 | 48,735 | 0.62 | ||||||||||||||||||||||||||||||||||
| Construction | 2,104,247 | 1,693 | 0.08 | — | — | 1,693 | 0.08 | ||||||||||||||||||||||||||||||||||
| Consumer real estate | 3,469,493 | 18,644 | 0.54 | 4,951 | 0.14 | 23,595 | 0.68 | ||||||||||||||||||||||||||||||||||
| Consumer and other | 456,997 | 5,999 | 1.31 | 482 | 0.11 | 6,481 | 1.42 | ||||||||||||||||||||||||||||||||||
| Total | $ | 21,445,574 | $ | 123,502 | 0.58 | $ | 9,408 | 0.04 | $ | 132,910 | 0.62 | ||||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | 6,109,532 | $ | 36,540 | 0.60 | % | $ | 7,685 | 0.13 | % | $ | 44,225 | 0.73 | % | |||||||||||||||||||||||||||
| Energy | 1,128,895 | 4,263 | 0.38 | — | — | 4,263 | 0.38 | ||||||||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||||||||||||
| Buildings, land, and other | 7,704,447 | 36,737 | 0.48 | 1,523 | 0.02 | 38,260 | 0.50 | ||||||||||||||||||||||||||||||||||
| Construction | 2,264,076 | 870 | 0.04 | — | — | 870 | 0.04 | ||||||||||||||||||||||||||||||||||
| Consumer real estate | 3,103,389 | 17,015 | 0.55 | 5,681 | 0.18 | 22,696 | 0.73 | ||||||||||||||||||||||||||||||||||
| Consumer and other | 444,474 | 6,341 | 1.43 | 822 | 0.18 | 7,163 | 1.61 | ||||||||||||||||||||||||||||||||||
| Total | $ | 20,754,813 | $ | 101,766 | 0.49 | $ | 15,711 | 0.08 | $ | 117,477 | 0.57 | ||||||||||||||||||||||||||||||
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Accruing past due loans at September 30, 2025 increased $15.4 million compared to December 31, 2024. The increase was primarily related to increases in past due energy loans (up $11.2 million) and past due commercial real estate - buildings, land, and other loans (up $10.5 million) partly offset by a decrease in past due commercial and industrial loans (down $7.3 million ). Accruing past due commercial real estate loans - building, land and other at September 30, 2025 and December 31, 2024 included $4.9 million and $6.2 million, respectively, related to owner occupied properties and $43.9 million and $32.1 million, respectively, related to non-owner occupied properties.
Non-Accrual Loans. Non-accrual loans are presented in the table below. Also see in Note 3 - Loans in the accompanying notes to consolidated financial statements included elsewhere in this report.
| September 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||
| Non-Accrual Loans | Non-Accrual Loans | ||||||||||||||||||||||||||||||||||
| Total Loans | Amount | Percent of Loans in Category | Total Loans | Amount | Percent of Loans in Category | ||||||||||||||||||||||||||||||
| Commercial and industrial | $ | 6,218,271 | $ | 23,264 | 0.37 | % | $ | 6,109,532 | $ | 46,004 | 0.75 | % | |||||||||||||||||||||||
| Energy | 1,253,672 | 3,523 | 0.28 | 1,128,895 | 4,079 | 0.36 | |||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||||||
| Buildings, land, and other | 7,942,894 | 11,312 | 0.14 | 7,704,447 | 21,920 | 0.28 | |||||||||||||||||||||||||||||
| Construction | 2,104,247 | — | — | 2,264,076 | — | — | |||||||||||||||||||||||||||||
| Consumer real estate | 3,469,493 | 6,408 | 0.18 | 3,103,389 | 6,511 | 0.21 | |||||||||||||||||||||||||||||
| Consumer and other | 456,997 | 271 | 0.06 | 444,474 | 352 | 0.08 | |||||||||||||||||||||||||||||
| Total | $ | 21,445,574 | $ | 44,778 | 0.21 | $ | 20,754,813 | $ | 78,866 | 0.38 | |||||||||||||||||||||||||
| Allowance for credit losses on loans | $ | 280,221 | $ | 270,151 | |||||||||||||||||||||||||||||||
| Ratio of allowance for credit losses on loans to non-accrual loans | 625.80 | % | 342.54 | % | |||||||||||||||||||||||||||||||
Non-accrual loans at September 30, 2025 decreased $34.1 million from December 31, 2024 primarily due to decreases in non-accrual commercial and industrial loans and non-accrual commercial real estate - buildings, land, and other loans. Non-accrual commercial real estate loans - building, land and other at September 30, 2025 and December 31, 2024 included $8.9 million and $19.8 million, respectively, related to owner occupied properties and $2.4 million and $2.1 million, respectively, related to non-owner occupied properties.
Generally, loans are placed on non-accrual status if principal or interest payments become 90 days past due and/or management deems the collectibility of the principal and/or interest to be in question, as well as when required by regulatory requirements. Once interest accruals are discontinued, accrued but uncollected interest is charged to current year operations. Subsequent receipts on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Classification of a loan as non-accrual does not preclude the ultimate collection of loan principal or interest.
There were no non-accrual loans in excess of $5.0 million at September 30, 2025. Non-accrual commercial and industrial loans included two credit relationships in excess of $5.0 million totaling $28.7 million at December 31, 2024. During the third quarter of 2025, one of these credit relationships was removed from non-accrual status due to improved credit quality while the other was sold. We recognized a net charge-off of $828 thousand in connection with the sale. Non-accrual commercial real estate loans included one credit relationship in excess of $5.0 million totaling $7.5 million at December 31, 2024. This credit relationship paid-off in 2025. Another credit relationship had an aggregate balance of $5.1 million at December 31, 2024 of which $4.6 million was included with non-accrual commercial real estate loans and $586 thousand was included with non-accrual commercial and industrial loans. This credit relationship paid off in 2025 and we recognized $329 thousand as a recovery of prior charge-offs.
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Allowance for Credit Losses
In the case of loans and securities, allowances for credit losses are contra-asset valuation accounts, calculated in accordance with Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses, that are deducted from the amortized cost basis of these assets to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. The amount of each allowance account represents management's best estimate of current expected credit losses (“CECL”) on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions, and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions, or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. See our 2024 Form 10-K for additional information regarding our accounting policies related to credit losses.
Allowance for Credit Losses - Loans. The table below provides, as of the dates indicated, an allocation of the allowance for loan losses by loan portfolio segment; however, allocation of a portion of the allowance to one segment does not preclude its availability to absorb losses in other segments.
| Amount of Allowance Allocated | Percent of Loans in Each Category to Total Loans | Total Loans | Ratio of Allowance Allocated to Loans in Each Category | |||||||||||||||||||||||
| September 30, 2025 | ||||||||||||||||||||||||||
| Commercial and industrial | $ | 96,667 | 29.0 | % | $ | 6,218,271 | 1.55 | % | ||||||||||||||||||
| Energy | 8,399 | 5.8 | 1,253,672 | 0.67 | ||||||||||||||||||||||
| Commercial real estate | 141,015 | 46.9 | 10,047,141 | 1.40 | ||||||||||||||||||||||
| Consumer real estate | 23,359 | 16.2 | 3,469,493 | 0.67 | ||||||||||||||||||||||
| Consumer and other | 10,781 | 2.1 | 456,997 | 2.36 | ||||||||||||||||||||||
| Total | $ | 280,221 | 100.0 | % | $ | 21,445,574 | 1.31 | |||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||
| Commercial and industrial | $ | 87,569 | 29.5 | % | $ | 6,109,532 | 1.43 | % | ||||||||||||||||||
| Energy | 9,992 | 5.4 | 1,128,895 | 0.89 | ||||||||||||||||||||||
| Commercial real estate | 143,205 | 48.0 | 9,968,523 | 1.44 | ||||||||||||||||||||||
| Consumer real estate | 19,106 | 15.0 | 3,103,389 | 0.62 | ||||||||||||||||||||||
| Consumer and other | 10,279 | 2.1 | 444,474 | 2.31 | ||||||||||||||||||||||
| Total | $ | 270,151 | 100.0 | % | $ | 20,754,813 | 1.30 | |||||||||||||||||||
The allowance allocated to commercial and industrial loans totaled $96.7 million, or 1.55% of total commercial and industrial loans, at September 30, 2025 increasing $9.1 million, or 10.4%, compared to $87.6 million, or 1.43% of total commercial and industrial loans, at December 31, 2024. Modeled expected credit losses increased $6.7 million, in part due to growth within the portfolio. Qualitative factor (“Q-Factor”) and other qualitative adjustments related to commercial and industrial loans increased $10.8 million primarily due to an increases in the model overlays for the down-side scenario and credit concentrations. Specific allocations for commercial and industrial loans that were evaluated for expected credit losses on an individual basis decreased $8.3 million from $13.3 million at December 31, 2024 to $4.9 million at September 30, 2025. The decrease was primarily related to the removal of a $7.2 million specific allocation for one credit relationship that was removed from non-accrual status due to improved credit quality.
The allowance allocated to energy loans totaled $8.4 million, or 0.67% of total energy loans, at September 30, 2025 decreasing $1.6 million, or 15.9%, compared to $10.0 million, or 0.89% of total energy loans, at December 31, 2024. The decrease was primarily due to a $2.0 million decrease in specific allocations for energy loans that were evaluated for expected credit losses on an individual basis. The decrease was related to one credit relationship.
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The allowance allocated to commercial real estate loans totaled $141.0 million, or 1.40% of total commercial real estate loans, at September 30, 2025 decreasing $2.2 million, or 1.5%, compared to $143.2 million, or 1.44% of total commercial real estate loans, at December 31, 2024. The decrease was primarily related to a $1.6 million decrease in Q-factor and other qualitative adjustments (primarily related to the office building overlay) and a $1.2 million decrease in modeled expected credit losses partly offset by a $610 thousand increase in specific allocations for commercial real estate loans that were evaluated for expected credit losses on an individual basis from $625 thousand at December 31, 2024 to $1.2 million at September 30, 2025.
Additional information related to the allowance allocated to commercial real estate loans at September 30, 2025 and December 31, 2024 is included in the following table:
| Owner Occupied | Non-owner Occupied | Construction and Land | Total | ||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||
| Modeled expected credit losses | $ | 11,136 | $ | 4,154 | $ | 1,036 | $ | 16,326 | |||||||||||||||
| Q-Factor and other qualitative adjustments | 31,821 | 50,102 | 41,531 | 123,454 | |||||||||||||||||||
| Specific allocations | 722 | — | 513 | 1,235 | |||||||||||||||||||
| Total | $ | 43,679 | $ | 54,256 | $ | 43,080 | $ | 141,015 | |||||||||||||||
| Total Loans | $ | 3,801,002 | $ | 3,568,906 | $ | 2,677,233 | $ | 10,047,141 | |||||||||||||||
| Ratio of allowance to loans in each category | 1.15 | % | 1.52 | % | 1.61 | % | 1.40 | % | |||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Modeled expected credit losses | $ | 12,579 | $ | 4,199 | $ | 771 | $ | 17,549 | |||||||||||||||
| Q-Factor and other qualitative adjustments | 28,268 | 49,325 | 47,438 | 125,031 | |||||||||||||||||||
| Specific allocations | 122 | — | 503 | 625 | |||||||||||||||||||
| Total | $ | 40,969 | $ | 53,524 | $ | 48,712 | $ | 143,205 | |||||||||||||||
| Total Loans | $ | 3,622,201 | $ | 3,543,019 | $ | 2,803,303 | $ | 9,968,523 | |||||||||||||||
| Ratio of allowance to loans in each category | 1.13 | % | 1.51 | % | 1.74 | % | 1.44 | % | |||||||||||||||
The allowance allocated to consumer real estate loans totaled $23.4 million, or 0.67% of total consumer real estate loans, at September 30, 2025 increasing $4.3 million, or 22.3%, compared to $19.1 million, or 0.62% of total consumer real estate loans, at December 31, 2024. The increase was primarily related to an increase in modeled expected credit losses due, in part, to growth within the portfolio.
The allowance allocated to consumer loans totaled $10.8 million, or 2.36% of total consumer loans, at September 30, 2025, increasing $502 thousand, or 4.9%, compared to $10.3 million, or 2.31% of total consumer loans, at December 31, 2024. The increase was primarily related to a $1.5 million increase in the consumer overly partly offset by a $930 thousand decrease in modeled expected credit losses, in part due to a decrease in the expected loss rate associated with overdrafts.
As more fully described in our 2024 Form 10-K, we measure expected credit losses over the life of each loan utilizing a combination of models which measure probability of default and loss given default, among other things. The measurement of expected credit losses is impacted by loan/borrower attributes and certain macroeconomic variables. Models are adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period.
In estimating expected credit losses as of September 30, 2025, we utilized the Moody’s Analytics September 2025 Consensus Scenario (the “September 2025 Consensus Scenario”) to forecast the macroeconomic variables used in our models. The September 2025 Consensus Scenario was based on a review of a variety of surveys of baseline forecasts of the U.S. economy. The September 2025 Consensus Scenario projections included, among other things, (i) U.S. Nominal Gross Domestic Product annualized quarterly growth rate of 3.81% during the remainder of 2025 followed by average annualized quarterly growth rates of 4.51% in 2026 and 4.20% through the end of the forecast period in the third quarter of 2027; (ii) average U.S. unemployment rate of 4.41% during the remainder of 2025 followed by average annualized quarterly unemployment rates of 4.44% in 2026 and 4.30% through the end of the forecast period in the third quarter of 2027; (iii) average Texas unemployment rate of 4.22% during the remainder of 2025 followed by average annualized quarterly unemployment rates of 4.17% in 2026 and 4.09% through the end of the forecast period in the third quarter of 2027; (iv) projected average 10 year Treasury rate of 4.35% during the remainder of 2025, 4.40% during 2026 and 4.35% through the end of the forecast period in the third quarter of 2027 and (v) average oil price of $64.61 per barrel during the remainder of 2025, $61.73 per barrel in 2026, and $63.56 per barrel through the end of the forecast period in the third quarter of 2027.
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In estimating expected credit losses as of December 31, 2024, we utilized the Moody’s Analytics December 2024 Consensus Scenario (the “December 2024 Consensus Scenario”) to forecast the macroeconomic variables used in our models. The December 2024 Consensus Scenario was based on the review of a variety of surveys of baseline forecasts of the U.S. economy. The December 2024 Consensus Scenario projections included, among other things, (i) U.S. Nominal Gross Domestic Product average annualized quarterly growth rates of 3.50% in 2025 and 4.43% in 2026; (ii) average annualized U.S. unemployment rate of 4.36% during 2025 and 4.19% in 2026; (iii) average annualized Texas unemployment rate of 4.21% during 2025 and 3.99% during 2026; (iv) projected average 10 year Treasury rate of 4.23% during 2025 and 4.12% during 2026; and (v) average oil price of $70.88 per barrel during 2025 and $69.96 per barrel during 2026.
The overall loan portfolio as of September 30, 2025 increased $690.8 million, or 3.3%, compared to December 31, 2024. This increase included a $366.1 million, or 11.8%, increase in consumer real estate loans; a $124.8 million, or 11.1%, increase in energy loans; a $108.7 million, or 1.8%, increase in commercial and industrial loans; a $78.6 million, or 0.8%, increase in commercial real estate loans; and a $12.5 million, or 2.8%, increase in consumer and other loans.
The weighted average risk grade for commercial and industrial loans decreased to 6.35 at September 30, 2025 from 6.64 at December 31, 2024. The decrease was partly related to a decrease in the weighted-average risk grade of pass grade commercial and industrial loans, which decreased to 6.06 at September 30, 2025 from 6.30 at December 31, 2024. The decrease was also partly related to a $40.2 million decrease in higher-risk grade, classified commercial and industrial loans. Classified loans consist of loans having a risk grade of 11, 12 or 13. The weighted-average risk grade for energy loans increased to 5.62 at September 30, 2025 from 5.58 at December 31, 2024. The increase in the weighted-average risk grade for energy loans was due to a $3.2 million increase in energy loans graded as “special mention” (risk grade 10) and a $9.2 million increase in classified energy loans. Pass-grade energy loans increased $116.7 million while the weighted-average risk grade of such loans was 5.51 at both September 30, 2025 and December 31, 2024. The weighted average risk grade for commercial real estate loans decreased to 7.31 at September 30, 2025 from 7.35 December 31, 2024 as the impact of an increase in the weighted-average risk grade of pass grade commercial real estate loans from 7.07 at December 31, 2024 to 7.08 at September 30, 2025 was offset by the impact of a decrease in classified commercial real estate loans (down $22.8 million).
As noted above, our credit loss models utilized the economic forecasts in the Moody's September 2025 Consensus Scenario for our estimated expected credit losses as of September 30, 2025 and the Moody’s December 2024 Consensus Scenario for our estimate of expected credit losses as of December 31, 2024. We qualitatively adjusted the model results based on these scenarios for various risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor, or Q-Factor, adjustments are discussed below.
Q-Factor adjustments are based upon management's judgment and current assessment as to the impact of risks related to changes in lending policies and procedures; economic and business conditions; loan portfolio attributes and credit concentrations; and external factors, among other things, that are not already captured within the modeling inputs, assumptions and other processes. Management assesses the potential impact of such items within a range of severely negative impact to positive impact and adjusts the modeled expected credit loss by an aggregate adjustment percentage based upon the assessment. As a result of this assessment as of September 30, 2025, modeled expected credit losses were adjusted upwards by a weighted-average Q-Factor adjustment of approximately 4.0%, resulting in a $4.1 million total adjustment, compared to 4.1% at December 31, 2024, which resulted in a $3.8 million total adjustment.
We have also provided additional qualitative adjustments, or management overlays, as of September 30, 2025 as management believes there are still significant risks impacting certain categories of our loan portfolio. Q-Factor and other qualitative adjustments as of September 30, 2025 are detailed in the table below.
| Q-Factor Adjustment | Model Overlays | Office Building Overlays | Down-Side Scenario Overlay | Credit Concentration Overlays | Consumer Overlay | Total | |||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | 2,333 | $ | — | $ | — | $ | 22,989 | $ | 8,069 | $ | — | $ | 33,391 | |||||||||||||||||||||||||||||||||
| Energy | 174 | — | — | — | 3,180 | — | 3,354 | ||||||||||||||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||||||||||||||||||
| Owner occupied | 504 | 30,171 | — | — | 1,146 | — | 31,821 | ||||||||||||||||||||||||||||||||||||||||
| Non-owner occupied | 208 | 34,895 | 14,075 | — | 924 | — | 50,102 | ||||||||||||||||||||||||||||||||||||||||
| Construction and land | 52 | 39,071 | 2,032 | — | 376 | — | 41,531 | ||||||||||||||||||||||||||||||||||||||||
| Consumer real estate | 767 | — | — | — | — | — | 767 | ||||||||||||||||||||||||||||||||||||||||
| Consumer and other | 90 | — | — | — | — | 4,521 | 4,611 | ||||||||||||||||||||||||||||||||||||||||
| Total | $ | 4,128 | 4128 | $ | 104,137 | $ | 16,107 | $ | 22,989 | $ | 13,695 | $ | 4,521 | $ | 165,577 | ||||||||||||||||||||||||||||||||
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Model overlays are qualitative adjustments to address the effects of risks not captured within our commercial real estate credit loss models. These adjustments are determined based upon minimum reserve ratios for our commercial real estate loans. In the case of our commercial real estate - owner occupied loan portfolio, we determined a minimum reserve ratio is appropriate to address the effect of the model's over-sensitivity to positive changes in certain economic variables. After analysis and benchmarking against peer bank data, we believe the modeled results may be overly optimistic and not appropriately capturing downside risk. As such, we determined that the appropriate forecasted loss rate for our owner-occupied commercial real estate loan portfolio should be more closely aligned with that of our commercial and industrial loan portfolio. In the case of our commercial real estate - non-owner occupied and commercial real estate - construction loan portfolios, we determined minimum reserve ratios are appropriate as we believe the modeled results are not appropriately capturing the downside risk associated with our borrowers' ability to access the capital markets for the sale or refinancing of investor real estate and assets currently under construction. We believe access to capital may be impaired for a significant amount of time. Accordingly, this would require secondary sources of liquidity and capital to support completed projects that may take considerably longer to stabilize than originally underwritten. Furthermore, most of our non-owner occupied and construction loans are originated with floating interest rates. As a result, these borrowers have been significantly impacted by the most recent cycle of rising interest rates as decreases in short-term rates have come at a slower pace. Furthermore, longer-term rates are increasing as investors demand term and risk premiums at the long end of the yield curve.
Office building overlays are qualitative adjustments to address longer-term concerns over the utilization of commercial office space which could impact the long-term performance of some types of office properties within our commercial real estate loan portfolio. These adjustments are determined based upon minimum reserve ratios for loans within our commercial real estate - non-owner occupied and commercial real estate - construction loan portfolios that have risk grades of 8 or worse.
The down-side scenario overlay is a qualitative adjustment for our commercial and industrial loan portfolio to address the significant risk of economic recession as a result of inflation; tariffs and other protectionist trade policies; rising interest rates; labor shortages; disruption in financial markets and global supply chains; further oil price volatility; and the current or anticipated impact of global wars/military conflicts, terrorism, or other geopolitical events. Factors such as these are outside of our control but nonetheless affect customer income levels and could alter anticipated customer behavior, including borrowing, repayment, investment, and deposit practices. To determine this qualitative adjustment, we use an alternative, more pessimistic economic scenario to forecast the macroeconomic variables used in our models. As of September 30, 2025, we used the Moody’s Analytics S3 Alternative Scenario Downside - 90th Percentile. In modeling expected credit losses using this scenario, we also assume each non-classified loan within our modeled loan pools is downgraded by one risk grade level. The qualitative adjustment is based upon the amount by which the alternative scenario modeling results exceed those of the primary scenario used in estimating credit loss expense, adjusted based upon management's assessment of the probability that this more pessimistic economic scenario will occur.
Credit concentration overlays are qualitative adjustments based upon statistical analysis to address relationship exposure concentrations within our loan portfolio. Variations in loan portfolio concentrations over time cause expected credit losses within our existing portfolio to differ from historical loss experience. Given that the allowance for credit losses on loans reflects expected credit losses within our loan portfolio and the fact that these expected credit losses are uncertain as to nature, timing and amount, management believes that segments with higher concentration risk are more likely to experience a high loss event. Due to the fact that a significant portion of our loan portfolio is concentrated in large credit relationships and because of large, concentrated credit losses in recent years, management made the qualitative adjustments detailed in the table above to address the risk associated with such a relationship deteriorating to a loss event.
The consumer overlay is a qualitative adjustment for our consumer and other loan portfolio to address the risk associated with the level of unsecured loans within this portfolio and other risk factors. Unsecured consumer loans have an elevated risk of loss in times of economic stress as these loans lack a secondary source of repayment in the form of hard collateral. This adjustment was determined by analyzing our consumer loan charge-off trends as well as those of the general banking industry. Management deemed it appropriate to consider an additional overlay to the modeled forecasted losses for the unsecured consumer portfolio.
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As of December 31, 2024, we provided qualitative adjustments, as detailed in the table below. Further information regarding these qualitative adjustments is provided in our 2024 Form 10-K.
| Q-Factor Adjustment | Model Overlays | Office Building Overlays | Down-Side Scenario Overlay | Credit Concentration Overlays | Consumer Overlay | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | 2,067 | $ | — | $ | — | $ | 13,732 | $ | 6,836 | $ | — | $ | 22,635 | ||||||||||||||||||||||||||||||||||||
| Energy | 159 | — | — | — | 3,164 | — | 3,323 | |||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Owner occupied | 566 | 26,699 | — | — | 1,003 | — | 28,268 | |||||||||||||||||||||||||||||||||||||||||||
| Non-owner occupied | 252 | 34,522 | 13,365 | — | 1,186 | — | 49,325 | |||||||||||||||||||||||||||||||||||||||||||
| Construction | 46 | 41,232 | 5,772 | — | 388 | — | 47,438 | |||||||||||||||||||||||||||||||||||||||||||
| Consumer real estate | 620 | — | — | — | — | — | 620 | |||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | 95 | — | — | — | — | 3,000 | 3,095 | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 3,805 | $ | 102,453 | $ | 19,137 | $ | 13,732 | $ | 12,577 | $ | 3,000 | $ | 154,704 | ||||||||||||||||||||||||||||||||||||
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.
| Credit Loss Expense (Benefit) | Net (Charge-Offs) Recoveries | Average Loans | Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans | ||||||||||||||||||||
| Three months ended: | |||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||
| Commercial and industrial | $ | 2,669 | $ | (1,486) | $ | 6,204,484 | (0.10) | % | |||||||||||||||
| Energy | (2,343) | 353 | 1,287,431 | 0.11 | |||||||||||||||||||
| Commercial real estate | 86 | 6 | 10,117,183 | — | |||||||||||||||||||
| Consumer real estate | 3,115 | (1,463) | 3,399,070 | (0.17) | |||||||||||||||||||
| Consumer and other | 5,480 | (3,999) | 443,565 | (3.58) | |||||||||||||||||||
| Total | $ | 9,007 | $ | (6,589) | $ | 21,451,733 | (0.12) | ||||||||||||||||
| September 30, 2024 | |||||||||||||||||||||||
| Commercial and industrial | $ | 4,697 | $ | (2,675) | $ | 6,039,403 | (0.18) | % | |||||||||||||||
| Energy | 146 | 490 | 1,087,931 | 0.18 | |||||||||||||||||||
| Commercial real estate | 2,791 | 14 | 9,668,485 | — | |||||||||||||||||||
| Consumer real estate | 3,838 | (1,893) | 2,830,519 | (0.27) | |||||||||||||||||||
| Consumer and other | 4,990 | (5,576) | 457,583 | (4.85) | |||||||||||||||||||
| Total | $ | 16,462 | $ | (9,640) | $ | 20,083,921 | (0.19) | ||||||||||||||||
| Nine months ended: | |||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||
| Commercial and industrial | $ | 17,165 | $ | (8,067) | $ | 6,118,906 | (0.18) | % | |||||||||||||||
| Energy | (2,428) | 835 | 1,220,374 | 0.09 | |||||||||||||||||||
| Commercial real estate | 2,439 | (4,629) | 10,051,961 | (0.06) | |||||||||||||||||||
| Consumer real estate | 7,365 | (3,112) | 3,273,373 | (0.13) | |||||||||||||||||||
| Consumer and other | 12,960 | (12,458) | 438,733 | (3.80) | |||||||||||||||||||
| Total | $ | 37,501 | $ | (27,431) | $ | 21,103,347 | (0.17) | ||||||||||||||||
| September 30, 2024 | |||||||||||||||||||||||
| Commercial and industrial | $ | 13,625 | $ | (7,055) | $ | 6,067,302 | (0.16) | % | |||||||||||||||
| Energy | (6,668) | 975 | 1,009,783 | 0.13 | |||||||||||||||||||
| Commercial real estate | 12,304 | (77) | 9,415,694 | — | |||||||||||||||||||
| Consumer real estate | 7,819 | (3,705) | 2,662,059 | (0.19) | |||||||||||||||||||
| Consumer and other | 16,768 | (16,853) | 463,031 | (4.86) | |||||||||||||||||||
| Total | $ | 43,848 | $ | (26,715) | $ | 19,617,869 | (0.18) | ||||||||||||||||
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We recorded a net credit loss expense related to loans totaling $37.5 million for the nine months ended September 30, 2025 compared to $43.8 million during the same period in 2024. Net credit loss expense/benefit for each portfolio segment reflects the amount needed to adjust the allowance for credit losses allocated to that segment to the level of expected credit losses determined under our allowance methodology after net charge-offs have been recognized. The net credit loss expense related to loans during the first nine months of 2025 primarily reflects an increase in expected credit losses associated with commercial and industrial loans primarily related to increases in modeled expected credit losses and model overlays partly offset by a decrease in specific allocations on individually assessed loans; an increase in the volume of consumer real estate loans, which resulted in an increase in modeled expected credit losses for such loans; and an increase in the level of charge-offs related to commercial real estate loans. The net credit loss expense related to loans during the first nine months of 2025 also reflects recent charge-off trends particularly related to commercial and industrial loans and consumer loans (overdrafts). In 2025, we implemented new tools and enhanced internal procedures that are designed to identify fraudulent activity more accurately and more rapidly than in the past. As a result, we began writing-off deposit accounts that were overdrawn as a result of fraudulent activity directly to fraud expense, which is included in other non-interest expense in the accompanying consolidated income statements, rather than as charge-offs through the allowance for credit losses on loans. No prior period amounts were reclassified in accordance with these new procedures as management determined such amounts were not significant to the prior financial statements.
The ratio of the allowance for credit losses on loans to total loans was 1.31% at September 30, 2025 compared to 1.30% December 31, 2024. Management believes the recorded amount of the allowance for credit losses on loans is appropriate based upon management’s best estimate of current expected credit losses within the existing portfolio of loans. Should any of the factors considered by management in making this estimate change, our estimate of current expected credit losses could also change, which could affect the level of future credit loss expense related to loans.
Allowance for Credit Losses - Off-Balance-Sheet Credit Exposures. The allowance for credit losses on off-balance-sheet credit exposures totaled $47.2 million and $51.9 million at September 30, 2025 and December 31, 2024, respectively. The level of the allowance for credit losses on off-balance-sheet credit exposures depends upon the volume of outstanding commitments, underlying risk grades, the expected utilization of available funds and forecasted economic conditions impacting our loan portfolio. The allowance for credit losses on off-balance-sheet credit exposures at December 31, 2024 was also impacted by specific allocations related to amounts available under a revolving line of credit and outstanding letters of credit for a commercial and industrial borrower that was evaluated for expected credit losses on an individual basis. The specific allocations totaled $4.3 million at December 31, 2024. We also recognized specific allocations for funded loans to this borrower $7.2 million at December 31, 2024. We recognized a net credit loss benefit related to off-balance-sheet credit exposures totaling $4.7 million during the nine months ended September 30, 2025, compared to a net credit loss expense of $5.0 million during the same period in 2024. Our policies and methodology used to estimate the allowance for credit losses on off-balance-sheet credit exposures are further described in our 2024 Form 10-K.
Capital and Liquidity
Capital. Shareholders’ equity totaled $4.5 billion at September 30, 2025 and $3.9 billion at December 31, 2024. Sources of capital during the nine months ended September 30, 2025 included net income of $482.3 million; other comprehensive income, net of tax, of $327.6 million; $13.2 million related to stock-based compensation; and $7.9 million in proceeds from stock option exercises. Uses of capital during the nine months ended September 30, 2025 included $196.3 million of dividends paid on preferred and common stock and $72.5 million of treasury stock purchases.
The accumulated other comprehensive income/loss component of shareholders’ equity totaled a net, after-tax, unrealized loss of $924.4 million at September 30, 2025, compared to a net, after-tax, unrealized loss of $1.3 billion at December 31, 2024. The decrease in the net, after-tax, unrealized loss was primarily due to a $326.9 million net, after-tax, increase 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 in regulatory capital. Accordingly, amounts reported as accumulated other comprehensive income/loss do not increase or reduce regulatory capital and are not included in the calculation of our regulatory capital ratios. In connection with the adoption of ASC 326 on January 1, 2020, we also elected to exclude, for a transitional period, the effects of credit loss accounting under CECL in the calculation of our regulatory capital and regulatory capital ratios. The transitional period ended on December 31, 2024. Regulatory agencies for banks and bank holding companies utilize capital guidelines designed to measure capital and take into consideration the risk inherent in both on-balance-sheet and off-balance-sheet items. See Note 6 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report.
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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 may be impacted by certain restrictions described in Note 6 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report.
| 2025 | 2024 | ||||||||||||||||||||||
| Dividends Per Share | Dividend Payout Ratio | Dividends Per Share | Dividend Payout Ratio | ||||||||||||||||||||
| 1st quarter | $ | 0.95 | 41.3 | % | $ | 0.92 | 44.6 | % | |||||||||||||||
| 2nd quarter | 1.00 | 41.8 | 0.92 | 41.6 | |||||||||||||||||||
| 3rd quarter | 1.00 | 37.5 | 0.95 | 42.3 | |||||||||||||||||||
| Year-to-date | $ | 2.95 | 40.1 | $ | 2.79 | 42.8 | |||||||||||||||||
Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and provide management the ability to repurchase shares of our common stock opportunistically in instances where management believes the market price undervalues our company. Such plans also provide us with the ability to repurchase shares of common stock that can be used to satisfy obligations related to stock compensation awards in order to mitigate the dilutive effect of such awards. For additional details, see Note 6 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements and Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds, each included elsewhere in this report.
Liquidity. As more fully discussed in our 2024 Form 10-K, our liquidity position is continuously monitored, and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs. Our principal source of funding has been our customer deposits, supplemented by our short-term and long-term borrowings as well as maturities of securities and loan amortization. As of September 30, 2025, we had approximately $7.3 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, 2025, based upon available, pledgeable collateral, our total borrowing capacity with the FHLB was approximately $6.8 billion. Furthermore, at September 30, 2025, we had approximately $12.8 billion in securities that were available to pledge and could be used to support additional borrowings, as needed, through repurchase agreements or the Federal Reserve discount window.
Since Cullen/Frost is a holding company and does not conduct operations, its primary sources of liquidity are dividends upstreamed from Frost Bank and borrowings from outside sources. Banking regulations may limit the amount of dividends that may be paid by Frost Bank. See Note 6 - Capital and Regulatory Matters in the accompanying notes to consolidated financial statements included elsewhere in this report regarding such dividends. At September 30, 2025, Cullen/Frost had liquid assets, primarily consisting of cash on deposit at Frost Bank, totaling $314.0 million.
Accounting Standards Updates
See Note 16 - Accounting Standards Updates in the accompanying notes to consolidated financial statements included elsewhere in this report for details of recently issued accounting pronouncements and their expected impact on our financial statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The disclosures set forth in this item are qualified by the section captioned “Forward-Looking Statements and Factors that Could Affect Future Results” included in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report and other cautionary statements set forth elsewhere in this report.
Refer to the discussion of market risks included in Item 7A. Quantitative and Qualitative Disclosures About Market Risk in the 2024 Form 10-K. There has been no significant change in the types of market risks we face since December 31, 2024.
We utilize an earnings simulation model as the primary quantitative tool in measuring the amount of interest rate risk associated with changing market rates. The model quantifies the effects of various interest rate scenarios on projected net interest income and net income over the next 12 months. The model measures the impact on net interest income relative to a flat-rate case scenario of hypothetical fluctuations in interest rates over the next 12 months. These simulations incorporate assumptions regarding balance sheet growth and mix, pricing and the repricing and maturity characteristics of the existing and projected balance sheet. The impact of interest rate derivatives, such as interest rate swaps, caps, and floors, is also included in the model. Other interest rate-related risks such as prepayment, basis and option risk are also considered.
Our model simulations as of September 30, 2025 indicate that our projected balance sheet is slightly less asset sensitive in comparison to our balance sheet as of December 31, 2024. For modeling purposes, as of September 30, 2025, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of 1.3% and 2.7%, respectively, relative to the flat-rate case over the next 12 months, while 100 and 200 basis point ratable decreases in interest rates would result in negative variances in net interest income of 1.2% and 2.8%, respectively, relative to the flat-rate case over the next 12 months. For modeling purposes, as of December 31, 2024, the model simulations projected that 100 and 200 basis point ratable increases in interest rates would result in positive variances in net interest income of 1.5% and 2.8%, respectively, relative to the flat-rate case over the next 12 months, while 100 and 200 basis point ratable decreases in interest rates would result in negative variances in net interest income of 1.1% and 2.2%, respectively, relative to the flat-rate case over the next 12 months.
We do not currently pay interest on a significant portion of our commercial demand deposits. Any interest rate that would ultimately be paid on these commercial demand deposits would likely depend upon a variety of factors, some of which are beyond our control. Our September 30, 2025 and December 31, 2024, model simulations did not assume any payment of interest on commercial demand deposits (those not already receiving an earnings credit). Management believes, based on our experience during the last interest rate cycle, that it is less likely we will pay interest on these deposits as rates increase.
As of September 30, 2025, the effects of a 200 basis point increase and a 200 basis point decrease in interest rates on our derivative holdings would not result in a significant variance in our net interest income.
The effects of hypothetical fluctuations in interest rates on our securities classified as “trading” under ASC Topic 320, “Investments—Debt and Equity Securities,” are not significant, and, as such, separate quantitative disclosure is not presented.
Item 4. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was conducted by management, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report. No change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the last fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Part II. Other Information
Item 1. Legal Proceedings
We are subject to various claims and legal actions that have arisen in the course of conducting business. Management does not expect the ultimate disposition of these matters to have a material adverse impact on our financial statements.
Item 1A. Risk Factors
There has been no material change in the risk factors disclosed under Item 1A. of our 2024 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information with respect to purchases we made or were made on our behalf or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the three months ended September 30, 2025. Dollar amounts in thousands.
| Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plan | Maximum Number of Shares (or Approximate Dollar Value) That May Yet Be Purchased Under the Plan at the End of the Period (1) | |||||||||||||||||||
| July 1, 2025 to July 31, 2025 | 203 | (2) | $ | 138.74 | — | $ | 150,000 | ||||||||||||||||
| August 1, 2025 to August 31, 2025 | 315,876 | (2) | 124.85 | 315,876 | 110,564 | ||||||||||||||||||
| September 1, 2025 to September 30, 2025 | 233,447 | (2) | 127.79 | 233,352 | 80,743 | ||||||||||||||||||
| Total | 549,526 | 549,228 | |||||||||||||||||||||
(1)On January 29, 2025, Cullen/Frost announced that our board of directors authorized a $150.0 million stock repurchase program, allowing us to repurchase shares of our common stock over a one-year period expiring on January 28, 2026.
(2)Includes repurchases made in connection with the vesting of certain stock compensation awards.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
Insider Trading Policies and Procedures. Our board of directors has adopted the Cullen/Frost Bankers, Inc. Insider Trading Policy which governs the purchase, sale, and/or other dispositions of our securities by directors, officers and employees, or by Cullen/Frost itself. This policy has been reasonably designed to promote compliance with insider trading laws, rules and regulations, and applicable NYSE listing standards.
Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements. None
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Item 6. Exhibits
(a) Exhibits
| Exhibit Number | Description | ||||
| 10.1 | Form of Restricted Stock Unit Award Agreement - 2024 Equity Incentive Plan | ||||
| 10.2 | Form of Performance Stock Unit Award Agreement - 2025 | ||||
| 31.1 | Rule 13a-14(a) Certification of the Corporation's Chief Executive Officer | ||||
| 31.2 | Rule 13a-14(a) Certification of the Corporation's Chief Financial Officer | ||||
32.1(1) | Section 1350 Certification of the Corporation's Chief Executive Officer | ||||
32.2(1) | Section 1350 Certification of the Corporation's Chief Financial Officer | ||||
101.INS(2) | Inline XBRL Instance Document | ||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | ||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||
| 101.LAB | InlineXBRL Taxonomy Extension Label Linkbase Document | ||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||
104(3) | Cover Page Interactive Data File | ||||
(1)This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
(2)The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
(3)Formatted as Inline XBRL and contained within the Inline XBRL Instance Document in Exhibit 101.
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Table of Contents
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Cullen/Frost Bankers, Inc. | |||||||||||||||||
| (Registrant) | |||||||||||||||||
| Date: | October 30, 2025 | By: | /s/ Daniel J. Geddes | ||||||||||||||
| Daniel J. Geddes | |||||||||||||||||
| Group Executive Vice President | |||||||||||||||||
| and Chief Financial Officer | |||||||||||||||||
| (Principal Financial Officer) | |||||||||||||||||
| Date: | October 30, 2025 | By: | /s/ Matthew B. Henson | ||||||||||||||
| Matthew B. Henson | |||||||||||||||||
| Executive Vice President | |||||||||||||||||
| and Chief Accounting Officer | |||||||||||||||||
| (Principal Accounting Officer) | |||||||||||||||||
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FAQ
How did Cullen/Frost (CFR) perform in Q3 2025?
Net income was $174.4 million versus $146.5 million a year ago; diluted EPS was $2.67 versus $2.24.
What was CFR’s net interest income in Q3 2025?
Net interest income was $441.6 million, up from $404.3 million in Q3 2024.
What were deposits and loans at quarter-end for CFR?
Total deposits were $42.52 billion; net loans were $21.17 billion as of September 30, 2025.
How did credit costs change for CFR?
Credit loss expense was $6.8 million in Q3 2025, down from $19.4 million in Q3 2024.
What moved accumulated other comprehensive income (AOCI)?
Quarterly OCI of $216.1 million reflected higher fair values in the AFS portfolio, improving AOCI to $(924.4) million.
Did CFR return capital to shareholders in Q3 2025?
Yes. It repurchased 549,526 shares for $69.8 million and paid a $1.00 common dividend per share.
How many CFR shares were outstanding after quarter-end?
As of October 27, 2025, there were 63,941,101 common shares outstanding.
Cullen Frost Bankers Inc
NYSE:CFR
CFR Rankings
CFR Latest News
Oct 30, 2025
CULLEN/FROST REPORTS THIRD QUARTER RESULTS
Jul 31, 2025
CULLEN/FROST REPORTS SECOND QUARTER RESULTS
May 1, 2025
CULLEN/FROST REPORTS FIRST QUARTER RESULTS
CFR Latest SEC Filings
Oct 31, 2025
[13F-HR] CULLEN/FROST BANKERS, INC. SEC Filing
CFR Stock Data
7.91B
58.96M
7.64%
88.15%
4.56%
Banks - Regional
National Commercial Banks
United States
SAN ANTONIO