Cullen/Frost Bankers Q2 Earnings Call Highlights

Key Points

• Strong second-quarter performance: Net income rose 9.7% year over year to $170.4 million, while EPS increased 13% to $2.70. Average loans and deposits also grew to $22.6 billion and $42.6 billion, respectively.
• Growth initiatives are gaining traction: Consumer loans increased 20%, the commercial loan pipeline reached a record $2.17 billion, and branch expansion markets generated 53% of total loan growth and 72% of deposit growth. Cullen/Frost plans to open five additional branches in the rest of 2026.
• Management raised its outlook: Full-year net interest income growth is now expected at 4.75%–5.25%, with average loan growth of 7%–8% and lower projected expense growth. Credit metrics were mixed, as criticized loans declined but nonperforming assets rose due largely to a multifamily commercial real estate loan.

Cullen/Frost Bankers NYSE: CFR reported second-quarter 2026 net income of $170.4 million, up 9.7% from $155.3 million a year earlier, as the Texas-focused bank cited loan growth, customer acquisition and expanding fee revenue. Earnings per share rose 13% year over year to $2.70.

Chairman and Chief Executive Officer Phil Green said the company generated a 1.30% return on average assets and a 15.41% return on average common equity during the quarter. Average deposits increased to $42.6 billion from $41.8 billion a year earlier, while average loans rose to $22.6 billion from $21.1 billion.

Consumer and Commercial Growth

Green said consumer checking-account household growth accelerated to 5.7% year over year, compared with 5.3% reported a year earlier. Consumer checking accounts have increased 47% since Frost began its expansion effort in late 2018, and about one-third of its customers are new to the bank since that initiative began, he said.

Consumer loans ended the quarter above $4.5 billion, increasing $751 million, or 20%, from the prior year. Mortgage lending accounted for $533 million of that growth, while second-lien home equity products grew by $198 million. Green said consumer deposits declined 0.7% from the first quarter, primarily reflecting seasonal patterns.

Commercial activity also strengthened. The bank’s 90-day weighted loan pipeline reached a record $2.17 billion, up 11% from the first quarter. About half of the pipeline was commercial and industrial lending and half was commercial real estate, while 62% represented existing customer opportunities.

New loan commitments rose 23% from the first quarter, with growth across C&I, commercial real estate, energy and personal lending. New commercial relationships declined 1% sequentially but remained above 1,000 for the fifth consecutive quarter. Green said market disruption continued to support relationship acquisition, with new relationships from that source up 65% year to date from the same period in 2025.

Branch Expansion Adds Deposits and Loans

Group Executive Vice President and Chief Financial Officer Dan Geddes said the branch expansion program contributed $0.16 per share of earnings, or 5.8% of total EPS, in the second quarter. Expansion branches have grown to $3 billion in loans, $3.7 billion in deposits and more than 100,000 new households.

Average loans from the expansion markets rose 38% year over year and accounted for 53% of the company’s total loan growth. Expansion-market deposits increased 20% and contributed 72% of deposit growth.

The company opened five new locations during the quarter, including branches in the Austin, Dallas, San Antonio and Fort Worth regions. It plans to open another five branches during the remainder of 2026.

Green said the company is seeing greater competitive pressure in lending, particularly on commercial real estate loan structures. Cullen/Frost has been competing on pricing for desirable relationships, he said, but does not plan to sacrifice credit standards to pursue growth. Geddes said competition for deposits has been especially notable on large-balance certificates of deposit and money-market accounts.

Margin, Securities and Updated Outlook

Net interest margin was 3.75% in the second quarter, up 1 basis point from the first quarter. Geddes said the margin benefited from shifting earning assets from lower-yielding Federal Reserve balances into loans and investment securities, partly offset by higher interest-bearing deposit volumes and deposit costs.

The investment portfolio averaged $20.6 billion, up $796 million from the previous quarter. The company purchased $2.2 billion of securities, primarily agency mortgage-backed securities yielding 5.32% and municipal securities yielding 5.57% on a tax-equivalent basis. The portfolio’s taxable-equivalent yield increased 11 basis points sequentially to 3.96%.

Geddes said Cullen/Frost expects to invest about $1 billion more in securities during the second half, generally split between agency and municipal securities. He also pointed to fixed-rate loan and securities repricing as support for net interest income and margin trends.

• Full-year net interest income growth is expected to be 4.75% to 5.25%, compared with prior guidance of 3.5% to 5%.
• Average loan growth is expected to be 7% to 8%, up from prior guidance of 6% to 7%.
• Average deposit growth guidance remained 2% to 3%.
• Net interest margin is expected to improve by about 10 to 13 basis points from the 2025 full-year margin of 3.66%.
• Non-interest expense growth is projected at 4.5% to 5%, lower than prior guidance of 5% to 6%.
• Net charge-offs are expected to range from 15 to 20 basis points of average loans for 2026.

The outlook assumes one 25-basis-point Federal Reserve rate increase in September. Geddes said such an increase would have an estimated impact of roughly $2 million per month.

Credit Quality and Capital Actions

Total criticized loans declined to $917 million at quarter-end from $989 million in both the prior quarter and the year-earlier period. Nonperforming assets increased to $114 million from $73 million in the first quarter, largely due to a $54 million multifamily commercial real estate loan in Austin.

Green said the owners of the property are negotiating a sale and that the company expects a resolution in the third or fourth quarter, with little, if any, impact to the bank. The loan carries an approximately $1.5 million reserve, management said. The rise in nonperforming assets was partly offset by a $20 million paydown on another previously identified nonperforming loan.

Second-quarter net charge-offs were $9.5 million, equal to 17 basis points of average loans on an annualized basis. Geddes said the company views its reserve level as stable, noting that its funded and unfunded allowance represented 1.45% of total loans at quarter-end.

Cullen/Frost repurchased approximately 655,000 shares for $90 million during the second quarter under its $300 million authorized share repurchase plan.

About Cullen/Frost Bankers (NYSE:CFR)

Cullen/Frost Bankers, Inc is the holding company for Frost Bank, a Texas-chartered financial institution whose origins date back to 1868 in San Antonio. As one of the oldest banking organizations in the state, it offers a broad range of services to individuals, small and large businesses, and institutional clients. Core banking activities include commercial lending, deposit services, cash management and trade finance, while consumer products cover residential mortgages, personal lines of credit and home equity loans.

Beyond traditional banking, the company provides comprehensive treasury and equipment leasing solutions tailored to support working capital and capital expenditure requirements.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.