Cullen/Frost Bankers Q1 2026 Earnings Call Transcript

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April 30, 2026

Key Takeaways

  • Positive Sentiment: Q1 results — Net income was $169.3 million (up 13.4% Y/Y) and EPS was $2.65 (up 15.2% Y/Y), with ROA 1.32% and ROE 15.15%.
  • Positive Sentiment: Branch expansion is driving durable organic growth — expansion branches now hold $2.9B in loans, $3.6B in deposits, ~95,000 new households and contributed $0.14 (5.6%) of EPS; management plans 10–12 new branches for the rest of 2026.
  • Positive Sentiment: Commercial pipeline strength — gross pipeline hit $6.8B (up 55% QoQ) and the 90‑day weighted pipeline reached almost $2.0B (up 38% QoQ), both all‑time highs.
  • Negative Sentiment: Asset‑quality watch — NPAs and net charge‑offs remained low, but total problem loans rose to $989M (from $857M), driven by risk‑grade 10 loans; management expects sizable resolutions in Q2–Q3.
  • Neutral Sentiment: Investment and funding picture — unrealized losses on AFS securities increased to $1.15B while portfolio yields ticked up and NIM rose to 3.74%; deposits declined seasonally and the cost of interest‑bearing deposits fell to 1.55%.
AI Generated. May Contain Errors.
Earnings Conference Call
Cullen/Frost Bankers Q1 2026
00:00 / 00:00

Transcript Sections

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Operator

Greetings. Welcome to Cullen/Frost Bankers, Inc. first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to A.B. Mendez, Senior Vice President and Director of Investor Relations. Thank you. You may begin.

A.B. Mendez
A.B. Mendez
SVP and Director of Investor Relations at Cullen/Frost Bankers

Thanks, Sherry. This afternoon's conference call will be led by Phil Green, Chairman and CEO, and Dan Geddes, Group Executive Vice President and CFO. Before I turn the call over to Phil and Dan, I need to take a moment to address the safe harbor provisions. Some of the remarks made today will constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 as amended. We intend such statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 as amended. Please see the last page of text in this morning's earnings release for additional information about the risk factors associated with these forward-looking statements. If needed, a copy of the release is available on our website or by calling the investor relations department at 210-220-5234.

A.B. Mendez
A.B. Mendez
SVP and Director of Investor Relations at Cullen/Frost Bankers

At this time, I'll turn the call over to Phil.

Phil Green
Phil Green
Chairman and CEO at Cullen/Frost Bankers

Thanks, A.B. Mendez. Good afternoon, everyone, thanks for joining us. As is our practice, today we'll review the first quarter of 2026 results for Cullen/Frost, our Chief Financial Officer, Dan Geddes, will provide additional commentary and guidance updates before we take your questions. The first quarter of 2026, Cullen/Frost earned $169.3 million, an increase of 13.4% compared to the $149.3 million earned in the first quarter of last year. Per share earnings for the first quarter were $2.65, that was an increase of 15.2% from the $2.30 in the first quarter last year.

Phil Green
Phil Green
Chairman and CEO at Cullen/Frost Bankers

Our return on average assets and average common equity in the first quarter were 1.32% and 15.15% respectively. That compares with 1.19% and 15.54% in the first quarter of last year. Average deposits in the first quarter were $42.2 billion, an increase from the $41.7 billion in the same quarter last year. Average loans grew to $22 billion in the first quarter, up from $20.8 billion in the first quarter of last year. In past quarters, we've discussed the success of our organic branch expansion strategy in the Houston, Dallas, and Austin regions.

Phil Green
Phil Green
Chairman and CEO at Cullen/Frost Bankers

I thought it would be helpful to point out that those results have excluded the successes of a growing number of new locations that we have opened in markets outside of those announced regions. For example, since the initial launch of our first Houston expansion in late 2018, we've actually opened eight of these financial centers outside of those announced regions. That's the same number of locations we opened in our excuse me, in our Houston 2.0 expansion. Going forward, we'll incorporate all the new locations as we talk about the performance of our branch expansion strategy, and Dan will talk more about these numbers in his prepared remarks. Turning now to our consumer line of business, our consumer bank earned the J.D. Power Award for customer satisfaction in consumer banking in Texas for the 17th consecutive year.

Phil Green
Phil Green
Chairman and CEO at Cullen/Frost Bankers

While we don't do this for the awards, this sustained consistency in delivering excellence signals that our culture remains strong even after tripling our locations in Dallas, doubling our locations in Houston, and doubling our footprint in the Austin region. It also sends a powerful message to prospects that Frost is here to help them. In an extremely competitive banking market with many new entrants, our industry-leading customer experience continues to drive what we believe is some of the strongest organic growth results in the industry. Year-over-year, consumer checking households grew 5.3%, and year-over-year consumer loan balances increased 19%. Consumer loan growth totaled $154 million in the first quarter alone, which is nearly double Q1 2025 growth.

Phil Green
Phil Green
Chairman and CEO at Cullen/Frost Bankers

This success was driven by our mortgage products, which grew $124 million in the quarter and reached $719 million in total outstanding balances. Looking at consumer deposits.

Phil Green
Phil Green
Chairman and CEO at Cullen/Frost Bankers

[Break]

Operator

Please continue to stand by. The conference will rejoin in m-momentarily. Please continue to stand by. Thank you. Please continue to stand by. The conference will commence momentarily. Please c-continue to stand by.

Operator

Ladies and gentlemen, I apologize for the technical difficulties. I will now like to turn the call back over to management.

Phil Green
Phil Green
Chairman and CEO at Cullen/Frost Bankers

Thank you. We're sorry for the delay. I'll start back approximately where I was, or believe I was, from when we had the technical difficulty. We were looking at consumer deposits, and I wanted to look at what was happening with consumer checking and savings balances, because those two categories, to me, are less interest sensitive and reflect, I think, what's happening with households. If I adjust out the loss of balances from one extremely large account in the fourth quarter as a result of activities surrounding the administration of this account owner's estate, consumer checking and savings balances increased 3% and 2% respectively on a linked-quarter basis. Our commercial business continued to perform well, and I am encouraged by the momentum we're seeing in this segment.

Phil Green
Phil Green
Chairman and CEO at Cullen/Frost Bankers

For example, looking at new relationships, this marked the fourth consecutive quarter where we delivered over 1,000 new relationships. The 1,016 we generated represents our highest first quarter performance on record. 46% of our new relationships came from the too big to fail banks, and 8% came from what I'll call disruption, represented by organizations going through an acquisition. Looking further at our loan pipelines, our gross pipeline, what I'll call new opportunities, was $6.8 billion and represented a 55% increase over the previous quarter and represented our all-time high. It reflected origination strength across regions, segments, and deal sizes. Our 90-day weighted pipeline increased 38% from the prior quarter and at almost $2 billion represented our highest weighted pipeline on record.

Phil Green
Phil Green
Chairman and CEO at Cullen/Frost Bankers

Our overall credit quality remains good by historical standards, with net charge-offs and non-performing assets both at healthy levels. Non-performing assets were $73 million at the end of the first quarter and were in line with the $72 million from last quarter and $85 million a year ago. The year-end non-performing asset figure represents 33 basis points of period in loans and 14 basis points of total assets, both the same as last quarter. Net charge-offs for the first quarter were $5.8 million compared to the same $5.8 million figure last quarter and $9.7 million a year ago. Annualized net charge-offs for the first quarter represent 11 basis points of average loans, the same as last quarter and down from 19 basis points a year ago.

Phil Green
Phil Green
Chairman and CEO at Cullen/Frost Bankers

Total problem loans, which we define as risk grade 10 or higher, otherwise known as OAEM, totaled $989 million at the end of the first quarter, up from $857 million last quarter and $889 million a year ago. All of the net increase can be attributed to loans in the risk grade 10 category. We expect to see some large resolutions in the second and third quarters. Overall, I continue to be pleased with these results and the success of our people expanding our business while providing world-class service, as evidenced by the awards we continue to receive. With that, I'll turn it over to Dan for some additional insights.

Dan Geddes
Dan Geddes
Group EVP and CFO at Cullen/Frost Bankers

Thank you, Phil. Let me start off by giving some additional color on our branch expansion growth. As Phil mentioned, this performance now includes eight additional branches open since we began Houston 1.0, outside of our announced expansions in Houston, Dallas and Austin. During the first quarter, our branch expansion delivered $0.14 or 5.6% of EPS accretion. We continue to be pleased with the volumes we've been able to achieve. On a year-over-year basis, average loans grew 33% and represent 12.7% of loans, up from 10.1% a year ago, while average deposits grew 21%, representing 8.3% of deposits versus 7% in the same period last year.

Dan Geddes
Dan Geddes
Group EVP and CFO at Cullen/Frost Bankers

The expansion branches have now grown to $2.9 billion in loans, $3.6 billion in deposits, and have added approximately 95,000 new households. As we have said in the past, our organic growth strategy is both durable and scalable. We opened two new locations in the first quarter, one in the Austin region and one in the Dallas region. Our current plan is to open an additional 10-12 branches over the balance of 2026. Moving to the first quarter financial performance for the company. Our net interest margin percentage was 3.74% for the quarter, up 8 basis points from the 3.66% reported last quarter.

Dan Geddes
Dan Geddes
Group EVP and CFO at Cullen/Frost Bankers

Lower interest-bearing deposits and repos during the quarter, which negatively impacts net interest income, had a positive impact on net interest margin due to a lower relative spread to the overnight rates. Looking at our investment portfolio, the total investment portfolio averaged $19.9 billion during the first quarter, flat with the previous quarter. Investment purchases during the quarter totaled $2.3 billion, consisting of $1.23 billion of treasuries yielding 3.66%, $618 million of agency MBS securities yielding 5.09%, and $423 million of municipals yielding 5.71% on a tax equivalent basis.

Dan Geddes
Dan Geddes
Group EVP and CFO at Cullen/Frost Bankers

Maturities during the quarter included $400 million of treasuries with an average yield of 3.44%, $540 million of municipals at an average tax-equivalent yield of 3.53%, and $430 million of agency MBS paydowns. The net unrealized loss on available-for-sale portfolio at the end of the quarter was $1.15 billion, compared to $1.04 billion reported at the end of the previous quarter. The tax-equivalent yield on the total investment portfolio during the quarter was 3.85%, up 3 basis points from the previous quarter. The taxable portfolio averaged $12.7 billion, flat with the prior quarter, and had a yield of 3.39%, up slightly from 3.38% in the prior quarter.

Dan Geddes
Dan Geddes
Group EVP and CFO at Cullen/Frost Bankers

Our tax-exempt municipal portfolio averaged $7.1 billion, down $76 million from the prior quarter, and had a tax equi-taxable equivalent yield of 4.73%, up 9 basis points from the prior quarter. At the end of the first quarter, approximately 69% of the municipal portfolio was pre-refunded or PSF insured. The duration of the investment portfolio at the end of the fourth quarter was 5.2 years, down from 5.3 years at the end of the fourth quarter. Looking at our funding sources, on a linked quarter basis, average total deposits of $42.2 billion were down $1.1 billion from the previous quarter. The seasonal decrease was about 30% non-interest-bearing and 70% interest-bearing.

Dan Geddes
Dan Geddes
Group EVP and CFO at Cullen/Frost Bankers

The cost of interest-bearing deposits in the first quarter was 1.55%, down 20 basis points from 1.75% in the first quarter. Customer repos for the first quarter averaged $4.2 billion, down $426 million from the fourth quarter. The cost of customer repos for the quarter was 2.70%, down 17 basis points from the fourth quarter. Looking at non-interest income and expenses, I'll point out a couple of seasonal and one-time items impacting the linked quarter results. Regarding non-interest income, insurance commissions and fees were up $6.9 million. Recall that the first quarter is a seasonally strong quarter. Other income was down $4 million as we received our annual Visa volume bonus of $5.4 million in the fourth quarter.

Dan Geddes
Dan Geddes
Group EVP and CFO at Cullen/Frost Bankers

Salaries and wages were down $16.3 million compared to the linked quarter. Last quarter included approximately $4.2 million in one-time expenses related to our payroll transition from bi-monthly to bi-weekly. Additionally, the prior quarter included $7.2 million in higher stock compensation related to our stock awards granted in October of each year, some of which, by their nature, require immediate expense recognition. FDIC deposit expense was up $8.6 million compared to a quarter ago as we reversed $8.4 million of our special FDIC insurance accrual in the fourth quarter of last year. Regarding our guidance for full year 2026, our current outlook includes 125 basis point cut for the Fed funds rate in the fourth quarter. We expect net interest-

Executives
    • A.B. Mendez
      A.B. Mendez
      SVP and Director of Investor Relations
    • Dan Geddes
      Dan Geddes
      Group EVP and CFO
    • Phil Green
      Phil Green
      Chairman and CEO
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